SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission File No. 0-27958
FLANDERS CORPORATION
----------------------------
(Exact name of registrant as specified in its charter)
North Carolina 13-3368271
- - ------------------------------- ------------------------
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization.)
531 Flanders Filters Road, Washington, North Carolina 27889
- - ----------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (919) 946-8081
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
15,938,348 shares common stock par value $.001 as of November 18, 1996
(Title of Class)
<PAGE>
FLANDERS CORPORATION
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1996
PART I - FINANCIAL INFORMATION Page
Item 1 -
Financial Statements
Consolidated Condensed Balance Sheet for September
30, 1996 and December 31, 1995 3
Consolidated Condensed Statements of Operations for the
three months and nine months ended September 30,
1996 and 1995 4
Consolidated Condensed Statements of Shareholders' Equity
for the nine months ended September 30, 1996 and the
year ended December 31, 1995 5
Consolidated Condensed Statements of Cash Flows for the
three months and nine months ended September 30, 1996
and 1995 6
Notes to Consolidated Condensed Financial Statements 7
Item 2 -
Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 18
Item 2 - Changes in Securities 18
Item 3 - Defaults Upon Senior Securities 18
Item 4 - Submission of Matters to a Vote of Security Holders 18
Item 5 - Other Information 18
Pro Forma Financial Statements
Unaudited Pro Forma Balance Sheet for September 30, 1996 19
Unaudited Pro Forma Consolidated Condensed Statement of
Operations for the Nine Months ended September 30, 1996 20
Unaudited Pro Forma Consolidated Condensed Statement of
Operations for the Year Ended December 31, 1995 21
Audited Financial Statements of Precisionaire, Inc. 22
Item 6 - Exhibits and Reports on Form 8-K 37
SIGNATURES 39
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
FLANDERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET<F1>
September 30, December 31,
ASSETS 1996 1995
- - -------------------------------------------------------------- -------------- --------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 2,603,039 $ 2,973,797
Restricted cash (See Note 4) 4,000,005 -
Short-term investments 835,519 -
Receivables:
Trade, less allowance for doubtful accounts of $466,903
at September 30, 1996; $148,000 at December 31, 1995 21,449,645 7,243,557
Other 1,237,603 321,356
Inventories (See Note 2) 10,432,883 2,321,367
Deferred taxes 1,028,285 137,961
Other current assets 739,495 46,586
Total current assets 42,326,474 13,044,624
-------------- --------------
Other assets 925,685 183,542
Intangible assets 12,465,344 -
Property and equipment, net of accumulated depreciation
and amortization of $6,212,398 at September 30, 1996;
$5,590,677 at December 31, 1995 29,769,357 5,301,063
-------------- --------------
$ 85,486,860 $ 18,529,229
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- - -------------------------------------------------------------
Current liabilities
Notes payable $ 1,397,318 $ 3,890,425
Current maturities of long-term debt 881,627 454,181
Accounts payable 12,824,179 3,984,140
Accrued expenses 5,260,832 685,482
-------------- --------------
Total current liabilities 20,363,956 9,014,228
-------------- --------------
Long-term debt, less current maturities 27,752,260 1,306,584
Convertible debt 6,500,000 -
Deferred income taxes 5,069,610 -
Commitments and contingencies - -
Stockholders' equity
Preferred stock, no par value, 10,000,000 shares authorized;
none issued - -
Common stock, $.001 par value; 50,000,000 shares authorized;
issued and outstanding: 15,459,905 at September 30, 1996;
11,434,000 at December 31, 1995 15,460 11,434
Additional paid-in capital (See Note 4, Capital Transactions) 18,793,842 3,418,671
Retained earnings 6,991,732 4,778,312
-------------- --------------
Total stockholders' equity 25,801,034 8,208,417
-------------- --------------
$ 85,486,860 $ 18,529,229
============== ==============
<FN>
<F1>
The Company's Unaudited Consolidated Balance Sheet at September 30, 1996
includes the balance sheet of Precisionaire, Inc. ("Precisionaire") a
company acquired on September 23, 1996. See Note 3 - Acquisitions.
</FN>
</TABLE>
Page 3
<PAGE>
<TABLE>
<CAPTION>
FLANDERS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS<F1>
Three Months ended Nine Months ended
September 30, September 30,
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 14,453,452 $ 9,319,475 $ 40,694,712 $ 28,249,910
Cost of goods sold 10,552,846 6,982,977 30,326,600 20,944,489
-------------- -------------- -------------- --------------
Gross Profit 3,900,606 2,336,498 10,368,112 7,305,421
-------------- -------------- -------------- --------------
Operating expenses 2,440,006 1,669,356 6,988,474 5,221,606
-------------- -------------- -------------- --------------
Operating income 1,460,600 667,142 3,379,638 2,083,815
-------------- -------------- -------------- --------------
Nonoperating income (expense):
Other income (expense) 104,764 (7,826) 497,139 (66,021)
Interest expense (144,913) (129,240) (290,481) (457,522)
-------------- -------------- -------------- --------------
(40,149) (137,066) 206,658 (523,543)
-------------- -------------- -------------- --------------
Income before income taxes 1,420,451 530,076 3,586,296 1,560,272
Income taxes 555,000 224,157 1,372,876 615,631
-------------- -------------- -------------- --------------
Net income $ 865,451 $ 305,919 $ 2,213,420 $ 944,641
============== ============== ============== ==============
Earnings per weighted average common
and common equivalent share
outstanding:
Primary $ 0.05 $ 0.03 $ 0.13 $ 0.10
============== ============== ============== ==============
Fully diluted $ 0.05 $ 0.03 $ 0.13 $ 0.10
============== ============== ============== ==============
Weighted average common and common
equivalent shares outstanding:
Primary 18,685,393 9,693,478 16,396,481 9,693,478
============== ============== ============== ==============
Fully diluted 19,205,086 9,693,478 16,975,351 9,693,478
============== ============== ============== ==============
<FN>
<F1>
The Company's Unaudited Consolidated Condensed Statement of Operations does
not include the statement of operations of Precisionaire for the periods
indicated. See Note 3 and Part II - Item 5 - Other Information, for Certain
Pro Forma Results of the Company and Precisionaire, and the Financial
Statements of Precisionaire.
</FN>
</TABLE>
Page 4
<PAGE>
<TABLE>
<CAPTION>
FLANDERS CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY<F1>
Additional
Common Paid-In Retained
Stock Capital Earnings
-------------- -------------- --------------
<S> <C> <C> <C>
Balance, January 1, 1995 $ 9,643 $ 310,741 $ 3,632,992
Issuance of 378,411 shares of
common stock 378 165,543 -
Issuance of 1,100,000 shares of
common stock related to December 11, 1995
Private Placement 1,100 2,429,004 -
Reverse acquisition of Elite Acquisitions, Inc. 334 - (334)
Purchase and retirement of 21,197 shares of
common stock (21) (11,617) -
Indemnification of claim by Stockholders - 525,000 -
Net income - - 1,145,654
-------------- -------------- --------------
Balance, December 31, 1995 11,434 3,418,671 4,778,312
Issuance of 2,892,760 shares of common stock
related to the Private Offerings 2,893 15,135,604 -
Issuance of 1,036,886 shares of common stock
related to the Acquisitions 1,037 (1,037) -
Issuance of 96,280 shares of common stock
upon exercise of warrants 96 240,604
Net income - - 2,213,420
-------------- -------------- --------------
Balance, September 30, 1996 (unaudited) $ 15,460 $ 18,793,842 $ 6,991,732
============== ============== ==============
<FN>
<F1>
The Company's Consolidated Condensed Statements of Stockholders' Equity does
not include the operations of Precisionaire for the periods indicated. See
Note 3 and Part II - Item 5 - Other Information, for Certain Pro Forma
Results of the Company and Precisionaire, and the Financial Statements of
Precisionaire.
</FN>
</TABLE>
Page 5
<PAGE>
<TABLE>
<CAPTION>
FLANDERS CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS<F1>
(Unaudited)
For the Three Months ended For the Nine Months ended
September 30, September 30,
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES $ 2,081,343 $ 1,130,193 $ (67,386) $ 1,211,091
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash received (25,653,305) - (32,361,260) -
Purchase of equipment (648,909) (83,378) (1,368,188) (783,059)
-------------- -------------- -------------- --------------
NET CASH (USED) BY
INVESTING ACTIVITIES (26,302,214) (83,378) (33,729,448) (783,059)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in revolving credit agreements 10,353,065 (1,749,991) 8,913,413 (591,611)
Proceeds from issuance of convertible debt 6,220,000 - 6,220,000 -
Net change in long-term borrowings 6,548,227 27,890 6,574,171 (19,954)
Proceeds from issuance of common stock 3,296,600 61,433 11,718,492 61,433
Purchase of common stock for retirement - (23,367) - (23,938)
-------------- -------------- -------------- --------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 26,417,892 (1,684,035) 33,426,076 (574,070)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH 2,197,021 (637,220) (370,758) (146,038)
CASH AT BEGINNING OF PERIOD 406,018 (256,356) 2,973,797 (747,538)
-------------- -------------- -------------- --------------
CASH AT END OF PERIOD (See Note 4) $ 2,603,039 $ (893,576) $ 2,603,039 $ (893,576)
============== ============== ============== ==============
CASH PAID FOR TAXES $ 135,000 $ 1,000 $ 889,033 $ 1,000
============== ============== ============== ==============
<FN>
<F1>
The Company's Unaudited Consolidated Condensed Statements of Cash Flows does
not include the statements of cash flows of Precisionaire for the periods
indicated. See Notes 3 and 4 and Part II - Item 5 - Other Information, for
Certain Pro Forma Results of the Company and Precisionaire and the Financial
Statements of Precisionaire.
</FN>
</TABLE>
Page 6
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Interim Financial Statements
Nature of business: Flanders Corporation (the "Company") manufactures and
markets a full range of air filtration products ranging from high performance
laminar flow High Efficiency Particulate Air ("HEPA") filters and charcoal
filters for semiconductor manufacturing facilities, to residential furnace
filters. The Company's air filtration products are utilized by many
industries, including commercial and residential heating, ventilation and air
conditioning systems (commonly known as "HVAC" systems), semiconductors,
ultra-pure materials, biotechnology, pharmaceuticals, synthetics, nuclear
power and nuclear materials.
Although the Company historically has specialized in HEPA and medium
efficiency filters and equipment, the Company began a strategy of growth by
acquisition in December 1995. So far this year, the Company has expanded its
product line through the purchase of three other companies: Charcoal Service
Corporation ("CSC"), Air Seal Filter Housings, Inc. ("Airseal") and
Precisionaire, Inc. ("Precisionaire"). These acquisitions are collectively
referred to herein as the "Acquisitions."
Interim financial statements: The interim financial statements presented
herein are unaudited and have been prepared in accordance with the
instructions to Form 10-Q. These statements should be read in conjunction
with financial statements and notes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1995. The accompanying
financial statements have not been examined by independent accountants in
accordance with generally accepted auditing standards, but in the opinion of
management such financial statements include all adjustments (consisting only
of normal recurring adjustments) necessary to summarize fairly the Company's
financial position, results of operations, and cash flows. The results of
operations and cash flows for the three months and nine months ended September
30, 1996 may not be indicative of the results that may be expected for the
year ending December 31, 1996.
Earnings per Common Share: The computation of earnings per common share and
common share equivalent is done according to the treasury method, which is
based upon the weighted average number of common shares outstanding during the
period. Earnings per common and common equivalent share include the effect of
the stock options and warrants mentioned in Note 5 as if the options and
warrants had been exercised at the date the options and warrants were granted.
The number of common shares outstanding was increased by the number of shares
issuable under the stock options and warrants and this theoretical increase in
the number of common shares was reduced by the number of common shares which
are assumed to have been repurchased with the applicable portion of the
proceeds from the exercise of the options and warrants.
Primary earnings per common and common equivalent share for the three and nine
month periods ended September 30, 1996 and 1995 were calculated as follows:
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
September 30, September 30,
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income $ 865,451 $ 305,919 $ 2,213,420 $ 944,641
Weighted average shares outstanding 13,719,072 9,693,478 12,645,471 9,693,478
Add: exercise of weighted average
warrants and options reduced by the
number of shares purchased with
proceeds 4,966,321 - 3,751,010 -
-------------- -------------- -------------- --------------
Adjusted weighted average shares
outstanding 18,685,393 9,693,478 16,396,481 9,693,478
============== ============== ============== ==============
Net income per common share $ 0.05 $ 0.03 $ 0.13 $ 0.10
============== ============== ============== ==============
</TABLE>
Page 7
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Interim Financial Statements - Continued
Earnings per share - continued. Fully diluted earnings per common and common
equivalent share for the three and nine month periods ended September 30, 1996
and 1995 were calculated as follows:
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
September 30, September 30,
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income $ 865,451 $ 305,919 $ 2,213,420 $ 944,641
Weighted average shares outstanding 14,037,496 9,693,478 12,777,619 9,693,478
Add: exercise of weighted average
warrants and options reduced by the
number of shares purchased with
proceeds 5,167,590 - 4,197,732 -
-------------- -------------- -------------- --------------
Adjusted weighted average shares
outstanding 19,205,086 9,693,478 16,975,351 9,693,478
============== ============== ============== ==============
Net income per common share $ 0.05 $ 0.03 $ 0.13 $ 0.10
============== ============== ============== ==============
</TABLE>
Note 2. Inventories
Inventories consist of the following at September 30, 1996 and December 31,
1995:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-------------- --------------
<S> <C> <C>
Finished goods $ 3,994,301 $ 198,607
Work in progress 1,468,806 879,987
Raw materials 5,029,776 1,302,773
-------------- --------------
10,492,883 2,381,367
Less allowance for obsolete raw materials 60,000 60,000
-------------- --------------
$ 10,432,883 $ 2,321,367
============== ==============
</TABLE>
Note 3. Acquisitions
Effective September 23, 1996, the Company acquired all of the outstanding
capital stock of Precisionaire pursuant to a stock purchase agreement dated
July 1, 1996. The purchase price was $25,123,425 and 786,885 shares of the
Company's common stock, subject to a post-closing purchase price adjustment,
and was paid by the delivery of both $25,123,425 in cash to the Precisionaire
sellers and 786,885 shares of the Company's common stock to an escrow agent to
be held in escrow and released to the Precisionaire sellers over a three year
period if certain gross revenue targets are met by Precisionaire.
Contemporaneously therewith, Precisionaire entered into an agreement to
acquire from POT Realty (owned by the former shareholders of Precisionaire) a
manufacturing facility, warehouse and related real property, located in
Terrell, Texas, whereby Precisionaire would assume $2,191,575 of debt with
respect to such building. This transaction was completed as of October 31,
1996. The Company's balance sheet at September 30, 1996 contains accruals in
long-term debt and fixed assets to reflect this purchase. For financial
statement purposes, the acquisition of Precisionaire is being accounted for as
having occurred on September 30, 1996, such that the Company's balance sheet
at September 30, 1996 includes the assets of Precisionaire.
Page 8
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Acquisitions - Continued
Precisionaire manufactures air filters and related products for commercial and
residential air conditioning and heating systems. Precisionaire's
headquarters are located in St. Petersburg, Florida. Precisionaire's
manufacturing operations are conducted from four main facilities with a total
of 442,000 square feet of manufacturing space, located in Bartow, Florida,
Lakeland, Florida, Terrell, Texas and Auburn, Pennsylvania. Precisionaire
also maintains 33,000 square feet of warehouse space in South Holland,
Illinois.
In connection with the acquisition of Precisionaire, the Company recorded
$9,534,286 of good will, which represents the excess of purchase price plus
expenses over net market value of identified assets, which is being amortized
over 40 years.
Summarized below are the unaudited pro forma results of operations of the
Company as though Precisionaire, CSC and Air Seal had been acquired at the
beginning of the nine month periods ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1996 1995
-------------- --------------
<S> <C> <C>
Revenues $ 95,860,082 $ 81,937,667
============== ==============
Net income $ 4,305,827 $ 2,605,196
============== ==============
Net income per common share, primary $ 0.23 $ 0.20
============== ==============
Net income per common share, fully diluted $ 0.22 $ 0.20
============== ==============
</TABLE>
Note 4. Capital Transactions
Private offering. As of September 30, 1996, the Company raised, through a
private offering of its Common Stock at $9.00 per share, $7,699,005, for
855,445 shares of stock, $2,500,000 through a private offering of Series A
Subordinated Convertible Debentures to certain unrelated investors, which are
convertible into an aggregate of 277,778 shares of the Company's common stock,
based upon a conversion price of $9.00 per share, and $4,000,000 from the sale
of 10% Convertible Notes pursuant to Regulation S to certain unrelated
offshore investors (collectively called the "September Offering"). The 10%
convertible notes are convertible at any time commencing forty-one (41) days
after issuance into shares of the Company's Common Stock at a conversion price
equal to the lower of (i) eighty-two percent (82%) of the average closing bid
price for the seven (7) trading days immediately preceding the conversion
date, or (ii) $9.00; provided, however, that in no event shall the conversion
price be less than $5.00; provided further, that in no event shall the holder
of the 10% convertible notes be entitled to convert any portion of such notes
if such action would result in beneficial ownership by a holder and its
affiliates of more than 4.9% of the outstanding shares of the Common Stock of
the Company. If the average closing bid price of the Company's Common Stock
over any continuous seven day trading period is less than $7.38 per share, the
Company may redeem the convertible notes at a price equal to 115% of the
outstanding principal amount of the notes. Net proceeds to the Company after
commissions and expenses of $982,400 were $13,216,605. In connection with the
10% Convertible Notes, certain unrelated offshore investors acquired, on the
date of the conversion of the Notes into common stock, the right to receive
warrants equal to ten percent (10%) of the number of common shares issued at
any such conversion, at an exercise price equal to the conversion rate. See
Note 6 - Subsequent Events.
Restricted cash. Of the $7,699,005 raised through the September Offering,
$4,000,005 is held in escrow and subject to certain rights of rescission in
favor of an investor if a Registration Statement under the Securities Act of
1933 registering such shares for re-sale is not declared effective as of
January 15, 1997.
Page 9
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Stock Options and Warrants
The following table summarizes the activity related to the Company's stock
options and warrants for the nine months ended September 30, 1996 and the year
ended December 31, 1995:
<TABLE>
<CAPTION>
Exercise Weighted
per Share Average
Stock ----------------------------- Exercise Price
Warrants Options Warrants Options per Share
----------- ----------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Outstanding at January 1, 1995 - -
Granted 61,280 2,500,000 $ 2.50 $ 1.00 $ 1.04
Exercised - -
Canceled or expired - -
----------- -----------
Outstanding at December 31, 1995 61,280 2,500,000 $ 2.50 $ 1.00 $ 1.04
Granted 97,712 5,136,520 $ 2.50-$5.00 $ 2.50-$9.50 $ 4.61
Exercised 96,280 - $ 2.50 - $ 2.50
Canceled or expired - - $ -
----------- -----------
Outstanding at September 30, 1996 62,712 7,636,520 $ 2.50-$5.00 $ 1.00-$9.50 $ 3.45
=========== ===========
Exercisable at September 30, 1996 62,712 5,519,520 $2.50 - $5.00 $1.00 - $3.50 $1.94
=========== ===========
</TABLE>
The warrants expire at various periods through September 1998. The options
expire at various times through June 2001.
Note 6. Subsequent Events
As part of the acquisition of Precisionaire by the Company, on September 23,
1996, Precisionaire entered into a purchase and sales agreement with POT
Realty, a Florida general partnership, in which Precisionaire agreed to
purchase certain real property, buildings and related improvements located in
Terrell, Texas (the "Property"). The total purchase price for the Property
was $3,315,000, $1,123,423.65 of which was paid by the Company to the
shareholders of Precisionaire as part of the Closing of the Precisionaire
stock purchase. The remainder of the purchase price was paid by Precisionaire
assuming certain debt encumbering the land and buildings. This transaction was
completed as of October 31, 1996. The Company's balance sheet at September 30,
1996 contains accruals in long-term debt and fixed assets to reflect this
purchase.
In October 1996, the Company raised an additional $4,306,000 from a private
placement of 478,444 shares of stock at $9.00 per share to certain
unaffiliated accredited investors. Net proceeds from the Offering, after
commissions of $400,000, were $3,906,000. Of the $4,306,000 raised through the
private offering, $4,000,000 is subject to certain rights of rescission in
favor of an investor if a Registration Statement under the Securities Act of
1933 registering such shares for re-sale is not declared effective as of
January 9, 1997. Combined with the September Offering, total net proceeds
from September and October were $17,122,605. See Note 4, Capital
Transactions.
Page 10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussions should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto and the Company's Pro
Forma Financial Statements and the notes thereto, presented in Item 1 and Part
II - Item 5, respectively. Unless otherwise stated, the following discussion
does not include the financial results or information of Precisionaire for the
periods indicated. The information set forth in this "Management's Discussion
and Analysis of Financial Condition and Results of Operations" includes
forward-looking statements that involve risks and uncertainties. Many factors
could cause actual results to differ materially from those contained in the
forward-looking statements below. See "Outlook".
Overview
The Company is a full-range air filtration product company engaged in
designing, manufacturing and marketing high performance air filtration
products and related products, services and equipment. During the last year,
the Company has experienced significant growth in its HEPA filter business and
from the acquisition of other air filtration companies. As of May 31, 1996,
the Company acquired CSC, and on June 15, 1996, acquired Airseal. As of
September 23, 1996, the Company acquired Precisionaire. CSC specializes in the
manufacture of high-end charcoal filters and containment environments, and has
a service arm. Airseal produces customized mid-range housings and HVAC
equipment. Precisionaire manufactures air filters and related products for
commercial and residential air conditioning and heating systems.
Precisionaire's headquarters are located in St. Petersburg, Florida.
Precisionaire's manufacturing operations are conducted from four main
facilities with a total of 442,000 square feet of manufacturing space, located
in Bartow, Florida, Lakeland, Florida, Terrell, Texas and Auburn,
Pennsylvania. Precisionaire also maintains 33,000 square feet of warehouse
space in South Holland, Illinois. The results of operations for the acquired
businesses are included in the Company's financial statements only from the
applicable date of acquisition. As a result, the Company's historical results
of operations for the periods presented should be evaluated specifically in
the context of the Acquisitions. Additionally, neither the historical nor the
pro forma results of operations fully reflect the operating efficiencies and
improvements that are expected to be achieved by integrating the acquired
businesses into the Company's operations. In particular, the Unaudited Pro
Forma Consolidated Statements of Operations do not purport to represent the
operations of the Company had the Acquisitions, in fact, occurred at the
beginning of the respective periods, or to project the results of operations
for any future period. There can be no guarantee that the Company will be able
to achieve these gains in efficiency.
The Company believes the Acquisitions will have a positive impact on its
future results of operations and accordingly believes that the Company's
historical results should be considered in conjunction with the pro forma
financial statements and the notes thereto included in Part II - Item 5.
Results of Operations for Three Months Ended September 30, 1996 Compared to
September 30, 1995
The following table summarizes the Company's results of operations as a
percentage of net sales for the three months ended September 30, 1996 and
1995.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------------------------
1996 1995
------------------- ------------------
<S> <C> <C> <C> <C>
Net sales 14,453 100.0% 9,319 100.0%
Gross profit 3,901 27.0 2,236 24.0
Operating expenses 2,440 16.9 1,669 17.9
Operating income 1,461 10.1 667 7.2
Income before income taxes 1,420 9.8 530 5.7
Income taxes 555 3.8 224 2.4
Net income 865 6.0 306 3.3
</TABLE>
Page 11
<PAGE>
Net sales: Net sales for the three months ended September 30, 1996 increased
by $5,134,000, or 55.1%, to $14,453,000, from $9,319,000 for the three months
ended September 30, 1995. The increase was due primarily to the acquisition
of CSC and Air Seal, which accounted for $2,818,000 of the increase in sales.
The remaining increase of $2,316,000 was due to increases in sales to both
new and existing customers.
Gross Profit: Gross profits for the three months ended September 30, 1996
increased by $1,565,000, or 67.0%, to $3,901,000, which represented 27.0% of
net sales, compared to $2,336,000, or 25.1% of net sales for the three months
ended September 30, 1995. The primary reason for the increase in gross profit
margin was the increase in operating efficiency associated with focusing each
manufacturing facility on a particular type of product, which reduced direct
costs in the following areas: Reduced down time due to switching lines between
products; eliminated individual lot inventory tracking required by federal
regulations at the Company's Washington, NC facility by moving all containment
environment manufacturing operations to CSC's plant in Bath, NC; and other
increases in efficiencies achieved through reduced training and coordination
time at each location as a result of reducing the number of certification and
training hours by producing fewer types of products at each facility.
Operating expenses: Operating expenses increased by $771,000, or 46.2%, to
$2,440,000, compared to $1,669,000 for the three months ended September 30,
1996 and 1995, respectively. $327,000 of this increase was due to the
acquisition of CSC and Air Seal. The remaining $444,000 of this increase was
due to additional sales, marketing and commission expense associated with the
increase in sales, salaries for new positions in financial administration,
support and sales, and other operational expenses. Operating expenses
decreased as a percentage of net sales, to 16.9%, compared to 17.9% for the
quarters ended September 30, 1996 and 1995, respectively. This decrease in
operating expenses as a percentage of net sales was due to the spreading of
fixed costs over a larger revenue base.
Income taxes: Income tax expense increased by $331,000, or 147.8%, to
$555,000, or 39.1% of net income before income taxes, for the three months
ended September 30, 1996, compared to $224,000, or 42.3% of net income before
income taxes, for the three months ended September 30, 1995.
Net income: Net income increased $559,000, or 182.7%, to $865,000, or $.05
per share, from $306,000, or $.03 per share, for the three months ended
September 30, 1996 and 1995, respectively.
Results of Operations for Nine Months Ended September 30, 1996 Compared to
September 30, 1995
The following table summarizes the Company's results of operations as a
percentage of net sales for the nine months ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------------
1996 1995
------------------- ------------------
<S> <C> <C> <C> <C>
Net sales 40,695 100.0% 28,250 100.0%
Gross profit 10,368 25.5 7,305 25.9
Operating expenses 6,988 17.2 5,222 18.5
Operating income 3,380 8.3 2,084 7.4
Income before income taxes 3,586 8.8 1,560 5.5
Income taxes 1,373 3.4 615 2.2
Net income 2,213 5.4 945 3.3
</TABLE>
Net sales: Net sales for the nine months ended September 30, 1996 increased
by $12,445,000, or 44.1%, to $40,695,000 compared to $28,250,000 for the nine
months ended September 30, 1995. Approximately $4,688,000 of the increase was
due to the acquisition of CSC and Air Seal. The remaining increase of
$7,757,000 was due to increased sales to new and existing customers.
Gross Profit: Gross profits for the nine months ended September 30, 1996
increased by $1,564,000, or 66.9%, to $3,901,000, which represented 25.5% of
net sales, compared to $2,336,498, 25.9% of net sales for the nine months
ended September 30, 1995.
Page 12
<PAGE>
Operating expenses: Operating expenses increased by $1,766,000, or 43.8%, to
$6,988,000 from $5,222,000 for the nine months ended September 30, 1996 and
1995, respectively. $761,000 of this increase was due to the acquisition of
CSC and Air Seal. The remaining $1,005,000 of this increase was due to
additional sales, marketing and commission expense associated with the
increase in sales, salaries for new positions in financial administration,
support and sales, and other operational expenses. Operating expenses
decreased as a percentage of net sales, to 17.2%, compared to 18.5% for the
nine months ended September 30, 1996 and 1995, respectively. This decrease in
operating expenses as a percentage of net sales is due to the spreading of
fixed costs over a larger revenue base.
Income taxes: For the nine months ended September 30, 1996, the Company's tax
expense increased $758,000, or 123.3%, to $1,373,000, or 38.3% of income
before income taxes, compared to $615,000, or 39.5% of income before income
taxes for the nine months ended September 30, 1995.
Net income: Net income for the nine months ended September 30, 1996 increased
$1,268,000, or 134.2%, to $2,213,000, or $.13 per share, from $945,000, or
$.10 per share, for the nine months ended September 30, 1995.
Pro Forma Combined Results of Operations for Nine Months Ended September 30,
1996 Compared to September 30, 1995
The Company's Combined Pro Forma Consolidated Condensed Statement of
Operations, Balance Sheet and Statement of Cash Flows are contained under Part
II - Item 5 hereto. The following discussion is qualified in its entirety by
the information contained in Part II - Item 5.
The Company's pro forma combined results of operations reflect the
acquisitions of Precisionaire, CSC and Airseal as if each had occurred at the
beginning of each period presented, and include operating results for each of
the combined companies for the entirety of such periods. Adjustments to the
pro forma combined results of operations include changes in depreciation and
amortization to reflect the new cost basis for assets acquired, changes to
operating expenses to remove non-recurring salaries and benefits to previous
owners and changes in interest expense to reflect debt incurred in financing
the Acquisitions. The pro forma results of operations are not necessarily
indicative of the actual results which would have been reported had the
Company owned Precisionaire, CSC and Airseal in the periods presented.
The following table summarizes the Company's pro forma results of operations
both in dollars and as a percentage of net sales for the nine month periods
ended September 30, 1996.
Summary Pro Forma Results of Operations
(000's omitted, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------------------
1996 1995
--------------------- ---------------------
<S> <C> <C> <C> <C>
Net sales $ 95,860 100.0% $ 81,938 100.0%
Gross profit 23,968 25.0 20,550 25.1
Operating expenses 16,791 17.5 14,909 18.2
Operating income 7,177 7.5 5,641 6.9
Income before income taxes 6,737 7.0 4,159 5.1
Income taxes 2,431 2.5 1,554 1.9
Net income 4,306 4.5 2,605 3.2
Net income per share, primary $ 0.23 $ 0.20
Net income per share, fully diluted $ 0.22 $ 0.20
</TABLE>
Page 13
<PAGE>
Net sales: Pro forma net sales for the nine months ended September 30, 1996
increased $13,922,000, or 17%, to $95,860,000, compared to $81,938,000 for the
nine months ended September 30, 1995. The increase was due primarily to each
of the subsidiaries increasing its sales through enhanced marketing and
increased production. The following table illustrates the increases in net
sales from each subsidiary.
<TABLE>
<CAPTION>
Net sales for Nine Months Ended
September 30, % Increase
------------------------------- ------------
1996 1995 1996
------------ ------------ ------------
(000's omitted)
<S> <C> <C> <C>
Precisionaire $ 52,962 $ 47,743 10.9%
Flanders Filters 30,692 24,348 26.1%
Airpure & Airpure West 7,291 4,236 72.1%
CSC 4,216 3,916 7.7%
Airseal 2,654 2,028 30.9%
Consolidation of
intercompany activity (1,955) (333)
------------ ------------ ------------
Total net sales $ 95,860 $ 81,938 17.0%
============ ============ ============
</TABLE>
Gross profit: Pro forma gross profits represented 25.0% and 25.1% of pro
forma net sales for the periods ended September 30, 1996 and September 30,
1995, respectively.
Operating expenses: Pro forma operating expenses increased by $1,822,000, or
12.6%, to $16,791,000 for the nine months ended September 30, 1996, from
$14,909,000 for the nine months ended September 30, 1995. Pro forma operating
expenses decreased as a percentage of pro forma net sales, to 17.5% from 18.2%
for the periods ended September 30, 1996 and 1995, respectively. This decrease
in operating expenses as a percentage of net sales is due to the spreading of
fixed costs over a larger revenue base.
Income taxes: For the nine months ended September 30, 1996 and 1995, the
Company's pro forma provision for income taxes represented approximately 36.1%
and 37.4%, respectively, of net income before income taxes.
Net income: Pro forma net income increased $1,706,000, or 65.3%, to
$4,306,000, for the nine months ended September 30, 1996, from $2,605,000 for
the nine months ended September 30, 1995.
Liquidity and Capital Resources
Working capital was $21,963,000 at September 30, 1996, compared to $4,030,000
at December 31, 1995. This includes cash and cash equivalents of $6,603,000
(see Note 4 above) and $2,974,000 at September 30, 1996 and December 31, 1995,
respectively. Working capital does not include the unused portion of the
Company's revolving credit line. Trade receivables increased $14,206,000, or
196.1%, to $21,450,000 at September 30, 1996 from $7,244,000 at December 31,
1995. The increase in receivables is primarily attributable to the
Acquisitions, which accounted for $10,411,000 of the increase. The remaining
$3,795,000 of the increase is primarily due to increases associated with the
increased volume in net sales and timing differences in shipments and payments
received.
Operations consumed $67,000 of cash during the nine months ended September 30,
1996, compared to generating $1,211,000 for the nine months ended September
30, 1995. The difference in cash flows was caused by an increase in cash and
working capital requirements associated with increased sales, which is
primarily composed of the increases in payables, receivables and inventories
at September 30, 1996. Investing activities during the nine months ended
September 30, 1996 consumed $33,729,000 of cash, consisting primarily of the
cash payments made for the Acquisitions. Financing activities during the nine
months ended September 30, 1996 produced $37,426,000 of cash, primarily from
issuance of long-term debt and convertible debentures, as well as equity
offerings.
Page 14
<PAGE>
Effective September 23, 1996, the Company acquired all of the outstanding
capital stock of Precisionaire pursuant to a stock purchase agreement dated
July 1, 1996. The purchase price was $25,123,425 and 786,885 shares of the
Company's common stock, subject to a post-closing purchase price adjustment,
and was paid by the delivery of both $25,123,425 in cash to the Precisionaire
sellers and 786,885 shares of the Company's common stock to an escrow agent to
be held in escrow and released to the Precisionaire sellers over a three year
period if certain gross revenue targets are met by Precisionaire.
Contemporaneously therewith, Precisionaire entered into an agreement to
acquire from POT Realty (owned by the former shareholders of Precisionaire) a
manufacturing facility, warehouse and related real property, located in
Terrell, Texas, whereby Precisionaire would assume $2,191,575 of debt with
respect to such building. This transaction was completed as of October 31,
1996. The Company's balance sheet at September 30, 1996 contains accruals in
long-term debt and fixed assets to reflect this assumed purchase. For
financial statement purposes, the acquisition of Precisionaire is being
accounted for as having occurred on September 30, 1996, such that the
Company's balance sheet at September 30, 1996 includes the assets of
Precisionaire.
To finance the acquisition of Precisionaire, the Company arranged with
NationsBank for a credit facility consisting of (i) a working capital
revolving credit facility in the maximum principal amount of $25,000,000 and
(ii) a term loan facility in the maximum principal amount of $6,500,000. At
September 30, 1996, the Company had used approximately $14,783,000 of the
revolving credit facility, $9,006,000 of which was used for the acquisition of
Precisionaire, and $6,500,000 of the term loan facility.
As of September 30, 1996, the Company raised, through a private offering of
its Common Stock at $9.00 per share, $7,699,005, for 855,445 shares of stock,
$2,500,000 through a private offering of Series A Subordinated Convertible
Debentures to certain unrelated investors, which are convertible into an
aggregate of 277,778 shares of the Company's common stock, based upon a
conversion price of $9.00 per share, and $4,000,000 from the sale of 10%
Convertible Notes pursuant to Regulation S to certain unrelated offshore
investors (collectively called the "September Offering"). The 10% convertible
notes are convertible at any time commencing forty-one (41) days after
issuance into shares of the Company's Common Stock at a conversion price equal
to the lower of (i) eighty-two percent (82%) of the average closing bid price
for the seven (7) trading days immediately preceding the conversion date, or
(ii) $9.00; provided, however, that in no event shall the conversion price be
less than $5.00; provided further, that in no event shall the holder of the
10% convertible notes be entitled to convert any portion of such notes if such
action would result in beneficial ownership by a holder and its affiliates of
more than 4.9% of the outstanding shares of the Common Stock of the Company.
If the average closing bid price of the Company's Common Stock over any
continuous seven day trading period is less than $7.38 per share, the Company
may redeem the convertible notes at a price equal to 115% of the outstanding
principal amount of the notes. Net proceeds to the Company after commissions
and expenses of $982,400 were $13,216,605. Of the $7,699,005 raised through
the September Offering, $4,000,005 is subject to certain rights of rescission
in favor of an investor if a Registration Statement under the Securities Act
of 1933 registering such shares for re-sale is not declared effective as of
January 9, 1997. In connection with the 10% Convertible Notes, certain
unrelated offshore investors acquired, on the date of the conversion of the
Notes into common stock, the right to receive warrants equal to ten percent
(10%) of the number of common shares issued at any such conversion, at an
exercise price equal to the conversion rate. See Part I - Item 1 - Note 6 -
Subsequent Events.
Subsequent to the end of the quarter, in October 1996, the Company raised an
additional $4,306,000 from a private placement of 478,444 shares of stock at
$9.00 per share to accredited investors. Net proceeds from the Offering,
after commissions of $400,000, were $3,906,000. Of the $4,306,000 raised in
October, 1996, $4,000,000 is subject to certain rights of rescission in favor
of an investor if a Registration Statement under the Securities Act of 1933
registering such shares for re-sale is not declared effective as of January
15, 1997. Combined with the September Offering, total net proceeds from
September and October were $17,122,605.
Page 15
<PAGE>
Expansion of the Company will require substantial continuing capital
investment for the manufacture of filtration products. Although the Company
has been able to arrange debt facilities or equity financing to date, there
can be no assurance that sufficient debt financing or equity will continue to
be available in the future, or that it will be available on terms acceptable
to the Company. Substantial additional debt or equity financing may be needed
for the Company to achieve its short-term and long-term business objectives.
Failure to obtain sufficient capital could result in materially adverse
conditions for the business. The Company expects that future financing will
include equity placements, however, no assurance can be given that the Company
will be able to obtain additional financing on reasonable terms, if at all.
The Company's business and operations have not been materially affected by
inflation during the periods for which financial information is presented.
Outlook
The statements contained in this Outlook are based on current expectations.
These statements are forward looking and actual results may differ materially.
Important factors to consider in evaluating such forward-looking statements
include (i) the shortage of reliable market data regarding the air filtration
market; (ii) changes in external competitive market factors or in the
Company's internal budgeting process which might impact trends in the
Company's results of operations; (iii) anticipated working capital or other
cash requirements; (iv) changes in the Company's business strategy or an
inability to execute its strategy due to unanticipated changes in the market;
(v) product obsolescence due to the development of new technologies, and (vi)
various competitive factors that may prevent the Company from competing
successfully in the marketplace. In light of these risks and uncertainties,
there can be no assurance that the events contemplated by the forward-looking
statements contained in this Form 10-Q will in fact occur.
The Company believes its future results of operations could be affected by a
variety of factors, including the successful integration of CSC, Airseal and
Precisionaire into the Company, whether management can successfully manage the
Company's growth, the ability of the Company to keep up with technological
changes, the success of the Company's efforts to automate its stock product
lines, increased pricing pressure from the Company's competition, changing
government regulations governing indoor air quality, rate of growth in
worldwide semiconductor manufacturing, and any adverse changes in general
economic conditions in locations where the Company does business.
The Acquisitions give the Company a product line which includes a full range
of air filtration products. As part of the integration the Acquisitions, the
Company has adopted a strategy of increasing its market share by providing its
existing manufacturers' representatives, who typically sell a complete product
line made up of products from several manufacturers, with the Company's
complete product line.
The Company intends to continue to seek increased market share through
strategic acquisitions of synergistic businesses. The Company seeks to
identify potential acquisition targets with (i) dominant positions in local or
regional markets, (ii) excess or under-utilized capacity, (iii) an ability to
add new product lines to the Company's business, (iv) significant asset value
to enable the Company to obtain debt financing or non-diluted equity financing
for such acquisition. The Company is continuously evaluating acquisition
opportunities in light of the above criteria. Once a potential target is
identified, the Company commences an in depth due diligence evaluation of the
target's operations, markets, profitability and examines all potential
liabilities including environmental liabilities and any contingent
liabilities. The Company has no specific plans or agreements with respect to
future acquisitions. Substantial equity or debt financing may be needed for
the Company to continue to grow through the acquisition of other businesses.
Failure to obtain sufficient capital or debt financing could adversely affect
the Company's growth strategies.
Page 16
<PAGE>
The Company has begun a program to increase its gross margins by automating
portions of its production lines at FFI, Precisionaire and Airpure using
technology developed at Precisionaire and FFI. Currently, approximately ten
percent of the Company's product lines incorporate the new automated equipment
designs. The Company will continue to implement the additional automation for
these production lines one at a time, to minimize down time. The Company
estimates the total cost for this automation equipment will be $1,000,000 to
$2,000,000.
The Company intends to continue building capacity for production of air
filtration products, and has announced plans to expand upon or build
facilities on the West Coast, the Mid-West, and the Asia/Pacific Basin. These
new or expanded facilities, as well as the automation of existing production
lines, are part of the Company's growth strategies, and will require
substantial continuing investment in capital equipment during 1997. Although
the Company has been able to arrange equity financing or debt facilities to
date, there can be no assurance that additional debt financing or equity will
continue to be available in the future, nor that it will be available on terms
acceptable to the Company.
Page 17
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There were no material additions to, or changes in status of, any
ongoing, threatened or pending legal proceedings during the three months
ended September 30, 1996.
Item 2. Changes in Securities - None.
Item 3. Defaults Upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders - None.
Item 5. Other Information
On September 23, 1996, the Company completed the acquisition of 100% of
the issued and outstanding capital stock of Precisionaire pursuant to a
Stock Purchase Agreement dated July 1, 1996 (the "Agreement"). The
consideration paid for this transaction consisted of $25,123,425 and
786,775 shares of Flanders common stock. The terms of the Agreement and
the amount of the consideration paid for the capital stock was determined
through arms-length negotiations by the parties.
The Registrant will operate Precisionaire as a subsidiary. Prior to the
acquisition, Precisionaire was a privately held corporation in the
business of designing, manufacturing and selling air filtration products.
The Registrant intends to continue such business.
The Company paid the purchase price for the acquisition of Precisionaire
by drawing on its credit facility with NationsBank (in the amount of
$9,006,000), drawing down its term loan facility with NationsBank (in the
amount of $6,500,000) and using $9,617,000 of the proceeds raised in the
September Offering.
The Financial Statements of the Company and Precisionaire on a Pro Forma
basis, and the Audited Financial Statements for Precisionaire for the
preceding two fiscal years, are set forth below.
Page 18
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
September 30, 1996
<TABLE>
<CAPTION>
Company w/o Purchase Total
ASSETS Precisionaire Precisionaire Adjustments Pro-Forma
- - -------------------------------------------------------------- -------------- -------------- -------------- --------------
(unaudited)
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents (See Part I - Item 1 -
Note 4 - Capital Transactions) $ 2,258,484 $ 344,555 $ - $ 2,603,039
Restricted cash (See Part I - Item 1 - Note 4) 4,000,005 - - 4,000,005
Short-term investments - 835,519 - 835,519
Investments in subsidiaries 25,997,860 - (25,997,860) -
Receivables:
Trade, less allowance for doubtful accounts of $148,000
for the Company; $318,903 for Precisionaire 12,974,057 8,475,588 - 21,449,645
Loans to subsidiaries 3,070,027 500,000 (3,570,027) -
Other 1,237,603 - - 1,237,603
Inventories 5,268,596 5,164,287 - 10,432,883
Deferred taxes 157,285 871,000 - 1,028,285
Other current assets 729,234 10,261 - 739,495
-------------- -------------- -------------- --------------
Total current assets 55,693,151 16,201,210 (29,567,887) 42,326,474
-------------- -------------- -------------- --------------
Other assets 2,415 923,270 - 925,685
Intangible assets 1,931,058 - 10,534,286 12,465,344
Property and equipment, net of accumulated depreciation 9,177,542 7,519,478 13,072,337 29,769,357
-------------- -------------- -------------- --------------
$ 66,804,166 $ 24,643,958 $ (5,961,264) $ 85,486,860
============== ============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- - --------------------------------------------------------------
Current liabilities
Notes payable $ 1,397,318 $ - $ - $ 1,397,318
Notes from subsidiaries 500,000 3,070,027 (3,570,027) -
Current maturities of long-term debt 265,174 387,920 228,533 881,627
Accounts payable 6,601,912 6,222,267 - 12,824,179
Accrued expenses 2,338,252 2,922,580 - 5,260,832
-------------- -------------- -------------- --------------
Total current liabilities 11,102,656 12,602,794 (3,341,494) 20,363,956
-------------- -------------- -------------- --------------
Long-term debt, less current maturities 22,790,476 2,215,317 2,746,467 27,752,260
Convertible debt 6,500,000 - - 6,500,000
Deferred income taxes 610,000 506,004 3,952,606 5,068,610
Commitments and contingencies - - - -
Stockholders' equity
Capital stock 15,460 3,760 (3,760) 15,460
Additional paid-in capital (See Part I - Item 1 -
Note 4 - Capital Transactions) 18,793,842 276,420 (276,420) 18,793,842
Unrealized gain on investments - 218,569 (218,569) -
Retained earnings 6,991,732 9,349,265 (9,349,265) 6,991,732
-------------- -------------- -------------- --------------
Total stockholders' equity 25,801,034 9,848,014 (9,848,014) 25,801,034
-------------- -------------- -------------- --------------
$ 66,804,166 $ 25,172,129 $ (6,490,435) $ 85,485,860
============== ============== ============== ==============
</TABLE>
Page 19
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
for the Nine Months Ended September 30, 1996
The Unaudited Pro Forma Consolidated Statements of Operations for the nine
months ended September 30, 1996 and the year ended December 31, 1995 for
Flanders Corporation are set forth below.
The Unaudited Pro Forma Consolidated Statements of Operations for the nine
months ended September 30, 1996 have been prepared assuming that the
Acquisitions occurred on January 1, 1996, the first day of the period
presented therein. The column "Company without Acquisitions" includes only the
consolidated historical results of FFI and Airpure. These Unaudited Pro Forma
Consolidated Statements of Operations do not purport to represent the
operations of the Company had the Acquisitions, in fact, occurred at the
beginning of the respective periods, or to project the results of operations
for any future period.
<TABLE>
<CAPTION>
Nine Months Pro Forma
Company Historical Adjustments Pro Forma Nine Months
Without CSC & CSC & w/ Historical Pro Forma Total
Acquisitions Other<F1> Other<F1> CSC & Other Precisionaire Adjustments Pro Forma
------------ ------------ ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $37,093,717 $ 5,804,341 $ - $42,898,058 $ 52,962,024 $ - $95,860,082
Cost of goods sold 28,115,100 3,892,218 - 32,007,318 39,884,947 - 71,892,265
------------ ------------ ------------ ------------ ------------- ------------ ------------
Gross Profit 8,978,617 1,912,123 - 10,890,740 13,077,077 - 23,967,817
------------ ------------ ------------ ------------ ------------- ------------ ------------
Operating expenses 6,227,457 1,241,621 (66,532)<F2> 7,402,546 9,874,301 (485,695)<F2> 16,791,152
------------ ------------ ------------ ------------ ------------- ------------ ------------
Operating income 2,751,160 670,502 66,532 3,488,194 3,202,776 485,695 7,176,665
------------ ------------ ------------ ------------ ------------- ------------ ------------
Nonoperating income (expense):
Other income (expense) 415,742 89,660 - 505,402 417,722 - 923,124
Interest expense (269,515) (23,502) - (293,017) (211,651) (857,847)<F3> (1,362,515)
------------ ------------ ------------ ------------ ------------- ------------ ------------
146,227 66,158 - 212,385 206,071 (857,847) (439,391)
------------ ------------ ------------ ------------ ------------- ------------ ------------
Income before income
taxes 2,897,387 736,660 66,532 3,700,579 3,408,847 (372,152) 6,737,274
Income taxes (benefit) 1,103,876 280,000 25,000 1,408,876 1,162,571 (140,000) 2,431,447
------------ ------------ ------------ ------------ ------------- ------------ ------------
Net income $ 1,793,511 $ 456,660 $ 41,532 $ 2,291,703 $ 2,246,276 $ (232,152) $ 4,305,827
============ ============ ============ ============ ============= ============ ============
Earnings per weighted
average common and common
equivalent share
outstanding:
Primary $ 0.23
============
Fully diluted $ 0.22
============
Weighted average common and
common equivalent shares
Primary 18,586,527
============
Fully diluted 19,859,750
============
<FN>
<F1>
Columns include the operations of Airseal.
<F2>
To reflect additional amortization and depreciation due to write-up to
market value of plant and equipment, the removal of compensation paid to
shareholders of Airseal and Precisionaire who did not participate in the day
to day operations of the respective companies, and rents paid on land and
buildings acquired in the Acquisitions.
<F3>
To reflect increased interest expense from additional financing, net of cash
received in the Offerings, needed to complete the Acquisitions.
</FN>
</TABLE>
Page 20
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FLANDERS CORPORATION AND SUBSIDIARIES
for the Year Ended December 31, 1995
The Unaudited Pro Forma Consolidated Statements of Operations for the year
ended December 31, 1995 has been prepared assuming that the Acquisitions had
occurred on January 1, 1995, the first day of the period presented therein.
These Unaudited Pro Forma Consolidated Statements of Operations do not purport
to represent the operations of the Company had the Acquisitions, in fact,
occurred at the beginning of the respective period, or to project the results
of operations for any future period.
<TABLE>
<CAPTION>
Pro Forma
Company Historical Adjustments Pro Forma
Without CSC & CSC & w/ Historical Pro Forma Total
Acquisitions Other<F1> Other<F1> CSC & Other Precisionaire Adjustments Pro Forma
------------ ------------ ------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $38,494,261 $ 7,679,997 $ - $46,174,258 $ 61,809,501 $ - $107,983,759
Cost of goods sold 28,953,729 4,888,822 - 33,842,551 47,202,625 - 81,045,176
------------ ------------ ------------ ------------ ------------- ------------ -------------
Gross Profit 9,540,532 2,791,175 - 12,331,707 14,606,876 - 26,938,583
------------ ------------ ------------ ------------ ------------- ------------ -------------
Other operating revenue 141,549 - - 141,549 - - 141,549
Operating expenses 7,262,668 2,472,262 (58,676)<F1> 9,676,254 11,497,186 (735,611)<F1> 20,437,829
------------ ------------ ------------ ------------ ------------- ------------ -------------
Operating income 2,419,413 318,913 58,676 2,797,002 3,109,690 735,611 6,642,303
------------ ------------ ------------ ------------ ------------- ------------ -------------
Nonoperating income (expense):
Other income (expense) 43,852 98,599 - 142,451 132,321 - 274,772
Interest expense (633,029) (7,970) - (640,999) (391,400) (1,383,947)<F2> (2,416,346)
------------ ------------ ------------ ------------ ------------- ------------ -------------
(589,177) 90,629 - (498,548) (259,079) (1,383,947) (2,141,574)
------------ ------------ ------------ ------------ ------------- ------------ -------------
Income before income
taxes 1,830,236 409,542 58,676 2,298,454 2,850,611 (648,336) 4,500,729
Income taxes (benefit) 684,582 150,651 22,297 857,530 1,170,803 (246,368) 1,781,965
------------ ------------ ------------ ------------ ------------- ------------ -------------
Net income $ 1,145,654 $ 258,891 $ 36,379 $ 1,440,924 $ 1,679,808 $ (401,968) $ 2,718,764
============ ============ ============ ============ ============= ============ =============
Earnings per weighted
average common and common
equivalent share
outstanding:
Primary $ 0.21
=============
Fully diluted $ 0.21
=============
Weighted average common and
common equivalent shares
Primary 13,203,200
=============
Fully diluted 13,203,200
=============
<FN>
<F1>
To reflect additional amortization and depreciation due to write-up to
market value of plant and equipment, the removal of compensation paid to
shareholders of Airseal and Precisionaire who did not participate in the day
to day operations of the respective companies, and rents paid on land and
buildings acquired in the Acquisitions.
<F2>
To reflect increased interest expense from additional financing, net of cash
received in the Offerings, needed to complete the Acquisitions.
</FN>
</TABLE>
Page 21
<PAGE>
AUDITED FINANCIAL STATEMENTS OF PRECISIONAIRE
Page 22
<PAGE>
PRECISIONAIRE, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
AND FOR EACH OF THE THREE YEARS ENDED DECEMBER 31,1995
TOGETHER WITH REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Page 23
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
Precisionaire, Inc.:
We have audited the accompanying balance sheets of Precisionaire, Inc. (a
Florida corporation) as of December 31, 1995 and 1994, and the related
statements of income and retained earnings, and cash flows for each of the
three years in the period ended December 31, 1995. 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 Precisionaire, Inc. as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Tampa, Florida,
March 8, 1996
Page 24
<PAGE>
PRECISIONAIRE, INC.
<TABLE>
BALANCE SHEETS -- DECEMBER 31, 1995 AND 1994
<CAPTION>
ASSETS 1995 1994
-------- -------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 468,085 $ 219,239
Certificate of deposit (Note 5) 276,168 272,305
Trade accounts and notes receivable, less
allowances of approximately $333,500
and $458,600 for doubtful accounts, returns
and credits at December 31, 1995 and 1994,
respectively (Note 4) 5,624,399 5,193,305
Inventories (Note 4) 4,115,158 3,661,201
Deferred tax asset (Note 3) 535,000 435,119
Prepaid expenses and other current assets 13,500 191,080
-------------- --------------
Total current assets 11,032,310 9,972,249
EQUIPMENT AND FURNISHINGS, net (Notes 2 and 4) 5,536,799 5,658,049
OTHER ASSETS (Notes 4 and 5) 915,901 849,410
-------------- --------------
$ 17,485,010 $ 16,479,708
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,549,695 $ 6,161,576
Accrued expenses and other liabilities 2,114,618 1,515,899
Current maturities of long-term debt (Note 4) 1,283,593 2,277,461
-------------- --------------
Total current liabilities 7,947,906 9,954,936
LONG-TERM DEBT, less current maturities (Note 4) 2,317,264 1,029,800
DEFERRED TAX LIABILITY (Note 3) 310,000 247,243
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Class A common stock, voting, $.10 par value,
10,000 shares authorized, 3,767 shares issued
and outstanding 377 377
Class B common stock, non-voting, $.10 par
value, 90,000 shares authorized, 33,834
shares issued and outstanding 3,383 3,383
Additional paid-in capital 276,420 276,420
Retained earnings 6,629,660 4,967,549
Total stockholders' equity 6,909,840 5,247,729
-------------- --------------
$ 17,485,010 $ 16,479,708
============== ==============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
Page 25
<PAGE>
PRECISIONAIRE, INC.
<TABLE>
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
NET SALES $ 61,809,501 $ 54,289,237 $ 50,747,523
COST OF SALES 47,202,625 42,149,288 39,583,348
-------------- -------------- --------------
Gross profit 14,606,876 12,139,949 11,164,175
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 11,497,186 10,897,308 9,683,643
-------------- -------------- --------------
Operating income 3,109,690 1,242,641 1,480,532
INTEREST EXPENSE (391,400) (255,841) (251,828)
OTHER, net 132,321 101,353 195,380
-------------- -------------- --------------
INCOME BEFORE TAXES 2,850,611 1,088,153 1,424,084
INCOME TAX PROVISION (Note 3) 1,170,803 439,702 521,736
-------------- -------------- --------------
NET INCOME 1,679,808 648,451 902,348
DIVIDENDS DECLARED 17,697 - -
RETAINED EARNINGS, BEGINNING OF YEAR 4,967,549 4,319,098 3,416,750
-------------- -------------- --------------
RETAINED EARNINGS, END OF YEAR $ 6,629,660 $ 4,967,549 $ 4,319,098
============== ============== ==============
NET INCOME PER SHARE $ 44.67 $ 17.25 $ 24.00
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
Page 26
<PAGE>
PRECISIONAIRE, INC.
<TABLE>
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,679,808 $ 648,451 $ 902,348
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 1,097,670 1,031,039 896,572
Loss on sale of equipment and furnishings 21,479 96,859 6,745
Deferred income taxes (37,124) (42,685) (59,664)
(Increase) decrease in assets-
Trade accounts and notes receivable, net (431,094) 84,518 272,186
Inventories (453,957) (274,388) (532,504)
Prepaid expenses and other current assets 177,580 (67,165) (99,916)
Other assets (66,491) (50,032) (34,709)
(Decrease) increase in liabilities-
Accounts payable (1,611,881) 358,221 928,908
Accrued expenses and other liabilities 592,986 (227,612) 418,283
-------------- -------------- --------------
Net cash provided by
operating activities 968,976 1,557,206 2,698,249
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (985,757) (2,023,230) (1,641,383)
Increase in certificate of deposit (3,863) (10,473) (108,399)
Proceeds from sale of equipment and furnishings 24,668 24,914 35,035
-------------- -------------- --------------
Net cash used in
investing activities (964,952) (2,008,789) (1,714,747)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 1,649,081 738,825 856,219
Principal payments on long-term debt (892,295) (693,054) (1,127,069)
Dividend payments (11,964) - -
Principal payments on related party notes - (715,000) -
Net (payments) borrowings on line of credit (500,000) 1,200,000 (600,000)
-------------- -------------- --------------
Net cash provided by (used in)
financing activities 244,822 530,771 (870,850)
-------------- -------------- --------------
NET INCREASE IN CASH 248,846 79,188 112,652
CASH, beginning of year 219,239 140,051 27,399
-------------- -------------- --------------
CASH, end of year $ 468,085 $ 219,239 $ 140,051
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
Page 27
<PAGE>
PRECISIONAIRE, INC.
<TABLE>
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 385,176 $ 242,543 $ 256,671
Cash paid for income taxes $ 924,800 $ 556,248 $ 710,972
SUPPLEMENTAL DISCLOSURES OF NONCASH
TRANSACTIONS:
Dividends declared included in accrued
expenses and other liabilities $ 5,733 $ - $ -
Equipment acquired by assumption of
capital lease obligation (trade-in
value received in 1994 for
equipment - $50,000) $ 36,810 $ 293,952 $ -
</TABLE>
The accompanying notes are an integral part of these statements.
Page 28
<PAGE>
PRECISIONAIRE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Business
Precisionaire, Inc. (the Company) produces, distributes and sells air filters
and related products from several manufacturing and distributing locations
throughout the eastern United States. The Company's primary customers are
heating, ventilation and air-conditioning wholesalers, retailers, supermarkets,
mass merchandisers, filter sales and service companies, hardware wholesalers,
and original equipment manufacturers.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expense during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
All sales are recognized when shipments are made to customers.
Inventories
Inventories are stated at the lower of cost or market. The Company is using
the last-in, first-out (LIFO) method to determine the cost of its inventories.
If the first-in, first-out method had been used, inventories would have been
higher by approximately $56,000 and $35,000 at December 31, 1995 and 1994,
respectively.
During 1994, the Company liquidated certain LIFO inventories. The effect of
this liquidation on earnings was not material.
Page 29
<PAGE>
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Raw materials $ 2,077,307 $ 1,702,595
Finished goods 2,037,851 1,958,606
-------------- --------------
$ 4,115,158 $ 3,661,201
============== ==============
</TABLE>
Equipment and Furnishings
Equipment and furnishings are recorded at cost. Depreciation and amortization
are calculated on a straight-line basis over the estimated useful lives of the
assets. Accelerated methods are used for income tax purposes.
The estimated useful lives used in computing depreciation and amortization are
as follows:
<TABLE>
<CAPTION>
Years
---------
<S> <C>
Plant machinery and transportation equipment 3 - 10
Office and computer equipment 3 - 5
Leasehold improvements 5 - 10
Equipment under capital lease 5
</TABLE>
2. EQUIPMENT AND FURNISHINGS:
The Company's equipment and furnishings consisted of the following at December
31:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Plant machinery and transportation equipment $ 8,388,297 $ 7,186,146
Leasehold improvements 2,277,468 2,256,748
Office and computer equipment 1,770,123 1,595,683
Construction in progress 433,048 952,740
Equipment under capital lease 330,648 293,952
-------------- --------------
13,199,584 12,285,269
Less- Accumulated depreciation and
amortization (7,662,785) (6,627,220)
-------------- --------------
Equipment and furnishings, net $ 5,536,799 $ 5,658,049
============== ==============
</TABLE>
Page 30
<PAGE>
3. INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS
109 uses the liability method where deferred taxes are determined based on the
estimated future tax effects of differences between the financial statement and
tax basis of assets and liabilities given the provisions of enacted tax laws
and tax rates.
Income tax provision consisted of the following for the years ended December
31:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Current:
Federal $ 1,036,927 $ 401,387 $ 494,250
State 171,000 81,000 87,150
-------------- -------------- --------------
Total current provision 1,207,927 482,387 581,400
-------------- -------------- --------------
Deferred:
Federal (33,411) (38,416) (53,698)
State (3,713) (4,269) (5,966)
-------------- -------------- --------------
Total deferred benefit (37,124) (42,685) (59,664)
-------------- -------------- --------------
Total tax provision $ 1,170,803 $ 439,702 $ 521,736
============== ============== ==============
</TABLE>
The Company provides deferred taxes on significant temporary differences
between income determined by different accounting methods for financial
reporting and income tax purposes. These differences result primarily from the
use of accelerated methods of depreciation for tax purposes and the timing of
the deduction of various accrual and reserve accounts for tax purposes and
financial reporting purposes. Significant components of the Company's deferred
tax assets and liabilities at December 31, were as follows:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Current deferred tax assets:
Reserves $ 163,000 $ 172,000
Accruals 372,000 263,119
-------------- --------------
Total current deferred tax assets 535,000 435,119
Noncurrent deferred tax liabilities:
Equipment and furnishings 310,000 247,243
-------------- --------------
Total noncurrent deferred tax liabilities 310,000 247,243
Net deferred tax assets $ 225,000 $ 187,876
============== ==============
</TABLE>
Page 31
<PAGE>
There was no valuation allowance at December 31, 1995 and 1994. The income tax
provisions differ from the amount of income tax determined by applying the U.S.
statutory federal income tax rate of 34 percent to pretax income due to the
following:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Expected tax provision $ 969,000 $ 370,000 $ 484,000
Increase (decrease) in income tax
provision resulting from:
Nondeductible expenses 39,000 44,000 16,000
State income taxes, net of federal benefit 116,000 53,000 41,000
Other 46,803 (27,298) (19,264)
-------------- -------------- --------------
Total income tax provision $ 1,170,803 $ 439,702 $ 521,736
============== ============== ==============
</TABLE>
4. LONG-TERM DEBT:
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
(A) Borrowings under line of credit, limited
to the lesser of $2,500,000 or a
percentage of qualifying receivables plus
interest at prime plus .25% (8.75% at
December 31, 1995) through May 1998, at
which time all unpaid principal is due,
secured by all accounts receivable,
inventory and equipment, guaranteed by the
stockholders of the Company. The line
restricts acquisition and disposition of
assets, restricts incurrence of additional
indebtedness and requires maintenance of
certain financial ratios of which the
Company was in compliance or had obtained
waivers for noncompliance. $ 1,200,000 $ 1,700,000
</TABLE>
Page 32
<PAGE>
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
(B) Note payable, monthly payments of $55,556
plus interest at prime plus .75% (9.25% at
December 31, 1995) through May 1998, at
which time all unpaid principal is due,
secured by all equipment, accounts
receivable, inventory,
cross-collateralized with the line of
credit and guaranteed by the stockholders
of the Company. 1,591,565 -
(C) Note payable, monthly payments of $4,000
plus interest at prime (8.5% at December
31, 1995) through November 1996, at which
time all unpaid principal is due, secured
by the cash surrender value of life
insurance (see Note 5). 331,953 379,953
(D) Note payable, monthly payments of $10,278
plus interest at prime plus .75% (9.25% at
December 31, 1995) through November 1997,
at which time all unpaid principal is due,
secured by inventory and accounts
receivable, cross- collateralized with the
line of credit, guaranteed by the
stockholders of the Company. 236,389 367,244
(E) Note payable, monthly payments of $6,084
plus interest at prime plus .625% (9.125%
at December 31, 1995) through November
1996, at which time all unpaid principal
is due, secured by computer equipment. 66,892 139,900
(F) Notes payable, monthly payments totaling
$10,704 plus interest at prime plus 1.25%
(9.75% at December 31, 1995) through May
1995, at which time all unpaid principal
was consolidated into (A), above. - 200,600
(G) Note payable, monthly payments of $5,268
plus interest at prime plus 1.25% (9.75%
at December 31, 1995) through May 1995, at
which time all unpaid principal was
consolidated into (A), above. - 142,230
</TABLE>
Page 33
<PAGE>
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
(H) Note payable, monthly payments of $2,834
and $2,094 plus interest at prime plus 1%
(9.5% at December 31, 1995) through May
1995, at which time all unpaid principal
was consolidated into (A), above. - 146,787
(I) Note payable, monthly payments of $413
plus interest at prime plus 1% (9.5% at
December 31, 1995) through December 1995,
at which time the principal was paid,
secured by copy machines. - 6,192
(J) Capital lease obligation, monthly
payments of $1,122, including imputed
interest at 5.9%, through April 1998. 27,865 -
(K) Capital lease obligation, monthly
payments of $7,473, including imputed
interest at 6.5%, through September 1997. 146,193 224,355
-------------- --------------
3,600,857 3,307,261
Less- Current maturities (1,283,593) (2,277,461)
-------------- --------------
$ 2,317,264 $ 1,029,800
============== ==============
</TABLE>
Principal payments due on long-term debt are as follows:
<TABLE>
<CAPTION>
Amount
--------------
<S> <C>
1997 $ 855,555
1998 1,461,709
--------------
$ 2,317,264
==============
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company leases certain buildings and equipment under noncancellable
operating leases and leases substantially all of its real property located in
Florida, Pennsylvania and Texas from key officers or stockholders. Total rent
payments for these related party leases totaled approximately $894,000,
$888,000 and $839,000 for the years ended December 31, 1995, 1994, and 1993,
respectively. The Company and stockholders have guaranteed the lease payments
under terms of the related party leases. These related party leases, which
have expiration dates ranging from February 1995 to January 2005, are, in the
opinion of the Company, at terms not less favorable than could have been
obtained if the properties were leased from unrelated parties.
Page 34
<PAGE>
The future minimum payments under these noncancellable operating leases are as
follows:
<TABLE>
<CAPTION>
Year Ending Related Other
December 31, Parties Parties
------------ -------------- --------------
<S> <C> <C>
1996 $ 964,987 $ 251,597
1997 887,576 129,597
1998 720,444 34,521
1999 644,934 8,000
2000 633,684 -
Thereafter 2,645,220 -
-------------- --------------
$ 6,496,845 $ 423,715
============== ==============
Total rent expense for all operating leases was approximately $1,210,000,
$1,132,000 and $1,019,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
Guaranty
The Company leases land and facilities in Florida from a related party. The
related party financed the purchase of the land and facilities with proceeds
from the sale of an industrial development revenue bond (the Bond). The
Company and the stockholders have unconditionally guaranteed the repayment of
the Bond. Additionally, the Company has agreed to lease the land and
facilities through January 2005.
Letter of Credit
The Company had available $575,000 in a letter of credit to guarantee payment
of insurance claims. The letter of credit is partially collateralized by the
certificate of deposit and cross-collateralized with the line of credit. As of
December 31, 1995, no amount was outstanding under the letter of credit.
Employee Health Insurance Conversion
During 1995, the Company's health insurance carrier converted from a mutual
insurance company to a stock insurance company. In connection with this
change, the Company received approximately 17,000 shares of stock in the new
stock insurance company. Management intends to convert the stock to the
benefit of the employees.
Page 35
<PAGE>
Stock Repurchase Agreement
The Company has a stock restriction and repurchase agreement with the holders
of voting and nonvoting common stock which provides that the Company has a
right of first refusal if a stockholder desires to sell shares and requires the
Company to purchase the stock of a stockholder who dies, is totally disabled or
ceases to be an employee of the Company, as long as the Company is legally able
to do so. The purchase price shall be paid in cash, insurance proceeds or by a
promissory note. The purchase price is to be equal to
one and one-half times the book value per share.
The Company owns and is the beneficiary of term and whole life insurance
policies on the lives of certain key officers. As of December 31, 1995, the
total face value of these policies was approximately $8,100,000, and the cash
surrender value (included in other assets) was approximately $828,000. Of
these policies, approximately $1,600,000 of the term policies is
unconditionally assigned to the bank. The cash surrender value of the whole
life policy is collateral for the $331,953 note payable (see Note 4). Benefit
proceeds from the life insurance are to be distributed to the banks as assigned
and then used to redeem the Company stock in accordance with the stock
repurchase agreement as approved by the Board of Directors.
6. EMPLOYEE BENEFIT PLANS:
Profit Sharing Plan
The Company maintains a contributory profit sharing plan covering all eligible
employees. The Company's contribution to the plan is discretionary and is
determined by the Board of Directors each year. The Company accrued $100,000
at December 31, 1995, to be contributed to the plan during 1996, and the
Company elected not to contribute to the plan for 1994. The Company
contributed $100,000 to the plan in 1993.
401(k) Savings Plan
In July 1995, the Company started a 401(k) savings plan covering substantially
all employees. Employer contributions totaled approximately $33,000 for the
year ended December 31, 1995, and are included in selling, general and
administrative expenses in the accompanying statements of income. The employee
contribution included a maximum of 12 percent of plan compensation per
employee. The 401(k) employer matching contribution was 25 percent for the
first 4 percent of the employee's contribution up to $9,240 per employee per
year. Employees are eligible to participate in the plan on the January 1 or
July 1 after the first year of employment, completion of at least 1,000 hours
of service and attaining 21 years of age.
Page 36
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
<TABLE>
<CAPTION>
(a) Exhibit No. Description
----------- -----------
<S> <C> <C>
4.1 Form of Series A Convertible
Subordinated Debentures
4.2 Form of Warrants
4.3 Form of 10% Convertible Notes
10.1 Stock Purchase Agreement between
Flanders Corporation and the Shareholders
of Precisionaire, Inc. filed with the Form
8-K dated September 23, 1996, incorporated
by reference
10.2 Purchase and Sale Agreement between POT
Realty and Precisionaire, Inc.
10.3 Assumption Agreement with Release of
Liability between POT Realty and
Precisionaire, Inc. for original principal
amount of $2,069,653
10.4 Assumption Agreement with Release of
Liability between POT Realty and
Precisionaire, Inc. for original principal
amount of $133,025.
10.5 Guaranty Agreement between Flanders
Corporation and American National Bank of
Texas.
10.6 Subscription Agreement between Flanders
Corporation and the President and Fellows
of Harvard College
10.7 Escrow Agreement between Flanders
Corporation, President and Fellows of
Harvard College and State Street Bank &
Trust
10.8 Subscription Agreement between Flanders
Corporation and General Electric Pension
Trust
10.9 Escrow Agreement between Flanders
Corporation, General Electric Pension Trust
and State Street Bank & Trust
23 Consent of Arthur Andersen, LLP
27 Financial Data Schedule
</TABLE>
Page 37
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
99 Form of Subscription Agreement
</TABLE>
(b) Reports on Form 8-K
The Company filed a Form 8-K dated September 23, 1996 regarding
the Company's acquisition of all of the issued and outstanding
capital stock of Precisionaire and the Company's entry into a
loan agreement with NationsBank. See "Part I, Item 2 -
Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Part II, Item 5 - Other
Information."
Page 38
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated this 19th day of November, 1996.
FLANDERS CORPORATION
By: /s/ Steven K. Clark
-------------------
Steven K. Clark
Vice President Finance/Chief Financial
Officer and Director
EXHIBIT 4.1
FLANDERS CORPORATION
Convertible Subordinated Debenture
<PAGE>
No. _________
FLANDERS CORPORATION
Convertible Subordinated Debenture
due at the latest September 17, 1999
Date: September 17, 1996 $_________
THIS SECURITY WAS ISSUED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED ("THE 1933 ACT") AND UNDER THE
SECURITIES LAWS OF THE STATES OF NORTH CAROLINA AND UTAH. THIS SECURITY
CANNOT BE RESOLD OR OTHERWISE TRANSFERRED OR DISPOSED OF IN ANY MANNER UNLESS
IT IS REGISTERED PURSUANT TO THE 1933 ACT AND APPLICABLE STATE LAW OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS THEN AVAILABLE AND THE HOLDER
OBTAINS AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
ARTICLE I
THE SECURITY
SECTION 1.1. The Security.
Flanders Corporation, a North Carolina corporation (herein called the
"Company," which term includes any successor corporation), for value received,
hereby promises to pay to ______________________________ or its assigns (the
"Holder"), the principal sum of ____________________________________________
together with all accrued interest thereon at a rate of 1.5% per month, on the
earlier of (1) the release of escrow described in the Escrow Agreement dated
September 5, 1996 entered into between the Company, the Trustees of General
Electric Pension Trust and State Street Bank and Trust Company, attached
hereto as Exhibit A, or (2) September 17, 1999 ("Maturity"), at the office of
the Company referred to below. "Person" means any individual, corporation,
partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated organization, or government or any
agency or political subdivision thereof. "Business Day" means each Monday,
Tuesday, Wednesday, Thursday, and Friday that is not a day on which banking
institutions in North Carolina are authorized or obligated by law, regulation,
or executive order to close.
Payment of the principal and accrued interest of this Security will be
made by wire transfer to the Holder, or at such office as may be maintained
for such purpose, in such coin or
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currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that payment
of the principal and accrued interest may be made, at the option of the Person
entitled thereto, by check mailed to the address of such Person as such address
shall appear on the security register maintained by the Company in connection
herewith ("Security Register").
This Security is a duly authorized Convertible Subordinated Debenture due
at the latest September 17, 1999 of the Company (the "Security"). Provided
that the average closing price of the Company's common stock for the preceding
twenty (20) trading days is more than $7.00, this Security may be prepaid by
the Company at any time. If, at the time of any prepayment of this Security,
the average trading price of the Company's common stock for the preceding
twenty (20) day trading period is less than $7.00, the Company shall pay a
prepayment penalty of five percent (5%) of the face value of this Security at
the time of prepayment.
SECTION 1.2. Computation of Interest.
Interest payable on this Security shall be computed on the basis of a
360-day year of twelve 30-day months.
ARTICLE II
CONVERSION
SECTION 2.1. Conversion.
At its option, the Holder may convert this Security into a total of
55,556 shares ($9.00 per share) of common stock of the Company until December
31, 1996.
SECTION 2.2. Issuance of Common Stock Pursuant to Conversion.
To convert all or any part of the Security prior to Maturity, the Holder
must (a) complete and sign the conversion notice attached as Exhibit B hereto,
(b) surrender the Security to the Company at the closing date provided in the
conversion notice, and (c) furnish appropriate endorsements and transfer
documents related to the Security.
ARTICLE III
REMEDIES
SECTION 3.1. Events of Default.
"Event of Default," wherever used herein with respect to this Security,
means any one of the following events (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree,
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or order of any court or any order, rule, or regulation of any administrative or
governmental body):
(a) default in the payment of the principal of this Security when it
becomes due and payable and continuance of such default for a period of
seven (7) days after there has been given, by registered or certified
mail, to the Company by the Holder, a written notice of such default or
breach;
(b) default in the payment of the interest of this Security when it
becomes due and payable and continuance of such default for a period of
seven (7) days after there has been given, by registered or certified
mail, to the Company by the Holder, a written notice of such default or
breach;
(c) default in the performance, or breach, of any other covenant or
agreement of the Company herein, as amended from time to time, and
continuance of such default or breach for a period of thirty (30) days
after there has been given, by registered or certified mail, to the
Company by the Holder, a written notice specifying such default or
breach;
(d) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company in an involuntary
case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization, or other similar law, or (B) a decree or
order adjudging the Company bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement,
adjustment, or composition of or in respect of the Company under any
applicable federal or state law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator, or other similar official of
the Company or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and the continuance of any such
decree or order for relief or any such other decree or order unstayed and
in effect for a period of ninety (90) consecutive days;
(e) the commencement by the Company of a voluntary case or proceeding
under any applicable federal or state bankruptcy, insolvency,
reorganization, or other similar law or of any other case or proceeding
to be adjudicated as bankrupt or insolvent, or the consent by the Company
to the entry of a decree or order for relief in respect of the Company in
an involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization, or other similar law, or to the
commencement of any bankruptcy or insolvency case or proceeding against
it, or the filing by the Company of a petition or answer or consent
seeking reorganization or relief under any applicable federal or state
law, or the consent by the Company to the filing of such petition, or the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator, or similar official of the Company or of
any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or
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the admission by the Company in writing of its inability to pay its debts
generally as they become due, or the taking of corporate action by the
Company in furtherance of any such action.
SECTION 3.2. Default Rate of Interest and Acceleration of Maturity.
If an Event of Default occurs, then and in every such case the Holder may
declare the principal amount of this Security to be due and payable
immediately, by a notice in writing to the Company and, upon any such
declaration, such principal amount shall become due and payable. If an Event
of Default specified in Section 3.1(d) or (e) occurs and is continuing, then
the principal of this Security shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the Holder.
SECTION 3.3. Unconditional Right to Receive Principal and Interest.
Except as provided in Article V, the Holder shall have the right on the
terms stated herein, which is absolute and unconditional, to receive payment
of the principal of and interest, if any, on this Security on the stated
Maturity expressed in this Security and to institute suit for the enforcement
of any such payment, and such rights shall not be impaired without the consent
of the Holder.
SECTION 3.4. Restoration of Rights and Remedies.
If the Holder has instituted any proceeding to enforce any right or
remedy hereunder and such proceeding has been discontinued or abandoned for
any reason, or has been determined adversely to such Holder, then and in every
such case the Company and the Holder shall, subject to any determination in
such proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Holder
shall continue as though no such proceeding has been instituted.
SECTION 3.5. Rights and Remedies Cumulative.
No right or remedy herein conferred upon or reserved to the Holder is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at
law or in equity or otherwise. The assertion or employment of any right or
remedy hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 3.6. Delay or Omission Not Waiver.
No delay or omission of the Holder to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event
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of Default or an acquiescence therein. Every right and remedy given by this
Section or by law to the Holder may be exercised from time to time, and as often
as may be deemed expedient by the Holder.
SECTION 3.7. Waiver of Past Defaults.
The Holder may waive, in writing, any past default hereunder and its
consequences, but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
ARTICLE IV
COVENANTS
SECTION 4.1. Payment of Principal and Interest.
The Company covenants and agrees that it will duly and punctually pay the
principal of and interest, if any, on this Security in accordance with the
terms hereof.
SECTION 4.2. Maintenance of Office or Agency.
The Company will maintain an office or agency where this Security may be
presented or surrendered for payment, where this Security may be surrendered
for registration of transfer, and where notices and demands to or upon the
Company in respect of this Security may be served. The Company will give
prompt written notice to the Holder of any change in the location of any such
office or agency.
The Company may from time to time designate one or more other offices or
agencies where this Security may be presented or surrendered for any or all
such purposes, and may from time to time rescind such designation.
SECTION 4.3. Money for Security Payments to be Held in Trust.
The Company shall, on or not more than one Business Day before each due
date of the principal of this Security, segregate and hold in trust for the
benefit of the Holder a sum sufficient to pay the principal or interest so
becoming due until such sum shall be paid.
SECTION 4.4. Corporate Existence.
The Company shall do or cause to be done all things necessary to preserve
and keep in full force and effect the corporate existence and rights (charter
and statutory) of the Company.
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ARTICLE V
SUBORDINATION
SECTION 5.1. Agreement to Subordinate.
The Company, for itself, its successors, and assigns, covenants and
agrees, and the Holder likewise covenants and agrees by its acceptance hereof,
that the obligations of the Company to make any payment on account of the
principal of and interest hereon shall be subordinate and junior in right of
payment to the Company's obligations to the holders of "Senior Indebtedness"
of the Company. The subordination provisions of the Security shall not be
waived or amended without the written consent of the holders of the Senior
Indebtedness. "Senior Indebtedness" of the Company consists of the principal
of, premium, if any, and interest on (a) all present and future indebtedness
for money borrowed, which is secured by property or assets of the Company or
its affiliates, including but not limited to any indebtedness entered into
between the Company and NationsBank, N.A., and (b) any deferrals, renewals, or
extensions of such Senior Indebtedness. The term "indebtedness for money
borrowed" means any obligation of, or any obligation guaranteed by, the
Company or its affiliates for the repayment of borrowed money, whether or not
evidenced by bonds, debentures, notes, or other written instruments, and any
deferred obligation for payment of the purchase price of property or assets.
SECTION 5.2. No Payment When Senior Indebtedness in Default.
No payment shall be made by the Company on account of the principal of or
interest, if any, on the Security in the event and during the continuation of
any default in the payment of principal of or interest on any Senior
Indebtedness beyond any applicable grace period with respect thereto, or in
the event that any event of default with respect to any Senior Indebtedness
shall have occurred and be continuing, or would occur as a result of such
payment, which would permit the holders thereof to cause such Senior
Indebtedness to be declared due and payable prior to the date on which it
would otherwise have become due and payable, unless and until such event of
default shall have been cured or waived or shall have ceased to exist and such
acceleration shall have been rescinded or annulled.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Notices to the Company.
Any request, demand, authorization, direction, notice, consent, waiver,
or other document provided or permitted by this Security to be made upon,
given or furnished to, or filed with the Company by the Holder shall be
sufficient for every purpose hereunder if in writing and mailed, first-class
postage prepaid, to the Company addressed to it at 531 Flanders Filters Road,
Washington, North Carolina, 27889.
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SECTION 6.2. Transferability.
This Security may not be resold or otherwise transferred or disposed of
in any manner by the Holder unless it is registered under relevant state and
federal securities laws or an exemption from such registration requirements is
then available and the Holder obtains an opinion of counsel satisfactory to
the Company that such registration is not required and that such transfer will
not jeopardize the Company's reliance on the exemption from registration in
connection with the issuance hereof.
SECTION 6.3. Successors and Assigns.
All covenants and agreements in this Security by the Company and the
Holder shall bind their respective successors and assigns, whether so
expressed or not.
SECTION 6.4. Separability.
In case any provision of this Security shall be invalid, illegal, or
unenforceable, the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 6.5. Benefits of Security.
Except as provided in Article VI hereof, nothing in this Security,
express or implied, shall give to any Person (other than the Holder and the
Company and their successors hereunder) any benefit or any legal or equitable
right, remedy, or claim under this Security.
SECTION 6.6. Governing Law.
This Security shall be governed by and construed in accordance with the
laws of the State of North Carolina.
SECTION 6.7. Legal Holiday.
In any case where the Maturity hereof shall not be a Business Day
(notwithstanding any other provision hereof), payment of interest and
principal need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the
Maturity, and no interest shall accrue with respect to such payment for the
period from and after such or Maturity, as the case may be, to such next
succeeding Business Day.
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IN WITNESS WHEREOF, the Company has caused this Convertible Subordinated
Debenture to be duly executed as of the day and year first above written.
FLANDERS CORPORATION
By_____________________________
Name:________________________
Title:_______________________
8
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Exhibit A
ESCROW AGREEMENT
<PAGE>
ESCROW AGREEMENT
AGREEMENT dated this 5th day of September, 1996, by and among the
Trustees of General Electric Pension Trust ("Subscriber"), Flanders
Corporation, a North Carolina corporation ("Flanders"), and State Street Bank
and Trust Company, a Massachusetts corporation (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, Flanders and Subscriber are parties to a Subscription Agreement
dated September 5, 1996 (the "Subscription Agreement") which provides for the
escrow of $4,000,005 with Escrow Agent (such amount and interest thereon being
sometimes referred to as the "Escrowed Assets") and the deposit of 444,445
shares of common stock of Flanders (the "Flanders Shares"); and
WHEREAS, Flanders and the Subscriber are desirous of entering into this
Agreement and the Escrow Agent is willing to act as escrow agent on the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained and subject to the conditions hereinafter set forth, the parties
hereto agree as follows:
1. Concurrently with the execution hereof, the Subscriber is paying
the sum of $4,000,005 referred to above to, and Flanders is depositing the
Flanders Shares with. the Escrow Agent, which shall hold the same, and any
interest earned on Escrowed Assets, in escrow on the terms and conditions
hereinafter set forth.
2. The Escrow Agent shall make payment of the Escrowed Assets to the
Subscriber as follows: If the Escrow Agent shall have received a written
notice from the Subscriber to the Escrow Agent given after September 30, 1996,
which notice shall (i) certify that Flanders did not complete the acquisition
of Precisionaire, Inc. ("Precisionaire"), as set forth in the Stock Purchase
Agreement dated July 1, 1996 (the "Precision Acquisition"), or (ii) certify
that the Registration Statement referred to in the Subscription Agreement did
not become effective on or before December 5, 1996, and has not, as of the
date of the Subscriber's notice, become effective and that the Subscriber has
given written notice to Flanders of the rescission of the transaction referred
to in the Subscription Agreement, and (iii) direct the Escrow Agent to pay the
Escrowed Assets to the Subscriber, the Escrow Agent shall transmit a copy of
such notice to Flanders. The Escrow Agent shall act in accordance with such
notice from the Subscriber to the Escrow Agent unless within ten days from
transmittal by the Escrow Agent to Flanders of the copy of such notice,
Flanders shall notify the Escrow Agent not to comply with the payment
instruction contained in such notice from the Subscriber to the Escrow Agent.
Simultaneously with any payment of Escrowed Assets to the Subscriber pursuant
hereto, Escrow Agent shall deliver the Flanders Shares to Flanders.
<PAGE>
3. The Escrow Agent shall make payment of the Escrowed Assets to
Flanders as follows: If the Escrow Agent shall have received a written notice
from Flanders which notice shall certify (i) that the Precision Acquisition
has been completed, and (ii) that the Registration Statement referred to in
the Subscription Agreement has become effective and shall direct the Escrow
Agent to pay the Escrowed Assets to Flanders, the Escrow Agent shall transmit
a copy of such notice to the Subscriber. The Escrow Agent shall act in
accordance with such notice from Flanders to the Escrow Agent unless within
ten days from transmittal by the Escrow Agent to the Subscriber of the copy of
such notice the Subscriber shall notify the Escrow Agent not to comply with
the payment instruction contained in such notice from Flanders to the Escrow
Agent. Simultaneously with any payment of the Escrowed Assets to Flanders
pursuant hereto, the Escrow Agent shall deliver the Flanders Shares to
Subscriber.
4. After Flanders shall have notified the Escrow Agent not to comply
with the Subscriber's payment instruction (as referred to in paragraph 2
above) and after the Subscriber shall have notified the Escrow Agent not to
comply with Flanders payment instruction (as referred to in Paragraph 3
above), the Escrow Agent shall act with respect to the Escrowed Assets solely
in accordance with any of the following: (a) a new Instruction signed jointly
by Flanders and the Subscriber; (b) a certified copy of an arbitrator's award
issued under the rules of the American Arbitration Association as to which the
Escrow Agent shall have received an opinion of counsel, which may include the
Escrow Agent and which is addressed and delivered also to each of Flanders and
the Subscriber, satisfactory to the Escrow Agent and in its sole and absolute
discretion, that such award is final beyond appeal or (c) a certified copy of
a judgment of a court of competent jurisdiction as to which the Escrow Agent
shall have received an opinion of counsel, which may include the Escrow Agent
and which is addressed and delivered also to Flanders and the Subscriber,
satisfactory to the Escrow Agent in its sole and absolute discretion, that
such judgment is final beyond appeal. Anything in the foregoing to the
contrary notwithstanding, at the sole discretion of the Escrow Agent, the
Escrow Agent may at any time deposit the Escrowed Assets with a court selected
by the Escrow Agent and in such event all liability and responsibility of the
Escrow Agent as to acts or omissions and subsequent to such deposit shall
terminate upon such deposit having been made.
5. Upon any distribution of the Escrowed Assets to Subscriber
pursuant to paragraph 2 above, or to Flanders pursuant to paragraph 3 above,
the Escrow Agent shall deliver the Flanders Shares to Flanders, in the case of
a delivery of Escrowed Assets pursuant to paragraph 2 above, and to
Subscriber, pursuant to delivery of the Escrowed Assets to Flanders pursuant
to paragraph 3 above. In no event shall the Escrow Agent deliver the Escrowed
Assets without contemporaneously delivering the Flanders shares to the party
not receiving the Escrowed Assets.
6. The Escrow Agent shall deliver the Escrowed Assets in accordance
with any instruction or instructions which shall be signed jointly by both
Flanders and the Subscriber.
7. Flanders shall be liable for any and all fees and expenses of the
Escrow Agent incurred in connection with this Agreement, including counsel
fees, if any, payable in
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connection with the delivery of the Escrowed Assets hereunder. Flanders shall
pay any such amounts due to the Escrow Agent promptly upon demand therefor.
8. Flanders and Subscriber acknowledge and agree that the Escrow
Agent may consult counsel satisfactory to it, including house counsel, and the
opinion of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion of such counsel.
9. Neither the Escrow Agent nor any of its directors, officers or
employees shall be liable to anyone for any action taken or omitted to be
taken by it or any of its directors, officers or employees hereunder except in
the case of gross negligence or willful misconduct. Flanders and Subscriber,
jointly and severally, covenant and agree to indemnify the Escrow Agent and
hold it harmless without limitation from and against any loss, liability or
expense of any nature incurred by the Escrow Agent arising out of or in
connection with this Agreement or with the administration of its duties
hereunder, including but not limited to legal fees and other costs and
expenses of defending or preparing to defend against any claim or liability in
the premises, unless such loss, liability or expense shall be caused by the
Escrow Agent's willful misconduct or gross negligence. In no event shall the
Escrow Agent be liable for indirect, punitive, special or consequential
damages. The provisions of this paragraph 9 shall survive termination of this
Agreement.
10. The Escrow Agent shall not be bound in any way by any agreement
or contract (other than this Agreement) between Flanders and the Subscriber,
whether or not it has knowledge thereof, and the Escrow Agent's only duties
and responsibilities shall be to hold the Escrowed Assets as escrow agent and
to dispose of said assets in accordance with the terms of this Agreement. The
Escrow Agent may act upon any instruments or other writings believed by the
Escrow Agent in good faith to be genuine and to be signed or presented by the
proper persons and the Escrow Agent shall not be liable in connection with the
performance of its duties under this Agreement except for its own willful
malfeasance or bad faith.
11. The Escrow Agent may at any time resign as Escrow Agent hereunder
by giving thirty (30) days' prior written notice of resignation to Flanders
and Subscriber. Prior to the effective date of the resignation as specified
in such notice, Subscriber will issue to the Escrow Agent a written
instruction authorizing redelivery of the Escrowed Assets to a bank or trust
company that it selects, subject to the reasonable consent of Flanders. Such
bank or trust company shall have a principal office in New York, New York, and
shall have capital, surplus and undivided profits in excess of $50,000,000.
If however, Subscriber shall fail to name such a successor escrow agent within
twenty (20) days after the notice or resignation from the Escrow Agent,
Flanders shall be entitled to name such successor escrow agent. If no
successor escrow agent is named by Subscriber or Flanders, the Escrow Agent
may apply to a court of competent jurisdiction for appointment of a successor
escrow agent.
12. Neither Flanders nor Subscriber nor Escrow Agent shall be
responsible for delays or failures in performance resulting from acts beyond
its control. Such acts shall
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include but not be limited to acts of God, strikes, lockouts, riots, acts or
war, epidemics, governmental regulations superimposed after the fact, fire,
communication line failures, computer viruses, power failures, earthquakes or
other disasters.
13. Any notice, report, demand or instruction required or permitted
by the provisions of this Agreement shall be deemed to have been sufficiently
transmitted, delivered, given or served for all purposes if delivered by hand
or if sent by prepaid registered mail or certified mail, or by responsible
overnight delivery service or telecopy to the parties at their addresses set
forth above, or at such other address as a party may hereinafter give by
written notice as herein provided:
If to Flanders:
Flanders Corporation
531 Flanders Filters Road
Washington, North Carolina 22889
Attention: Steven K. Clark
If to Subscriber:
Trustees of General Electric Pension Trust
3003 Summer Street
Stamford, Connecticut 06904
Attention: Mike Pastore
If to Escrow Agent:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02210
Attention: Michael P. Cloherty
Master Trust Services
The date of delivery or transmittal shall be the date of delivery, if by
hand or telecopy, or if mailed shall be deemed to be the date of mailing, or
if sent by overnight delivery service shall be deemed to be the next business
day except that no notice, report, demand or Instruction shall be deemed to
have been delivered or transmitted to the Escrow Agent until actual receipt
thereof by the Escrow Agent.
14. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York and shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
successors and assigns. This Agreement may not be changed or amended in any
manner whatsoever except in writing signed by each of the parties hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
made and executed the day and year first above written.
ESCROW AGENT:
By: ___________________________________
Its: ___________________________________
SUBSCRIBER:
By: ___________________________________
Its: ___________________________________
FLANDERS CORPORATION:
By: ___________________________________
Its: ___________________________________
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Exhibit B
CONVERSION NOTICE
Pursuant to the terms of the Security, the undersigned Holder of the
Security does hereby give notice of its intention to convert [all/part of] the
Security, pursuant to its terms, into shares of Common Stock of the Company
constituting [ ] shares of Common Stock of the Company.
"Holder"
_________________________________________
By: _________________________________
Its: _________________________________
EXHIBIT 4.2
WARRANT TO PURCHASE SHARES
OF COMMON STOCK OF
FLANDERS CORPORATION
<PAGE>
THIS WARRANT, AND THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS
WARRANT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED ( THE "ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE
SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH LAWS,
OR AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH LAWS WHICH,
IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION
ARE REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, IS
AVAILABLE.
EXERCISABLE ON OR BEFORE
5.30 P.M, NEW YORK TIME, SEPTEMBER 23, 1999
WARRANT TO PURCHASE SHARES
OF COMMON STOCK OF
FLANDERS CORPORATION
No. ____
Warrant to Purchase
FOR VALUE RECEIVED, FLANDERS CORPORATION, a corporation organized and
existing under the laws of the State of North Carolina (the "Company"),
promises to issue in the name of, and sell and deliver to Eagle Capital
Management (the "Holder"), a certificate or certificates for an aggregate of
5,000 shares (the "Shares") of common stock, $0.001 par value per share
("Common Stock"), upon surrender of this Warrant to Purchase Shares (the
"Warrant") and payment therefor of the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $ 9 5/8 per Share.
Payment of the Exercise Price shall be made by certified or official bank
check in New York Clearing House Funds (next day funds) payable to the
Company. This Warrant shall be exercisable at any time after September 20,
1996 and prior to 5:30 P.M., New York time on September 23, 1999 (the
"Exercise Period"); and shall be void thereafter.
1. EXERCISE OF WARRANT. In case the Holder of this Warrant shall
desire to exercise this Warrant, in whole or in part, the Holder shall
surrender this Warrant, with the Form of Exercise annexed hereto duly executed
by the Holder, to the Company's principal offices (presently located at 531
Flanders Filters Road, Washington, NC 27889) accompanied by payment of the
Exercise Price. Upon surrender of a Warrant with the duly executed Form of
Exercise, together with the Exercise Price, the Holder shall be entitled to
receive a certificate or certificates for the shares so purchased.
<PAGE>
This Warrant may be exercised in whole or in part but not for fractional
Shares. In case of the purchase of less than all the Shares purchasable under
any Warrant, the Company shall cancel the Warrant upon the surrender thereof
and shall execute and deliver to the Holder a new Warrant of like tenor in the
name of the Holder evidencing the right to purchase the number of Shares as to
which this Warrant has not been exercised. This Warrant, at any time prior to
the exercise hereof, upon presentation and surrender to the Company may be
exchanged, along or with other Warrants of like tenor registered in the name
of the same Holder, for another Warrant or other Warrants of like tenor in the
name of such Holder exercisable for the same aggregate number of Shares as the
Warrant or Warrants surrendered.
2. EXERCISE PRICE. Except as otherwise provided in Section 3 hereof,
the exercise price of each Warrant shall be $ 9 5/8 per share of Common Stock.
The adjusted exercise price shall be the price which shall result from time
to time from any and all adjustments of the initial exercise price in
accordance with the provisions of Section 3 hereof. The term "Exercise Price"
as used herein shall mean the initial exercise price or the adjusted exercise
price, depending upon the context.
3. STOCK DIVIDENDS OR DISTRIBUTIONS, RECLASSIFICATIONS,
REORGANIZATIONS, ANTI-DILUTION PROVISIONS. This Warrant is subject to the
following further provisions:
(a) In case, prior to the expiration of this Warrant by exercise or
by its terms, the Company shall issue any shares of its Common Stock as a
stock dividend or distribution or subdivide the number of outstanding
shares of Common Stock into a greater number of shares, then, in such
case, the number of shares of Common Stock underlying this Warrant shall
be proportionately increased; and, conversely, if the Company shall
contract the number of outstanding shares of Common Stock by combining
such shares of Common Stock into a smaller number of shares of Common
Stock then, in such case, the number of shares of Common Stock underlying
this Warrant shall be proportionately decreased. If the Company shall,
at any time during the life of this Warrant, declare a dividend or
distribution payable in cash on its Common Stock and shall at
substantially the same time offer to its shareholders generally a right
to purchase new shares of Common Stock from the proceeds of such dividend
or distribution or for an amount substantially equal to the dividend or
distribution, all shares of Common Stock so issued shall, for purposes of
this Warrant, be deemed to have been issued as a stock dividend. Any
dividend or distribution paid or distributed upon the Common Stock in
shares of any other class of securities convertible into shares of Common
Stock or any other securities of the Company shall be treated as a
dividend paid in Common Stock to the extent that shares of Common Stock
are issuable upon the conversion thereof;
(b) In case, prior to the expiration of this Warrant by exercise or
by its terms, the Company shall be recapitalized by reclassifying its
outstanding Common Stock into shares with a different par value, or shall
thereafter reclassify any such shares in a like manner, or the Company or
a successor corporation shall consolidate or merge with or convey all or
substantially all of its, or all or substantially all of any successor
corporation's, property and assets to any other corporation or
corporations (any such corporation being included within the meaning of
the term "successor corporation" hereinbefore used in the event of any
consolidation or merger of any such corporation with, or the sale of all
or substantially all of the property of any such corporation to, another
corporation
2
<PAGE>
or corporations), the Holder shall thereafter have the right to purchase,
pursuant to and on the terms and conditions and during the time specified in
this Warrant, in lieu of the shares of Common Stock underlying this Warrant
and that are purchasable upon the exercise of this Warrant, such shares of
Common Stock, securities or assets as may be issued or payable with respect
to, or in exchange for, the number of shares of Common Stock underlying this
Warrant, upon the exercise of this Warrant, had such recapitalization,
consolidation, merger or conveyance not taken place; and, in any such event,
the rights of the Holder to an adjustment in the number of shares of Common
Stock underlying the Shares underlying this Warrant and that are purchasable
upon the exercise of this Warrant as herein provided, shall continue and be
preserved in respect to any shares, securities or assets which the Holder of
this Warrant becomes entitled to purchase;
(c) In case:
(i) the Company shall make a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend
constituting a partial liquidating dividend, as hereinafter defined;
or
(ii) the Company shall make a record of the holders of its
Common Stock for the purpose of entitling them to subscribe for or
purchase any shares of any class or to receive any other rights; or
(iii) the Company shall set a date for any reclassification or
other reorganization of the capital stock of the Company,
consolidation or merger of the Company with or into another
corporation, or conveyance of all or substantially all of the assets
of the Company; or
(iv) the Company shall set a date for the voluntary or
involuntary dissolution, liquidation or winding up of the Company;
then, in any such case, the Company shall mail to the Holder of this
Warrant, at least thirty (30) days prior to such record date or the date set
for any actions described in Subsections (c)(i) through (c)(iv) above, a
notice advising such Holder of the date or expected date on which a record
is to be taken for the purpose of such dividend, distribution of rights or
the date on which such reclassification, reorganization, consolidation,
merger, conveyance, dissolution, liquidation or winding up is to take place,
as the case may be. Such notice shall also specify the date or expected
date, if any is to be fixed, as of which holders of Common Stock of record
shall be entitled to participate in said dividend, distribution of rights,
or shall be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up,
as the case may be. Each such written notice shall be given by certified
mail, postage prepaid, return receipt requested, addressed to the holder of
the Warrant at the address of such holder as shown on the books of the
Company;
3
<PAGE>
(d) The provisions of this Section 3 are for the purpose of, and
shall be interpreted to the effect that, upon any exercise of this
Warrant, the Holder shall be entitled to receive the same amount and kind
of securities and other property that it would have been entitled to
receive as the owner at all times subsequent to the date hereof of the
number of shares of Common Stock issuable upon conversion of the Shares
purchased upon any such exercise;
(e) It is agreed and understood that no adjustments shall be made
hereunder solely as a result of the issuance by the Company of: (i)
Common Stock issued pursuant to the Memorandum or any future public or
private issuance of stock; or (ii) Common Stock issued upon the exercise
of warrants or options granted by the Company.
4. REGISTRATION RIGHTS
(a) Piggyback Registration. If at any time the Company shall
propose to file with the Securities and Exchange Commission (the
"Commission") on behalf of the Company or any other stockholder a
registration statement under the Securities Act of 1933, as amended (the
"Act"), with respect to any class of security (as defined in Section
3(a)(10) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), other than a registration statement approved by the
Board of Directors on Form S-4 or S-8, or such amended or alternative
form for Form S-4 or S-8 as the Commission may from time to time require,
the Company shall in each case timely notify Holder and include in such
Registration Statement any or all of the Shares as Holder may request
within twenty (20) days after the Company's giving of such notice,
subject to the conditions set forth herein.
(b) Registration Procedures. If, pursuant to Sections 4(a) hereof,
the Company is required to include any Shares in a registration statement
proposed to be filed, the Company will, as expeditiously as possible:
(i) prepare and file such registration statement under the Act on an
appropriate form and use its best efforts to cause such registration
statement to become effective; (ii) prepare and file with the Commission
such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to comply
with the provisions of the Act and the Exchange Act with respect to the
offer of the securities covered by such registration statement during the
period required for distribution of such securities; (iii) furnish to the
holder of such Shares such number of copies of such registration
statement and all amendments thereto and of such prospectus (including
each preliminary, amended or supplemental prospectus) as such holders may
reasonably request in order to facilitate the sale or transfer of the
securities covered by such registration statement; (iv) use its best
efforts to register or qualify the securities covered by any such
registration statement in such jurisdictions as such holders may
reasonably request; (v) furnish, at the request of Holder, on the date
that such Shares are delivered to the underwriters for sale pursuant to
such registration or, if such Shares are not being sold through
underwriters, on the date such registration statement becomes effective
(1) an opinion, dated such date, in a form customary to such
transactions, of the independent counsel representing the Company for the
purposes of such registration, addressed to the underwriters, if any, and
to Holder making such request, reasonably acceptable in form and
substance to such underwriter and Holder and (2) a letter, dated such
date, from the
4
<PAGE>
independent certified public accountants of the Company, addressed to the
underwriters, if any, and Holder, stating that they are independent
certified public accountants within the meaning of the Act and that in the
opinion of such accountants, the financial statements and other financial
data of the Company included in the registration statement or the
prospectus, or any amendment or supplement thereto (including, in each case,
documents incorporated by reference thereto), comply as to form in all
material respects with the applicable accounting requirements of the Act;
such opinion of counsel shall additionally cover such other legal matters
with respect to the registration statement and the Company as the
underwriters, if any, or Holder may reasonably request; and such letter from
the independent certified public accountants shall additionally cover such
other financial matters (including information as to the period ending not
more than five (5) business days prior to the date of such letter) with
respect to the registration statement and the Company as the underwriters,
if any, or Holder may reasonably request; (vi) use its best efforts to keep
such registration and qualification effective until all exercises, sales and
distributions contemplated by the requests made pursuant to Section 4(a)
hereof shall have been completed, but not in any event for a period in
excess of nine (9) months; and (vii) pay all expenses incurred by Holder and
the Company in complying with this Section 4(b), including without
limitation (1) all registration and filing fees; (2) all printing expenses;
(3) all fees and disbursements of counsel and independent public accountants
for the Company and Holder; (4) all Blue Sky fees and expenses (including
fees and expenses of counsel in connection with Blue Sky surveys); and (5)
the entire expense of any special audits incident to or required by any such
registration.
5. COVENANTS OF THE COMPANY. The Company hereby covenants and agrees
that prior to the expiration of this Warrant by exercise or by its term:
(a) The Company will not by amendment of its Articles of
Incorporation or through reorganization, consolidation, merger,
dissolution, or sale of assets, or by any other voluntary act or deed,
avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed
hereunder by the Company, but will at all times in good faith assist,
insofar as it is able, in the carrying out of all provisions of this
Warrant and in the taking of all other actions that may be necessary in
order to protect the rights of the Holder against dilution;
(b) Irrespective of any adjustment or change in the Warrant
purchase price, or the number of shares of Common Stock actually
purchasable under each Warrant of like tenor, the Warrants theretofore
and thereafter issued may continue to express the Warrant purchase price
per Share and the number of Shares purchasable thereunder as the Warrant
purchase price per Share and the number of Shares purchasable were
expressed on the Warrants when initially issued;
(c) Upon the happening of any event requiring an adjustment of the
Warrant purchase price hereunder, the Company shall forthwith give
written notice thereof to the registered Holder of each Warrant, stating
the adjusted Warrant purchase price and the adjusted number of shares of
Common Stock purchasable upon the exercise thereof resulting from such
event, and setting forth in reasonable detail the method of calculation,
The certificate of either the Company's independent certified public
accountants or Chief Financial Officer shall be conclusive evidence of
the correctness of any computation made
5
<PAGE>
hereunder unless contested by a Holder by written notice to the Company
within fourteen (14) days after receipt thereof by the Holder. Notice
pursuant to this subsection shall be given by certified mail, postage
prepaid, return receipt requested, addressed to the registered holder of
each Warrant at the address of such holder appearing in the records of the
Company;
(d) The Company shall at all times reserve and keep available, out
of its authorized and unissued capital stock, solely for the purpose of
providing for the exercise, forthwith upon the request of the Holder of
the Warrant(s) then outstanding and in effect, such numbers of shares of
Common Stock as shall, from time to time, be sufficient for the exercise
of the Warrants. The Company shall, from time to time, in accordance
with the laws of the State of North Carolina, increase the authorized
amount of its capital stock, if at any time the number of shares of
Common Stock remaining unissued and unreserved for other purposes shall
not be sufficient to permit the exercise of the Warrants then outstanding
and in effect;
(e) The Company covenants and agrees that all Shares that may be
issued upon the exercise of the rights represented by this Warrant will,
upon issuance, be validly issued, fully paid and non-assessable, and free
from all taxes, liens and charges with respect to the issue thereof
(other than taxes in respect of any transfer contemporaneously with such
issue).
(f) The Company will indemnify and, if such indemnity is
unavailable, will agree to just and equitable contribution to, the
Holders of Shares which are included in each registration statement
referred to in Section 4 hereof, and substantially to the same extent as
the Company has indemnified, and agreed to just and equitable
contribution to, the underwriters of its public offering of Common Stock
pursuant to the underwriting agreement. Each selling Holder of Shares,
severally and not jointly, will indemnify and hold harmless the Company,
its directors, its officers who shall have signed any such registration
statement and each person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act to the same extent as the
foregoing indemnity from the Company, but in each case to the extent, and
only to the extent, that any statement in or omission from or alleged
omission from such registration statement, any final prospectus, or any
amendment or supplement thereto was made in reliance upon information
furnished in writing to the Company by such selling Holder specifically
for use in connection with the preparation of such registration
statement, any final prospectus or any such amendment or supplement
thereto; provided, however, that the obligation of any Holder of Shares
to indemnify the Company under the provisions of this paragraph (f) shall
be limited to the Shares being sold by the selling Holder and the, market
price of the Common Stock on the date of the sale to the public of these
Shares;
6. LOSS, THEFT, DESTRUCTION OR MUTILATION. In case this Warrant shall
become mutilated or defaced or be destroyed, lost or stolen, the Company shall
execute and deliver a new Warrant in exchange for and upon surrender and
cancellation of such mutilated or defaced Warrant or in lieu of and
substitution for such Warrant so destroyed, lost or stolen, upon the Holder of
such Warrant filing with the Company such evidence satisfactory to it that
such Warrant has been so mutilated,, defaced, destroyed, lost or stolen and of
the ownership thereof by the Holder; provided, however, that the Company shall
be, entitled, as a condition to the
6
<PAGE>
execution and delivery of such new Warrant, to demand indemnity satisfactory to
it and payment of expenses and charges incurred in connection with the delivery
of such new Warrant, except that no bond shall be required from the Holder. All
Warrants so surrendered to the Company shall be canceled.
7. RECORD OWNER. At the time of the surrender of this Warrant,
together with the form of subscription properly executed and payment of the
Exercise Price, the person exercising this Warrant shall be deemed to be the
holder of record of the shares of Common Stock deliverable upon such exercise,
in whole or in part, notwithstanding that the stock transfer books of the
Company shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to such person.
8. FRACTIONAL SHARES. No fractional Shares or scrip representing
fractional Shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a Share called for on such exercise, the Holder may
elect to receive, and the Company shall pay to the Holder, an amount in cash
equal to such fraction multiplied by the Exercise Price. In the alternative,
the Holder may elect to remit to the Company an amount in cash equal to the
difference between such fraction and one, multiplied by the Exercise Price,
and the Company will issue the Holder one share of Common Stock in addition to
the number of whole Shares required by the exercise of the Warrant.
9. MAILING OF NOTICES, etc. All notices and other communications from
the Company to the Holder of this Warrant shall be mailed by first-class
registered or certified mail, return receipt requested, postage prepaid, to
the Holder, at the address set forth in the records of the Company, or to such
other address furnished to the Company in writing from time to time by the
Holder of this Warrant. All notices from the Holder of this Warrant to the
Company shall be mailed to the Company at 531 Flanders Filters Road,
Washington, NC 27889, Attention Steven K. Clark, CFO.
10. NO REGISTRATION UNDER THE SECURITIES ACT. This Warrant and the
Shares issuable upon exercise of this Warrant have not been registered under
the Securities Act. This Warrant and all replacement Warrants shall bear the
following legend:
This Warrant, and the securities issuable upon the exercise
of this Warrant, have not been registered under the
Securities Act of 1933, as amended (the "Act"), or any
state securities laws and may not be sold, or otherwise
disposed of unless pursuant to an effective registration
statement under the Act and such laws which, in the
opinion of counsel for the holder, which counsel and
opinion are reasonably satisfactory to counsel for the
Company, is available.
11. MEDIATION. Any and all disputes arising under this Warrant or
touching upon the rights or obligations of any party hereunder shall, if not
settled by negotiation, be submitted to non-binding mediation under the
Procedure for Mediation of Business Disputes of the Center for Public
Resources, Inc. then in effect. Any demand for mediation shall be made in
writing and served upon the other party in the same manner as otherwise
provided for notice in this Warrant. The demand shall set forth with
reasonable specificity the basis of the dispute and the
7
<PAGE>
performance or relief sought. The parties shall, within thirty (30) days of
receipt of a demand to mediate, confer and select a mediator. The mediation
shall take plate at a time and location mutually agreeable to the parties and
the mediator, but not later than sixty (60) days after a demand for mediation is
received. Compliance with this mediation process shall be a condition precedent
to the right of either party to commence legal action in any court on any
dispute.
12. LAW. This Warrant will be deemed to have been made and delivered
in Washington, North Carolina, and will be governed as to validity,
interpretation, construction, effect and in all other respects by the internal
laws of the State of North Carolina. Assuming the parties are not able to
resolve disputes arising under this Warrant by mediation as provided in
Section 11 above, the Company (a) agrees that any legal suit, action or
proceeding arising out of or relating to this Warrant will be instituted
exclusively in the United States District Court; (b) waives any objection
which the Company may have now or hereafter to the venue of any such suit,
action or proceeding, and (c) irrevocably consents to the jurisdiction of the
United States District Court in any such suit, action or proceeding. The
Company further agrees to accept and acknowledge service of any and all
process which may be served in any such suit, action or proceeding in the
United States District Court and agrees that service of process upon the
Company mailed by certified mail to the Company's address will be deemed in
every respect effective service of process upon the Company in any suit,
action or proceeding.
13. ENTIRE AGREEMENT AND MODIFICATION. The Company and the Holder of
this Warrant hereby represent and warrant that this Warrant is intended to and
does contain and embody all of the understandings and agreements, both written
and oral, of the parties hereto with respect to the subject matter of this
Warrant, and that there exists no oral agreement or understanding, express or
implied, whereby the absolute, final and unconditional character and nature of
this Warrant shall be in any way invalidated, empowered or affected. This
Warrant supersedes any other Warrant which may have been issued in connection
with the offering of the Shares pursuant to the Company's Memorandum. A
modification or waiver of any of the terms, conditions or provisions of this
Warrant shall be effective only if made in writing and executed with the same
formality as this Warrant.
IN WITNESS WHEREOF, the Company, by its duly authorized officer, has
executed this Warrant on this ______ day of ____________, 1996.
ATTEST: FLANDERS CORPORATION, a North Carolina corporation
___________________________ By: _____________________________________
Debra Hill, Secretary Steven K. Clark, CFO
(CORPORATE SEAL)
8
<PAGE>
FORM OF EXERCISE
The undersigned hereby irrevocably elects to exercise the purchase rights
represented by
this Warrant for, and to purchase thereunder, ________ Shares of Flanders
Corporation, a North Carolina corporation, and herewith tenders in payment for
such securities a certified or official bank check payable in New York
Clearing House Funds (next day funds) to the order of Flanders Corporation in
the amount of $___________ all in accordance with the terms hereof. The
undersigned requests that a certificate for such Shares be issued in the name
of and delivered to:
__________________________________________________________________
(Print Name)
__________________________________________________________________
(Address)
__________________________________________________________________
(Taxpayer Identification Number)
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _________________________________________________________________________
______________________________________________________________________________
(Please print name and address of transferee) This Warrant to purchase
__________ Shares of Flanders Corporation, a North Carolina corporation (the
"Company"), together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint _______________________________
attorney, to transfer the Warrant on the books of the Company, with full power
of substitution in the premises.
Dated:________________________ ______________________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
EXHIBIT 10.3
ASSUMPTION AGREEMENT WITH RELEASE OF LIABILITY
<PAGE>
ASSUMPTION AGREEMENT WITH RELEASE OF LIABILITY
THIS AGREEMENT, made this ______ day of October, 1996, by and among POT
REALTY, Florida general partnership ("Sellers"), PRECISIONAIRE, INC., a Florida
corporation ("Purchasers").
WITNESSETH
WHEREAS, Purchaser(s) has purchased from Seller(s) real property described
in Exhibit "A" attached hereto and as set forth in the Security Instrument
("Security Instrument") dated January 18, 1996, which was recorded at Volume
1198, Page 686, Real Property Records of Kaufman County, State of Texas, and
WHEREAS, on January 18, 1996, a note ("Note") covered by the Security
Instrument was executed by the "Sellers" in the original amount of $2,069,653.00
payable in monthly installments as therein provided. The outstanding balance of
the Note as of the date hereof is $_____________; and
WHEREAS, Purchaser desires to assume and to agree to pay the indebtedness
and to performa all of the terms and conditions of the said note and Security
Instrument.
NOW THEREFORE, in consideration of one and more dollars ($1.00 +) and other
good and valuable consideration, the receipt and sufficiency of which is hereby
mutually acknowledged, the parties agree as follows:
1. Purchaser assumes and agrees to pay the indebtedness evidenced by the
said Note according to the terms of the Note and agrees to keep and to perform
all of the covenants and conditions of the Security Instrument according to the
provisions thereof and agrees to be bound thereby with the same force and effect
as though the Purchaser had been the original maker of the Note and Security
Instrument.
2. Seller and Purchaser severally represent, warrant, and agree they have
no offsets or defenses of any kind against enforcement of the said Note and
Security Instrument which shall remain and continue in full force and effect
hereby approved, ratified and confirmed.
3. Lender understands and agrees that by its execution of this Agreement,
the Seller is no longer liable or any other signatories or guarantors personally
liable to pay the indebtedness evidence by the said Note and is released from
liability.
4. The liability of those signing this Agreement as Purchaser shall be
joint and several.
5. The word "Note" as used in this Agreement shall be construed to mean the
note, bond, or any other written instrument which evidences the indebtedness
referred to herein. The words "Security Instrument" as used in the Agreement
shall be construed to mean the mortgage, deed of trust, or other written
instrument which secured the indebtedness referred to herein.
6. Whenever appropriate, the singular number shall include the plural and
the plural the singular.
PAGE 1
<PAGE>
IN WITNESS WHEREOF, intending to be legally bound, the parties have executed
this Agreement the day and year first above written.
PRECISIONAIRE, INC., POT REALTY,
a Florida corporation a Florida general partnership
- - ---------------------- -----------------------------
Purchaser: Seller:
By: _______________________ By: /s/ Emily C. Beck
Purchaser: Seller: Emily C. Beck, General Partner
By: /s/ William C. Beck
Seller: William C. Beck, General
Partner
ACCEPTED AND APPROVED:
THE AMERICAN NATIONAL BANK OF TEXAS
By:_________________________________
Name:_______________________________
Title:______________________________
STATE OF }
} ss.
COUNTY OF }
On this _____ day of October, 1996, before me, the undersigned officer,
personally appeared William C. Beck and Emily C. Beck, General Partners of POT
REALTY, a Florida general partnership (Sellers), known to me (or satisfactorily
proven) to be the person(s) whose name(s) is/are subscribed to within the
instrument and acknowledged that he/she/they executed the same for the purposes
therein contained, and the capacity herein stated.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
___________________________________
NOTARY PUBLIC
(SEAL) MY COMMISSION EXPIRES______________
STATE OF }
} ss.
COUNTY OF }
On this __________ day of October, 1996, before me, the undersigned officer,
personally appeared ______________________________________, ___________________
PAGE 2
<PAGE>
of PRECISIONAIRE, INC., a Florida corporation, known to me (or satisfactorily
proven) to be the person(s) whose name(s) is/are subscribed to within the
instrument and acknowledged that he/she/they executed the same for the purposes
therein contained, and the capacity herein stated.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
___________________________________
NOTARY PUBLIC
(SEAL) MY COMMISSION EXPIRES______________
STATE OF }
} ss.
COUNTY OF }
On this __________ day of October, 1996, before me, the undersigned officer,
personally appeared ______________________________________, ___________________
of THE AMERICAN NATIONAL BANK OF TEXAS, known to me (or satisfactorily
proven) to be the person(s) whose name(s) is/are subscribed to within the
instrument and acknowledged that he/she/they executed the same for the purposes
therein contained, and the capacity herein stated.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
___________________________________
NOTARY PUBLIC
(SEAL) MY COMMISSION EXPIRES______________
AFTER RECORDING, RETURN TO:
THE AMERICAN NATIONAL BANK OF TEXAS
_________________________________
_________________________________
PAGE 3
EXHIBIT 10.4
ASSUMPTION AGREEMENT WITH RELEASE OF LIABILITY
<PAGE>
ASSUMPTION AGREEMENT WITH RELEASE OF LIABILITY
THIS AGREEMENT, made this ______ day of October, 1996, by and among POT
REALTY, Florida general partnership ("Sellers"), PRECISIONAIRE, INC., a Florida
corporation ("Purchasers").
WITNESSETH
WHEREAS, Purchaser(s) has purchased from Seller(s) real property described
in Exhibit "A" attached hereto and as set forth in the Security Instrument
("Security Instrument") dated June 14, 1996, which was recorded at Volume 1216,
Page 859, Real Property Records of Kaufman County, State of Texas, and
WHEREAS, on June 14, 1996, a note ("Note") covered by the Security
Instrument was executed by the "Sellers" in the original amount of $133,025.00,
payable in monthly installments as therein provided. The outstanding balance of
the Note as of the date hereof is $_____________; and
WHEREAS, Purchaser desires to assume and to agree to pay the indebtedness
and to performa all of the terms and conditions of the said note and Security
Instrument.
NOW THEREFORE, in consideration of one and more dollars ($1.00 +) and other
good and valuable consideration, the receipt and sufficiency of which is hereby
mutually acknowledged, the parties agree as follows:
1. Purchaser assumes and agrees to pay the indebtedness evidenced by the
said Note according to the terms of the Note and agrees to keep and to perform
all of the covenants and conditions of the Security Instrument according to the
provisions thereof and agrees to be bound thereby with the same force and effect
as though the Purchaser had been the original maker of the Note and Security
Instrument.
2. Seller and Purchaser severally represent, warrant, and agree they have
no offsets or defenses of any kind against enforcement of the said Note and
Security Instrument which shall remain and continue in full force and effect
hereby approved, ratified and confirmed.
3. Lender understands and agrees that by its execution of this Agreement,
the Seller is no longer liable or any other signatories or guarantors personally
liable to pay the indebtedness evidence by the said Note and is released from
liability.
4. The liability of those signing this Agreement as Purchaser shall be
joint and several.
5. The word "Note" as used in this Agreement shall be construed to mean the
note, bond, or any other written instrument which evidences the indebtedness
referred to herein. The words "Security Instrument" as used in the Agreement
shall be construed to mean the mortgage, deed of trust, or other written
instrument which secured the indebtedness referred to herein.
6. Whenever appropriate, the singular number shall include the plural and
the plural the singular.
PAGE 1
<PAGE>
IN WITNESS WHEREOF, intending to be legally bound, the parties have executed
this Agreement the day and year first above written.
PRECISIONAIRE, INC., POT REALTY,
a Florida corporation a Florida general partnership
- - ---------------------- -----------------------------
Purchaser: Seller:
By: _______________________ By: /s/ Emily C. Beck
Purchaser: Seller: Emily C. Beck, General Partner
By: /s/ William C. Beck
Seller: William C. Beck, General
Partner
ACCEPTED AND APPROVED:
THE AMERICAN NATIONAL BANK OF TEXAS
By:_________________________________
Name:_______________________________
Title:______________________________
STATE OF }
} ss.
COUNTY OF }
On this _____ day of October, 1996, before me, the undersigned officer,
personally appeared William C. Beck and Emily C. Beck, General Partners of POT
REALTY, a Florida general partnership (Sellers), known to me (or satisfactorily
proven) to be the person(s) whose name(s) is/are subscribed to within the
instrument and acknowledged that he/she/they executed the same for the purposes
therein contained, and the capacity herein stated.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
___________________________________
NOTARY PUBLIC
(SEAL) MY COMMISSION EXPIRES______________
STATE OF }
} ss.
COUNTY OF }
On this __________ day of October, 1996, before me, the undersigned officer,
personally appeared ______________________________________, ___________________
PAGE 2
<PAGE>
of PRECISIONAIRE, INC., a Florida corporation, known to me (or satisfactorily
proven) to be the person(s) whose name(s) is/are subscribed to within the
instrument and acknowledged that he/she/they executed the same for the purposes
therein contained, and the capacity herein stated.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
___________________________________
NOTARY PUBLIC
(SEAL) MY COMMISSION EXPIRES______________
STATE OF }
} ss.
COUNTY OF }
On this __________ day of October, 1996, before me, the undersigned officer,
personally appeared ______________________________________, ___________________
of THE AMERICAN NATIONAL BANK OF TEXAS, known to me (or satisfactorily
proven) to be the person(s) whose name(s) is/are subscribed to within the
instrument and acknowledged that he/she/they executed the same for the purposes
therein contained, and the capacity herein stated.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
___________________________________
NOTARY PUBLIC
(SEAL) MY COMMISSION EXPIRES______________
AFTER RECORDING, RETURN TO:
THE AMERICAN NATIONAL BANK OF TEXAS
_________________________________
_________________________________
PAGE 3
EXHIBIT 10.5
GUARANTY AGREEMENT
<PAGE>
GUARANTY AGREEMENT
For and in consideration of the sum of TEN AND NO/100 DOLLARS ($10.00)
and other good and valuable considerations in hand paid to the undersigned,
Flanders Corporation ("Guarantor"), the receipt and sufficiency of which
considerations are hereby acknowledged, and for the purpose of enabling
Precisionaire, Inc. ("Debtor"), to borrow certain funds from The American
National Bank of Texas ("Holder"), and recognizing that Guarantor has
benefitted or shall benefit, directly or indirectly, from the making of such
loan from Holder to Debtor, that such loan is in the best interests of
Guarantor, and that but for this Guaranty such loan would not be made by
Holder to Debtor and the funds advanced thereunder, Guarantor hereby
irrevocably, absolutely and unconditionally guarantees to Holder the prompt
payment at maturity whether by acceleration or otherwise, and the prompt
performance when due of the following (collectively, the "Obligations"): (i)
all indebtedness and obligations of Debtor to Holder, incurred by Debtor or
otherwise under the promissory note dated January 18, 1996 assumed by Debtor,
payable to the order of Holder in the original principal amount of Two Million
Sixty Nine Thousand Six Hundred Fifty Three Dollars ($2,069,653.00) and the
promissory note dated June 14, 1996, assumed by Debtor, payable to the order
of Holder in the original principal amount of One Hundred Thirty Three
Thousand Twenty Five dollars ($133,025) (the "Note"), including all principal,
interest, charges and attorney's fees which may be or become due or owing on
or under or in connection with the Note, and all renewals, rearrangements,
extensions, modifications and consolidations thereof and of any part thereof
any sums due to or to become due pursuant to any instrument which secures the
payment of the Note (whether or not said obligations are discharged by
operation of law); (ii) all of the covenants, agreements, and other
obligations undertaken by Debtor in all instruments securing the payment of
the Obligations; and (iii) all costs, attorneys' fees and expenses incurred or
expended by Holder in collecting any of the Obligations or due to any default
in the performance of the Obligations or in enforcing any right granted
hereunder. Guarantor's obligations hereunder shall further be subject to the
terms and conditions hereinafter set forth.
1. Corporate Representation. In order to induce the Bank to accept
this Guaranty Agreement, the Guarantor represents and warrants to the Bank
that:
(a) Benefit to Guarantor. The Guarantor's guaranty pursuant to
this Guaranty Agreement reasonably may be expected to benefit,
directly or indirectly, the Guarantor.
(b) Corporate Existence. The Guarantor is a corporation duly
organized, legally existing and in good standing under the laws of
the State of North Carolina, and is duly qualified as a foreign
corporation in all jurisdictions wherein the property owned or the
business transacted by it makes such qualification necessary.
(c) Corporate Power of Authorization. The Guarantor is duly
authorized and empowered to execute, deliver and perform this
Guaranty Agreement and all corporate action on the Guarantor's part
requisite for the due execution, delivery and performance of this
Guaranty Agreement has been duly and effectively taken.
<PAGE>
(d) Binding Obligations. This Guaranty Agreement constitutes
valid and binding obligations of the Guarantor, enforceable in
accordance with its terms.
(e) No Legal Bar. This Guaranty Agreement will not violate any
provisions of the Guarantor's articles or certificate of
incorporation, bylaws, or any contract, agreement, law, regulation,
order, injunction, judgment, decree or writ to which the Guarantor
is subject.
(f) No Consent. The Guarantor's execution, delivery and
performance of this Guaranty Agreement does not require the consent
or approval of any other person, including without limitation any
regulatory authority or governmental body of the United States or
any State thereof or any political subdivision of the United States
or any state thereof.
(g) Authorization. The undersigned, signing for and on behalf of
the Guarantor is duly authorized and empowered to execute this
Guaranty Agreement for and on behalf of the Guarantor.
2. Payment. In each event whenever any of the Obligations shall become
due and remain unpaid (howsoever the maturity thereof may have occurred),
Guarantor will, on demand, pay the amount due thereon to Holder. All amounts
becoming payable by Guarantor to Holder under this Guaranty shall be payable
at Holder's offices in Terrell, Kaufman County, Texas or such other place as
Holder may from time to time designate. The payment by Guarantor of any
amount pursuant to this Guaranty shall not in anywise entitle Guarantor to any
right, title or interest (whether by way of subrogation or otherwise) in and
to any of the obligations or any proceeds thereof, or any security or
collateral therefor, unless and until the full amount owing to Holder on the
Obligations has been fully paid, but when the same has been fully paid,
Guarantor shall be subrogated as to any payments made by it to the rights of
Holder as against debtor and/or any endorsers, sureties or other guarantors of
the Obligations.
3. Waiver of Notice. Guarantor specifically waives any notices of
acceptance of this Guaranty by Holder and of the creation, advancement,
existence, extension, renewal, modification, consolidation, or rearrangement
from time to time of the obligations, or increase from time to time in the
principal amount thereof, or increase or reduction from time to time of the
rate of interest thereon, or any indulgence from time to time with respect to
the Obligations, or any part thereof. Guarantor additionally waives, demand,
protest, presentment and notice of demand, protest, presentment and dishonor
with respect to the Obligations, notice of intent to accelerate, notice of
acceleration and notice of disposition of collateral and waives notice of the
amount of the Obligations outstanding at any time, and agrees that the
maturity of the Obligations, or any part thereof, may be accelerated,
extended, modified, amended or renewed from time to time, or any other
indulgence may be granted with respect thereto by Holder at its will or as may
be agreed by Debtor without notice to or further consent by Guarantor, at any
time or times. The last preceding sentence shall not be construed to affect
or impair any of Debtor's defenses hereunder.
2
<PAGE>
4. Rights of Holder.
(a) Guarantor agrees that no release of Debtor, or discharge of
Debtor or any of Debtor's Obligations by operation of law, or release or
discharge by operation of law of any co-guarantor, or of any other person
primarily or secondarily liable on the Obligations, or any part thereof shall
in any manner impair, diminish or affect the liability of Guarantor or the
rights of Holder hereunder.
(b) Guarantor specifically agrees that it shall not be necessary or
required, and that Guarantor shall not be entitled to require, that Holder
mitigate damages, or file suit or proceed to obtain or assert a claim for
personal judgment against Debtor for the Obligations, or make any effort at
collection of the Obligations from Debtor, or foreclose against or seek to
realize upon any security or collateral now or hereafter existing for the
Obligations, or file suit or proceed to obtain or assert a claim for personal
judgment against any other party (whether maker, guarantor, endorser or
surety) liable for the Obligations, or make any effort at collection of the
Obligations from any such other party, or exercise or assert any other right
or remedy to which Holder is or may be entitled in connection with the
Obligations or any security or collateral or other guaranty therefor, or
assert or file any claim against the assets or estate of Debtor or any other
Guarantor of other person liable for the Obligations, or any part thereof,
before or as a condition of enforcing the liability of Guarantor under this
Guaranty or requiring payment of the Obligations by Guarantor hereunder, or at
any time thereafter.
(c) If any or all of the Obligations are now or hereafter secured in
whole or in part, Guarantor agrees that Holder may, from time to time, at its
discretion, and with or without valuable consideration, allow substitution,
withdrawal, release, surrender, exchange, subordination, deterioration, waste,
loss or other impairment of all or any part of such security or collateral,
without notice to or consent by Guarantor, and without in anywise impairing,
diminishing or releasing the liability of Guarantor hereunder.
(d) No delay or omission or lack of diligence or care in exercising
any right or power with respect to the Obligations or any security or
collateral therefor (including without limitation the failure of Holder to
perfect a security interest therein) or guaranty thereof or under this
Guaranty shall in any manner impair, diminish or affect the liability of
Guarantor or the rights of Holder hereunder. Guarantor expressly waives any
right to the benefit of or to require or control application of any security
or collateral or the proceeds of any security or collateral now existing or
hereafter obtained by Holder as security for the obligations, or any part
thereof, and agrees that Holder shall have no duty insofar as Guarantor is
concerned to apply upon any of the Obligations any monies, payments or other
property at any time received by or paid to or in the possession of Holder,
except as provided in the Note.
(e) Guarantor's liability hereunder shall in no manner be affected,
reduced, impaired or released by reason of any renewal, extension,
modification, consolidation, or rearrangement of or any other indulgence,
forbearance or compromise with respect to the Obligations, or any part
thereof; or increase in the principal amount thereof; or increase or reduction
of the rate of interest thereon.
3
<PAGE>
(f) Guarantor waives all defenses given to sureties or guarantors at
law or in equity other than actual payment of the indebtedness, and
performance of the actions, constituting the Obligations.
(g) Guarantor agrees, to the full extent he may legally do so, that
suit may be brought against Guarantor with or without making Debtor a party to
such suit (as Holder may elect).
5. Change in Composition. Should the status, composition, structure or
name of Debtor change, including, but not limited to by reason of a merger,
dissolution, consolidation or reorganization, this guaranty shall continue and
also cover the indebtedness and Obligations of Debtor under the new status,
composition, structure or name according to the terms hereof. If Debtor is a
general or limited partnership, no termination of said partnership, nor
withdrawal therefrom by, or termination of any ownership interest therein
owned by, any general or limited partner of such partnership shall alter,
limit or modify Guarantor's Obligations set forth in this Guaranty or
otherwise affect this Guaranty in any manner whatsoever, all of which
obligations of Guarantor shall remain in effect as herein written.
6. Liability in the Event of Preference. In the event any payment of
Debtor to Holder is held to constitute a preference under the bankruptcy laws,
such payment by Debtor to Holder shall not constitute a release of Guarantor
from any liability hereunder, but Guarantor agrees to pay such amount to
Holder upon demand and this Guaranty shall continue to be effective or shall
be reinstated, as the case may be, to the extent of any such payment or
payments.
7. Joint and Several Liability. Unless the context clearly indicates
otherwise, AGuarantor@ shall mean the guarantor hereunder, or any of them, if
more than one. The obligations of said Guarantors hereunder if more than one,
shall be joint and several.
Suit may be brought against said Guarantors, jointly and severally, and
against any one or more of them, or less than all, without impairing the
rights of Holder against the others of said Guarantors; and Holder may
compromise with any one of said Guarantors for such sums or sum as it may see
fit and release such of said Guarantors from all further liability to Holder
for such indebtedness without impairing the right of Holder to demand and
collect the balance of such indebtedness from others of said Guarantors not so
released; but it is agreed among said guarantors themselves, however, that
such compromising and release shall not impair the rights and obligations of
said guarantors as among themselves.
8. Rights of Subrogation and Contribution. Notwithstanding anything
contained in this Guaranty to the apparent contrary, Guarantor does not herein
waive or release (whether expressly or impliedly) any rights of subrogation
that Guarantor may have against Debtor (except as same are expressly
subordinated in Paragraph 1, above), rights of contribution that Guarantor may
have against any other guarantor of, or other person secondarily liable for
the payment or performance of, any of the obligations, or rights of
reimbursement that Guarantor may have as against Debtor (except as same may be
limited by the provisions of Paragraph 1, above).
4
<PAGE>
9. Assignment. This Guaranty is intended for and shall inure to the
benefit of Holder and each and every other person who shall from time to time
be the owner or Holder of any of the Obligations, and each and every reference
herein to AHolder@ shall also include and refer to each and every successor or
assignee of Holder at any time holding or owning any part of or interest in
any part of the obligations. This Guaranty shall be transferable by Holder,
it being understood and stipulated that upon the assignment or transfer by
Holder of any of the Obligations (or any part thereof or interest therein thus
transferred or assigned by Holder), such transferee shall also, unless
provided otherwise by Holder in its assignment, have and may exercise all the
rights granted to Holder under this Guaranty to the extent of the part of or
interest in the Obligations thus assigned or transferred to said person.
Guarantor expressly waives notice of transfer or assignment of the
Obligations, or any part thereof, or of the rights of Holder hereunder.
10. Notice. Any notices, requests or consents hereunder shall be deemed
given, and any instrument delivered, two days after they have been mailed by
first class mail, postage prepaid, or twelve hours after such notice has been
sent by telecopier or straight telegram, telegraphic charges prepaid, or upon
receipt if delivered personally, as follows:
To Holder: The American National Bank of Texas
102 West Moore Ave.
P.O. Box 40
Terrell, TX 75160
To Guarantor: Flanders Corporation
531 Flanders Filters Road
Washington, North Carolina 27889
Attn: Chief Financial Officer
Telecopier: (919) 946-4738
With Simultaneous copy to:
Snell & Wilmer
111 E. Broadway, Suite 900
Salt Lake City, Utah 84111
Attn: William C. Gibbs, Esq.
Telecopier: (801) 237-1950
except that any of the foregoing may from time to time by written notice to
the others designate another address which shall thereupon become its
effective address for the purposes of this Section.
11. Rights of Holder Cumulative. The rights of Holder hereunder are
cumulative and shall not be exhausted by its exercise of any of its rights
hereunder, under any prior guaranty or otherwise against Guarantor or by any
number of successive actions until and unless all indebtedness constituting
the Obligations has been paid, all other obligations have been performed. The
existence of this Guaranty shall not in any way diminish or discharge the
rights of Holder under any prior
5
<PAGE>
guaranty agreement executed by Guarantor.
12. Solvency of Guarantor. Guarantor hereby represents and warrants to
Holder that as of the date hereof, and after giving effect to this Guaranty
and the obligation evidenced hereby, Guarantor is, and will be, solvent, and
has and will have property and assets which, fairly valued, exceed its
obligations, liabilities and debts, and has and will have property and assets
in the State of Texas sufficient to satisfy and repay its obligations,
liabilities and debts.
13. Governing Laws; County of Performance and Jurisdiction. This Guaranty
shall be deemed to have been made under and shall be governed by the laws of
the State of Texas in all respects. This Guaranty is performable solely in
Kaufman County, Texas.
14. Entire Agreement. Guarantor acknowledges and agrees that this
Guaranty accurately represents and contains the entire agreement between
Guarantor and Holder with respect to the subject matter hereof, that Guarantor
is not relying, in the execution of this Guaranty, on any representations
(whether written or oral) made by or on behalf of Holder except as expressly
set forth in this Guaranty, and that any and all prior statements and/or
representations made by or on behalf of Holder to Guarantor (whether written
or oral) in connection with the subject matter hereof are merged herein. This
Guaranty shall not be waived, altered, modified or amended as to any of its
terms or provisions except in writing duly signed by Holder and Guarantor.
15. Successors or Assigns. This Guaranty shall bind the heirs, personal
representatives, successors, and assigns of Guarantor and shall inure to the
benefit of all transferees, credit participants, assignees, and/or endorsees
of Holder, notwithstanding that some or all of the monies owed by Guarantor
pursuant to this Guaranty may be actually advanced after any bankruptcy,
receivership, reorganization or death of Guarantor.
16. Interpretation. Headings are provided as a matter of convenience only
and are not to be considered in interpreting the meaning of any provision
hereunder. The use of any gender herein shall include the other gender.
17. Severability. A determination that any provision of this Guaranty is
unenforceable or invalid shall not affect the enforceability or validity of
any other provision.
18. Advice of Counsel. Guarantor acknowledges that Guarantor has had the
benefit of the advice of legal counsel of its own choice in connection with
the preparation and negotiation of this Guaranty, and has been afforded an
opportunity to review this Guaranty with such legal counsel, and that
Guarantor fully understands the implications and ramifications of the
agreements herein made by Guarantor.
6
<PAGE>
EXECUTED as of the 12th day of November, 1996.
FLANDERS CORPORATION
By: /s/ Robert R. Amerson
Name: Robert Amerson
Title: President
ADDRESS:
531 Flanders Filters Road
Washington, NC 27889
7
EXHIBIT 10.6
SUBSCRIPTION AGREEMENT
<PAGE>
SUBSCRIPTION AGREEMENT
October 11, 1996
FLANDERS CORPORATION
531 Flanders Filters Road
Washington, North Carolina 27889
Ladies and Gentlemen:
The undersigned ("Purchaser"), hereby subscribes for and agrees to
purchase 444,444 shares of common stock, $.001 par value per share (the
"Shares"), of FLANDERS CORPORATION (the "Company") at a purchase price of $9.00
per share. The Closing of the purchase of the Shares will be held at the
offices of Ropes & Gray on the ____ day of October, 1996, or at such earlier
date as shall be designated by the Company on not less than 72 hours prior
notice or at such other place and time as shall be agreed to by the Company
and the Purchaser (the "Closing Date"). At the Closing, the Purchaser will
make payment of the purchase price for the Shares by depositing the same in
escrow with State Street Bank ("Escrow Agent") pursuant to an escrow agreement
("Escrow Agreement") in the form annexed hereto as Exhibit A. At the Closing,
the Company will issue to the Purchaser and deliver to Escrow Agent a stock
certificate representing such number of fully-paid, validly issued and non-
assessable shares of the Common Stock of the Company as subscribed for hereby
by the Purchaser.
Purchaser understands that this Subscription Agreement ("Subscription
Agreement") and the funds delivered hereunder will be returned promptly to
Purchaser and all of Purchaser's obligations under this Subscription Agreement
will terminate if the Company does not accept this Subscription Agreement.
Purchaser acknowledges that Purchaser has been furnished with and has
carefully read the Company's annual report on Form 10-K for the year ended
December 31, 1995, quarterly reports on Form 10-Q dated March 31, 1996 and
June 30, 1996 and Forms 8-K dated January 29, 1996 and May 31, 1996
(collectively, the "Disclosure Materials") delivered to Purchaser by the
Company in connection with the offering of the Shares.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents, warrants and covenants to Purchaser, as of the date hereof, that:
(a) The Company has all requisite corporate power and authority to
enter into this Subscription Agreement and to perform its obligations
hereunder. The execution and delivery by the Company of this
Subscription Agreement and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of the Company. This Subscription
Agreement has been duly executed and delivered by the Company and
constitutes a valid and binding obligation of the Company enforceable
against it in accordance with its terms.
<PAGE>
(b) The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of North Carolina
with full corporate power and authority to own, lease and operate its
properties and to conduct its business as currently conducted and as
described in the Company's Annual Report on Form 10-K most recently filed
with the Securities and Exchange Commission and is duly registered and
qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct
of its business requires such registration or qualification, except where
the failure so to register or qualify does not have a material adverse
effect on the condition (financial or other), business, properties, net
worth or results of operations of the Company.
(c) The execution, delivery and performance by the Company of this
Subscription Agreement and the consummation of the transactions
contemplated hereby do not and will not (i) contravene or constitute a
default under or give rise to a right of termination, cancellation or
acceleration of any right or obligation of the Company under any
provision of applicable law or regulation or of any agreement, judgment,
injunction, order, decree or other instrument binding on the Company or
its subsidiaries, or result in the imposition of any lien on any asset of
the Company or its subsidiaries except as specifically contemplated by
the terms of this Subscription Agreement, or (ii) contravene any
provision of the Company's Articles of Incorporation or Bylaws.
(d) The issuance and delivery of the Shares to Purchaser in
accordance with this Subscription Agreement have been duly authorized by
all necessary corporate action. The Shares, upon issuance, will be
validly issued and fully paid and non-assessable, free and clear of all
liens, encumbrances, rights and claims of others.
(e) The Corporation has filed in a timely manner each document or
report required to be filed by it pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and the rules and regulations
thereunder; each such document or report at the time it was filed
conformed to the requirements of the Exchange Act and the rules and
regulations thereunder; and none of such documents or reports contained
an untrue statement of any material fact or omitted to state any material
fact required to be stated therein or necessary to make the statement
therein not misleading.
(f) There has not been any material adverse change in the Company's
business, financial condition or prospects as reported on the Company's
quarterly report on form 10-Q for the period ended June 30, 1996.
2. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
acknowledges, represents, warrants and covenants that:
(a) The Purchaser acknowledges that the shares are only being
offered to Accredited Investors as defined under Section 501(a) of the
Securities Act. Purchaser qualifies as an Accredited Investor in that
the net worth of Purchaser is at least (i) U.S. $1 million if Purchaser
is a natural person or (ii) U.S. $5 million if Purchaser is a
corporation, partnership, trust or any entity other than a natural
person. In computing net worth, the term "net worth" shall mean the
excess of total assets over total liabilities and the principal residence
of the investor must be valued at cost, including cost of
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<PAGE>
improvements, or at recently appraised value by an institutional lender
making a secured loan, net of encumbrances.
(b) Purchaser has been furnished with and has carefully read the
Disclosure Materials, and is familiar with and understands the terms of
this purchase. In evaluating an investment in the Company, the purchaser
has not relied upon any representations or other information (whether
oral or written) from the Company, (or any of its agents or
representatives), other than as set forth in the Disclosure Materials.
With respect to individual tax and other economic considerations involved
in this investment, the Purchaser is not relying on the Company. The
Purchaser has carefully considered and has, to the extent the Purchaser
believes such discussion necessary, discussed with the Purchaser's
professional legal, tax, accounting and financial advisers an investment
in the Shares.
(c) The Shares are being offered in a transaction not involving any
public offering within the meaning of the Securities Act. The Shares
have not been registered under the Securities Act and until the Shares
are registered pursuant to Section 3 hereof (i) such Shares may be
offered, resold, pledged or otherwise transferred only in accordance with
an exemption from the registration requirements of the Securities Act
(and based upon an opinion of counsel if the Company so requests), and
(ii) Purchaser will notify any subsequent purchaser from it of the resale
restrictions set forth in (i) above.
(d) Until the Shares are registered pursuant to Section 3 hereof,
the registrar and transfer agent for the Shares will not be required to
accept for registration transfer any Shares, except upon presentation of
evidence satisfactory to the Company that the restrictions on transfer
set forth in paragraph (c) above have been complied with and that any
such Shares will be in the form of definitive physical certificates
bearing the following legend:
"The Security evidenced hereby was originally issued in a transaction
exempt from registration under Section 5 of the United States
Securities Act of 1933, as amended (the "Securities Act"), and the
Security evidenced hereby may not be offered, sold or otherwise
transferred in the absence of such registration or an applicable
exemption therefrom. The holder of the Security evidenced hereby
agrees for the benefit of the Company that (A) such Security may be
resold, pledged or otherwise transferred only in a transaction
meeting the requirements of the Securities Act or exemption
therefrom (and based upon an opinion of counsel if the Company so
requests) and in accordance with any applicable securities laws of
any State of the United States or any other applicable jurisdiction
and (B) the holder will, and each subsequent holder is required to,
notify any purchaser from it of the Security evidenced hereby of the
resale restrictions set forth in (A) above."
(e) Purchaser is (i) acquiring the Shares for its own account, and
(ii) not acquiring the Shares with a view to distribution or resale
thereof or with any present intention of offering or selling any of the
Shares in a transaction that would violate the
- 3 -
<PAGE>
Securities Act or the securities laws of any State of the United States or
any other applicable jurisdiction.
(f) The Purchaser recognizes that investment in the Company
involves certain risks and the Purchaser has taken full cognizance of and
understands all of the risk factors described in Exhibit A related to the
purchase of Shares and inherent in the business of the Company. The
Purchaser has substantial investment experience in making investment
decisions of the type contemplated hereby, is experienced in evaluating
companies such as the Company and has such knowledge and experience in
financial and business matters that the Purchaser is capable of
evaluating the merits and risks of an investment in the Company.
(g) The Purchaser is acquiring the Shares without being furnished
any offering literature, prospectus or any other form of general
solicitation or general advertising other than the Disclosure Materials,
and the Purchaser has been given no oral or written representations or
assurances by the Company or any representative of the Company in
connection with this investment other than as set forth in the Disclosure
Materials.
3. SECURITIES ACT REGISTRATION.
(a) The Company shall use its best efforts to register for resale
under the Securities Act of 1933, as amended (the "Securities Act"), at
the Company's expense, all of the Shares (the "Registerable Shares")
within ninety days from the date hereof, and in that regard will file a
Registration Statement (the "Registration Statement") on the appropriate
form with the Securities and Exchange Commission ("SEC") as soon as
practicable but in no event later than 30 days from the Closing Date.
Notice of effectiveness of the Registration Statement shall be furnished
promptly to the Purchaser. The Company shall maintain the effectiveness
of the Registration Statement and from time to time will amend or
supplement such Registration Statement and the prospectus contained
therein as and to the extent necessary to comply with the Securities Act.
The effectiveness of the Registration Statement shall be maintained with
respect to Registrable Shares until the later to occur of the second
anniversary of the Closing Date or such date as the Registrable Shares
may be sold pursuant to Rule 144 under the Securities Act or otherwise
without registration. The Registration Statement and any registration
filed pursuant to Section 3(b) below is sometimes also referred to as a
"Registration Statement."
(b) So long as the Registrable Shares shall exceed three percent
(3%) of the number of issued and outstanding shares of Common Stock of
the Company, if the Company shall determine to register any of its
securities for its own account or the account of a security holder or
holders ("Other Holders") in respect of a registered public offering
involving an underwriting, the Company will promptly give the Purchaser
written notice thereof and use its best efforts to include in such
registration and underwriting all of the Registrable Shares specified in
a written request made by the Purchaser within 20 days after the written
notice from the Company to the Purchaser. Such written request may
specify all or part of the Purchaser's Registrable Securities.
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<PAGE>
(i) The Purchaser shall, together with the Company and the
Other Holders enter into an underwriting agreement in customary form
with the representative of the underwriter or underwriters selected
by the Company.
(ii) If the representative of the underwriters advises the
Company in writing that marketing factors require a limitation on
the number of shares to be underwritten, the representative may
exclude all Registrable Securities from, or limit the number of
Registrable Securities to be included in, the registration and
underwriting. The Company shall so advise all holders of securities
requesting registration and the number of shares of securities that
are entitled to be included in the registration and underwriting
shall be allocated first to the Company for securities being sold
for its own account and thereafter as set forth in Subsection
3(b)(iii) below.
(iii) In any circumstances in which all of the Registrable
Securities and shares of Holders requested to be included in a
registration cannot be so included for the reason set forth in
Subsection 3(b)(ii) above, the number of Registrable Securities and
shares of Other Holders that may be so included shall be allocated
among the Purchaser and Other Holders requesting inclusion of
securities pro rata on the basis of the number of shares of
Registrable Securities and the number of shares of Other Holders.
4. REGISTRATION PROCEDURES. The Company will use its reasonable best
efforts to effect the registration to permit the sale of the Registrable
Shares being sold in accordance with this Agreement and the intended method or
methods of distribution thereof, and pursuant thereto the Company will:
(a) prepare and file with the Commission a Registration Statement
relating to the registration on the appropriate form under the Securities
Act, cooperate and assist in any filings required to be made with the
NASD and use its best efforts to cause such Registration Statement to
become effective;
(b) prepare and file with the Commission such amendments and post-
effective amendments to the Registration Statement and such filings under
the Exchange Act as may be necessary to keep the Registration Statement
effective for such period described in Section 3(a) herein, comply with
the provisions of the Securities Act and the rules and regulations
thereunder, and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the intended
method or methods of distribution by the Purchaser set forth in such
Registration Statement;
(c) advise the underwriter(s), with respect to an offering pursuant
to Section 3(b), and the Purchaser promptly:
(i) when the prospectus or any prospectus supplement or post-
effective amendment has been filed, and, with respect to the
Registration Statement or a Registration Statement filed in
accordance with Section 3(b) or any post-effective amendment
thereto, when the same has become effective;
- 5 -
<PAGE>
(ii) of any request by the Commission for amendments to the
Registration Statement or a Registration Statement filed in
accordance with Section 3(b) or amendments or supplements to the
prospectus or for additional information relating thereto;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement under the
Securities Act or of the suspension by any state securities
commission of the qualification of the Registrable Shares for
offering or sale in any jurisdiction, or the initiation of any
proceeding for any of the preceding purposes. If at any time the
Company shall receive any such stop order suspending the
effectiveness of the Registration Statement or a Registration
Statement filed in accordance with Section 3(b), or any such order
from a state securities commission or other regulatory authority,
the Company shall use its best efforts to obtain the withdrawal or
lifting of such order at the earliest possible time; and
(iv) of the existence of any fact and the happening of any
event that makes any statement of a material fact made in the
Registration Statement, or a Registration Statement filed in
accordance with Section 3(b), the prospectus, any amendment or
supplement thereto, or any document incorporated by reference
therein untrue, or that requires the making of any additions to or
changes in the Registration Statement or a Registration Statement
filed in accordance with section 3(b) or the prospectus in order to
make the statements therein not misleading.
(d) in connection with the filing of any document that is to be
incorporated by reference into the Registration Statement or any
Registration Statement filed in accordance with Section 3(b) or the
prospectus (after initial filing of the Registration Statement or any
Registration Statement filed in accordance with Section 3(b));
(i) use its best efforts to provide copies of such document to
the Purchaser and to the managing underwriter(s), if any, prior to
such filing and in any event no later than concurrently with such
filing; and
(ii) make the Company's representative available for discussion
of such document;
(e) if any fact or event contemplated by clause (c)(iv) above shall
exist or have occurred, prepare a supplement or post-effective amendment
to the Registration Statement, or a Registration Statement filed in
connection with Section 3(b) or related prospectus or any document
incorporated therein by reference or file any other required document so
that, as thereafter delivered to the purchasers of Registrable Shares,
the prospectus will not contain an 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;
(f) use its best efforts to cause all Registrable Shares to be
listed on each securities exchange, if any, on which equity securities
issued by the Company are then listed.
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<PAGE>
The Purchaser agrees to furnish promptly to the Company all information
required to be disclosed by the Purchaser in order to make the information
previously furnished to the Company by such Purchaser not materially
misleading.
The Purchaser agrees that upon receipt of any notice from the Company that
any fact or event exists as a result of which the Registration Statement, the
prospectus included therein, or any document incorporated therein by reference
contains or may contain any untrue statement of material fact or omits or may
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, the Purchaser will forthwith discontinue any
disposition of any Registrable Shares pursuant to the Registration Statement
until the Purchaser has received written advice from the Company that the use
of the prospectus contained in the Registration Statement may be resumed, and
has received copies of any additional or supplemental filings which are
incorporated by reference in such prospectus, and, if so directed by the
Company, the Purchaser will deliver to the Company all copies, other than
permanent file copies then in the Purchaser's possession, of the prospectus
covering the Registrable Shares current at the time of receipt of such notice.
The period from and including the date of the giving of such notice to and
including the date when each Purchaser shall have either received copies of
the supplemented or amended prospectus or received advice from the Company
that the use of the prospectus contained in the Registration Statement may be
resumed is referred to herein as the "Holdback Period." The Company agrees to
use all reasonable efforts to minimize the duration and frequency of any
Holdback Periods hereunder to the extent consistent with the Company's
financial, strategic, and other business priorities.
5. REGISTRATION EXPENSES.
(a) Except as otherwise provided herein, all expenses incident to
the Company's performance of or compliance with this Agreement (other
than underwriting discounts or commissions) will be borne by the Company,
including without limitation:
(i) all registration and filing fees and expenses (including
filings made with the NASD or any securities exchange);
(ii) fees and expenses of compliance with federal securities
and state blue sky or securities laws;
(iii) expenses of printing;
(iv) fees and disbursements of counsel for the Company;
(v) all application and filing fees in connection with listing
the Common Stock on a national securities exchange or automated
quotation system pursuant to the requirements hereof; and
(vi) all fees and disbursements of independent certified public
accountants of the Company (including the expenses of any special
audit and "cold comfort" or "agreed upon procedures" letters
required by or incident to such performance).
- 7 -
<PAGE>
The Company will also bear its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit, and the fees and
expenses of any person, including special experts, retained by the Company.
6. RESCISSION.
(a) In the event the Registration Statement is not declared
effective by the SEC on or prior to the ninetieth (90th) day following
the Closing Date (the "Effective Date") the Purchaser may thereafter
rescind this transaction at any time prior to the effectiveness of the
Registration Statement by (i) written notice to the Company and (ii)
written notice to the Escrow Agent certifying that the Registration
Statement referred to in this Subscription Agreement did not become
effective on or before the Effective Date, and has not yet become
effective and that the Purchaser has given written notice of the
rescission of the transaction referred to in such Subscription Agreement
and directing the Escrow Agent to pay to the Purchaser the amount
deposited in escrow as provided above.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless Purchaser as
a seller of Shares, each underwriter, if any (within the meaning of the
Securities Act) of such securities and each person, if any, who controls
(within the meaning of either Section 15 of the Act or Section 20 of the
Securities Exchange Act of 1934) any such seller, controlling person or
underwriter, from and against any losses, claims, damages or liabilities,
joint or several, that any such seller, underwriter or controlling person
may incur or to which any such seller, underwriter or controlling person
may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of
any material fact contained in any preliminary prospectus, or contained,
on the effective date thereof, in any registration statement or final or
summary prospectus included therein, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; and the
Company will reimburse each such seller, underwriter or controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action, whether or not resulting in liability; provided,
however, the Company will not be liable in any case to the extent that
any such loss, claim, damage, liability or expense arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, such preliminary,
final or summary prospectus or such amendment or supplement in reliance
upon and in conformity with written information furnished by or on behalf
of any such seller specifically for use in the preparation thereof.
(b) Purchaser will indemnify and hold harmless the Company, each of
its directors, each of its officers who sign or have signed said
registration statement, each underwriter, each other seller and each
person, if any, who controls the Company or such underwriter or seller
(within the meaning of either Section 15 of the Act or Section 20 of the
Exchange Act), to the same extent as the foregoing indemnity from the
Company to
- 8 -
<PAGE>
Purchaser, but only with reference to written information furnished by or
omitted to be furnished by or on behalf of Purchaser, for use in the
preparation of such registration statement, such preliminary, final or
summary prospectus or such amendment or supplement, and will reimburse the
Company or any such director, officer, underwriter or controlling person for
any legal or other expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, damage, liability or
action, whether or not resulting in any liability; provided, however, that
the obligations of Purchaser hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages or liabilities (or actions in
respect thereof) if such settlement is effected without the consent of
Purchaser (which consent shall not be unreasonably withheld); provided
further that the Purchaser shall not be obligated to contribute an amount
greater than the gross proceeds received by the Purchaser with respect to
the sale of Registrable Shares giving rise to the indemnification
obligations; and, provided further, that Purchaser shall only be responsible
for the reimbursement of the legal and other expenses incurred by a single
counsel on behalf of the Company and such officers, directors and
controlling Persons.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any legal action against such indemnified party in
respect of which indemnity or reimbursement may be sought against the
indemnifying party under this Agreement, such indemnified party shall
notify the indemnifying party in writing of the commencement thereof,
and, subject to the provisions hereinafter stated, the indemnifying party
shall assume the defense of such action (including, the employment of
counsel, who shall be counsel satisfactory to such indemnified party, and
the payment of expenses in connection therewith). To the extent the
indemnifying party and the indemnified party believe it prudent or
necessary, in their good faith discretion, such indemnified party shall,
in addition to the foregoing, have the right to employ separate counsel
in any such action and to participate in the defense thereof, and the
fees and expenses of such counsel shall be at the expense of the
indemnifying party. The indemnifying party shall not be liable to
indemnify any person for any settlement of any such action effected
without the consent of the indemnifying party.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under paragraphs (a) or (b) hereof in
respect of any losses, claims, damages, liabilities or expenses referred
to therein, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages,
liabilities and expenses in such proportion as is appropriate to reflect
the relative benefit to the Company on the one hand and the Purchaser on
the other hand in connection with the sale of the Registrable Shares, as
well as any other relevant equitable considerations; provided, however,
that the Purchaser shall not be required to contribute an amount greater
than the gross proceeds received by the Purchaser with respect to the
sale of Registrable Shares giving rise to the indemnification obligation
under this Section 7. The amount paid or payable by an indemnified party
as a result of the losses, claims, damages, liabilities or expenses shall
be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
- 9 -
<PAGE>
(e) The Company and the Purchaser agree that it would not be just
and equitable if contribution pursuant to this Section 7 were determined
by a pro rata allocation or by any other method of allocation that does
not take account of the equitable considerations referred to in paragraph
(d) above. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities and expenses referred
to in paragraph (d) above shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating any
claim or defending any such action, suit or proceeding. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11 of the
Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
8. MISCELLANEOUS.
(a) Grammatical References. All pronouns and any variations
thereof used herein shall be deemed to refer to the masculine, feminine,
neuter, singular or plural as the identity of the antecedent may require.
(b) Notices. Notices required or permitted to be given hereunder
shall be in writing and shall be deemed to be sufficiently given when
personally delivered or upon receipt when sent by facsimile or registered
mail, return receipt requested, addressed to the other party at the
address of such party set forth in this Subscription Agreement, or to
such other address furnished by notice given in accordance with this
paragraph.
(c) No Waiver. Failure of the Company or the Purchaser to exercise
any right or remedy under this Subscription Agreement or any other
agreement between the Company and a Purchaser, or otherwise, or delay by
the Company or the Purchaser is exercising same, will not operate as a
waiver thereof. No waiver by the Company or the Purchaser will be
effective unless and until it is in writing and signed by the Company or
the Purchaser.
(d) Governing Law. This Subscription Agreement shall be enforced,
governed and construed in all respects in accordance with the laws of the
State of New York without giving effect to its conflicts of law rules or
principles.
(e) Complete Agreement. This Subscription Agreement and the
documents referred to herein, shall constitute the entire agreement among
the parties hereto with respect to the subject matter hereof and shall
supersede all prior understandings or agreements with respect to such
subject matter. This Subscription Agreement may be amended only by the
written consent of both the Company and the Purchaser.
(f) Severability. If a court of competent jurisdiction determines
that any provision of this Subscription Agreement is invalid,
unenforceable or illegal for any reason, such determination shall not
affect or impair the validity, legality and enforceability of the other
provisions of this Subscription Agreement, which shall remain in full
force and effect in the same manner and to the same extent as if the
invalid, unenforceable or illegal provision had not been contained in
this Subscription Agreement. In the event that any provision of this
Subscription Agreement is invalid or unenforceable
- 10 -
<PAGE>
under any applicable statute or rule of law, then such provision shall be
deemed inoperative to the extent that it may conflict therewith and shall be
deemed modified to conform with such statute or rule of law. Any provision
hereof which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability or any other provision hereof.
(g) Execution in Counterparts. This Subscription Agreement may be
executed in counterparts, each of which shall be deemed an original, but
all of which together shall constitute the same Subscription Agreement.
(h) Title and Subtitles. The titles and subtitles used in this
Subscription Agreement are used for convenience only and are not to be
considered in construing or interpreting this Subscription Agreement.
(i) Rights and Remedies Cumulative. The rights and remedies
provided in this Subscription Agreement shall be cumulative and not
exclusive of any other rights or remedies provided by law or otherwise.
IF YOU AGREE WITH THE FOREGOING, PLEASE SIGN THE SIGNATURE PAGES TO THIS
SUBSCRIPTION AGREEMENT LOCATED IN THE SUBSCRIPTION DOCUMENTS PROVIDED AND
RETURN THEM TO THE COMPANY, AND THIS LETTER SHALL THEN BECOME A BINDING
AGREEMENT BETWEEN YOU AND THE COMPANY IN ACCORDANCE WITH ITS TERMS.
- 11 -
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE
By executing this signature page the Purchaser hereby swears to, adopts
and agrees to all terms, conditions, representations, warranties and covenants
contained in the Subscription Agreement.
Dated: ______________________, 1996
Number of Shares subscribed for: 444,444
Aggregate purchase price: $ 4,000,000.00
NAME OF PURCHASER: President and Fellows of Harvard College
By Harvard Management Company, Inc.
(If purchaser is trust or retirement fund list name of such trust or fund)
PURCHASER: /s/ Michael S. Pradko /s/ Verne O. Sedlacek
-------------------------------------------------------
(signature)
Name of person signing: Michael S. Pradko Verne O. Sedlacek
If signing in capacity of officer or trustee, please indicate: Authorized
Signatory
________________________________________________________
(signature of any co-tenant, joint-tenant or co-trustee)
Name of co-signer: _____________________________________
Print exact name in which Share will be held: President and Fellows of
Harvard College
Tax or Other Identification Number[s]: 042103580
Address of Purchaser(s): c/o Harvard Management Company, Inc.
600 Atlantic Avenue
Boston, MA 02210-2203
ACCEPTED BY:
FLANDERS CORPORATION
531 Flanders Filters Road
Washington, North Carolina 27889
By: /s/ Steven K. Clark
Its: CFO
Date: October 11, 1996
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EXHIBIT 10.7
ESCROW AGREEMENT
<PAGE>
ESCROW AGREEMENT
AGREEMENT dated this 11th day of October, 1996, by and among the President
and Fellows of Harvard College ("Subscriber"), Flanders Corporation, a North
Carolina corporation ("Flanders"), and State Street Bank and Trust Company, a
Massachusetts corporation (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, Flanders and Subscriber are parties to a Subscription Agreement
dated October ___, 1996 (the "Subscription Agreement") which provides for the
escrow of $4,000,000 with Escrow Agent (such amount and interest thereon being
sometimes referred to as the "Escrowed Assets") and the deposit of 444,444
shares of common stock of Flanders (the "Flanders Shares"); and
WHEREAS, Flanders and the Subscriber are desirous of entering into this
Agreement and the Escrow Agent is willing to act as escrow agent on the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained and subject to the conditions hereinafter set forth, the parties
hereto agree as follows:
1. Concurrently with the execution hereof, the Subscriber is paying the
sum of $4,000,000 referred to above, and Flanders is depositing the Flanders
Shares with the Escrow Agent, which shall hold the same, and any interest
earned on Escrowed Assets, in escrow on the terms and conditions hereinafter
set forth.
2. The Escrow Agent shall make payment of the Escrowed Assets to the
Subscriber as follows: If the Escrow Agent shall have received a written
notice from the Subscriber to the Escrow Agent given after January 15, 1997,
which notice shall (i) certify that the Registration Statement referred to in
the Subscription Agreement did not become effective on or before January 15,
1997, become effective and that the Subscriber has given written notice to
Flanders of the rescission of the transaction referred to in the Subscription
Agreement, and (ii) direct the Escrow Agent to pay the Escrowed Assets to the
Subscriber, the Escrow Agent shall transmit a copy of such notice to Flanders.
The Escrow Agent shall act in accordance with such notice from the Subscriber
to the Escrow Agent unless within ten days from transmittal by the Escrow
Agent to Flanders of the copy of such notice, Flanders shall notify the Escrow
Agent not to comply with the payment instruction contained in such notice from
the Subscriber to the Escrow Agent. Simultaneously with any payment of
Escrowed Assets to the Subscriber pursuant hereto, Escrow Agent shall deliver
the Flanders Shares to Flanders.
3. The Escrow Agent shall make payment of the Escrowed Assets to
Flanders as follows: If the Escrow Agent shall have received a written notice
from Flanders which
<PAGE>
notice shall certify that the Registration Statement referred to in the
Subscription Agreement has become effective prior to January 15, 1997, and shall
direct the Escrow Agent to pay the Escrowed Assets to Flanders, the Escrow Agent
shall transmit a copy of such notice to the Subscriber. The Escrow Agent shall
act in accordance with such notice from Flanders to the Escrow Agent unless
within ten days from transmittal by the Escrow Agent to the Subscriber of the
copy of such notice the Subscriber shall notify the Escrow Agent not to comply
with the payment instruction contained in such notice from Flanders to the
Escrow Agent. Simultaneously with any payment of the Escrowed Assets to Flanders
pursuant hereto, the Escrow Agent shall deliver the Flanders Shares to
Subscriber.
4. After Flanders shall have notified the Escrow Agent not to comply
with the Subscriber's payment instruction (as referred to in paragraph 2
above) and after the Subscriber shall have notified the Escrow Agent not to
comply with Flanders payment instruction (as referred to in Paragraph 3
above), the Escrow Agent shall act with respect to the Escrowed Assets solely
in accordance with any of the following: (a) a new Instruction signed jointly
by Flanders and the Subscriber; (b) a certified copy of an arbitrator's award
issued under the rules of the American Arbitration Association as to which the
Escrow Agent shall have received an opinion of counsel, which may include the
Escrow Agent and which is addressed and delivered also to each of Flanders and
the Subscriber, satisfactory to the Escrow Agent and in its sole and absolute
discretion, that such award is final beyond appeal or (c) a certified copy of
a judgment of a court of competent jurisdiction as to which the Escrow Agent
shall have received an opinion of counsel, which may include the Escrow Agent
and which is addressed and delivered also to Flanders and the Subscriber,
satisfactory to the Escrow Agent in its sole and absolute discretion, that
such judgment is final beyond appeal. Anything in the foregoing to the
contrary notwithstanding, at the sole discretion of the Escrow Agent, the
Escrow Agent may at any time deposit the Escrowed Assets with a court selected
by the Escrow Agent and in such event all liability and responsibility of the
Escrow Agent as to acts or omissions and subsequent to such deposit shall
terminate upon such deposit having been made.
5. Upon any distribution of the Escrowed Assets to Subscriber pursuant
to paragraph 2 above, or to Flanders pursuant to paragraph 3 above, the Escrow
Agent shall deliver the Flanders Shares to Flanders, in the case of a delivery
of Escrowed Assets pursuant to paragraph 2 above, and to Subscriber, pursuant
to delivery of the Escrowed Assets to Flanders pursuant to paragraph 3 above.
In no event shall the Escrow Agent deliver the Escrowed Assets without
contemporaneously delivering the Flanders shares to the party not receiving
the Escrowed Assets.
6. The Escrow Agent shall deliver the Escrowed Assets in accordance
with any instruction or instructions which shall be signed jointly by both
Flanders and the Subscriber.
7. Flanders shall be liable for any and all fees and expenses of the
Escrow Agent incurred in connection with this Agreement, including counsel
fees, if any, payable in connection with the delivery of the Escrowed Assets
hereunder. Flanders shall pay any such amounts due to the Escrow Agent
promptly upon demand therefor.
2
<PAGE>
8. Flanders and Subscriber acknowledge and agree that the Escrow Agent
may consult counsel satisfactory to it, including house counsel, and the
opinion of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion of such counsel.
9. Neither the Escrow Agent nor any of its directors, officers or
employees shall be liable to anyone for any action taken or omitted to be
taken by it or any of its directors, officers or employees hereunder except in
the case of gross negligence or willful misconduct. Flanders covenants and
agrees to indemnify the Escrow Agent and hold it harmless without limitation
from and against any loss, liability or expense of any nature incurred by the
Escrow Agent arising out of or in connection with this Agreement or with the
administration of its duties hereunder, including but not limited to legal
fees and other costs and expenses of defending or preparing to defend against
any claim or liability in the premises, unless such loss, liability or expense
shall be caused by the Escrow Agent's willful misconduct or gross negligence.
In no event shall the Escrow Agent be liable for indirect, punitive, special
or consequential damages. The provisions of this paragraph 9 shall survive
termination of this Agreement.
10. The Escrow Agent shall not be bound in any way by any agreement or
contract (other than this Agreement) between Flanders and the Subscriber,
whether or not it has knowledge thereof, and the Escrow Agent's only duties
and responsibilities shall be to hold the Escrowed Assets as escrow agent and
to dispose of said assets in accordance with the terms of this Agreement. The
Escrow Agent may act upon any instruments or other writings believed by the
Escrow Agent to be genuine and to be signed or presented by the proper persons
and the Escrow Agent shall not be liable in connection with the performance of
its duties under this Agreement except for its own willful malfeasance, gross
negligence or bad faith.
11. The Escrow Agent may at any time resign as Escrow Agent hereunder
by giving thirty (30) days' prior written notice of resignation to Flanders
and Subscriber. Prior to the effective date of the resignation as specified
in such notice, Subscriber will issue to the Escrow Agent a written
instruction authorizing redelivery of the Escrowed Assets to a bank or trust
company that it selects, subject to the reasonable consent of Flanders. Such
bank or trust company shall have a principal office in New York, New York, and
shall have capital, surplus and undivided profits in excess of $50,000,000.
If however, Subscriber shall fail to name such a successor escrow agent within
twenty (20) days after the notice or resignation from the Escrow Agent,
Flanders shall be entitled to name such successor escrow agent. If no
successor escrow agent is named by Subscriber or Flanders, the Escrow Agent
may apply to a court of competent jurisdiction for appointment of a successor
escrow agent.
12. Neither Flanders nor Subscriber nor Escrow Agent shall be
responsible for delays or failures in performance resulting from acts beyond
its control. Such acts shall include but not be limited to acts of God,
strikes, lockouts, riots, acts or war, epidemics, governmental regulations
superimposed after the fact, fire, communication line failures, computer
viruses, power failures, earthquakes or other disasters.
3
<PAGE>
13. Any notice, report, demand or instruction required or permitted by
the provisions of this Agreement shall be deemed to have been sufficiently
transmitted, delivered, given or served for all purposes if delivered by hand
or if sent by prepaid registered mail or certified mail, or by responsible
overnight delivery service or telecopy to the parties at their addresses set
forth above, or at such other address as a party may hereinafter give by
written notice as herein provided:
If to Flanders:
Flanders Corporation
531 Flanders Filters Road
Washington, North Carolina 22889
Attention: Steven K. Clark
If to Subscriber:
The President and Fellows of Harvard College
600 Atlantic Avenue
Boston, MA 02110
Attention: Phillip Gross
If to Escrow Agent:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02210
Attention: Michael P. Cloherty
Master Trust Services
The date of delivery or transmittal shall be the date of delivery, if by
hand or telecopy, or if mailed shall be deemed to be the date of mailing, or
if sent by overnight delivery service shall be deemed to be the next business
day except that no notice, report, demand or Instruction shall be deemed to
have been delivered or transmitted to the Escrow Agent until actual receipt
thereof by the Escrow Agent.
14. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York and shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
successors and assigns. This Agreement may not be changed or amended in any
manner whatsoever except in writing signed by each of the parties hereto.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
made and executed the day and year first above written.
ESCROW AGENT:
By: /s/ William M. Mahoney
-----------------------
Its: Vice President
SUBSCRIBER:
By: /s/ Michael S. Pradko
Its: Authorized Signatory
FLANDERS CORPORATION:
By: /s/ Steven K. Clark
Its: CFO
5
EXHIBIT 10.8
SUBSCRIPTION AGREEMENT
<PAGE>
EXHIBIT B
SUBSCRIPTION AGREEMENT
September 5, 1996
FLANDERS CORPORATION
531 Flanders Filters Road
Washington, North Carolina 27889
Ladies and Gentlemen:
The undersigned ("Purchaser"), hereby subscribes for and agrees to
purchase 444,445 shares of common stock, $.001 par value per share (the
"Shares"), of FLANDERS CORPORATION (the "Company") at a purchase price of $9.00
per share. The Closing of the purchase of the Shares will be held at the
offices of the General Electric Pension Trust on the 6th day of September,
1996, or at such earlier date as shall be designated by the Company on not
less than 72 hours prior notice or at such other place and time as shall be
agreed to by the Company and the Purchaser (the "Closing Date"). At the
Closing, the Purchaser will make payment of the purchase price for the Shares
by depositing the same in escrow with State Street Bank ("Escrow Agent")
pursuant to an escrow agreement ("Escrow Agreement") in the form annexed
hereto as Exhibit A. At the Closing, the Company will issue to the Purchaser
and deliver to Escrow Agent a stock certificate representing such number of
fully-paid, validly issued and non-assessable shares of the Common Stock of
the Company as subscribed for hereby by the Purchaser.
Purchaser understands that this Subscription Agreement ("Subscription
Agreement") and the funds delivered hereunder will be returned promptly to
Purchaser and all of Purchaser's obligations under this Subscription Agreement
will terminate if the Company does not accept this Subscription Agreement.
Purchaser acknowledges that Purchaser has been furnished with and has
carefully read the Company's annual report on Form 10-K for the year ended
December 31, 1995, quarterly reports on Form 10-Q dated March 31, 1996 and
June 30, 1996 and Forms 8-K dated January 29, 1996 and May 31, 1996
(collectively, the "Disclosure Materials") delivered to Purchaser by the
Company in connection with the offering of the Shares.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents, warrants and covenants to Purchaser, as of the date hereof, that:
(a) The Company has all requisite corporate power and authority
to enter into this Subscription Agreement and to perform its obligations
hereunder. The execution and delivery by the Company of this
Subscription Agreement and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of the Company. This Subscription
Agreement has been duly executed and delivered by the Company and
constitutes a valid and binding obligation of the Company enforceable
against it in accordance with its terms.
<PAGE>
(b) The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of North Carolina
with full corporate power and authority to own, lease and operate its
properties and to conduct its business as currently conducted and as
described in the Company's Annual Report on Form 10-K most recently filed
with the Securities and Exchange Commission and is duly registered and
qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct
of its business requires such registration or qualification, except where
the failure so to register or qualify does not have a material adverse
effect on the condition (financial or other), business, properties, net
worth or results of operations of the Company.
(c) The execution, delivery and performance by the Company of
this Subscription Agreement and the consummation of the transactions
contemplated hereby do not and will not (i) contravene or constitute a
default under or give rise to a right of termination, cancellation or
acceleration of any right or obligation of the Company under any
provision of applicable law or regulation or of any agreement, judgment,
injunction, order, decree or other instrument binding on the Company or
its subsidiaries, or result in the imposition of any lien on any asset of
the Company or its subsidiaries except as specifically contemplated by
the terms of this Subscription Agreement, or (ii) contravene any
provision of the Company's Articles of Incorporation or Bylaws.
(d) The issuance and delivery of the Shares to Purchaser in
accordance with this Subscription Agreement have been duly authorized by
all necessary corporate action. The Shares, upon issuance, will be
validly issued and fully paid and non-assessable, free and clear of all
liens, encumbrances, rights and claims of others.
(e) The Corporation has filed in a timely manner each document
or report required to be filed by it pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and the rules and
regulations thereunder; each such document or report at the time it was
filed conformed to the requirements of the Exchange Act and the rules and
regulations thereunder; and none of such documents or reports contained
an untrue statement of any material fact or omitted to state any material
fact required to be stated therein or necessary to make the statement
therein not misleading.
(f) There has not been any material adverse change in the
Company's business, financial condition or prospects as reported on the
Company's quarterly report on form 10-Q for the period ended June 30,
1996.
2. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
acknowledges, represents, warrants and covenants that:
(a) The Purchaser acknowledges that the shares are only being
offered to Accredited Investors as defined under Section 501(a) of the
Securities Act. Purchaser qualifies as an Accredited Investor in that
the net worth of Purchaser is at least (i) U.S. $1 million if Purchaser
is a natural person or (ii) U.S. $5 million if Purchaser is a
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<PAGE>
corporation, partnership, trust or any entity other than a natural
person. In computing net worth, the term "net worth" shall mean the
excess of total assets over total liabilities and the principal residence
of the investor must be valued at cost, including cost of improvements,
or at recently appraised value by an institutional lender making a
secured loan, net of encumbrances.
(b) Purchaser has been furnished with and has carefully read the
Disclosure Materials, and is familiar with and understands the terms of
this purchase. In evaluating an investment in the Company, the purchaser
has not relied upon any representations or other information (whether
oral or written) from the Company, (or any of its agents or
representatives), other than as set forth in the Disclosure Materials.
With respect to individual tax and other economic considerations involved
in this investment, the Purchaser is not relying on the Company. The
Purchaser has carefully considered and has, to the extent the Purchaser
believes such discussion necessary, discussed with the Purchaser's
professional legal, tax, accounting and financial advisers an investment
in the Shares.
(c) The Shares are being offered in a transaction not involving
any public offering within the meaning of the Securities Act. The Shares
have not been registered under the Securities Act and until the Shares
are registered pursuant to Section 3 hereof (i) such Shares may be
offered, resold, pledged or otherwise transferred only in accordance with
an exemption from the registration requirements of the Securities Act
(and based upon an opinion of counsel if the Company so requests) and in
accordance with any applicable securities laws of any State of the United
States or any other applicable jurisdiction, and (ii) Purchaser will, and
each subsequent holder is required to, notify any subsequent purchaser
from it of the resale restrictions set forth in (i) above.
(d) Until the Shares are registered pursuant to Section 3
hereof, the registrar and transfer agent for the Shares will not be
required to accept for registration transfer any Shares, except upon
presentation of evidence satisfactory to the Company that the
restrictions on transfer set forth in paragraph (c) above have been
complied with and that any such Shares will be in the form of definitive
physical certificates bearing the following legend:
"The Security evidenced hereby was originally issued in a
transaction exempt from registration under Section 5 of the
United States Securities Act of 1933, as amended (the
"Securities Act"), and the Security evidenced hereby may not be
offered, sold or otherwise transferred in the absence of such
registration or an applicable exemption therefrom. The holder
of the Security evidenced hereby agrees for the benefit of the
Company that (A) such Security may be resold, pledged or
otherwise transferred only in a transaction meeting the
requirements of the Securities Act or exemption therefrom (and
based upon an opinion of counsel if the Company so requests)
and in accordance with any applicable securities laws of any
State of the United States or any other applicable jurisdiction
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<PAGE>
and (B) the holder will, and each subsequent holder is required
to, notify any purchaser from it of the Security evidenced
hereby of the resale restrictions set forth in (A) above."
(e) Purchaser is (i) acquiring the Shares for its own account,
and (ii) not acquiring the Shares with a view to distribution or resale
thereof or with any present intention of offering or selling any of the
Shares in a transaction that would violate the Securities Act or the
securities laws of any State of the United States or any other applicable
jurisdiction.
(f) The Purchaser recognizes that investment in the Company
involves certain risks and the Purchaser has taken full cognizance of and
understands all of the risk factors related to the purchase of Shares and
inherent in the business of the Company. The Purchaser has substantial
investment experience in making investment decisions of the type
contemplated hereby, is experienced in evaluating companies such as the
Company and has such knowledge and experience in financial and business
matters that the Purchaser is capable of evaluating the merits and risks
of an investment in the Company.
(g) The Purchaser is acquiring the Shares without being
furnished any offering literature, prospectus or any other form of
general solicitation or general advertising other than the Disclosure
Materials, and the Purchaser has been given no oral or written
representations or assurances by the Company or any representative of the
Company in connection with this investment other than as set forth in the
Disclosure Materials.
3. SECURITIES ACT REGISTRATION.
(a) The Company shall use its best efforts to register for
resale under the Securities Act of 1933, as amended (the "Securities
Act"), at the Company's expense, all of the Shares (the "Registerable
Shares") within ninety days from the date hereof, and in that regard will
file a Registration Statement (the "Registration Statement") on the
appropriate form with the Securities and Exchange Commission ("SEC") as
soon as practicable. Notice of effectiveness of the Registration
Statement shall be furnished promptly to the Purchaser. The Company
shall maintain the effectiveness of the Registration Statement and from
time to time will amend or supplement such Registration Statement and the
prospectus contained therein as and to the extent necessary to comply
with the Securities Act. The effectiveness of the Registration Statement
shall be maintained with respect to Registrable Shares until the later to
occur of the second anniversary of the Closing Date or such date as the
Registrable Shares may be sold pursuant to Rule 144 under the Securities
Act or otherwise without registration. The Registration Statement and
any registration filed pursuant to Section 3(b) below is sometimes also
referred to as a "Registration Statement."
(b) So long as the Registrable Shares shall exceed three percent
(3%) of the number of issued and outstanding shares of Common Stock of
the Company, if the Company shall determine to register any of its
securities for its own account or the
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<PAGE>
account of a security holder or holders ("Other Holders") in respect of a
registered public offering involving an underwriting, the Company will
promptly give the Purchaser written notice thereof and use its best efforts
to include in such registration and underwriting all of the Registrable
Shares specified in a written request made by the Purchaser within 20 days
after the written notice from the Company to the Purchaser. Such written
request may specify all or part of the Purchaser's Registrable Securities.
(i) The Purchaser shall, together with the Company and the
Other Holders enter into an underwriting agreement in customary form
with the representative of the Underwriter or underwriters selected
by the Company.
(ii) If the representative of the underwriters advises the
Company in writing that marketing factors require a limitation on
the number of shares to be underwritten, the representative may
exclude all Registrable Securities from, or limit the number of
Registrable Securities to be included in, the registration and
underwriting. The Company shall so advise all holders of securities
requesting registration and the number of shares of securities that
are entitled to be included in the registration and underwriting
shall be allocated first to the Company for securities being sold
for its own account and thereafter as set forth in Subsection
3(b)(iii) below.
(iii) In any circumstances in which all of the Registrable
Securities and shares of Holders requested to be included in a
registration cannot be so included for the reason set forth in
Subsection 3(b)(ii) above, the number of Registrable Securities and
shares of Other Holders that may be so included shall be allocated
among the Purchaser and Other Holders requesting inclusion of
securities pro rata on the basis of the number of shares of
Registrable Securities and the number of shares of Other Holders.
4. RESCISSION.
(a) In the event the Registration Statement is not declared
effective by the SEC on or prior to the ninetieth (90th) day following
the Closing Date (the "Effective Date") the Purchaser may thereafter
rescind this transaction at any time prior to the effectiveness of the
Registration Statement by (i) written notice to the Company and (ii)
written notice to the Escrow Agent certifying that the Registration
Statement referred to in this Subscription Agreement did not become
effective on or before the Effective Date, and has not yet become
effective and that the Purchaser has given written notice of the
rescission of the transaction referred to in such Subscription Agreement
and directing the Escrow Agent to pay to the Purchaser the amount
deposited in escrow as provided above.
(b) In the event that the Company has not acquired all of the
outstanding shares of Precisionaire, Inc. pursuant to that certain Stock
Purchase Agreement between the Company and Precisionaire dated July 1,
1996, on or before September 30, 1996, the Purchaser may rescind this
subscription at any time thereafter by giving written notice to
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<PAGE>
(i) the Company, and (ii) the Escrow Agent certifying that the Precisionaire
acquisition referred to above was not consummated on or before September 30,
1996. This right of rescission shall terminate upon consummation of the
Precisionaire acquisition, as described in the Precisionaire Stock Purchase
Agreement.
5. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless Purchaser
as a seller of Shares, each underwriter, if any (within the meaning of
the Securities Act) of such securities and each person, if any, who
controls (within the meaning of either Section 15 of the Act or Section
20 of the Securities Exchange Act of 1934) any such seller, controlling
person or underwriter, from and against any losses, claims, damages or
liabilities, joint or several, that any such seller, underwriter or
controlling person may incur or to which any such seller, underwriter or
controlling person may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any
preliminary prospectus, or contained, on the effective date thereof, in
any registration statement or final or summary prospectus included
therein, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading; and the Company will reimburse each such seller,
underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action, whether or not
resulting in liability; provided, however, the Company will not be liable
in any case to the extent that any such loss, claim, damage, liability or
expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such
registration statement, such preliminary, final or summary prospectus or
such amendment or supplement in reliance upon and in conformity with
written information furnished by or on behalf of any such seller
specifically for use in the preparation thereof.
(b) Purchaser will indemnify and hold harmless the Company, each
of its directors, each of its officers who sign or have signed said
registration statement, each underwriter, each other seller and each
person, if any, who controls the Company or such underwriter or seller
(within the meaning of either Section 15 of the Act or Section 20 of the
Exchange Act), to the same extent as the foregoing indemnity from the
Company to Purchaser, but only with reference to written information
furnished by or omitted to be furnished by or on behalf of Purchaser, for
use in the preparation of such registration statement, such preliminary,
final or summary prospectus or such amendment or supplement, and will
reimburse the Company or any such director, officer, underwriter or
controlling person for any legal or other expenses reasonably incurred by
it in connection with investigating or defending any such loss, claim,
damage, liability or action, whether or not resulting in any liability;
provided, however, that the obligations of Purchaser hereunder shall not
apply to amounts paid in settlement of any such claims, losses, damages
or liabilities (or actions in respect thereof) if such settlement is
effected without
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<PAGE>
the consent of Purchaser (which consent shall not be unreasonably withheld);
and, provided further, that Purchaser shall only be responsible for the
reimbursement of the legal and other expenses incurred by a single counsel
on behalf of the Company and such officers, directors and controlling
Persons.
(c) Promptly after receipt by an indemnified party of notice of
the commencement of any legal action against such indemnified party in
respect of which indemnity or reimbursement may be sought against the
indemnifying party under this Agreement, such indemnified party shall
notify the indemnifying party in writing of the commencement thereof,
and, subject to the provisions hereinafter stated, the indemnifying party
shall assume the defense of such action (including, the employment of
counsel, who shall be counsel satisfactory to such indemnified party, and
the payment of expenses in connection therewith). To the extent the
Company and the indemnified party believe it prudent or necessary, in
their good faith discretion, such indemnified party shall, in addition to
the foregoing, have the right to employ separate counsel in any such
action and to participate in the defense thereof, and the fees and
expenses of such counsel shall be at the expense of the indemnifying
party. The indemnifying party shall not be liable to indemnify any
person for any settlement of any such action effected without the consent
of the indemnifying party.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for above is due in
accordance with its terms but is held by a court to be unavailable on
grounds of policy or otherwise, the person or persons (individually, an
"Indemnitor" and collectively, the "Indemnitors") who would otherwise
have been required to indemnify any other person (the "Indemnitee")
hereunder shall contribute to the aggregate losses, claims, damages,
liabilities and expenses to which any such Indemnitee may be subject in
such proportion so that such Indemnitor is or such Indemnitors,
collectively, are responsible for that portion represented by the
percentage that the aggregate public offering price of the shares sold by
such Indemnitor or Indemnitors bears to the aggregate public offering
price of all shares sold in such registered offering; provided, however,
that no person adjudged guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) by a court of competent
jurisdiction, in a final judgment, shall be entitled to contribution from
any person who was not adjudged guilty of such fraudulent
misrepresentation. Any party entitled to contribution shall, promptly,
after receipt of notice of the commencement of any action, suit or
proceeding against such party in respect of which a claim for
contribution may be made against another person hereunder, notify such
other person, but the omission to so notify another person shall not
relieve such person from any other obligation it may have hereunder or
otherwise.
6. MISCELLANEOUS.
(a) Grammatical References. All pronouns and any variations
thereof used herein shall be deemed to refer to the masculine, feminine,
neuter, singular or plural as the identity of the antecedent may require.
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<PAGE>
(b) Notices. Notices required or permitted to be given
hereunder shall be in writing and shall be deemed to be sufficiently
given when personally delivered or upon receipt when sent by facsimile or
registered mail, return receipt requested, addressed to the other party
at the address of such party set forth in this Subscription Agreement, or
to such other address furnished by notice given in accordance with this
paragraph.
(c) No Waiver. Failure of the Company or the Purchaser to
exercise any right or remedy under this Subscription Agreement or any
other agreement between the Company and a Purchaser, or otherwise, or
delay by the Company or the Purchaser is exercising same, will not
operate as a waiver thereof. No waiver by the Company or the Purchaser
will be effective unless and until it is in writing and signed by the
Company or the Purchaser.
(d) Governing Law. This Subscription Agreement shall be
enforced, governed and construed in all respects in accordance with the
laws of the State of New York without giving effect to its conflicts of
law rules or principles.
(e) Complete Agreement. This Subscription Agreement and the
documents referred to herein, shall constitute the entire agreement among
the parties hereto with respect to the subject matter hereof and shall
supersede all prior understandings or agreements with respect to such
subject matter. This Subscription Agreement may be amended only by the
written consent of both the Company and the Purchaser.
(f) Severability. If a court of competent jurisdiction
determines that any provision of this Subscription Agreement is invalid,
unenforceable or illegal for any reason, such determination shall not
affect or impair the validity, legality and enforceability of the other
provisions of this Subscription Agreement, which shall remain in full
force and effect in the same manner and to the same extent as if the
invalid, unenforceable or illegal provision had not been contained in
this Subscription Agreement. In the event that any provision of this
Subscription Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative
to the extent that it may conflict therewith and shall be deemed modified
to conform with such statute or rule of law. Any provision hereof which
may prove invalid or unenforceable under any law shall not affect the
validity or enforceability or any other provision hereof.
(g) Execution in Counterparts. This Subscription Agreement may
be executed in counterparts, each of which shall be deemed an original,
but all of which together shall constitute the same Subscription
Agreement.
(h) Title and Subtitles. The titles and subtitles used in this
Subscription Agreement are used for convenience only and are not to be
considered in construing or interpreting this Subscription Agreement.
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<PAGE>
(i) Rights and Remedies Cumulative. The rights and remedies
provided in this Subscription Agreement shall be cumulative and not
exclusive of any other rights or remedies provided by law or otherwise.
IF YOU AGREE WITH THE FOREGOING, PLEASE SIGN THE SIGNATURE PAGES TO THIS
SUBSCRIPTION AGREEMENT LOCATED IN THE SUBSCRIPTION DOCUMENTS PROVIDED AND
RETURN THEM TO THE COMPANY, AND THIS LETTER SHALL THEN BECOME A BINDING
AGREEMENT BETWEEN YOU AND THE COMPANY IN ACCORDANCE WITH ITS TERMS.
- 9 -
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE
By executing this signature page the Purchaser hereby swears to, adopts
and agrees to all terms, conditions, representations, warranties and covenants
contained in the Subscription Agreement.
Dated: September 12, 1996
Number of Shares subscribed for: 444,445
Aggregate purchase price: $ 4,000,005
NAME OF PURCHASER: TRUSTEES OF GENERAL ELECTRIC PENSION TRUST
(If purchaser is trust or retirement fund list name of such trust or fund)
PURCHASER: /s/ Alan M. Lewis
(signature)
Name of person signing: Alan M. Lewis
If signing in capacity of officer or trustee, please indicate: Trustee
________________________________________________________
(signature of any co-tenant, joint-tenant or co-trustee)
Name of co-signer:
Print exact name in which Share will be held: Trustees of General Electric
Pension Trust
Tax or Other Identification Number[s]: 14-6015763
Address of Purchaser(s): 3003 Summer Street
Stamford, CT 06904
ACCEPTED BY:
FLANDERS CORPORATION
531 Flanders Filters Road
Washington, North Carolina 27889
By: /s/ Steven K. Clark
Its: ____________________________
Date: ______________________, 1996
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EXHIBIT 10.9
ESCROW AGREEMENT
<PAGE>
ESCROW AGREEMENT
AGREEMENT dated this 5th day of September, 1996, by and among the
Trustees of General Electric Pension Trust ("Subscriber"), Flanders
Corporation, a North Carolina corporation ("Flanders"), and State Street Bank
and Trust Company, a Massachusetts corporation (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, Flanders and Subscriber are parties to a Subscription Agreement
dated September 5, 1996 (the "Subscription Agreement") which provides for the
escrow of $4,000,005 with Escrow Agent (such amount and interest thereon being
sometimes referred to as the "Escrowed Assets") and the deposit of 444,445
shares of common stock of Flanders (the "Flanders Shares"); and
WHEREAS, Flanders and the Subscriber are desirous of entering into this
Agreement and the Escrow Agent is willing to act as escrow agent on the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained and subject to the conditions hereinafter set forth, the parties
hereto agree as follows:
1. Concurrently with the execution hereof, the Subscriber is paying
the sum of $4,000,005 referred to above to, and Flanders is depositing the
Flanders Shares with. the Escrow Agent, which shall hold the same, and any
interest earned on Escrowed Assets, in escrow on the terms and conditions
hereinafter set forth.
2. The Escrow Agent shall make payment of the Escrowed Assets to the
Subscriber as follows: If the Escrow Agent shall have received a written
notice from the Subscriber to the Escrow Agent given after September 30, 1996,
which notice shall (i) certify that Flanders did not complete the acquisition
of Precisionaire, Inc. ("Precisionaire"), as set forth in the Stock Purchase
Agreement dated July 1, 1996 (the "Precision Acquisition"), or (ii) certify
that the Registration Statement referred to in the Subscription Agreement did
not become effective on or before December 5, 1996, and has not, as of the
date of the Subscriber's notice, become effective and that the Subscriber has
given written notice to Flanders of the rescission of the transaction referred
to in the Subscription Agreement, and (iii) direct the Escrow Agent to pay the
Escrowed Assets to the Subscriber, the Escrow Agent shall transmit a copy of
such notice to Flanders. The Escrow Agent shall act in accordance with such
notice from the Subscriber to the Escrow Agent unless within ten days from
transmittal by the Escrow Agent to Flanders of the copy of such notice,
Flanders shall notify the Escrow Agent not to comply with the payment
instruction contained in such notice from the Subscriber to the Escrow Agent.
Simultaneously with any payment of Escrowed Assets to the Subscriber pursuant
hereto, Escrow Agent shall deliver the Flanders Shares to Flanders.
<PAGE>
3. The Escrow Agent shall make payment of the Escrowed Assets to
Flanders as follows: If the Escrow Agent shall have received a written notice
from Flanders which notice shall certify (i) that the Precision Acquisition
has been completed, and (ii) that the Registration Statement referred to in
the Subscription Agreement has become effective and shall direct the Escrow
Agent to pay the Escrowed Assets to Flanders, the Escrow Agent shall transmit
a copy of such notice to the Subscriber. The Escrow Agent shall act in
accordance with such notice from Flanders to the Escrow Agent unless within
ten days from transmittal by the Escrow Agent to the Subscriber of the copy of
such notice the Subscriber shall notify the Escrow Agent not to comply with
the payment instruction contained in such notice from Flanders to the Escrow
Agent. Simultaneously with any payment of the Escrowed Assets to Flanders
pursuant hereto, the Escrow Agent shall deliver the Flanders Shares to
Subscriber.
4. After Flanders shall have notified the Escrow Agent not to comply
with the Subscriber's payment instruction (as referred to in paragraph 2
above) and after the Subscriber shall have notified the Escrow Agent not to
comply with Flanders payment instruction (as referred to in Paragraph 3
above), the Escrow Agent shall act with respect to the Escrowed Assets solely
in accordance with any of the following: (a) a new Instruction signed jointly
by Flanders and the Subscriber; (b) a certified copy of an arbitrator's award
issued under the rules of the American Arbitration Association as to which the
Escrow Agent shall have received an opinion of counsel, which may include the
Escrow Agent and which is addressed and delivered also to each of Flanders and
the Subscriber, satisfactory to the Escrow Agent and in its sole and absolute
discretion, that such award is final beyond appeal or (c) a certified copy of
a judgment of a court of competent jurisdiction as to which the Escrow Agent
shall have received an opinion of counsel, which may include the Escrow Agent
and which is addressed and delivered also to Flanders and the Subscriber,
satisfactory to the Escrow Agent in its sole and absolute discretion, that
such judgment is final beyond appeal. Anything in the foregoing to the
contrary notwithstanding, at the sole discretion of the Escrow Agent, the
Escrow Agent may at any time deposit the Escrowed Assets with a court selected
by the Escrow Agent and in such event all liability and responsibility of the
Escrow Agent as to acts or omissions and subsequent to such deposit shall
terminate upon such deposit having been made.
5. Upon any distribution of the Escrowed Assets to Subscriber
pursuant to paragraph 2 above, or to Flanders pursuant to paragraph 3 above,
the Escrow Agent shall deliver the Flanders Shares to Flanders, in the case of
a delivery of Escrowed Assets pursuant to paragraph 2 above, and to
Subscriber, pursuant to delivery of the Escrowed Assets to Flanders pursuant
to paragraph 3 above. In no event shall the Escrow Agent deliver the Escrowed
Assets without contemporaneously delivering the Flanders shares to the party
not receiving the Escrowed Assets.
6. The Escrow Agent shall deliver the Escrowed Assets in accordance
with any instruction or instructions which shall be signed jointly by both
Flanders and the Subscriber.
7. Flanders shall be liable for any and all fees and expenses of the
Escrow Agent incurred in connection with this Agreement, including counsel
fees, if any, payable in
2
<PAGE>
connection with the delivery of the Escrowed Assets hereunder. Flanders shall
pay any such amounts due to the Escrow Agent promptly upon demand therefor.
8. Flanders and Subscriber acknowledge and agree that the Escrow
Agent may consult counsel satisfactory to it, including house counsel, and the
opinion of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion of such counsel.
9. Neither the Escrow Agent nor any of its directors, officers or
employees shall be liable to anyone for any action taken or omitted to be
taken by it or any of its directors, officers or employees hereunder except in
the case of gross negligence or willful misconduct. Flanders and Subscriber,
jointly and severally, covenant and agree to indemnify the Escrow Agent and
hold it harmless without limitation from and against any loss, liability or
expense of any nature incurred by the Escrow Agent arising out of or in
connection with this Agreement or with the administration of its duties
hereunder, including but not limited to legal fees and other costs and
expenses of defending or preparing to defend against any claim or liability in
the premises, unless such loss, liability or expense shall be caused by the
Escrow Agent's willful misconduct or gross negligence. In no event shall the
Escrow Agent be liable for indirect, punitive, special or consequential
damages. The provisions of this paragraph 9 shall survive termination of this
Agreement.
10. The Escrow Agent shall not be bound in any way by any agreement
or contract (other than this Agreement) between Flanders and the Subscriber,
whether or not it has knowledge thereof, and the Escrow Agent's only duties
and responsibilities shall be to hold the Escrowed Assets as escrow agent and
to dispose of said assets in accordance with the terms of this Agreement. The
Escrow Agent may act upon any instruments or other writings believed by the
Escrow Agent in good faith to be genuine and to be signed or presented by the
proper persons and the Escrow Agent shall not be liable in connection with the
performance of its duties under this Agreement except for its own willful
malfeasance or bad faith.
11. The Escrow Agent may at any time resign as Escrow Agent hereunder
by giving thirty (30) days' prior written notice of resignation to Flanders
and Subscriber. Prior to the effective date of the resignation as specified
in such notice, Subscriber will issue to the Escrow Agent a written
instruction authorizing redelivery of the Escrowed Assets to a bank or trust
company that it selects, subject to the reasonable consent of Flanders. Such
bank or trust company shall have a principal office in New York, New York, and
shall have capital, surplus and undivided profits in excess of $50,000,000.
If however, Subscriber shall fail to name such a successor escrow agent within
twenty (20) days after the notice or resignation from the Escrow Agent,
Flanders shall be entitled to name such successor escrow agent. If no
successor escrow agent is named by Subscriber or Flanders, the Escrow Agent
may apply to a court of competent jurisdiction for appointment of a successor
escrow agent.
12. Neither Flanders nor Subscriber nor Escrow Agent shall be
responsible for delays or failures in performance resulting from acts beyond
its control. Such acts shall
3
<PAGE>
include but not be limited to acts of God, strikes, lockouts, riots, acts or
war, epidemics, governmental regulations superimposed after the fact, fire,
communication line failures, computer viruses, power failures, earthquakes or
other disasters.
13. Any notice, report, demand or instruction required or permitted
by the provisions of this Agreement shall be deemed to have been sufficiently
transmitted, delivered, given or served for all purposes if delivered by hand
or if sent by prepaid registered mail or certified mail, or by responsible
overnight delivery service or telecopy to the parties at their addresses set
forth above, or at such other address as a party may hereinafter give by
written notice as herein provided:
If to Flanders:
Flanders Corporation
531 Flanders Filters Road
Washington, North Carolina 22889
Attention: Steven K. Clark
If to Subscriber:
Trustees of General Electric Pension Trust
3003 Summer Street
Stamford, Connecticut 06904
Attention: Mike Pastore
If to Escrow Agent:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02210
Attention: Michael P. Cloherty
Master Trust Services
The date of delivery or transmittal shall be the date of delivery, if by
hand or telecopy, or if mailed shall be deemed to be the date of mailing, or
if sent by overnight delivery service shall be deemed to be the next business
day except that no notice, report, demand or Instruction shall be deemed to
have been delivered or transmitted to the Escrow Agent until actual receipt
thereof by the Escrow Agent.
14. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York and shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
successors and assigns. This Agreement may not be changed or amended in any
manner whatsoever except in writing signed by each of the parties hereto.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
made and executed the day and year first above written.
ESCROW AGENT:
By: /s/ Michael P. Cloherty
Its: Vice President
SUBSCRIBER:
By: /s/ Alan M. Lewis
Its: Trustee
FLANDERS CORPORATION:
By: /s/ Steven K. Clark
Its: CFO
5
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JUL-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 2,603,039 2,603,039
<SECURITIES> 835,519 835,519
<RECEIVABLES> 23,154,151 23,154,151
<ALLOWANCES> 466,903 466,903
<INVENTORY> 10,432,883 10,432,883
<CURRENT-ASSETS> 42,326,474 42,326,474
<PP&E> 35,981,755 35,981,755
<DEPRECIATION> 6,212,398 6,212,398
<TOTAL-ASSETS> 85,486,860 85,486,860
<CURRENT-LIABILITIES> 20,363,956 20,363,956
<BONDS> 0 0
0 0
0 0
<COMMON> 15,460 15,460
<OTHER-SE> 18,793,842 18,793,842
<TOTAL-LIABILITY-AND-EQUITY> 85,486,860 85,486,860
<SALES> 14,453,452 40,694,712
<TOTAL-REVENUES> 14,453,452 40,694,712
<CGS> 10,552,846 30,326,600
<TOTAL-COSTS> 10,552,846 30,326,600
<OTHER-EXPENSES> 2,440,006 6,988,474
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 144,913 290,481
<INCOME-PRETAX> 1,420,451 3,586,296
<INCOME-TAX> 555,000 1,372,876
<INCOME-CONTINUING> 865,451 2,213,420
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 865,451 2,213,420
<EPS-PRIMARY> .05 .13
<EPS-DILUTED> .05 .13
</TABLE>
