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 June 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 of 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(b) 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.
13,532,595 shares common stock par value $.001 as of July 29, 1995
(Title of Class)
<PAGE>
FLANDERS CORPORATION
FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1996
PART I - FINANCIAL INFORMATION Page
Item 1 -
Financial Statements
Consolidated Condensed Balance Sheet for June 30, 1996
and December 31, 1995 3
Consolidated Condensed Statements of Income for the three
months and six months ended June 30, 1996 and 1995 4
Consolidated Condensed Statement of Shareholders' Equity
for the six months ended June 30, 1996 and the year
ended December 31, 1995 5
Consolidated Condensed Statements of Cash Flows for the
three months and six months ended June 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 8
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 13
Item 2 - Changes in Securities 13
Item 3 - Defaults Upon Senior Securities 13
Item 4 - Submission of Matters to a Vote of Security Holders 13
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 13
SIGNATURES 13
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FLANDERS CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
- - -------------------------------------------------------------- -------------- --------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 406,018 $ 2,973,797
Receivables:
Trade, less allowance for doubtful accounts
of $148,000 12,703,523 7,243,557
Other 532,912 321,356
Inventories 5,248,974 2,321,367
Deferred taxes 157,285 137,961
Other current assets 344,596 46,586
-------------- --------------
Total current assets 19,393,308 13,044,624
-------------- --------------
Other assets 23,116 183,542
Intangible assets 1,825,965 -
Property and equipment, net of accumulated
depreciation and amortization of $5,963,998
at 6/30/96; $5,590,677 at 12/31/95 8,789,593 5,301,063
-------------- --------------
$ 30,031,982 $ 18,529,229
============== ==============
LIABILITIES AND STOCKHOLDERS'EQUITY
- - -------------------------------------------------------------- -------------- --------------
Current liabilities
Notes payable $ 2,757,369 $ 3,890,425
Current maturities of long-term debt 259,026 454,181
Accounts payable 5,182,040 3,984,140
Accrued expenses 1,732,881 685,482
-------------- --------------
Total current liabilities 9,931,316 9,014,228
-------------- --------------
Long-term debt, less current maturities 1,465,254 1,306,584
Deferred income taxes 503,934 -
Commitments and contingencies - -
Stockholders' equity
Preferred stock, no par value, 10,000,000 shares
authorized; none issued - -
Common stock, $.OOI par value; 50,000,000 shares
authorized; issued and outstanding: 13,532,595
at 6/30/96, 11,434,000 at December 31, 1995 13,533 11,434
Additional paid-in capital 11,991,664 3,418,671
Retained earnings 6,126,281 4,778,312
-------------- --------------
Total stockholders' equity 18,131,478 8,208,417
-------------- --------------
$ 30,031,982 $ 18,529,229
============== ==============
</TABLE>
Page 3
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 14,402,607 $ 9,096,048 $ 26,241,260 $ 18,930,435
Cost of goods sold 10,814,485 6,654,484 19,773,754 13,961,512
-------------- -------------- -------------- --------------
Gross Profit 3,588,122 2,441,564 6,467,506 4,968,923
-------------- -------------- -------------- --------------
Operating expenses 2,576,142 1,757,094 4,548,468 3,552,250
-------------- -------------- -------------- --------------
Operating income 1,011,980 684,470 1,919,038 1,416,673
-------------- -------------- -------------- --------------
Nonoperating income (expense):
Other income (expense) 310,160 (43,105) 392,375 (58,195)
Interest expense (83,035) (171,049) (145,568) (328,282)
-------------- -------------- -------------- --------------
227,125 (214,154) 246,807 (386,477)
-------------- -------------- -------------- --------------
Income before income taxes 1,239,105 470,316 2,165,845 1,030,196
Income taxes 435,000 215,196 817,876 391,474
Net income $ 804,105 $ 255,120 $ 1,347,969 $ 638,722
============== ============== ============== ==============
Earnings per weighted average
common and common equivalent
share outstanding:
Primary $ 0.05 $ 0.03 $ 0.09 $ 0.07
============== ============== ============== ==============
Fully diluted $ 0.05 $ 0.03 $ 0.08 $ 0.07
============== ============== ============== ==============
Weighted average common and common
equivalent shares outstanding:
Primary 16,553,915 9,693,478 15,252,025 9,693,478
============== ============== ============== ==============
Fully diluted 17,157,171 9,693,478 15,860,484 9,693,478
============== ============== ============== ==============
</TABLE>
Page 4
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
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, I 00,000 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 common stock related to two
Private Placements 2,038 8,419,854 -
Issuance of stock upon exercise of
warrants and options 61 153,139 -
Net income - - 1,347,969
-------------- -------------- --------------
Balance, June 30, 1996 (unaudited) $ 13,533 $ 11,991,664 $ 6,126,281
============== ============== ==============
</TABLE>
Page 5
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NET CASH (USED) BY
OPERATING ACTIVITIES $ (1,184,116) $ 630,538 $ (2,148,729) $ 80,898
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash received (6,707,955) - (6,707,955) -
Purchase of equipment (287,247) (537,517) (719,279) (699,681)
-------------- -------------- -------------- --------------
NET CASH (USED) BY
INVESTING ACTIVITIES (6,995,202) (537,517) (7,427,234) (699,681)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in revolving credit
agreements 839,524 (136,522) (1,439,652) 1,158,380
Net change in long-term borrowings 215,030 102,641 25,944 (47,844)
Proceeds from issuance of common
stock 7,339,573 - 8,421,892 -
Purchase of common stock for
retirement - - - (571)
-------------- -------------- -------------- --------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 8,394,127 (33,881) 7,008,184 1,109,965
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH 214,809 59,140 (2,567,779) 491,182
CASH AT BEGINNING OF PERIOD 191,209 (315,496) 2,973,797 (747,538)
-------------- -------------- -------------- --------------
CASH AT END OF PERIOD $ 406,018 $ (256,356) $ 406,018 $ (256,356)
============== ============== ============== ==============
CASH PAID FOR TAXES $ 270,000 $ 1,000 $ 754,033 $ 1,000
============== ============== ============== ==============
</TABLE>
Page 6
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Nature of Business and Interim Financial Statements
Nature of business: Flanders Corporation (the "Company") primarily manufactures
high-efficiency air filters, filtration systems, and housings which are used in
many applications, including commercial and industrial air conditioning and the
construction of ultra-clean manufacturing environments (cleanrooms). The Company
also provides installation supervision, filter testing, and certification
services for installed systems. The Company sells its products primarily to
cleanroom contractors and industrial users in North America, based on credit
terms established for individual customers.
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 six months ended June 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 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 4
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.
Note 2. Inventories
Inventories consist of the following at June, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
6/30/96 12/31/95
-------------- --------------
(unaudited)
<S> <C> <C>
Finished goods $ 473,926 $ 198,607
Work in progress 1,537,041 879,987
Raw materials 3,298,007 1,302,773
-------------- --------------
5,308,974 2,381,367
Less allowance for obsolete raw materials 60,000 60,000
-------------- --------------
$ 5,248,974 $ 2,321,367
============== ==============
</TABLE>
Note 3. Acquisitions
Effective March 1, 1996, the Company completed the acquisition of all of the
outstanding capital stock of Charcoal Service Corporation ("CSC"), a North
Carolina Corporation, along with certain land and buildings formerly owned by
the shareholders of CSC, pursuant to a stock purchase agreement. The purchase
price for CSC was $4,435,690. In addition, 100,000 shares of the Company's
common stock are to be issued and held in escrow as a valuation allowance
pending the realized value of future cash flows. The Company also capitalized
$143,474 of offering expenses, consisting of legal fees, professional fees and
other miscellaneous offering-related expenses. The acquisition by the Company of
CSC has been accounted for by the Company as a purchase.
CSC, headquartered in Bath, North Carolina, manufactures high-efficiency
charcoal filters, specialized housings, containment environments and related
services. CSC's operations are contained in a 44,282 square foot facility, which
was included in the purchase.
Page 7
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 3. Acquisitions - Continued
Effective June 1, 1996, the Company acquired all of the outstanding capital
stock of Air Seal Filter Housings, Inc. ("Air Seal"), along with certain land
and buildings formerly owned by the shareholders of Air Seal, pursuant to a
stock purchase agreement. The purchase price for Air Seal was $2,150,000. In
addition, 150,000 shares of the Company's common stock are to be issued and held
in escrow as a valuation allowance pending the realized value of future cash
flows. The Company also capitalized $102,440 of offering expenses, consisting of
legal fees, professional fees and other miscellaneous offering-related expenses.
The acquisition of Air Seal by the Company has been accounted for by the Company
as a purchase.
Air Seal, located in Stafford, Texas, manufactures specialty and standard
housings for air filtration and HVAC systems, as well as integrated custom
industrial-grade HVAC systems. Air Seal conducts its operations from an 18,000
square foot facility, which was included in the purchase.
The excess of purchase price plus expenses over fair value of assets acquired
was $450,503 and $887,052 for CSC and Air Seal, respectively, and is being
amortized on a straight-line basis over 40 years.
Note 4. Capital Transactions
On June 3, 1996, the Company completed a private offering of 1,537,315 shares of
Common Stock at $5.00 per share to accredited investors. Net proceeds to the
Company from the offering after commissions and expenses of $347,002 were
$7,339,573.
Note 5. Stock Options and Warrants
On June 3, 1996, the Company granted options to purchase 30,000 shares to
certain key employees under its Long- Term Incentive Plan at an exercise price
of $7.50 per share.
On June 3, 1996, the Company granted to its President and its Vice President of
Finance options to purchase 1,000,000 shares each of the Company's common stock
at an exercise price of $7.50 per share.
The following table summarizes the activity related to the Company's stock
options and warrants for the six months ended June 30, 1996 and the year ended
December 31, 1995:
<TABLE>
<CAPTION>
Price
per Share
Stock ---------------------------
Warrants Options Warrants Options
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1995 - -
Granted 61,280 2,500,000 $2.50 $1.00
Exercised - -
Canceled or expired - -
----------- -----------
Outstanding at December 31, 1995 61,280 2,500,000 $2.50 $1.00
Granted 72,712 5,078,520 $2.50 - $5.00 $2.50 - $7.00
Exercised 61,280 - $2.50
Canceled or expired - -
----------- -----------
Outstanding at June 30, 1996 72,712 7,578,520 $2.50 - $5.00 $1.00 - $7.00
=========== ===========
Exercisable at June 30, 1996 72,712 2,500,000 $2.50 - $5.00 $1.00
=========== ===========
</TABLE>
The warrants expire at various periods through December 1996. The options expire
at various times through June 3, 2001.
Page 8
<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 condensed
consolidated financial statements and notes thereto. Except for the historical
information contained herein, this report on Form 10-Q contains forward looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in the section
entitled "Factors that May Affect the Future Results of Operations."
Overview
The Company, headquartered in Washington, North Carolina, designs, manufactures
and markets a full range of air filtration products including high performance
laminar flow, high efficiency particle air filters and charcoal filters for
semiconductor plants. The Company's air filtration products are critical to many
industries, including those associated with commercial semiconductor
manufacturing, ultra-pure materials, biotechnology, pharmaceuticals, synthetics,
nuclear power and nuclear materials processing.
The Company has implemented the strategy of growth by acquisition since
December, 1995. The Company historically has specialized in high efficiency HEPA
and ASHRAE filters and equipment. During the first six months of 1996 the
Company purchased Charcoal Service Corporation ("CSC"), which specializes in
charcoal filtration systems for the removal of gaseous contaminates and Air Seal
Filter Housing, Inc. ("Air Seal") which specializes in filter housings and
customized industrial HVAC equipment. The acquisition of CSC and Air Seal are
sometimes collectively referred to herein as the "Acquisitions".
Results of Operations
Three Months and Six Months Ended June 30, 1996 Compared to June 30, 1995
Net sales: Net sales for the three months ended June 30, 1996 increased 58%
to $14,403,000 compared to $9,096,000 for the three months ended June 30,
1995. The increase was due primarily to the Acquisitions during the quarter,
which accounted for $1,638,000 of the increase in sales. $809,000 of the
increase was due to increased sales volume from the Company's Airpure
subsidiary, and the remainder of the increase was due to increased overall
demand for the Company's products. Net sales for the six months ended June
30, 1996 increased 39% to $26,241,000 compared to $18,930,000 for the six
months ended June 30, 1995.
Gross Profit: Gross profits for the three months ended June 30, 1996
represented 25% of net sales, compared to 27% of net sales for the three
months ended June 30, 1995. The primary reason for the decrease in gross
profit margin was the consolidation of operations of Airpure, whose gross
profit represented 15% of its net sales. The remainder of the decrease in
margins was due to normal fluctuations in materials prices and product mix.
The Acquisitions had no material effect on the Company's gross profit as a
percentage of sales. Gross profits for the six months ended June 30, 1996
represented 25% of net sales, compared to 26% of net sales for the six
months ended June 30, 1996. The Company expects gross profit margins to
range from 23% to 29%.
Operating expenses: Operating expenses increased to $2,576,000, compared to
$1,757,000 for the three months ended June 30, 1996 and 1995, respectively.
Operating expenses decreased as a percentage of net sales, to 18%, compared
to 19% for the quarters ended June 30, 1996 and 1995, respectively. The
Company expects that month-to-month operating expenses will decrease during
the next twelve months, as savings from the consolidation of the
Acquisitions are realized, consisting of the removal of duplicated overhead
and the dedication of each facility to a given range of products, removing
duplication of product lines.
Income taxes: For the three months ended June 30, 1996 and 1995, the
Company's tax provision represented approximately 38% and 38% of net income
before income taxes.
Net income: Net income increased to $804,000, or $.05 per share, from
$255,000, or $.03 per share, for the three months ended June 30, 1996 and
1995, respectively. Net income increased to $1,348,000, or $.09 per share,
from $639,000, or $.07 per share, for the six months ended June 30, 1996 and
1995, respectively.
Page 9
<PAGE>
Liquidity and Capital Resources
Working capital was $9,462,000 at June 30, 1996, compared to $4,030,000 at
December 31, 1995. This includes cash and cash equivalents of $406,000 and
$2,974,000 at June 30, 1996 and December 31, 1995, respectively. Working capital
does not include the unused portion of the Company's revolving credit lines.
Trade receivables increased to $12,704,000 from $7,244,000 at June 30, 1996 and
December 31, 1995, respectively. The increase in receivables is primary
attributable to the increase in the volume of net sales. Other factors for the
increase in receivables include normal timing differences in shipments and
payments received.
On June 3, 1996, the Company completed a private placement offering dated April
10, 1996 of 1,537,315 shares of the Company's common stock at $5.00 per share to
accredited investors. The net proceeds to the Company after commissions and
expenses from the offering totaling $347,000 amounted to $7,340,000. A portion
of the proceeds of this private placement were used to acquire CSC.
Flanders and Airpure each have a revolving line of credit with a bank, for $5.0
million and $1.5 million, respectively. At June 30, 1996, $3,082,000 and
$660,000 were available for borrowing under the respective lines. Amounts drawn
under the respective lines bear interest at a commercial loan variable rate
index plus 0.75% and 1%, respectively, and are due no later than July 199_ and
June 199_, respectively. The lines are secured by a first security interest on
receivables, inventory and substantially all equipment, and a second deed of
trust on real property.
Effective March 1, 1996, the Company completed the acquisition of all of the
outstanding capital stock of Charcoal Service Corporation ("CSC"), a North
Carolina Corporation, along with certain land and buildings formerly owned by
the shareholders of CSC, pursuant to a stock purchase agreement. The purchase
price for CSC was $4,435,690. In addition, 100,000 shares of the Company's
common stock are to be issued and held in escrow as a valuation allowance
pending the realized value of future cash flows. The Company also capitalized
$143,474 of offering expenses, consisting of legal fees, professional fees and
other miscellaneous offering-related expenses. The acquisition by the Company of
CSC has been accounted for by the Company as a purchase.
CSC, headquartered in Bath, North Carolina, manufactures high-efficiency
charcoal filters, specialized housings, containment environments and related
services. CSC's operations are contained in a 44,282 square foot facility, which
was included in the purchase.
Effective June 1, 1996, the Company acquired all of the outstanding capital
stock of Air Seal Filter Housings, Inc. ("Air Seal"), along with certain land
and buildings formerly owned by the shareholders of Air Seal, pursuant to a
stock purchase agreement. The purchase price for Air Seal was $2,150,000. In
addition, 150,000 shares of the Company's common stock are to be issued and held
in escrow as a valuation allowance pending the realized value of future cash
flows. The Company also capitalized $102,440 of offering expenses, consisting of
legal fees, professional fees and other miscellaneous offering-related expenses.
The acquisition of Air Seal by the Company has been accounted for by the Company
as a purchase.
Air Seal, located in Stafford, Texas, manufactures specialty and standard
housings for air filtration and HVAC systems, as well as integrated custom
industrial-grade HVAC systems. Air Seal conducts its operations from an 18,000
square foot facility, which was included in the purchase.
The excess of fair value of assets acquired was $450,503 and $887,052 for CSC
and Air Seal, respectively, and is being amortized on a straight-line basis over
40 years.
During the quarter, the Company established two new locations: An 80,000 square
foot manufacturing plant for ASHRAE grade products in Santa Rosa, California,
operating under the name Airpure West, and a sales office in Singapore. The
Company plans to expand its Singapore office to include the manufacture of
ASHRAE grade products by the end of the year.
Page 10
<PAGE>
Planned expansion of the Company will require substantial continuing capital
investment for the manufacture of filtration products. Although the Company has
been able to arrange equity financing or debt facilities to date, there can be
no assurance that sufficient debt financing or equity will continue to be
available in the future, nor 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.
In connection with the Acquisitions, the Company intends to reduce combined
expenses by the elimination of duplicate or unnecessary activities. The Company
also plans to centralize and eliminate duplication efforts between various
subsidiaries in the areas of purchasing, marketing, accounting, personnel
management, risk management and policies, employee benefits administration,
production planning and shipping coordination.
The Company also 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 targets operations,
markets, profitability and examines all potential liabilities including
environmental liabilities and any contingent liabilities. Except for the
acquisition of Precisionaire, described in the Current Developments section, the
Company has no specific plans or agreements with respect to future acquisitions.
Factors that May Affect Future Results of Operations
The Company believes that in the future its results of operations could be
affected by a variety of factors, including whether the integration of acquired
companies and facilities is successful, whether management can successfully
manage the Company's growth, the ability of the Company to keep up with
technological changes, growth in worldwide semiconductor manufacturing, and any
adverse changes in general economic conditions in locations where the Company
does business.
Current Developments
The Company has entered into an agreement, dated as of July 1, 1996, to acquire
all of the issued and outstanding capital stock of Precisionaire, Inc.
("Precisionaire"), a Florida corporation, along with certain land and buildings
formerly owned by certain of the shareholders of Precisionaire, pursuant to a
Stock Purchase Agreement (the "Agreement"). Precisionaire manufactures and sells
air filtration products ranging from residential furnace filters to ASHRAE grade
filters. The acquisition of Precisionaire will give Flanders a full line of air
filtration products, able to meet customer requirements at all levels, from the
high-end containment systems demanded by biotechnology firms and the exacting
requirements of semiconductor manufacturers to the everyday needs of residential
home owners. Precisionaire's headquarters are located in St. Petersburg, Florida
with manufacturing facilities in Bartow, Florida, Auburn, Pennsylvania and
Terrell, Texas.
Page 11
<PAGE>
The purchase price for Precisionaire is $27,315,000 in cash, and 786,885 shares
of the Company's common stock, which shares will be issued into escrow as a
valuation allowance pending the realization of targeted future gross sales. As
part of the acquisition, Precisionaire's Dallas facility will be contributed to
Precisionaire immediately prior to Closing. The Company will lease the other
facilities. However, as part of the Stock Purchase Agreement, the shareholders
of Precisionaire were granted the right to "PUT" the Auburn, Pennsylvania and
Bartow, Florida facilities to the Company under certain circumstances for an
aggregate purchase price of $3,885,000, and the Company has an option to acquire
such facilities at its option for the same amount. In addition, the Company has
been granted an option to acquire Precisionaire's headquarters in St.
Petersburg, Florida for an aggregate purchase price of $350,000. Pursuant to the
terms of the Agreement, the Company paid $2,000,000 as an initial payment upon
signing of the Agreement. If the Company has not closed the purchase of
Precisionaire by August 31, 1996, the Company may pay an additional $2,000,000
to extend the closing date until September 30, 1996. If the Closing has not
occurred by September 30, 1996, unless otherwise agreed by the parties, the
Stock Purchase Agreement will be terminated and the $4,000,000 previously paid
will be kept by the shareholders of Precisionaire as liquidated damages, unless
the failure to close was due to a misrepresentation, omission or default of the
Precisionaire shareholders. The closing of the acquisition of Precisionaire is
subject to certain contingencies, including customary closing conditions and the
finalization of financing arrangements.
Page 12
<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 June 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.
Item 5. Other Information - None.
Item 6. Exhibits and Reports on Form 8-K
Form 8-K dated May 31, 1996:
Item 2. Acquisition or Disposal of Assets.
On May 31, 1996, the Company acquired all of the outstanding capital
stock of CSC. See "Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
Exhibits
10.1 Stock Purchase Agreement by and among Flanders Corporation, a North
Carolina corporation, and the Shareholders of Precisionaire, Inc.,
a Florida Corporation, dated July 1, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) 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 13th day of August, 1996.
FLANDERS CORPORATION
By: /s/ Steven K. Clark
--------------------------
Steven K. Clark
Vice President Finance/Chief Financial
Officer, Principal Accounting Officer
and Director
Page 13
Exhibit 10.1
<PAGE>
STOCK PURCHASE AGREEMENT
BY AND AMONG
FLANDERS CORPORATION
a North Carolina corporation,
AND
THE SHAREHOLDERS OF
PRECISIONAIRE, INC.,
a Florida corporation
July 1, 1996
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
1. Purchase of Precision Shares 1
(a) Purchase 1
(b) Amount of Purchase Price 1
(c) Transfer of Real Property 3
(d) Issuance and Escrow of Flanders Shares After Closing 4
2. Delivery. 4
(a) Delivery of Flanders Shares and Precision Shares 4
(b) Payment of Purchase Price; Closing Escrow Fund 5
(c) Shareholder Liabilities 6
3. Representations and Warranties of the Sellers. 6
(a) Ownership of Precision Shares 6
(b) Authority 6
(c) Compliance with Law 6
(d) No Litigation 7
(e) Solvency 7
(f) Securities Laws Compliance 7
(g) No Material Misstatements 8
4. Representations and Warranties Concerning Precision 8
(a) Organization, Standing and Qualification 8
(b) Capitalization 8
(c) Subsidiaries 9
(d) Stock Transfer Books 9
(e) Corporate Records 9
(f) No Defaults 9
(g) No Conflict 9
(h) Consents and Approvals 9
(i) Related-Party Transactions 10
(j) Safety Laws 10
(k) Environmental Compliance 10
(l) Compliance With Law 12
(m) Financial Statements 12
(n) Properties and Assets 12
(o) Leases 13
(p) Inventory 13
(q) Intellectual Property 13
(r) Material Contracts 14
(s) No Undisclosed Liabilities 14
(t) Litigation 14
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(u) Taxes 14
(v) Employment Contracts 15
(w) Precision Personnel Matters 15
(x) Employee Restrictions 15
(y) Labor Matters 15
(z) Employee Benefit Plans 15
(aa) No Adverse Change 16
(bb) Discrimination 17
(cc) Disputes and Charges 17
(dd) Accuracy of Information Furnished 17
5. Representations, Warranties and Agreements of Buyer 17
(a) Organization, Standing and Qualification 18
(b) Authority 18
(c) Compliance with Law 18
(d) Shares Purchased for Investment 18
(e) Flanders' Shares 18
(f) Employment Contracts and Options 18
(g) Consents and Approvals 18
(h) Maintenance of Subsidiary Status; Location of Business 19
(i) Information Regarding Precision 19
6. The Closing 19
7. Conditions of Buyer's and Sellers' Performance 19
(a) Buyer's Conditions 19
(b) Sellers' Conditions 21
8. Indemnification 23
(a) General Indemnification Obligation of Each Seller 23
(b) General Indemnification Obligation of Buyer 23
(c) Limitation of Indemnity 24
(d) Several Liability 25
(e) Method of Asserting Claims, Etc 25
(f) Payment 27
(g) Arbitration 27
(h) Exclusive Remedy 27
9. Non-Disclosure Covenants 27
(a) Proprietary Information 27
(b) Publicity 28
10. Other Matters 28
(a) No Share Purchases 28
(b) Further Actions 28
(c) Purchase of Life Insurance Policy 28
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(d) Payment of Health Insurance Premiums 28
(e) Seller Compensation Pending Closing 28
11. Termination and Amendment 29
(a) Pre-Closing 29
(b) Waiver 29
12. Miscellaneous 30
(a) Attorneys' Fees 30
(b) Brokers and Finders 30
(c) Expenses 30
(d) Survival 30
(e) Severability 30
(f) Notices 30
(g) Definition of "Sellers' Knowledge" 31
(h) Entire Agreement 31
(i) Counterparts 32
(j) Binding Effect 32
(k) Governing Law 32
(l) Time of the Essence 32
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EXHIBITS
A. Shareholder List of Precisionaire, Inc.
B. Texas Real Property
B1. Florida Real Property
B2. Pennsylvania Real Property
C. Flanders Shares Escrow Agreement
D. Registration Rights Agreement
E. Closing Escrow Agreement
SCHEDULES
3(f)(iii) Flanders Shares to be held by Fiduciary
4(f) No Defaults
4(g) No Conflicts
4(h) Consents and Approvals
4(i) Related Party Transactions
4(k)(ii)(C) Environmental Compliance
4(k)(ii)(D) Environmental Compliance
4(m) Financial Statements (4/30/96)- Precision
4(o) Equipment Leases - Precision
4(p) Inventory
4(q) Intellectual Property
4(r) Material Contracts
4(t) Litigation
4(u) Taxes
4(v) Employment Agreements
4(w) Personnel Matters
4(z)(i) Employee Benefit Plans - Precision
4(z)(vii) Retiree Benefits
4(aa)(ii) Damages, etc.
4(aa)(iii) Material Adverse Contracts
4(bb) Discrimination
5(f) Form of Employment Agreement
7(a)(x) Noncompetition Agreement
7(a)(x)(i) Noncompetition Agreement
7(a)(xiii) Form of Sellers' Closing Certificate
7(b)(x)(i) Form of Lease
7(b)(x)(ii) Form of Lease
9(a) Proprietary Information
iv
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is executed as of this 1st day of
July 1996 by and between FLANDERS CORPORATION, a North Carolina corporation
("Buyer" or "Flanders"), and the undersigned SHAREHOLDERS OF PRECISIONAIRE,
INC., a Florida corporation ("Precision"), all of whom are identified on Exhibit
A (the "Sellers").
WHEREAS, Buyer is a publicly-held North Carolina corporation which is in the
business of, among other things, designing, manufacturing and selling high
performance filter systems; and
WHEREAS, Precision is a Florida corporation which is in the business of
designing, manufacturing and selling low to medium efficiency filters; and
WHEREAS, the parties intend by this Agreement to provide for the acquisition by
Buyer of all the issued and outstanding capital stock of Precision, in exchange
for Twenty-Seven Million Three Hundred Fifteen Thousand Dollars ($27,315,000)
and 786,885 shares of Flanders common stock (the "Flanders Shares"), pursuant to
the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants and obligations set
forth herein, it is agreed as follows:
1. Purchase of Precision Shares.
(a) Purchase. Subject to the terms and conditions contained herein, Buyer
agrees to purchase from each Seller, and each Seller agrees to sell to Buyer,
for the consideration set forth below, the number of shares of common stock of
Precision (the "Precision Shares") listed beside such Seller's name in Exhibit A
hereto.
(b) Amount of Purchase Price.
(i) Purchase Price. As consideration for the sale of the Precision
Shares by the Sellers and the full and complete performance by the Sellers of
their obligations under this Agreement, Buyer shall at the closing of the
transactions contemplated hereby (the "Closing") pay the Sellers the sum of
TWENTY- SEVEN MILLION THREE HUNDRED FIFTEEN THOUSAND DOLLARS ($27,315,000) (the
"Cash Purchase Price") and deliver the Flanders Shares to the Escrow Agent (as
hereinafter defined) in the manner provided in Section 2 hereof. The Cash
Purchase Price shall be apportioned among and paid to the Sellers in the amounts
set forth on Exhibit A hereto.
(ii) Purchase Price Adjustment.
(A) Closing Balance Sheet Preparation. As soon as practicable
after the Closing, but in any event not later than sixty (60) days after the
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Closing Date (as defined in Section 6 hereof), the Buyer will deliver to the
Sellers a balance sheet of Precision (together with the notes thereto), as at
11:59 p.m. Tampa time on June 30, 1996 (the "June 30 Balance Sheet"), audited by
McGladrey & Pullen, L.L.P.
(B) Basis for Preparation of Closing Balance Sheet. The June
30 Balance Sheet (i) shall fairly represent the financial position of Precision
as at June 30, 1996; (ii) shall be prepared in accordance with Generally
Accepted Accounting Principles, consistently applied; (iii) shall include line
item titles consistent with those in the balance sheet of Precision as at
December 31, 1995, audited by Arthur Andersen, L.L.C. (the "1995 Audited Balance
Sheet"); and, (iv) shall be prepared in accordance with the accounting policies
and practices (including policies and practices with respect to the valuation of
inventory, depreciation and asset lives and the establishment and accrual of
reserves) consistent with those used in the preparation of the 1995 Audited
Balance Sheet and the notes thereto.
(C) Computation of Adjusted Closing Net Worth. Based on the
June 30 Balance Sheet, McGladrey & Pullen, L.L.C. shall compute the June 30 Net
Worth of Precision in the manner provided in the following sentence of this
subsection and deliver a statement of June 30 Net Worth to Sellers at the time
of delivery of the Closing Balance Sheet. For purposes of this Agreement, the
term "June 30 Net Worth" shall mean the total assets of Precision as reflected
on the June 30 Balance Sheet, minus the sum of (i) the total liabilities of
Precision as reflected on the June 30 Balance Sheet (excluding, however, any
reserve in connection with the Texas Wrongful Death Action (as said term is
defined in Section 8(c)(i)(D) hereof) and (ii) the value of the Real Property
(as defined in Exhibit B hereto) reflected on the June 30 Balance Sheet.
(D) Review by Sellers. The Sellers will, promptly after
delivery to them of the June 30 Balance Sheet and the June 30 Net Worth
statement, review the same and such of the work papers and the underlying
records relating thereto as it shall deem advisable, and within twenty (20) days
after delivery of the June 30 Balance Sheet and June 30 Net Worth statement
deliver a notice to the Buyer either (1) concurring in the preparation of the
June 30 Balance Sheet and the June 30 Net Worth statement ("Notice of
Concurrence"), or, (2) disagreeing therewith ("Notice of Disagreement"). If the
Sellers shall deliver a Notice of Disagreement, they shall concurrently deliver
to the Buyer a report setting forth the Sellers' proposed revisions to the June
30 Balance Sheet and their calculation of the June 30 Net Worth. Failure by the
Sellers to deliver a Notice of Disagreement and proposed revisions within the
time specified shall be deemed to constitute a Notice of Concurrence.
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<PAGE>
(E) Resolution of Disagreements. If a Notice of Disagreement
is delivered pursuant to subsection (D), the parties hereto shall, during the
fourteen (14) days following such delivery, use their best efforts to reach
agreement as to the amount of the June 30 Net Worth. If, during such period, the
parties are unable to reach agreement, they shall promptly thereafter (but in no
event later than fourteen (14) days from the end of such period) engage a firm
of independent accountants of nationally recognized standing reasonably
satisfactory to the Sellers and the Buyer, to promptly review this Agreement,
the June 30 Balance Sheet and the reports accompanying the Notice of
Disagreement. Such independent accountants shall, as promptly as practicable,
deliver to the Sellers and the Buyer a report setting forth a balance sheet for
Precision as of June 30, 1996 and a statement of June 30 Net Worth. Such report
shall be final, conclusive and binding upon the parties hereto.
(F) Expenses. The fees and expenses of McGladrey & Pullen,
L.L.P. in connection with the preparation of the June 30 Balance Sheet and June
30 Net Worth statement shall be borne by Buyer. The fees and expenses relating
to any report prepared pursuant to subsection (E) above shall be borne by the
party who does not prevail in such dispute. If the independent accountants'
report delivered pursuant to subsection (E) above does not materially agree with
either the Buyer's or the Sellers' statements of June 30 Net Worth, such fees
and expenses shall be borne equally by the Buyer and the Sellers.
(G) Adjustment of Purchase Price. If the June 30 Net Worth is
equal to or greater than SEVEN MILLION DOLLARS ($7,000,000) (the "Adjustment
Base"), there shall be no adjustment in the Purchase Price. In the event the
June 30 Net Worth is less than the Adjustment Base, the Sellers shall pay to the
Buyer the difference between the Adjustment Base and the June 30 Net Worth (the
"June 30 Net Worth Deficiency"). The payment of the June 30 Net Worth
Deficiency, if any, shall be made in the manner provided in Section 2(b)(ii)
hereof. Any payment due pursuant to the provisions of this subsection shall be
made within twenty (20) days after delivery of the June 30 Balance Sheet to the
Sellers, or, if the Sellers furnish a notice of disagreement pursuant to
subsection (D), within five (5) days after the earlier to occur of an agreement
between the Buyer and Sellers as to such amount or the delivery of the report to
be delivered by the independent accountants pursuant to subsection (E) hereof.
(c) Transfer of Real Property.
(i) Texas Real Property. Prior to Closing, POT Realty shall cause the
land and buildings described on Exhibit B (the "Texas Real Property"), to be
transferred to Precision, free and clear of all liens and encumbrances other
than those
3
<PAGE>
to be satisfied immediately upon receipt of the Cash Payment provided
in Section 2(b)(i) hereof, in exchange for 5193 shares of Precision Stock.
(ii) Florida Real Property. In the event POF Realty provides the
Buyer with a report reasonably satisfactory to Buyer stating that the parcel of
real property described on Exhibit B1 hereto (the "Florida Real Property")
appears to be free of material environmental contamination, POF Realty shall
cause the Florida Real Property to be transferred to Precision, free and clear
of all liens and encumbrances other than those to be satisfied immediately upon
receipt of the Cash Payment provided in Section 2(b)(i) hereof, in exchange for
4661 shares of Precision Stock.
(iii) Pennsylvania Real Property. In the event LBH Realty provides
the Buyer with a report reasonably satisfactory to Buyer stating that the parcel
of real property described on Exhibit B2 hereto (the "Pennsylvania Real
Property") appears to be free of material environmental contamination, LBH
Realty shall cause the Pennsylvania Real Property to be transferred to
Precision, free and clear of all liens and encumbrances other than those to be
satisfied immediately upon receipt of the Cash Payment provided in Section
2(b)(i) hereof, in exchange for 1426 shares of Precision Stock.
(iv) Additional Share Purchase and Purchase Price Increase. In the
event additional shares of Precision Stock are issued to POF Realty and/or LBH
Realty in consideration of the transfer of the Florida Real Property and/or the
Pennsylvania Real Property, the Cash Purchase Price shall be increased by an
amount equal to the product of $638.28 per share times the number of such
additional shares and the Buyer shall purchase such additional shares at
Closing.
(d) Issuance and Escrow of Flanders Shares After Closing. In addition to
the Cash Payment, Buyer shall place the Flanders Shares into escrow at Closing.
The Flanders Shares shall be held in escrow and released to the Sellers over a
three year period if certain performance objectives are met by Precision, as set
forth in the Escrow Agreement attached as Exhibit C ("Flanders Shares Escrow
Agreement"). SunTrust Bank shall act as Escrow Agent under such agreement (the
"Escrow Agent"). In addition, Buyer and Sellers shall simultaneously enter into
a Registration Rights Agreement with respect to the Flanders Shares in
substantially the form of Exhibit D (the "Rights Agreement").
2. Delivery.
(a) Delivery of Flanders Shares and Precision Shares. At Closing (i) each
Seller shall deliver to Buyer certificates evidencing the Precision Shares owned
by each such Seller immediately prior to Closing, endorsed in blank, together
with all necessary stock powers and otherwise in proper form for transfer, and
(ii) Buyer shall deliver to the Escrow Agent certificates representing the
Flanders Shares, in the name of Sellers as set forth on Exhibit A and Sellers
shall concurrently deliver to the Escrow Agent the related duly executed and
medallion guaranteed stock powers.
4
<PAGE>
(b) Payment of Purchase Price; Closing Escrow Fund.
(i) Deposit(s).
(A) First Deposit. Simultaneous with the signing of this
Agreement Buyer shall deliver to Harold W. Mullis, Jr., attorney for the
Sellers, a check in the amount of TWO MILLION DOLLARS ($2,000,000) (the "First
Deposit") to be held and administered as hereinafter provided. In the event the
transactions contemplated by this Agreement close on or before August 31, 1996,
the amount of the First Deposit (and any interest earned thereon) shall be
credited toward the Closing Cash Payment due pursuant to subsection 2(b)(ii)
hereof (the "Closing Cash Payment"). In the event the transactions contemplated
by this Agreement fail to close on or before August 31, 1996, for any reason
other than a material default by the Sellers in their obligations hereunder or a
material breach of any representation or warranty made by the Sellers in the
Agreement (collectively or separately, a "Sellers' Failure"), and Flanders
declines or fails to make the "Second Deposit" as hereinafter provided, the
First Deposit (and any interest earned thereon) shall be forfeited and delivered
to the Sellers as liquidated damages for Buyer's failure to close. If the
Closing does not occur on or before August 31, 1996 as a result of the
occurrence of an event constituting a Sellers' Failure, then the First Deposit
shall be returned to Buyer.
(B) Second Deposit. If the transactions contemplated hereby
do not close on or before August 31, 1996, the Buyer may, but it is not
obligated to, deliver to Mr. Mullis on or before August 31, 1996 an additional
TWO MILLION DOLLARS ($2,000,000) deposit (the "Second Deposit"). If the Buyer
makes the Second Deposit and the transactions contemplated by this Agreement
close on or before September 30, 1996, then the amounts of the First Deposit and
the Second Deposit (and any interest earned thereon) shall be credited toward
the Closing Cash Payment. If the Buyer makes the Second Deposit and the
transactions contemplated by this Agreement fail to close on or before September
30, 1996 for any reason other than a Sellers' Failure, the aggregate amounts of
the First Deposit and the Second Deposit (and any interest earned thereon) shall
be forfeited and delivered to the Sellers as liquidated damages for Buyer's
failure to close. If the Buyer makes the Second Deposit and the transactions
contemplated hereby fail to close on or before September 30, 1996 as a result of
an event constituting a Sellers' Failure, the amounts of the First Deposit and
the Second Deposit (and any interest earned thereon) shall be returned to the
Buyer.
(ii) Closing Cash Payment. The sum of TWENTY-FOUR MILLION THREE
HUNDRED FIFTEEN THOUSAND DOLLARS ($24,315,000) shall be paid to the Sellers at
the Closing by wire transfer of immediately available funds to such account or
accounts as may be designated by the respective Sellers prior to Closing, and in
accordance with instructions provided in connection therewith.
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<PAGE>
(iii) Closing Escrow Fund. At Closing, the Buyer shall deliver by
wire transfer of immediately available funds the sum of THREE MILLION DOLLARS
($3,000,000) (the "Closing Escrow Fund") to the Escrow Agent to be held and
administered in accordance with the terms and provisions of the Closing Escrow
Agreement attached hereto as Exhibit E (which shall be executed and delivered at
Closing). In the event it is determined that a June 30 Net Worth Deficiency
exists, the Escrow Agent shall pay the amount of such June 30 Net Worth
Deficiency to the Buyer from the Closing Escrow Fund immediately upon final
determination thereof. The Escrow Agent shall distribute the sum of $2,000,000,
less the amount of the June 30 Net Worth Deficiency, if any, to the Sellers
immediately following the payment, if any, of the amount of the June 30 Net
Worth Deficiency to Buyer. The $1,000,000 balance remaining in the Closing
Escrow Fund shall be held and administered in accordance with the terms thereof.
(c) Shareholder Liabilities. Buyer shall not assume any state or federal
tax liability of any Precision Shareholder. All shareholder notes payable or
other amounts owed by Precision to any of the Sellers, except leases, shall be
cancelled prior to or at Closing.
3. Representations and Warranties of the Sellers. To induce Buyer to enter into
this Agreement, each Seller individually represents and warrants to Buyer that
the following statements are true, correct and complete with respect to each
such Seller as of the date hereof:
(a) Ownership of Precision Shares. Such Seller owns, beneficially and of
record, the number of Precision Shares shown beside such Seller's name in
Exhibit A hereto, free and clear of any lien, security interest, pledge, claim,
demand or encumbrance or restriction of any kind or character whatsoever, and
the Precision Shares represent all of the issued and outstanding shares of
capital stock and equity securities of Precision. All such Precision Shares are
duly authorized, validly issued, fully paid and nonassessable and have, in the
hands of such Seller, and will have in the hands of Buyer, all the rights,
privileges and preferences ordinarily accorded to owners of the Precision common
stock.
(b) Authority. Such Seller now has and will have, at the Closing, full
power, authority and legal right to sell such Seller's Precision Shares to Buyer
pursuant to this Agreement. This Agreement has been duly and validly authorized,
executed and delivered by, and is the valid and binding obligation of, such
Seller, subject to (i) the effect of applicable bankruptcy, insolvency,
reorganization, moratorium, arrangement, preference, fraudulent conveyance or
other similar laws and regulations now or hereafter in effect relating to or
limiting creditors' rights generally or the enforcement of specific rights
provided for in agreements, (ii) general principles of equity and/or the
discretion of the court governing or limiting the availability of specific
performance, injunctive relief and other equitable remedies (regardless of
whether such enforceability is considered in a proceeding in equity or at law),
and (iii) the application of principles of public policy underlying any such
laws and regulations.
(c) Compliance with Law. The consummation of the transactions
contemplated hereby will be in compliance in all material respects with all
applicable laws, rules, regulations
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<PAGE>
and requirements of all Federal, state and local governmental authorities
without the necessity for any license or permit or other action or permission in
the nature thereof, or any registration with, or consent of, any such
governmental authority.
(d) No Litigation. There are no suits or proceedings at law or in equity,
or before or by any governmental agency or arbitrator, pending, or to the
knowledge of such Seller, threatened, anticipated or contemplated, which in any
way affect the consummation of the transactions contemplated hereby or, if
valid, would constitute or result in a breach of any representation, warranty or
agreement of such Seller set forth herein.
(e) Solvency. Such Seller is not bankrupt or insolvent and has not
assigned Seller's estate for the benefit of creditors, entered into any
arrangement with creditors, and does not have any present intention to file a
petition in bankruptcy, to assign Seller's estate for the benefit of creditors,
or to enter into any arrangement with creditors. Such Seller has no knowledge of
any basis for the filing by any other person of an involuntary petition in
bankruptcy with respect to Seller or Precision.
(f) Securities Laws Compliance. Such Seller:
(i) has been represented by such legal and tax counsel and others,
each of whom has been personally selected by such Seller, as such Seller has
found necessary to consult concerning this transaction, and such representation
has included an examination of applicable documents, and an analysis of all tax,
financial, and securities law aspects. Such Seller, his/her counsel and
advisors, and such other persons with whom such Seller has found it necessary to
consult, have sufficient knowledge and experience in business and financial
matters to evaluate the above information, and the merits and risks of the
transactions contemplated by this Agreement, and to make an informed investment
decision with respect thereto;
(ii) Buyer has made available to such Seller, his/her counsel and
advisors, prior to the date hereof, the opportunity to ask questions of, and to
receive answers from, Buyer and its representatives, concerning the terms and
conditions of the acquisition of the Flanders Shares and access to obtain any
information, documents, financial statements, records and books (A) relative to
Buyer, the business and an investment in Buyer, and (B) necessary to verify the
accuracy of any information furnished to each Seller. All materials and
information requested by such Seller, his/her counsel and advisors, or others
representing such Seller, including any information requested to verify any
information furnished to such Seller, have been made available and examined.
(iii) Except as disclosed on Schedule 3(f)(iii), such Seller is
acquiring the Flanders Shares for Seller's own account and not as a fiduciary
for any other person and for investment purposes only and not with a view to or
for the transfer, assignment, resale, or distribution thereof, in whole or in
part. Such Seller understands the meaning and legal consequences of the
foregoing representations and warranties. Such Seller is not an "underwriter" of
the securities, as that term is
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<PAGE>
defined in Section 2(11) of the Securities Act of 1933 ("Securities Act"), and
such Seller will not take or cause to be taken any action that would cause such
Seller or Buyer to be deemed an "underwriter" of the securities.
(iv) Each Seller has received and reviewed Buyer's Form 10-K for the
period ended December 31, 1995 and Buyer's Form 10-Q for the period ending March
31, 1996.
(v) Such Seller understands that the Flanders Shares have not been
registered under the Securities Act nor pursuant to the provisions of the
securities or other laws of any applicable jurisdictions. Such Seller further
understands that the Flanders Shares cannot be sold, assigned, pledged,
transformed or otherwise disposed of unless such Shares are registered or an
exemption from registration is available, and that the Flanders Shares will bear
a restrictive legend to that effect.
(g) No Material Misstatements. To each Seller's knowledge, such Seller
has not made any material misstatement of fact or omitted to state any material
fact necessary or desirable to make complete, accurate and not misleading every
representation, warranty and agreement set forth herein.
4. Representations and Warranties Concerning Precision. To further induce
Buyer to enter into this Agreement, the Sellers, severally and not jointly,
represent and warrant to Buyer that the following statements concerning the
affairs of Precision are true, correct and complete as of the date hereof:
(a) Organization, Standing and Qualification. Precision is duly
organized, validly existing and in good standing under the laws of the State of
Florida and is authorized and qualified to own and operate its properties and
assets and conduct its business in all jurisdictions where such properties and
assets are owned and operated and such business conducted. Precision has duly
filed any and all certificates and reports required to be filed to date by the
laws of Florida and any other applicable law. Precision has all franchises,
permits, licenses, and any similar authority necessary for the conduct of its
business as now being conducted by it, the lack of which could materially
adversely affect the business, properties, prospects, or its financial
condition. Precision is not in default in any material respect under any of such
franchises, permits, licenses or other similar authority.
(b) Capitalization. As of the date of Closing, the authorized capital
stock of Precision consists of 10,000 shares of Class A common stock, par value
$0.10 per share, and 90,000 shares of Class B common stock, par value $0.10 per
share, of which 3,767 Class A shares and 33,834 Class B shares are presently
issued and outstanding, as set forth in the attached Exhibit A. The amount of
outstanding shares are subject to increase pursuant to the provisions of Section
1(c) hereof. All of the outstanding shares of common stock of Precision were
duly authorized and validly issued and are fully paid and nonassessable.
Precision has no treasury shares. There are no outstanding subscriptions,
options, warrants, calls, contracts, demands, commitments, convertible
securities or other rights, agreements or arrangements of any character or
nature whatsoever relating to the issuance of Precision
8
<PAGE>
common stock or other securities. No holder of any Precision security is
entitled to any preemptive or similar rights to purchase any Precision
securities.
(c) Subsidiaries. The Company has no subsidiaries and no other investment
in any entity. The Company is not a participant in any joint venture,
partnership or other similar arrangement.
(d) Stock Transfer Books. The stock transfer books and stock ledgers of
Precision are complete, accurate and up to date, and with all necessary
signatures, and set forth all stock and securities issued, transferred and
surrendered. No duplicate certificate has been issued at any time heretofore. No
transfer has been made without surrender of the proper certificate duly
endorsed. All certificates so surrendered have been duly canceled and are
attached to the proper stubs with all necessary stock powers attached thereto.
(e) Corporate Records. The minute books and other corporate record books
of Precision are complete, accurate, up to date, with all necessary signatures
and set forth all meetings and actions taken by the stockholders and directors,
including all actions set forth in all certificates of votes of stockholders or
directors furnished to anyone at any time. The copies of Precision's Articles of
Incorporation and Bylaws which have been delivered to Buyer are complete and
correct, as amended, to the date of execution of this Agreement.
(f) No Defaults. Except as disclosed on Schedule 4(f), Precision is not
in default under or in violation of any provisions of its Articles of
Incorporation or Bylaws or any restriction, lien, encumbrance, indenture,
contract, lease, sublease, loan agreement, note or other obligation or liability
relating to Precision's business.
(g) No Conflict. Except as disclosed on Schedule 4(g), neither the
execution and delivery of this Agreement nor consummation of the transactions
contemplated hereby will conflict with or result in a breach of or constitute a
default under any provision of the Articles of Incorporation or Bylaws of
Precision, any law, rule, regulation, judgment, decree, order or other such
requirement, or under any material restriction, lien, encumbrance, indenture,
contract, lease, sublease, loan agreement, note or other material obligation or
liability to which Precision is a party or by which it is bound, or to which any
of its assets are subject, or result in the creation of any lien or encumbrance
upon such assets.
(h) Consents and Approvals. Except as disclosed on Schedule 4(h), the
execution, delivery and performance of this Agreement by Sellers and the
consummation of the transactions contemplated hereby do not require Precision or
Sellers to obtain any consent, approval or action of, or make any filing with or
give notice to any corporation, person or firm or any public, governmental or
judicial authority except: (i) such as have been duly obtained or made, as the
case may be, and are in full force and effect on the date hereof, (ii) those
which the failure to obtain or make would have no material adverse effect on the
transactions contemplated hereby or on Precision's business or financial
condition, and (iii) any filings required under the Securities Act, or any
applicable state securities laws.
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(i) Related-Party Transactions. Except as set forth on Schedule 4(i),
no employee, officer, or director of Precision or member of his or her immediate
family is indebted to Precision, nor is Precision indebted (or committed to make
loans or extend or guarantee credit) to any of such individuals. To Sellers'
knowledge, except as set forth on Schedule 4(i) or except as contemplated by the
terms of this Agreement, none of such individuals has any direct or indirect
ownership interest in any firm or corporation with which Precision is affiliated
or with which Precision has a business relationship, or any firm or corporation
that competes with Precision, except that employees, officers, or directors of
Precision and members of their immediate families may own stock in publicly
traded companies that may compete with Precision. Except as set forth on
Schedule 4(i) or except as contemplated by the terms of this Agreement, no
member of the immediate family of any officer or director of Precision is
directly or indirectly interested in any material contract with Precision.
(j) Safety Laws. Precision is not in violation in any material
respect of any applicable statute, law or regulation relating to occupational
health and safety (including, but not limited to OSHA and any similar state
laws), and to Sellers' knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
(k) Environmental Compliance.
(i) Definitions. As used in this Agreement:
(A) "Environmental Law" means any federal, state or local law,
statute, ordinance, or regulation pertaining to health, industrial hygiene, or
environmental conditions, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. ''
9601, et seq.; the Resource Conservation and Recovery Act of 1976, 42 U.S.C. ''
6901, et seq.; the Toxic Substances Control Act of 1976, 15 U.S.C. '' 2601, et
seq.; the Superfund Amendments and Reauthorization Act of 1986, Title III, 42
U.S.C. '' 11001, et seq.; the Hazardous Materials Transportation Act, 49 U.S.C.
'' 1801, et seq.; the Clean Air Act, 42 U.S.C. '' 7401, et seq.; the Federal
Water Pollution Control Act, 33 U.S.C. '' 1251, et seq.; the Safe Drinking Water
Act, 42 U.S.C. '' 300f, et seq.; the Solid Waste Disposal Act, 42 U.S.C. ''
3251, et seq.; and any other federal, state or local law, statute, ordinance, or
regulation now in effect or hereafter enacted which pertains to health,
industrial hygiene, or the regulation or protection of the environment,
including, without limitation, ambient air, soil, groundwater, surface water,
and/or land use.
(B) "Hazardous Substance" means any material, waste, substance,
pollutant, or contaminant which may or could pose a risk of injury or threat to
the health of the environment, including, without limitation:
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(1) Those substances included within the definitions of
"hazardous substance," "hazardous waste," "hazardous material," "toxic
substance," "solid waste," or "pollutant or contaminant" in, or otherwise
regulated by any Environmental Law;
(2) Those substances listed in the United States
Department of Transportation Hazardous Materials Table (49 CFR 172.101,
including appendices and amendments thereto), or by the Environmental Protection
Agency (or any successor agency) as hazardous substances (40 CFR Part 302 and
amendments thereto);
(3) Such other substances, materials, or wastes which are
or become regulated or classified as hazardous or toxic under federal, state, or
local laws or regulations; and
(4) Any material, waste, or substance which is (i)
petroleum or refined petroleum products; (ii) asbestos in any form; (iii)
polychlorinated biphenyls; (iv) flammable explosives; (v) radioactive materials;
or (vi) radon.
Any reference in this paragraph to statutory or regulatory sections shall be
deemed to include any amendments thereto and any successor sections.
(ii) Environmental Representations.
(A) All property owned by Precision (the "Property") is free
from, and to Sellers' knowledge, has always been free from, Hazardous
Substances, and is not now, and to Sellers' knowledge, has never been in
violation of any Environmental Law. Precision has not caused or allowed the use,
generation, manufacture, production, treatment, storage, release, discharge, or
disposal of any Hazardous Substances on, under, or about the Property, and has
not caused or allowed the transportation to or from the Property of any
Hazardous Substance.
(B) There are not now any buried or partially buried storage
tanks located on the Property and to the extent there were buried tanks on the
Property, to Seller's knowledge, they were removed and decommissioned in
accordance with applicable laws.
(C) Except as set forth on Schedule 4(k)(ii)(C), Precision has
received no warning, notice of violation, administrative complaint, judicial
complaint, or other formal or informal notice alleging that conditions on the
Property or adjacent property are or have been in violation of any Environmental
Law, or informing Seller that the Property is subject to investigation or
inquiry regarding the presence of Hazardous Substances on or about the Property
or the potential violation of any Environmental Law.
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Any liability to Precision in connection with the exception noted on Schedule
4(k)(ii)(C) will not exceed $25,000.
(D) Except as set forth on Schedule 4(k)(ii)(D), Precision is
not aware of any facts or circumstances which could give rise to a violation of
any Environmental Law. Any liability to Precision in connection with the
exception noted on Schedule 4(k)(ii)(D) will not exceed $25,000.
(E) No environmental lien in favor of any governmental entity
has attached to any of the Property.
(iii) Archeological Matters. To Sellers' knowledge, there are no
historical or archeological materials or artifacts of any kind or any Indian
ruins of any kind located on the Property.
(iv) Endangered Species Act. To Sellers' knowledge, no part of the
Property is "critical habitat" as defined in the Federal Endangered Species Act,
16 U.S.C. ''1531 et seq., as amended, or in regulations promulgated thereunder,
nor are any "endangered species" or "threatened species" located on the
Property, as defined therein.
(l) Compliance With Law. To Sellers' knowledge, neither Precision nor any
of its directors, officers, fiduciaries, agents or employees, is in violation in
any material respect of any applicable law, rule, regulation or requirement of
any governmental authority in any way relating to Precision's business.
(m) Financial Statements. The Financial Statements of Precision for the
period ending April 30, 1996 attached hereto as Schedule 4(m) (the "Financial
Statements"), are correct and complete and present fairly in all material
respects the financial condition of Precision as of the dates described therein,
and have been prepared in accordance with Generally Accepted Accounting
Principles consistently applied. The books and records of the Company are
complete in all material respects and are in an auditable condition.
(n) Properties and Assets. The properties and assets presently owned and
shown on its books and/or leased by Precision include all properties and assets
of every kind, class and description, real and personal, tangible and
intangible, known and unknown, used in the business of Precision and necessary
to the conduct of its business as presently conducted. Precision has (or will
have at Closing with respect to the Real Property) good and indefeasible title
or leasehold interests to and possession of all such known properties and
assets, free and clear of all liens, claims, security interests, encumbrances,
restrictions and rights, title and interests in others other than those
reflected on the Financial Statements, and there are no existing agreements,
options or commitments or rights with, to or in any third party to acquire any
of the properties or assets of Precision or any interest therein, except for
those entered into in the ordinary course of business and not materially
adversely affecting the properties, assets or rights of Precision. The assets of
Precision on the Closing date shall include all of the assets described
hereinabove or otherwise reflected on the Financial Statements, adjusted
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only for inventory and other assets acquired or disposed of in the ordinary
course of business after April 30, 1996, and before the Closing Date.
(o) Leases. Precision enjoys exclusive, peaceful and undisturbed
possession under all leases to which it is a party. All such leases are
identified on the attached Schedule 4(o), and are, to Sellers' knowledge, valid
and enforceable in accordance with their terms, and Sellers have no knowledge
that any party thereto is in default thereunder.
(p) Inventory. The inventory, as reflected on the latest Financial
Statements and as in existence at the Closing, was acquired and has been
maintained in the ordinary course of the business practices of Precision, and is
valued at reasonable amounts based on the ordinary course of business. Except as
set forth on Schedule 4(p), none of such inventory is obsolete, unusable,
damaged, or unsalable in the ordinary course of business, except to the extent
reflected on said Financial Statements.
(q) Intellectual Property. To Sellers' knowledge, Precision has full
rights of use for all unregistered trademarks and service marks and does not
infringe on any third party rights, and Precision owns or has acquired by
license or otherwise all U.S. or foreign, inventions, franchises, discoveries,
ideas, research, engineering, methods, practices, processes, systems, formulae,
designs, drawings, products, projects, improvements, developments, know-how, and
trade secrets which are used in or necessary for the conduct of its business
(collectively the "Proprietary Rights"), without conflict or infringement in any
material respect of any patent, copyright, trade secret or other lawful
proprietary right of any other party, and subject to no restriction, lien,
encumbrance, right, title or interest in others. All of the foregoing
proprietary rights that are not in the public domain stand solely in the name of
Precision and not in the name of any stockholder, director, officer, agent,
partner or employee or anyone else known to Sellers, and none of the same have
any right, title, interest, restriction, lien or encumbrance therein or thereon
or thereto. To Sellers' knowledge, Precision's ownership and use of the
proprietary rights do not and will not infringe upon, conflict with or violate
in any material respect any patent, copyright, trade secret or other lawful
proprietary right of any other party, and no claim is pending or, to Sellers' or
Precision's knowledge, threatened to the effect that the operations of Precision
infringe upon or conflict with the asserted rights of any other person under any
proprietary right, and there is no reasonable basis for any such claim (whether
or not pending or threatened). Except as set forth on Schedule 4(q), no claim is
pending or, to Sellers' knowledge, threatened to the effect that any such
proprietary rights owned or licensed by Precision, or which Precision otherwise
has the right to use, is invalid or unenforceable by Precision, and, to Sellers'
knowledge, there is no reasonable basis for any such claim (whether or not
pending or threatened). Any liability to Precision in connection with the
exception noted on Schedule 4(q) will not exceed $50,000. Precision has not
granted or assigned to any other person or entity any right to manufacture, have
manufactured, assemble or sell the products or proposed products or to provide
the services or proposed services of Precision. To Sellers' knowledge, all
patents, copyrights, trademarks, service marks and federal, state and foreign
registrations thereof, are valid and in full force and effect and are not
subject to any taxes, maintenance fees, or actions falling due within ninety
(90) days after the date hereof.
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(r) Material Contracts. Except as set forth on Schedule 4(r), Precision
does not have any material obligation, contract, agreement, lease, sublease,
commitment or understanding of any kind, nature or description, oral or written,
fixed or contingent, due or to become due, existing or inchoate, or consisting
of customer purchase orders or service contracts, all of which are either
reflected in the Financial Statements for the periods such were in effect, or
which impose upon Precision a liability of less than $5,000 individually or
$25,000 in the aggregate.
(s) No Undisclosed Liabilities. There are no material liabilities or
obligations of Precision, including, without limitation, contingent liabilities
for the performance of any obligation, except for (i) liabilities or obligations
which are disclosed or fully provided for in Precision's Financial Statements,
(ii) liabilities or obligations disclosed in this Agreement or in any exhibit or
schedule to this Agreement, and (iii) liabilities not in excess of $25,000
individually or $100,000 in the aggregate.
(t) Litigation.
(i) Except as set forth on Schedule 4(t), there are no suits or
proceedings at law or in equity, or before or by any governmental agency or
arbitrator, pending, or to Sellers' knowledge, threatened, anticipated or
contemplated, which, if decided against Precision, would have a material adverse
effect on its business or financial condition, and there are no unsatisfied or
outstanding judgments, orders, decrees or stipulations which in any way affect
Precision or its properties or assets or to which it is or may become a party.
There are no claims against Precision pending, or to Sellers' knowledge
threatened, anticipated, or contemplated which, if valid, would constitute or
result in a breach of any representation, warranty or agreement set forth
herein. The open claims listed on Schedule 4(t) (other than item 3 which is
addressed in Schedule 4(q)) will not result in a liability to Precision in
excess of $25,000 in the aggregate. There will be no additional obligations or
liability in excess of $25,000 imposed on Precision as a result of the INS audit
referred to on Schedule 4(t).
(ii) Texas Wrongful Death Action. The amount of any settlement
payment or any judgment entered in connection with the Texas Wrongful Death
Action (as defined in Section 8(c)(i)(D)) will not exceed the amount of
applicable insurance coverage; and, Precision's insurer, Liberty Mutual, has not
reserved any rights against Precision in connection therewith.
(u) Taxes. (i) Precision has duly filed all federal, state, local and
other tax returns and reports required to be filed by Precision on or prior to
the date hereof with respect to all taxes withheld by or imposed upon Precision;
(ii) all such returns or reports reflect in all material respects the liability
for such taxes of Precision as computed therein for the periods indicated, and
all taxes shown on such returns or reports and all assessments received by
Precision have been paid, or fully reserved for, to the extent that such taxes
have become due; (iii) there are no waivers or agreements by Precision for the
extension of time for the assessment of such taxes; and (iv) there are no
material questions of taxation which are, as at the date hereof, the subject of
dispute with any taxing authority. With respect to any
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period through the date hereof for which tax returns have not yet been filed, or
for which taxes are not yet due or owing, Precision has made adequate reserves,
determined in accordance with Generally Accepted Accounting Principles, for all
liabilities for taxes as set forth in its financial statements. Except as
disclosed on Schedule 4(u), Precision is not presently the subject of any tax
audit by any taxing authority.
(v) Employment Contracts. Except as set forth on Schedule 4(v), Precision
has no written contracts of employment with any of its shareholders, employees
or sales representatives, and no verbal contracts of employment which cannot be
terminated without default by Precision on thirty (30) days notice.
(w) Precision Personnel Matters. As of the Closing Date, the employees of
Precision shall only include the individuals as set forth on Schedule 4(w). All
such employees are either United States citizens or have obtained permission to
reside and work within the United States and Precision's employee files contain
copies of all legally required documentation confirming the same. With the
exception of vacation accrued since the end of Precision's 1995 fiscal year, all
accrued vacation of such employees has been taken or payment made with respect
thereto prior to Closing. Any and all severance benefits owed to employees
terminated prior to the date of Closing have been paid in full by Precision
prior to Closing.
(x) Employee Restrictions. To Sellers' knowledge, no employee of
Precision is subject to any secrecy or non-competition agreement or any other
agreement or restriction of any kind that would impede in any way the ability of
such employee to carry out fully all activities of such employee in furtherance
of the business of Precision.
(y) Labor Matters. Precision is not party to nor subject to any
collective bargaining agreement, nor is any union organizing action or
certification vote pending or threatened.
(z) Employee Benefit Plans.
(i) Identification. Schedule 4(z)(i) contains a complete and accurate
list of all employee benefit plans (the "Employee Benefit Plans") (within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) (A) sponsored by Precision, (B) to which Precision
contributes on behalf of its employees, (C) with respect to which Precision
participates on behalf of its employees, or (D) previously sponsored or
contributed to by Precision on behalf of its employees within the three years
preceding the date hereof. Each of the Employee Benefit Plans can be terminated
or amended at will by Precision, with no unfunded liability to Precision. No
unwritten amendment exists with respect to any Employee Benefit Plan.
(ii) Compliance. Each Employee Benefit Plan has been administered
and maintained in compliance with all Laws. No Employee Benefit Plan is
currently the subject of an audit, investigation, enforcement action or other
similar proceeding
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conducted by any governmental authority. No prohibited transactions (within the
meaning of Section 4975 of the Code) have occurred with respect to any Employee
Benefit Plan. No pending or, to the knowledge of Sellers, threatened claims,
suits or other proceedings exist with respect to any Employee Benefit Plan other
than normal benefit claims filed by participants or beneficiaries.
(iii) Qualification. A favorable determination letter or ruling has
been received from the Internal Revenue Service as to the current qualified
status of each prototype Employee Benefit Plan intended to be qualified within
the meaning of Section 401(a) of the Code and/or tax-exempt within the meaning
of Section 501(a) of the Code. No proceedings exist or, to Sellers' knowledge,
have been threatened against Precision that would result in the revocation of
any such favorable determination letter or ruling.
(iv) Funding Status. No accumulated funding deficiency (within the
meaning of Section 412 of the Internal Revenue Code), whether waived or
unwaived, exists with respect to any Employee Benefit Plan. With respect to each
Employee Benefit Plan subject to Title IV of ERISA, the assets of each such plan
are at least equal to the liabilities that result if all employees were fully
vested and terminated employment and the plan is terminated as of the Closing
Date. With respect to each Employee Benefit Plan described in Section 501(c)(9)
of the Code, the assets of such plan are at least equal in value to the present
value of accrued benefits under such plan as of the date hereof.
(v) Multi-employer Plans. Precision has never been obligated to
contribute to a Multi-employer plan within the meaning of Section 3(37) of
ERISA.
(vi) PBGC. No facts or circumstances exist that would result in the
imposition of liability against Buyer by the Pension Benefit Guaranty
Corporation as a result of any act or omission by Precision. No reportable event
(within the meaning of Section 4043 of ERISA) for which the notice requirement
has not been waived has occurred with respect to any Employee Benefit Plan
subject to the requirements of Title IV of ERISA.
(vii) Retirees. Except as disclosed on Schedule 4(z)(vii), Precision
does not have, except as may be required by law, any obligation or commitment to
provide medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired from
employment with Precision, including those receiving disability benefits.
(aa) No Adverse Change. Since April 30, 1996, there has not been:
(i) any material adverse change in the properties, assets, business,
affairs, material contracts or prospects of Precision and, to Sellers'
knowledge, no such changes currently are threatened, anticipated or
contemplated;
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(ii) except as set forth on Schedule 4(aa)(ii), any actual or, to
Sellers' knowledge, threatened, anticipated or contemplated damage, destruction,
loss, conversion, termination, cancellation, default or taking by eminent domain
or other action by governmental authority, which has affected or may hereafter
affect the properties, assets, business, affairs, contracts or prospects of
Precision;
(iii) except as set forth on Schedule 4(aa)(iii), any material and
adverse dispute pending or, to Sellers' knowledge, threatened, anticipated or
contemplated, of any kind with any customer, supplier, source of financing,
employee, landlord, subtenant or licensee of Precision, or any pending or, to
Sellers' knowledge, threatened, anticipated or contemplated occurrence or
situation of any kind, nature or description which is reasonably likely to
result in any material reduction in the amount, or any change in the terms or
conditions, of business with any substantial customer, supplier or source of
financing;
(iv) any pending or, to Sellers' knowledge, threatened, anticipated or
contemplated occurrence or situation of any kind, nature or description peculiar
to the business of Precision and materially and adversely affecting its
properties, assets, business, affairs or prospects; or
(v) any material reduction of capital, or any redemption of stock or
dividend or, except in connection with the issuance of capital stock in
consideration of the transfers contemplated by Section 1(c) of this Agreement,
any distribution by Precision.
(bb) Discrimination. Except as set forth on Schedule 4(bb), Precision has
not received any written claim of any unfair labor practice or illegal
discrimination on the basis of race, color, religion, sex, national origin, age
or handicap in its employment conditions or practices. To Sellers' knowledge,
Precision has not engaged in any unfair labor practice or illegal discrimination
on the basis of race, color, religion, sex, national origin, age or handicap in
its employment conditions or practices.
(cc) Disputes and Charges. There are no existing or, to Sellers'
knowledge, threatened disputes, grievances, harassment charges, controversies or
other employment or labor troubles affecting Precision.
(dd) Accuracy of Information Furnished. Sellers have not made any material
misstatement of fact or omitted to state any material fact necessary or
desirable to make complete, accurate and not misleading the representations,
warranties and agreements set forth herein, or in any exhibit hereto or
certificate or other document furnished in connection herewith.
5. Representations, Warranties and Agreements of Buyer. Buyer represents and
warrants to and agrees with the Sellers that:
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(a) Organization, Standing and Qualification. Buyer is duly organized and
validly existing and in good standing under the laws of the State of North
Carolina, and is authorized and qualified to own and operate its properties and
assets and conduct its business in all jurisdictions where such properties and
assets are owned and operated and such business conducted.
(b) Authority. Buyer has full right, power and authority to execute,
deliver and perform the terms of this Agreement. This Agreement has been duly
authorized by Buyer and constitutes a binding obligation of Buyer, enforceable
in accordance with its terms.
(c) Compliance with Law. Neither the execution and delivery of this
Agreement nor consummation of the transactions contemplated hereby will conflict
with or result in a breach of or constitute a default under any provision of
Buyer's Articles of Incorporation or Bylaws, any law, rule, regulation,
judgment, decree, order or other such requirement, or any material restriction,
lien, encumbrance, indenture, contract, lease, sublease, loan agreement, note or
other material obligation or liability to which it is a party or by which it is
bound, or to which its assets are subject.
(d) Shares Purchased for Investment. Buyer is acquiring the Precision
Shares for its own account for investment purposes and not with a view to or in
connection with, any distribution thereof within the meaning of the Securities
Act.
(e) Flanders' Shares. The Flanders Shares distributed to Sellers will be
duly authorized, validly issued, fully paid and non-assessable, will not have
been issued in violation of the preemptive rights of any Flanders shareholder,
will be identical to all other shares of Flanders' common stock, and, in the
hands of Sellers, will have all the rights, privileges and preferences accorded
to all other holders of shares of Flanders common stock.
(f) Employment Contracts and Options. Buyer has full right, power and
authority to execute and deliver, and to perform its obligations under, the
employment contract attached as Schedule 5(f) hereto (the "Employment
Contract"). The Employment Contract has been duly authorized by Buyer and, upon
its execution thereof, will constitute a valid and binding obligation of Buyer,
enforceable against it in accordance with its terms, subject to (i) the effect
of applicable bankruptcy, insolvency, reorganization, moratorium, arrangement,
preference, fraudulent conveyance or other similar laws and regulations now or
hereafter in effect relating to or limiting creditors' rights generally or the
enforcement of specific rights provided for in agreements, (ii) general
principles of equity and/or the discretion of the court governing or limiting
the availability of specific performance, injunctive relief and other equitable
remedies (regardless of whether such enforceability is considered in a
proceeding in equity or at law), and (iii) the application of principles of
public policy underlying any such laws and regulations.
(g) Consents and Approvals. The execution, delivery and performance of
this Agreement by Buyer and the consummation of the transactions contemplated
hereby do not require Buyer to obtain any consent, approval or action of, or
make any filing with or give notice to any corporation, person or firm or any
public, governmental or judicial authority
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except: (i) such as have been duly obtained or made or will be made within the
applicable time deadlines, as the case may be, and are in full force and effect
on the date hereof, or (ii) those which the failure to obtain or make would not
have a material adverse effect on the transactions contemplated hereby or on
Buyer's business.
(h) Maintenance of Subsidiary Status; Location of Business. Buyer shall
maintain Precision as a wholly-owned subsidiary of Buyer for a period of not
less than two and one-half (2-1/2) years following the Closing, and shall
maintain the business and operations of Precision at its present location. Buyer
has no present intention to move the operations of Precision to any other
location.
(i) Information Regarding Precision. Sellers have made available to
Buyer, its counsel and advisors, prior to the date hereof, the opportunity to
ask questions of, and to receive answers from, Sellers and their
representatives, concerning the terms and conditions of the acquisition of the
Precision Shares and access to obtain any information, documents, financial
statements, records and books (A) relative to Precision, the business and an
investment in Precision, and (B) necessary to verify the accuracy of any
information furnished to Buyer. All materials and information requested by
Buyer, its counsel and advisors, or others representing Buyer, including any
information requested to verify any information furnished to Buyer, have been
made available and examined.
6. The Closing. The closing of the purchase and sale of the Precision Shares
shall take place at the offices of Trenam, Kemker, Scharf, Barkin, Frye, O'Neill
& Mullis, 101 East Kennedy Boulevard, Suite 2700, Tampa, Florida, on or before
August 31, 1996, or at such other time or place as shall be fixed by the mutual
consent of the parties (the "Closing Date").
7. Conditions of Buyer's and Sellers' Performance.
(a) Buyer's Conditions. The obligation of Buyer to consummate this
Agreement is subject to the satisfaction at the Closing, or waiver by Buyer in
writing, of each of the following conditions:
(i) All the Sellers shall have executed this Agreement;
(ii) Sellers shall have delivered to the Buyer the Precision Shares;
(iii) All Sellers shall have canceled any notes payable from Precision
to any Sellers or such Seller's affiliates, and Buyer shall be furnished with
written evidence thereof;
(iv) All notes or other debts of Sellers or their affiliates owed to
Precision shall be paid contemporaneously with the Closing and Buyer shall be
furnished with written evidence thereof;
(v) Seller shall deliver to Buyer at Closing evidence of title in the
form of Title Insurance, insuring Precision's interest in the Real Property
under this Agreement
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for the amount of the property value, subject only to this Agreement and
standard exceptions. Precision shall pay all costs associated with obtaining and
issuing such policies of title insurance;
(vi) A Phase I Environmental Survey shall have been completed by
Buyer (at its expense) on the Real Property, showing no liabilities for remedial
work (or otherwise);
(vii) Appropriate Sellers shall have caused the Real Property to be
conveyed to Precision;
(viii) Buyer shall have received written evidence of any and all
loan(s) of Precision which are outstanding;
(ix) Buyer shall have received an executed Employment Contract in
substantially the form set forth in Schedule 5(f) from Gus Hernandez;
(x) Buyer shall have received executed Noncompetition Agreements from
Emily Beck, Robert Beck, William Beck and O.S. Lackley, in substantially the
form set forth in Schedule 7(a)(x)(i); (xi) Sellers shall deliver to Buyer at
Closing certificates of search of the Uniform Commercial Code for filings
against Precision in form and substance satisfactory to Buyer. Such certificates
shall show searches of filings with respect to Precision and all names under
which Precision has conducted its business;
(xii) At the Closing date, no governmental agency or body, or other
person or entity, shall have instituted or threatened any action to restrain or
prohibit any of the transactions contemplated by this Agreement;
(xiii) The representations and warranties of the Sellers contained in
this Agreement or in any certificate or document delivered to Buyer pursuant
hereto shall be deemed to have been made again at the Closing and shall then be
true in all material respects; Sellers shall have performed and complied in all
material respects with all agreements and conditions required by this Agreement
to be performed or complied with by them prior to or at the Closing; Sellers
shall not be in default under any of the provisions of this Agreement; and Buyer
shall have been furnished with one or more closing certificates of Sellers dated
as of the Closing date, in substantially the form of Schedule 7(a)(xiii)
certifying (A) to the fulfillment of the foregoing conditions and the due
performance of such covenants and agreements, (B) that no material change has
occurred in Precision' Financial Statements since April 30, 1996, (C) that the
representations and warranties set forth in this Agreement are true and correct
as of Closing, and (D) that, except as disclosed pursuant to this Agreement,
neither Precision nor any of the Sellers is a party to any litigation or has
knowledge of any claim, brought or threatened, seeking to recover damages from
Precision or to prevent Precision or Sellers from continuing to use Precision
assets or to conduct
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business in the manner as the same were used or conducted prior thereto, and
which litigation or claim is likely to result in any judgment, order, decree or
settlement which will materially and adversely affect the financial condition or
business of Precision;
(xiv) Buyer shall have received a legal opinion of Sellers' counsel in
a form to be agreed upon, dated as of the Closing date;
(xv) Buyer shall have received summaries of the accounts payable and
accounts receivable of Precision, dated not later than five (5) days prior to
Closing and not materially different from those dated April 30, 1996, except for
changes occurring in the ordinary course of Precision's business;
(xvi) Sellers shall have executed and delivered such other documents,
instruments, certificates or agreements as shall be reasonably necessary to
consummate this transaction;
(xvii) All proceedings taken in connection with the transactions
contemplated herein and all instruments and documents required in connection
therewith or incident thereto shall be satisfactory in form to Snell & Wilmer,
legal counsel for Buyer;
(xviii) Precision shall have executed and delivered leases in the form
of those attached hereto as Schedules 7(b)(x)(i) and (ii), respectively.
(xix) The Buyer and POF Realty and LBH Realty shall have reached
agreement with respect to the transactions contemplated by subsections 1(c)(ii)
and (iii) of this Agreement.
(b) Sellers' Conditions. The obligation of Sellers to consummate this
Agreement is subject to the satisfaction at the Closing, or waiver by Sellers in
writing, of each of the following conditions:
(i) Buyer shall have executed this Agreement;
(ii) Buyer shall have made the payments required by Section 2(b)
hereof and shall have delivered to the Escrow Agent the Flanders Shares;
(iii) Buyer shall have executed an Employment Contract with Gus
Hernandez in substantially the form set forth in Schedule 5(f);
(iv) Seller shall have received a legal opinion of counsel to Buyer in
a form to be agreed upon, dated as of the Closing.
(v) At the Closing date, no governmental agency or body, or other
person or entity, shall have instituted or threatened any action to restrain or
prohibit any of the transactions contemplated by this Agreement.
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(vi) Buyer shall not be in default under any of the provisions of this
Agreement; and Sellers shall have been furnished with one or more closing
certificates of Buyer dated as of the Closing date, in substantially the form of
Schedule 7(b)(vi) certifying (A) to the fulfillment of the foregoing conditions
and the due performance of such covenants and agreements, (B) that the
representations and warranties set forth in this Agreement are true and correct
as of Closing, and (C) that Buyer is not a party to any litigation and has no
knowledge of any claim, brought or threatened, seeking to prevent Buyer from
entering into this Agreement or consummating the transactions contemplated
hereby;
(vii) The representations and warranties of Buyer contained in this
Agreement or in any closing certificate or document delivered to Sellers
pursuant hereto shall be deemed to have been made again at the Closing and shall
then be true in all material respects; Buyer shall have performed and complied
with all agreements and conditions required by this Agreement to be performed or
complied with by it prior to or at the Closing; (viii) Buyer shall have
executed and delivered such other documents, instruments, certificates or
agreements and shall have taken such other actions as, in the opinion of legal
counsel to Sellers, shall be reasonably necessary to consummate this
transaction;
(ix) All proceedings taken in connection with the transactions
contemplated herein and all instruments and documents required in connection
therewith or incident thereto shall be satisfactory in form to Trenam, Kemker,
Scharf, Barkin, Frye, O'Neill & Mullis, legal counsel for Seller;
(x) Precision shall have executed and delivered leases in the form of
those attached hereto as Schedules 7(b)(x)(i) and (ii), respectively;
(xi) The Sellers and Buyer shall have executed and delivered the
Rights Agreement; and
(xii) The Buyer, the Sellers and the Escrow Agent shall have executed
and delivered the Closing Escrow Agreement and the Flanders Shares Escrow
Agreement.
(xiii) Simultaneous with the Closing, the Buyer shall pay, or cause
Precision to repay, the full amount of all indebtedness from Precision to
SunTrust Bank and shall procure the cancellation of all guarantees of any Seller
with respect to such indebtedness or any other indebtedness of Precision.
(xiv) The Buyer and POF Realty and LBH Realty shall have reached
agreement with respect to the transactions contemplated by subsections 1(c)(ii)
and (iii) of this Agreement.
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8. Indemnification.
(a) General Indemnification Obligation of Each Seller. Subject to the
limitations hereinafter provided, from and after the Closing, Sellers will
indemnify and hold harmless Buyer and its successors and assigns (an
"Indemnified Buyer Party") against and in respect of:
(i) Damages. Any and all damages, losses, deficiencies, liabilities,
costs and expenses (collectively, "Damages") incurred or suffered by the
Indemnified Buyer Party that result from, relate to or arise out of:
(A) Any and all liabilities and obligations of Precision of any
nature whatsoever, in existence as of the Closing, except for those liabilities
and obligations of Precision set forth in the Financial Statements or disclosed
in the schedules to this Agreement or as shall have arisen or been incurred by
Precision in the ordinary course of its business after April 30, 1996;
(B) Any and all actions, suits, claims or legal, administrative,
arbitration, governmental or other proceedings or investigations against an
Indemnified Buyer Party or Precision that relate to a Seller or Precision to the
extent that the event giving rise thereto occurred prior to the Closing or which
result from or arise out of any action or inaction prior to the Closing of any
Seller, Precision, or any director, officer, employee, agent, representative or
subcontractor of Precision, except for those set forth in the Financial
Statements or schedules to this Agreement; or
(C) Any misrepresentation, breach of warranty or nonfulfillment of
any agreement or covenant on the part of Sellers under this Agreement, or from
any misrepresentation in or omission from any certificate, schedule, statement,
document or instrument furnished to Buyer pursuant hereto (collectively, a
"misrepresentation or breach of warranty"). In determining the amount of any
Damages incurred as a result of any misrepresentation or breach of warranty for
purposes of this subsection 8(a)(i)(C), any reference to "materiality" in any
representation, warranty or covenant contained in this agreement shall be
ignored.
(ii) Actions. Any and all actions, suits, claims, proceedings,
investigations, demands, assessments, fines, judgments, costs and other expenses
(including, without limitation, reasonable legal fees and expenses)
(collectively, "Actions") incident to any of the foregoing.
(b) General Indemnification Obligation of Buyer. Subject to the
limitations hereinafter provided, from and after the Closing, Buyer will
reimburse, indemnify and hold harmless Sellers and their successors and assigns
(an "Indemnified Seller Party") against and in respect of:
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(i) Damages. Any and all Damages incurred or suffered by any
Indemnified Seller Party that result from, relate to or arise out of any
misrepresentation, breach of warranty or non-fulfillment of any agreement or
covenant on the part of Buyer under this Agreement or any other document
delivered by Buyer pursuant to this Agreement, or from any misrepresentation in
or omission from any certificate, schedule, statement, document or instrument
furnished to Sellers pursuant hereto or thereto; and
(ii) Actions. Any and all Actions incident to any of the foregoing or
to the enforcement of this paragraph 8(b).
(c) Limitation of Indemnity. Notwithstanding any provision in this
Agreement to the contrary, an Indemnifying Party (as hereinafter defined) shall
not be liable to an Indemnified Party (as hereinafter defined) for
indemnification under this Section 8 for:
(i) Dollar Amounts Limitations.
(A) Threshold Limitation. Damages or actions in an amount less
than $25,000 in connection with any claim hereunder relating to a single
occurrence or event, or for the first $250,000 of aggregate Damages or Actions
in connection with all claims hereunder (it being the intention hereof that
neither Buyer nor Seller shall be liable for the first $250,000 in aggregate
Damages or Actions incurred by the other); PROVIDED, HOWEVER, the limitation
herein provided shall not apply to any claim by the Sellers against the Buyer
for failure to pay the full amount of the purchase price (including, without
limitation, the distribution of the Flanders Shares as provided in the Flanders
Shares Escrow Agreement).
(B) Ceiling Limitation. Except with respect to claims relating to
the "Texas Wrongful Death Action" and/or "Intentional Misrepresentations" (as
said terms are hereinafter defined), Damages or Actions in in excess of
$1,000,000 in the aggregate (it being the intention hereof that, except with
respect to claims relating to the Texas Wrongful Death Action and/or Intentional
Misrepresentations, the Sellers shall not be liable to the Buyer or Precision
for Actions or Damages in excess of the aggregate amount $1,000,000); PROVIDED,
HOWEVER, the limitation herein provided shall not apply to any claim by the
Sellers against the Buyer for failure to pay the full amount of the purchase
price (including, without limitation, the distribution of the Flanders Shares as
provided in the Flanders Shares Escrow Agreement).
(C) (1) Texas Wrongful Death Action Limitation. With respect to
claims by Buyer relating to the Texas Wrongful Death Action, Damages or Actions
in an amount in excess of the Cash Payment plus the Flanders Shares earned by
the Sellers under the
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terms of the Flanders Shares Escrow Agreement (the "Earned Flanders Shares").
(2) Intentional Misrepresentations Limitation. With respect
to claims by Buyer for Intentional Misrepresentations relating to the Real
Property, Damages or Actions in an amount in excess of $6,290,000 and one-fourth
of the Earned Flanders Shares, and with respect to all other claims by Buyer for
Intentional Misrepresentations, Damages or Actions in an amount in excess of
$24,000,000 and three-fourths of the Earned Flanders Shares.
(D) Definitions. For purposes of subsection (B) hereof, the term
"Texas Wrongful Death Action" shall mean that certain suit entitled "Fatemah
Dashtestani, Individually, as Next Friend of Gilda Rastegar, and on behalf of
the Estate of Bahador Rastegar, Deceased, Plaintiffs and Saheb Amini and Esmaeel
Rastegar, Intervenors, vs. Precisionaire, Inc. and Donald Ray Vickers,
Defendants, Civil Action No. 3-95-CV1796-R (Jury) in the United States District
Court for the Northern District of Texas, Dallas Division", and "Intentional
Misrepresentation" shall mean the making of any representation or warranty by
Sellers which to any Sellers' knowledge at the time of making such
representation or warranty is false or inaccurate in any material respects.
(ii) Time Limitation. Any claim for which the Indemnifying Party has
not received a Claim Notice (as defined below) from the Indemnified Party on or
before the first anniversary of the Closing Date (the "Indemnification
Termination Date"); PROVIDED, HOWEVER, the time limitation herein provided shall
not apply to any claim by Buyer relating to the Texas Wrongful Death Action. It
is the intention hereof that, except with respect to claims by the Buyer
relating to the Texas Wrongful Death Action, all obligations of the parties to
indemnify pursuant to this Section 8 shall terminate on the Indemnification
Termination Date with respect to all claims for Damages and Actions except those
for which a Claim Notice has been received on or before the Indemnification
Termination Date; and
(iii) Insurance. Any claim hereunder to the extent such claim is paid
by any insurer.
(d) Several Liability. Notwithstanding anything in this Agreement to the
contrary, in case of any liability hereunder, each Seller shall be severally
liable hereunder with respect to any claim for indemnification, and the
aggregate liability of an individual Seller shall be limited to the proceeds
received by such Seller at Closing.
(e) Method of Asserting Claims, Etc. In the event that any claim or
demand is asserted against or sought to be collected from an Indemnified
Purchaser Party or Indemnified Seller Party (an "Indemnified Party") by a third
party, the Indemnified Party shall promptly notify the party from which
indemnification is sought pursuant to paragraphs 8(a) or 8(b) above (the
"Indemnifying Party") of such claim or demand, specifying the nature of such
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claim or demand and the amount or the estimated amount thereof to the extent
then feasible (which estimate shall not be conclusive of the final amount of
such claim and demand) (the "Claim Notice"). The Indemnifying Party shall have
twenty (20) days from its receipt of the Claim Notice (the "Notice Period") to
notify the Indemnified Party, (i) whether or not the Indemnifying Party disputes
its liability to the Indemnified Party hereunder with respect to such claim or
demand and (ii) notwithstanding any such dispute, whether or not the
Indemnifying Party desires, at its sole cost and expense, to defend the
Indemnified Party against such claim or demand.
(i) Dispute of Liability. If the Indemnifying Party disputes its
liability with respect to such claim or demand or the amount thereof (whether or
not the Indemnifying Party desires to defend the Indemnified Party against such
claim or demand as provided herein), such dispute shall be resolved in
accordance with paragraph 8(g) hereof. Pending the resolution of any dispute by
the Indemnifying Party of its liability with respect to any claim or demand,
such claim or demand shall not be settled without the prior written consent of
the Indemnified Party.
(ii) Defense. In the event that the Indemnifying Party notifies the
Indemnified Party within the Notice Period that it desires to defend the
Indemnified Party against such claims or demand, then, provided: (i) that the
Indemnifying Party acknowledges that it is liable to indemnify the Indemnified
Party with respect to a particular claim; and (ii) the Indemnifying Party has
financial resources which are reasonably adequate to pay the amount of the
claim, except as hereinafter provided, the Indemnifying Party shall have the
right to defend the Indemnified Party by appropriate proceedings, which
proceedings shall be promptly settled or prosecuted by the Indemnifying Party to
a final conclusion in such a manner as to avoid any risk of the Indemnified
Party becoming subject to liability with respect thereto. If any Indemnified
Party desires to participate in, but not control, any such defense or
settlement, it may do so at its sole cost and expense.
(iii) Indemnifying Party Liability. (1) If the Indemnifying Party
elects not to defend the Indemnified Party against such claim or demand, whether
by not giving the Indemnified Party timely notice as provided above or
otherwise, then the amount of any such claim or demand, or if the same be
defended by the Indemnifying Party or by the Indemnified Party (but no
Indemnified Party shall have any obligation to defend any such claim or demand),
then that portion thereof as to which such defense is unsuccessful, in each case
shall be conclusively deemed to be a liability of the Indemnifying Party
hereunder, unless the Indemnifying Party shall have disputed its liability to
the Indemnified Party hereunder, as provided herein, in which event such dispute
shall be resolved as provided in Section 8(g) hereof; (2) In the event an
Indemnified Party should have a claim against the Indemnifying Party hereunder
that does not involve a claim or demand being asserted against or sought to be
collected from it by a third party, the Indemnified Party shall promptly send a
Claim Notice with respect to such claim to the Indemnifying Party. If the
Indemnifying Party disputes its liability with respect to such claim or demand,
such dispute shall be resolved in accordance with Section 8(g) hereof; if the
Indemnifying Party does not notify the
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Indemnified Party within the Notice Period that it disputes such claim, the
amount of such claim shall be conclusively deemed a liability of the
Indemnifying Party hereunder.
(f) Payment. Upon determination of liability hereunder, the appropriate
party shall pay to the other, as the case may be, within twenty (20) days after
such determination, the amount of any claim for indemnification made hereunder.
Upon the payment in full of any claim hereunder, the entity making payment shall
be subrogated to the right of the indemnified party against any person, firm or
corporation with respect to the subject matter of such claim.
(g) Arbitration. All disputes under this Section 8 shall be settled by
arbitration in Florida before a single arbitrator pursuant to the rules of the
American Arbitration Association. Arbitration may be commenced at any time by
any party hereto giving written notice to each other party to a dispute that
such dispute has been referred to arbitration under this Section 8(g). The
arbitrator shall be selected by the joint agreement of the Sellers and Buyer,
but if they do not so agree within twenty (20) days after the date of the notice
referred to above, the selection shall be made pursuant to the rules from the
panels of arbitrators maintained by such Association. Any award rendered by the
arbitrator shall be conclusive and binding upon the parties hereto; provided,
however, that any such award shall be accompanied by a written opinion of the
arbitrator giving the reasons for the award. This provision for arbitration
shall be specifically enforceable by the parties and the decision of the
arbitrator in accordance herewith shall be final and binding and there shall be
no right of appeal therefrom. Each party shall pay its own expenses of
arbitration and the expenses of the arbitrator shall be equally shared;
provided, however, that if in the opinion of the arbitrator any claim for
indemnification or any defense or objection thereto was unreasonable, the
arbitrator may assess, as part of the arbitration award, all or any part of the
arbitration expenses of the other party (including reasonable attorneys' fees)
and of the arbitrator against the party raising such unreasonable claim, defense
or objection. Nothing contained in this Section 8(g) shall prevent the parties
from settling any dispute by mutual agreement at any time.
(h) Exclusive Remedy. Except with respect to claims arising under
Section 9 of this Agreement, claims arising under the Employment Contract and/or
claims arising under the Noncompetition Agreements, the indemnification rights
of the parties under this Section 8 are the exclusive remedy any party may have
for any misrepresentation, breach of warranty or failure to fulfill any
agreement or covenant hereunder on the part of any party hereto, or any other
claim or cause of action arising out of the transactions contemplated hereby.
9. Non-Disclosure Covenants.
(a) Proprietary Information. Each Seller acknowledges that such Seller's
relationship with Precision may have created or may hereafter create a
relationship of confidence and trust with respect to information of a
confidential or secret nature that may be disclosed to him by Precision that
relates to the business of Precision or to the business of any affiliate,
customer, or supplier of Precision ("Proprietary Information"). Such Proprietary
Information includes, but is not limited to, any information regarding
inventions,
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marketing plans, product plans, business strategies, financial information,
forecasts, personnel information, customer lists, software, hardware, processes,
formulas, development or experimental work, work in process, business, trade
secrets, or any other secret or confidential matter relating to the products,
projects, programs, sales, customer lists, price lists, or data, or business of
Precision which is not generally known to the public. Each Seller agrees that
such Seller will keep all such Proprietary Information in confidence and trust,
and will not use or disclose any of such Proprietary Information without the
prior written consent of Precision, except as may be necessary to perform any
duties Seller may now or hereafter have as an employee of Precision. Each Seller
further agrees that at the Closing hereunder, and subsequently upon request of
Precision or at the time of the termination of the Seller's employment (if any)
with Precision, Seller will deliver to Precision only, and, except as set forth
on Schedule 9(a), shall not retain for Seller's own or others' use, any and all
software programs, documents, and any other material and all copies thereof
relating to Seller's work or Precision's products, projects, programs, or
business of which the Seller had knowledge, or which contain any Proprietary
Information.
(b) Publicity. Each Seller agrees not to disclose to any person or
entity, without the prior written consent of Buyer, any of the terms of this
Agreement at any time prior to Closing and for a period of ninety (90) days
thereafter, except as may be necessary for the performance of their obligations
hereunder or the operation of Precision in the ordinary course of business.
Precision and Buyer shall jointly disclose and publicize this transaction in a
press release as and when agreed upon between them or as required by law.
10. Other Matters.
(a) No Share Purchases. Each of the Sellers agree to not purchase any of
the shares of the Buyer from any source whatsoever at any time after the date
hereof and prior to Closing.
(b) Further Actions. Each of the Sellers warrants and agrees that, from
time to time, Seller will use Seller's best efforts to cause any present or
previous shareholder, director or officer of Precision to execute such minutes
of meetings or other instruments and take whatever actions as shall be
reasonably necessary or desirable to effect, or to carry out the intent and
purposes of, the transactions contemplated hereby.
(c) Purchase of Life Insurance Policy. At Closing, any one or more of the
Sellers, other than Emily C. Beck (as they may agree) may purchase the life
insurance policy on Emily Beck's life currently held by Precision for the "Cash
Surrender" value of such policy.
(d) Payment of Health Insurance Premiums. From and after the Closing,
Buyer will cause Precision to continue to pay each Seller's health insurance
premiums through December 31, 1996, at the rates and in the coverages in effect
at the Closing.
(e) Seller Compensation Pending Closing. The Buyer acknowledges that
those Sellers who are employed by Precision will continue to receive their
salaries, bonuses (including the Incentive Compensation Program, established
March 2, 1993) and benefits
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(consistent with past practices) up to and including the Closing Date. The
parties acknowledge that amounts due with respect to the Incentive Compensation
Program through the Closing Date will be determined promptly following Closing.
The Buyer agrees to take all action necessary to cause Precision to pay the
amount of such bonuses immediately upon determination of the amount thereof.
11. Termination and Amendment.
(a) Pre-Closing. This Agreement may be terminated by Buyer or Sellers at
any time prior to the Closing upon written notice to the other parties:
(i) If the representations, warranties and agreements or conditions of
this Agreement to be complied with or performed by Precision or the Sellers (in
the case of Buyer) or Buyer (in the case of Sellers) on or before the Closing
shall not have then been complied with or performed in some material respect and
such material noncompliance or nonperformance shall not have been waived by the
party giving notice of termination or shall not have been cured by the
defaulting party, or cure thereof commenced and diligently prosecuted thereafter
by such party within three (3) business days after written notice of such
material noncompliance or nonperformance is given by the non-defaulting party;
(ii) If any governmental action is commenced to prevent the
consummation of the transactions contemplated hereby;
(iii) By mutual written agreement of the parties;
(iv) By either party upon written notice to the other if a Phase I
Environmental Survey of the Real Property reveals any environmental liabilities
for remedial work (or otherwise);
(v) If the Closing has not occurred by August 31, 1996; or, if the
Buyer delivers the Second Deposit, if the Closing has not occurred by September
30, 1996.
In the event this Agreement is terminated by either party pursuant to the
provisions of this Section 11: (i) all rights and obligations of the parties
hereunder and under paragraphs 2(d) and/or 2(e) (relating to "Exclusive Dealing"
and "Break-up Fee", respectively) of that certain letter of intent between the
parties hereto dated June 18, 1996 (the "LOI") shall immediately terminate and
be null and void; and (ii) the Buyer shall strictly observe the provisions of
paragraph 2(g) of the LOI (relating to "Confidentiality").
(b) Waiver. Any representations, warranties, agreements or conditions of
this Agreement may be waived at any time by the party entitled to the benefit
thereof by action taken and evidenced by a written waiver executed by any such
party.
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12. Miscellaneous.
(a) Attorneys' Fees. In any action or proceeding arising out of or
related to this Agreement, the prevailing party shall be entitled to its
reasonable attorney fees and related costs, including fees and costs incurred
prior to formal initiation of an action or proceeding, and including fees and
costs incurred for collecting or attempting to collect any judgment or award.
(b) Brokers and Finders. Except as otherwise provided herein, each of the
parties hereto represents and warrants that it has dealt with no broker or
finder in connection with any of the transactions contemplated by this
Agreement. In the event that any finder's fee or broker's commission shall
become payable by any party hereto as a result of another party's actions which
constitute a misrepresentation or breach of warranty under this Section 12(b),
such fee and commission shall be the sole and exclusive responsibility and
liability of such breaching party with no right of contribution and the
breaching party shall indemnify, defend and hold all other parties harmless in
respect of all claims, losses, expenses and obligations (including reasonable
attorney's fees) to the extent that the same arise or result from such finder's
fee or broker's commission.
(c) Expenses. From and after June 1, 1996, each of the parties hereto
will bear its own legal fees and other expenses in connection with the
transactions contemplated by this Agreement.
(d) Survival. Except as specified below, all parties agree that the
representations, warranties and agreements contained in this Agreement shall
survive and remain in full force and effect for one (1) year following the
Closing. All such representations, warranties and agreements (other than Buyer's
representation contained in Section 5(e)) shall terminate on the Indemnification
Termination Date and thereafter shall be of no further force or effect. This
Section 12(d) shall have no effect on Buyer's obligations under the Employment
Contracts or the Flanders Share Escrow Agreement.
(e) Severability. If any term or provision of this Agreement, including
the exhibits hereto, or the application thereof to any person, property or
circumstances, shall to any extent be invalid or unenforceable, the remainder of
this Agreement, including the exhibits or the application of such term or
provision to persons, property or circumstances other than those as to which it
is invalid and unenforceable, shall not be affected thereby, and each term and
provision of this Agreement and the exhibits shall be valid and enforced to the
fullest extent permitted by law.
(f) Notices. 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 Sellers: At the addresses set forth in Exhibit A hereto
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with simultaneous copy to:
Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis
101 E. Kennedy Boulevard, Ste. 2700
Post Office Box 1102
Tampa, Florida 33601
Attn: Harold W. Mullis, Jr., Esquire
Telecopier: (813) 229-6553
To Buyer: 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, Esquire
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.
(g) Definition of "Sellers' Knowledge". Whenever the phrase "to Sellers'
knowledge," "to the knowledge of Seller," "to the best of Sellers' knowledge,"
or any similar phrase, is used in any Section in this Agreement, such phrase
shall be deemed to refer to actual knowledge of a Seller, i.e. a conscious
awareness of a Seller at the time such statements are made of specific facts
with respect to the matters described in such Section. It specifically shall not
include constructive or imputed knowledge of facts as to which a Seller does not
have actual knowledge.
(h) Entire Agreement. This Agreement, including the exhibits, schedules
and documents referred to herein which are a part hereof, contains the entire
understanding of the parties hereto with respect to the subject matter contained
herein and may be amended only by a written instrument executed by the Buyer,
and by those of the Sellers who are affected by any proposed amendment, or their
respective successors or assigns. There are no restrictions, promises,
warranties, covenants, or undertakings other than those expressly set forth or
referred to herein. Any Section headings or table of contents contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
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(i) Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(j) Binding Effect. This Agreement shall inure to the benefit of and be
binding upon Sellers and Buyer and their respective successors, but shall not
inure to the benefit of anyone other than the parties signing this Agreement and
their respective successors.
(k) Governing Law. This Agreement shall be governed by the laws of the
State of Florida.
(l) Time of the Essence. Time is of the essence of this Stock Purchase
Agreement and the rights and obligations of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the date first above written.
BUYER:
FLANDERS CORPORATION, a North Carolina
Corporation
By: /s/ Steven K. Clark
Its: CFO
By: /s/ Robert R. Amerson, CEO
SELLERS:
EMILY C. BECK MARITAL TRUST
By: /s/ Emily C. Beck
Emily C. Beck, Trustee
ROBERT A. BECK FAMILY TRUST
By: /s/ Emily C. Beck
Emily C. Beck, Trustee
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EMILY C. BECK REVOCABLE TRUST
By: /s/ Emily C. Beck
Emily C. Beck, Trustee
/s/ Robert V. Beck
ROBERT V. BECK
/s/ William L. Beck
WILLIAM L. BECK
/s/ Susan A. Beck
SUSAN ANN BECK
SUSAN ANN BECK MANAGEMENT TRUST
By: /s/ Robert V. Beck
Robert V. Beck, Trustee
/s/ Alice B. Buzard
ALICE B. BUZARD
ALICE B. BUZARD MANAGEMENT TRUST
By: /s/ Robert V. Beck
Robert V. Beck, Trustee
GUSTAVO HERNANDEZ REVOCABLE TRUST
U/A dated August 1, 1991
By: /s/ Gustavo Hernandez
Gustavo Hernandez, Trustee
/s/ O.S. Lackley
O. S. LACKLEY
33
<PAGE>
POT REALTY, a Florida partnership
By: /s/ Gustavo Hernandez
Gustavo Hernandez, General Partner
By: /s/ William L. Beck
William L. Beck, General Partner
By: /s/ Robert V. Beck
Robert V. Beck, General Partner
By: /s/ O.S. Lackley
O.S. Lackley, General Partner
By: /s/ Emily C. Beck
Emily C. Beck, General Partner
34
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 406,018 406,018
<SECURITIES> 0 0
<RECEIVABLES> 13,384,435 13,384,435
<ALLOWANCES> 148,000 148,000
<INVENTORY> 5,248,974 5,248,974
<CURRENT-ASSETS> 19,393,308 19,393,308
<PP&E> 14,753,591 14,753,591
<DEPRECIATION> 5,963,998 5,963,998
<TOTAL-ASSETS> 30,031,982 30,031,982
<CURRENT-LIABILITIES> 9,931,316 9,931,316
<BONDS> 0 0
0 0
0 0
<COMMON> 13,533 13,533
<OTHER-SE> 18,117,945 18,117,945
<TOTAL-LIABILITY-AND-EQUITY> 30,031,982 30,031,982
<SALES> 14,402,607 26,241,260
<TOTAL-REVENUES> 14,402,607 26,241,260
<CGS> 10,814,485 19,773,754
<TOTAL-COSTS> 10,814,485 19,773,754
<OTHER-EXPENSES> 2,576,142 4,548,468
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 83,035 145,568
<INCOME-PRETAX> 1,239,105 2,165,845
<INCOME-TAX> 435,000 817,876
<INCOME-CONTINUING> 804,105 1,347,969
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 804,105 1,347,969
<EPS-PRIMARY> 0.05 0.09
<EPS-DILUTED> 0.05 0.08
</TABLE>
