[Letterhead]
November 11, 1996
Dear Shareholders:
You are cordially invited to attend the annual meeting of the shareholders
of Flanders Corporation (the "Company") to be held at the corporate office of
the Company located at 531 Flanders Filters Road, Washington, North Carolina
27889 on November 22, 1996, at 10:00 a.m., Eastern Standard Time. The purpose of
the meeting is:
1. To elect the directors of the Company to serve until the next Annual
Meeting of Shareholders or until their respective successors are elected
and qualified.
2. To ratify the selection of McGladrey & Pullen, L.L.P. as the Company's
independent auditors for the current fiscal year.
3. To transact such other business as may properly come before the meeting.
The Board of Directors has fixed the close of business on November 4, 1996
as the record date (the "Record Date") for the determination of shareholders
entitled to notice of and to vote at the Meeting. Only holders of Common Stock
at the close of business on the Record Date will be entitled to vote at the
Meeting. The election of directors will be made by a plurality of the votes cast
at the meeting. The affirmative vote of a majority of the shares represented in
person or by proxy at the Meeting is needed for approval of any other proposals.
The Board of Directors believes the adoption of the above described proposals is
in the best interest of the Company and its shareholders.
Whether or not you expect to attend the meeting, and regardless of the
number of shares you own, we urge you to read the attached proxy statement and
to promptly date, sign and mail the enclosed proxy in the envelope provided.
Sincerely,
/s/ Robert R. Amerson
Robert R. Amerson
President and Chief Executive Officer
<PAGE>
PROXY
FLANDERS CORPORATION
ANNUAL MEETING OF THE SHAREHOLDERS
This Proxy is solicited on behalf of the Board of Directors which recommends a
vote for all nominees and ratification of McGladrey & Pullen, L.L.P. as the
Company's independent auditors.
The undersigned hereby appoints Robert R. Amerson and Steven K. Clark, and each
of them, proxies to represent the undersigned with full power of subscriber at
the Annual Shareholders Meeting of Flanders Corporation, to be held on November
22, 1996, at 10:00 a.m. local time at 531 Flanders Filters Road, Washington,
North Carolina, 27889 and at any and all adjournments thereof.
UNLESS OTHERWISE INDICATED
THIS PROXY WILL BE VOTED FOR EACH PROPOSAL SET FORTH BELOW
1. ELECTION OF DIRECTORS. This proxy will be voted FOR each of the nominees
identified in the Proxy Statement at the Annual Meeting of Shareholders
unless authority to vote for one or more nominees is expressly withheld. To
withhold authority for one or more individual nominees, cross out the name
or names of such persons.
[ ] FOR all nominees
[ ] WITHHOLD AUTHORITY to vote for any individual nominee, strike a line
through the nominee's name in the list below:
Thomas T. Allan
Robert R. Amerson
Gustavo Hernandez
Steven K. Clark
William M. Claytor
William H. Clark
2. RATIFICATION OF McGLADREY & PULLEN, L.L.P. AS THE COMPANY'S INDEPENDENT
AUDITORS
[ ] FOR
[ ] AGAINST
THE PROXIES ARE AUTHORIZED TO VOTE OR OTHERWISE ACT WITH RESPECT TO SUCH OTHER
BUSINESS AS IN THEIR DISCRETION MAY PROPERLY COME BEFORE THIS MEETING. THIS
PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED SHAREHOLDERS. UNLESS OTHERWISE SPECIFIED, THE SHARES WILL BE VOTED
FOR ALL NOMINEES.
Dated ________________, 1996. __________________________________________
__________________________________________
Signature of Shareholder(s)
Note: Signature should agree with the name
on stock certificates as printed thereon.
Executors, administrators and other
fiduciaries should so indicate when signing
[ ] I plan to personally attend the Annual Meeting of the Shareholders
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
THANK YOU
<PAGE>
FLANDERS CORPORATION
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
AND PROXY STATEMENT *
TO BE HELD NOVEMBER 22, 1996
To the Shareholders of Flanders Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of Flanders
Corporation (the "Company") will be held at 531 Flanders Filters Road,
Washington, North Carolina 27889, on November 22, 1996, at 10:00 a.m., Eastern
Standard Time for the following purposes:
1. To elect the directors of the Company to serve until the next Annual
Meeting of Shareholders, or until their successors are elected and
qualified.
2. To ratify the selection of McGladrey & Pullen, L.L.P. as the Company's
independent auditors for the current fiscal year.
3. To transact such other business as may properly come before the meeting.
The Board of Directors has fixed the close of business on November 4, 1996 as
the record date (the "Record Date") for the determination of shareholders
entitled to notice of and to vote at this Annual Meeting. Only holders of Common
Stock at the close of business on the Record Date will be entitled to vote at
the Annual Meeting.
Please sign, date, and return your proxy in the enclosed envelope so that your
shares may be voted at the meeting. If the shares are held in more than one
name, all holders of record must sign. If you plan to attend the Annual Meeting,
please notify me so that identification can be prepared for you. Thank you for
your interest and consideration.
By Order of the Board of Directors,
Debra Hill, Corporate Secretary
THE VOTE OF EACH SHAREHOLDER WILL BE IMPORTANT AT THIS MEETING. YOU ARE URGED TO
COMPLETE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED
POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING. SUCH ACTION WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON SHOULD YOU
CHOOSE TO ATTEND THE MEETING.
* Approximate date of mailing to shareholders: November 11, 1996
<PAGE>
FLANDERS CORPORATION
531 Flanders Filters Road
Washington, North Carolina 27889
PROXY STATEMENT
______________________________
ANNUAL MEETING OF SHAREHOLDERS
To Be Held November 22, 1996
______________________________
GENERAL
This Proxy Statement is furnished in connection with the solicitation of Proxies
by the Board of Directors of Flanders Corporation, a North Carolina corporation,
(the "Company") to be voted at the Annual Meeting of Shareholders to be held on
November 22, 1996, and any adjournments thereof, for the purposes set forth
herein and in the accompanying Notice of Annual Meeting of Shareholders. The
Annual Meeting of shareholders will be held at 531 Flanders Filters Road,
Washington, North Carolina 27889, at 10:00 a.m., Eastern Standard Time.
These proxy solicitation materials were mailed on or about November 11, 1996, to
all shareholders entitled to vote at the meeting. The cost of soliciting these
Proxies will be borne by the Company. These costs will include the expenses of
preparing and mailing the proxy materials for the Annual Meeting and
reimbursement paid to brokerage firms and others for their expenses incurred in
forwarding solicitation material regarding the Annual Meeting to beneficial
owners of the Company's Common Stock. The Company may conduct further
solicitation of Proxies by telephone, facsimile, mail or personal contact by
certain of its directors, officers and employees, none of whom will receive
additional compensation for assisting with the solicitation.
VOTING OF PROXIES
Proxies shall be voted in accordance with the directions of the Shareholders and
will be voted by Robert R. Amerson, President of the Company and Steven K.
Clark, Chief Financial Officer of the Company. Unless otherwise directed,
Proxies will be voted (i) FOR the persons named below as management's nominees
for directors of the Company, and (ii) FOR the ratification of McGladrey &
Pullen, L.L.P. as the Company's independent auditors for the fiscal year ending
December 31, 1996. Management knows of no other matter or motion to be presented
at the meeting. If any other matter or motion should be presented at the meeting
upon which a vote may be taken, it is the intention of the persons named in the
accompanying form of proxy to vote such proxy in accordance with their judgment,
including any matter or motion dealing with the conduct of the meeting.
REVOCABILITY OF PROXIES
Any stockholder giving a proxy may revoke it at any time before it is exercised
by delivering written notice of revocation to the Company, by delivering a duly
executed proxy bearing a later date, or by attending the meeting and voting in
person.
<PAGE>
REQUIRED VOTE
The Company's Board of Directors has set the close of business, November 4,
1996, as the record date for the determination of shareholders entitled to
notice of and to vote at the Annual Meeting. At such date, there were 15,938,348
shares of the Company's Common Stock, par value $0.001 per share (hereinafter
referred to as "Common Stock") issued and outstanding, each of which entitles
the holder thereof to one vote on all matters which may come before the meeting.
The Company's By-Laws provide that the holders of a majority of the issued and
outstanding shares of the Company entitled to vote, represented in person or by
Proxy, constitute a quorum at any shareholders' meeting. All elections of
directors will be decided by a plurality of the votes cast at the meeting in
respect thereof. The ratification of McGladrey & Pullen, L.L.P. as the Company's
independent auditors for the current fiscal year will be decided by a majority
of the votes cast at the meeting in respect thereof. Present management, which
beneficially holds approximately 67.25% of the aggregate of the Common Stock,
has indicated its intention to vote in favor of all directors and in favor of
the ratification of McGladrey & Pullen, L.L.P. as the Company's independent
auditors. If no voting direction is indicated on the Proxy Card, the shares will
be considered voted FOR the election of the nominees for director and FOR the
ratification of McGladrey & Pullen, L.L.P. as the Company's independent
auditors.
PROPOSAL ONE
ELECTION OF DIRECTORS
General
At the Annual Meeting, the holders of Common Stock will elect the directors of
the Company. Each director will hold office until the next Annual Meeting or
until his successor is elected and qualified. Cumulative voting is not permitted
in the election of directors. IN THE ABSENCE OF INSTRUCTION TO THE CONTRARY, THE
PERSONS NAMED IN THE ACCOMPANYING PROXY WILL VOTE IN FAVOR OF THE PERSONS NAMED
BELOW AS THE COMPANY'S NOMINEES FOR DIRECTORS OF THE COMPANY. All of the
nominees are presently members of the Board of Directors. Each of the nominees
has consented to be named herein and to serve if elected. It is not anticipated
that any nominee will become unable or unwilling to accept nomination or
election, but if such should occur, the persons named in the proxy intend to
vote for the election in his stead of such other person as management of the
Company may recommend.
Nominees for Directors
The nominees for Directors of the Company and their ages as of October 15, 1996,
are as follows:
Name Age
Thomas T. Allan 58
Robert R. Amerson 46
Gustavo Hernandez 61
2
<PAGE>
Steven K. Clark 43
William M. Claytor 54
William H. Clark 53
Thomas T. Allan. Mr. Allan currently serves as the Company's Chairman of the
Board, a position he has held for over ten years, and he has served on the Board
of Directors for over twenty years. Mr. Allan first joined Flanders in 1964. He
holds a Bachelor of Arts degree in Journalism from the University of
Pennsylvania.
Robert R. Amerson. Mr. Amerson has been President and a Director of Flanders
since 1988. He joined the Company in 1987 as Chief Financial Officer. Mr.
Amerson has a Bachelor of Science degree in Business Administration from
Atlantic Christian College.
Gustavo Hernandez. Mr. Hernandez has been President of Precisionaire since 1979,
and became a Director and Vice President of the Company contemporaneous with the
Company's acquisition of Precisionaire in September 1996. Mr. Hernandez joined
Precisionaire in 1969 as Vice President of Finance. Mr. Hernandez has a Bachelor
of Arts degree in Accounting from the University of Southern Florida.
Steven K. Clark. Mr. Clark was named a Director, Vice President and Chief
Financial Officer of the Company in December 1995. Mr. Clark acted as a
consultant to the Company from November 15, 1995 through December 15, 1995. From
July 1992 through October 1995, he was the Chief Financial Officer of Daw
Technologies, Inc., a specialty cleanroom contractor and major customer of the
Company. Mr. Clark is a Certified Public Accountant and has Bachelor of Arts
degrees in Accounting and Political Science and a Master of Business
Administration degree, all from the University of Utah.
William M. Claytor. Mr. Claytor has been an outside Director of Flanders for the
last five years. He is a partner in the law firm of Baucom, Claytor, Benton,
Morgan, Wood & White, P.A., and has held such position since 1975. Mr. Claytor
graduated from Memphis State University School of Law in 1969 and from the
University of Missouri in 1963.
William H. Clark. Mr. Clark has been an outside Director of Flanders since June,
1996. He is and has been since 1977, the President and Owner of Bill Clark
Construction Co., Inc., a construction company located in Greenville, North
Carolina specializing in residential development. He is currently a member of
the Business Advisory Council of the East Carolina University of Business. Mr.
Clark has a BA degree and a Masters of Business Administration degree, both from
East Carolina University.
Board Meetings and Committees
During the fiscal year ended December 31, 1995, the Company's Board of Directors
met two (2) times and also executed various resolutions and written actions in
lieu of meeting. All directors were in attendance at each of these meetings. In
fiscal year 1996, the Board of Directors established a Compensation Committee,
consisting of Messrs. William M. Claytor and Thomas T. Allan, its two outside
Directors, and also established an Audit Committee consisting of Messrs. Steven
K. Clark, William H. Clark, and William M.
3
<PAGE>
Claytor, an outside Director. The Audit Committee, which was also established in
fiscal year 1996, reviews the results and scope of the audit and other services
provided by the Company's independent auditors, reviews and evaluates the
Company's internal audit and control functions, and monitors transactions
between the Company and its employees, officers and directors. Since the Audit
Committee was not formed until fiscal year 1996, the Company's Audit Committee
did not meet during the past fiscal year.
The Compensation Committee of the Board of Directors administers the Company's
equity incentive plans and designates compensation levels for officers and
Directors of the Company. Since the Compensation Committee was not formed until
fiscal year 1996, the Company's Compensation Committee did not meet during this
past fiscal year.
Compensation of Directors
Directors who are Company employees receive no additional or special
remuneration for serving as directors. The Company's non-employee Directors are
paid $500 plus out-of-pocket expenses for each meeting of the Board of Directors
and receive options to purchase shares of Common Stock of the Company pursuant
to the Director Option Plan described below. In addition, in 1995, Mr. Claytor
received an option to purchase 50,000 shares of common stock and Mr. Allan
received an option to purchase 150,000 shares of common stock, both exercisable
at $1 per share. Mr. Allan is the Chairman of the Board; his compensation is
fixed at $71,000 per year, and he is not eligible for bonuses.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE NOMINEE
DIRECTORS STATED ABOVE AS THE COMPANY'S DIRECTORS FOR THE FISCAL YEAR ENDING
DECEMBER 31, 1996. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED
UNLESS THE SHAREHOLDERS SPECIFY OTHERWISE ON THEIR PROXY CARDS.
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
The firm of McGladrey & Pullen, L.L.P. served as independent auditors of the
Company for the fiscal year ended December 31, 1995. The Board of Directors, on
the recommendation of the Audit Committee, has selected that firm to continue in
this capacity for the current fiscal year. The Company is asking the
shareholders to ratify the selection by the board of Directors of McGladrey &
Pullen, L.L.P. as independent auditors to audit the consolidated financial
statements of the Company for the current fiscal year ending December 31, 1996
and to perform other appropriate services.
Neither McGladrey & Pullen, L.L.P., nor any of its members has any financial
interest, direct or indirect, in the Company, nor has McGladrey & Pullen,
L.L.P., nor any of its members ever been connected with the Company as promoter,
underwriter, voting trustee, director, officer, or employee. In the event the
shareholders do not ratify such appointment, the Board of Directors will
reconsider its selection. Representatives of McGladrey & Pullen, L.L.P. may
attend the meeting and may make a statement if they desire to do so.
4
<PAGE>
VOTE REQUIRED
The affirmative vote of a majority of a quorum of shareholders is required for
the ratification of the appointment of McGladrey & Pullen, L.L.P.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF McGLADREY &
PULLEN, L.L.P. AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1996. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO
VOTED UNLESS SHAREHOLDERS SPECIFY OTHERWISE ON THEIR PROXY CARDS.
5
<PAGE>
OTHER INFORMATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth all individuals known to beneficially own 5% or
more of the Company's Common Stock, and all officers and Directors of the
Company, with the amount and percentage of stock beneficially owned, as of
October 18, 1996.
<TABLE>
<CAPTION>
Name and Address Number of Common Shares Percentage of Outstanding
of Beneficial Owner Beneficially Owned Shares of Common Stock<F1>
<S> <C> <C>
A. Russell Allan, III<F2>
531 Flanders Filters Road
Washington, NC 27889 1,027,544 6.45%
Thomas T. Allan<F2>,<F4>
531 Flanders Filters Road
Washington, NC 27889 6,041,250 37.55%
Robert R. Amerson<F2>,<F3>
531 Flanders Filters Road
Washington, NC 27889 8,160,759 42.75%
Steven K. Clark<F2>,<F3>
531 Flanders Filters Road
Washington, NC 27889 5,364,014 28.10%
William M. Claytor<F5>
531 Flanders Filters Road
Washington, NC 27889 164,172 1.03%
Gustavo Hernandez<F6>
2399 26th Avenue North
St. Petersburg, FL 33734 71,613 .45%
William H. Clark
531 Flanders Filters Road
Washington, NC 27889 0 0.0%
Officers and Directors as
a Group<F2>,<F3>,<F4>,<F5>,<F6> 15,088,808 67.25%
____________________
<FN>
<F1>
Applicable percentage of ownership is based on 15,938,348 shares of Common
Stock outstanding as of October 18, 1996, together with applicable options
for such stockholders exercisable within 60 days. Shares of Common Stock
subject to options exercisable within 60 days are deemed outstanding for
computing the percentage ownership of the person holding such options, but
are not deemed outstanding for computing the percentage of any other person.
6
<PAGE>
<F2>
Includes shares subject to an option in favor of Messrs. Amerson and Clark
(3,321,021 shares and 2,214,014 shares, respectively), from Thomas T. Allan
and A. Russell Allan, III (4,713,000 shares and 822,035 shares,
respectively).
<F3>
Includes 1,150,000 shares which are subject to an option to purchase such
shares from the Company at $1.00 per share, 1,000,000 shares which are
subject to an option to purchase such shares from the Company at $2.50 per
share; and 1,000,000 shares which are subject to an option to purchase such
shares from the Company at $7.50 per share.
<F4>
Includes 150,000 shares which are subject to an option to purchase such
shares from the Company at $1.00 per share.
<F5>
Includes 50,000 shares which are subject to an option to purchase such
shares from the Company at $1.00 per share.
<F6>
Consists of 71,613 shares which are held in escrow as part of a post-closing
purchase price adjustment to the acquisition of Precisionaire. These shares
will be released from escrow only if Precisionaire meets certain performance
criteria during the next three years.
</FN>
</TABLE>
EXECUTIVE COMPENSATION
The Following table sets forth the aggregate cash compensation paid by the
Company for services rendered during the last three years to the Company's
Chief Executive Officers and to each of the Company's other executive
officers (Named Executive Officers) whose annual salary, bonus and other
compensation exceed $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Other Restricted
Annual Stock Option/s LTIP
Compen- Award(s) SARs Payouts
Name and Principal Position <F1> Year Salary ($) Bonus ($) sation<F2> ($) (#) ($)
- -------------------------------- ---- ---------- --------- ------- ---------- -------- -------
<C> <C> <C> <C> <C> <C> <C> <C>
Thomas T. Allan 1995 $ 71,000 $ - $ 137,077 $ - 150,000 $ -
Chairman of the Board 1994 71,000 - 124,500 - - -
1993 71,000 - 167,875 - - -
Robert R. Amerson 1995<F3> 128,846 - 137,077 - 1,150,000 -
President 1994 100,000 - 124,500 - - -
1993 100,000 - 167,875 - - -
Steven K. Clark 1995<F4> 15,000 - - - 1,150,000 -
Chief Financial Officer 1994 - - - - - -
1993 - - - - - -
<FN>
<F1>
Gustavo Hernandez, a Vice President of the Company and a Director, is
the Chief Executive Officer of Precisionaire. He commenced his employment with
the Company in September 1996. Mr. Hernandez will receive an annual salary of
$250,000, plus a possible bonus, commencing in September 1996, under his
Employment Agreement. During 1995 and 1994, Mr. Hernandez was paid $218,049 and
$188,714, respectively, by Precisionaire.
<F2>
Represents compensation paid by the Company to FEC and received by
Messrs. Allan and Amerson, respectively. See "Certain Relationships and
Related Party Transactions."
7
<PAGE>
<F3>
Mr. Amerson's annual salary is $250,000, plus a possible bonus each
year, under his Employment Agreement. In 1996, Mr. Amerson has also received
stock options to purchase 1,000,000 shares at $2.50 each and 1,000,000 shares at
$7.50 each.
<F4>
Mr. Clark commenced his employment with the Company as of December 15,
1995. Mr. Clark's annual salary is $250,000, plus a possible bonus, under his
Employment Agreement. In 1996, Mr. Clark has also received stock options to
purchase 1,000,000 shares at $2.50 each and 1,000,000 shares at $7.50 each.
</FN>
</TABLE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth the aggregate number and value of stock options
and stock appreciation rights ("SAR") granted by the Company for services
rendered during 1995 to the Company's Chief Executive Officer and to each of the
Company's other executive officers whose annual salary, bonus and other
compensation exceed $100,000.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed/Annual Rates of
Stock Price/Appreciation
for Option Term
-----------------------------
% of Total
Options/SARs
Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) <F1> 10% ($) <F1>
- ------------------------- ------------ ------------ ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Thomas T. Allan 150,000 6% $ 1.00 11/15/2000 $ 42,000 $ 91,500
Robert R. Amerson <F2> 1,150,000 47% $ 1.00 11/15/2000 322,000 701,500
Steven K. Clark <F3> 1,150,000 47% $ 1.00 11/15/2000 322,000 701,500
<FN>
<F1>
The potential realizable value portion of the foregoing table
illustrates value that might be realized upon exercise of the options
immediately prior to the expiration of their term, assuming the specified
compounded rates of appreciation on the Common Stock over the term of the
options. These numbers do not take into account plan provisions providing for
termination of the option following termination of employment or non-
transferability.
<F2>
Mr. Amerson's current salary is $250,000, plus any bonuses awarded under
his Employment Agreement. In 1996 Mr. Amerson has also received stock options to
purchase 1,000,000 shares at $2.50 each and 1,000,000 shares at $7.50 each.
<F3>
Mr. Clark commenced his employment with the Company as of December 15,
1995. Mr. Clark's current salary is $250,000, plus any bonuses awarded under his
Employment Agreement. In 1996, Mr. Clark has also received stock options to
purchase 1,000,000 shares at $2.50 each and 1,000,000 shares at $7.50 each.
</FN>
</TABLE>
8
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth the aggregate number and value of stock options
and SAR's exercised during the last year by the Company's Chief Executive
Officer and each of the Company's other executive officers whose annual salary,
bonus and other compensation exceed $100,000.
<TABLE>
<CAPTION>
Value of
Unexercised
Number of In-the-Money
Unexercised Options/SARs
Options/SARs at Fiscal
Fiscal Year-End (#) Year-End(s)
Shares Acquired Exercisable/ Exercisable/
Name on Exericse (#) Value Realized ($) Unexercisable Unexercisable<F1>
- --------------------- --------------- ------------------ ------------------- -----------------
<S> <C> <C> <C> <C>
Thomas T. Allan - $ - 150,000/- $ 225,000/-
Robert R. Amerson - - 1,150,000/- 1,725,000/-
Steven K. Clark - - 1,150,000/- 1,725,000/-
<FN>
<F1>
The Company did not have a public market for its stock prior to its
listing on the OTC Bulletin Board in February 1996.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company has entered into employment agreements with Messrs. Amerson and S.
K. Clark effective as of December 15, 1995 ("Employment Agreements"). Mr.
Amerson's employment agreement currently provides for an annual base salary of
$250,000. Mr. Clark's employment agreement currently provides for an annual base
salary of $250,000. The Employment Agreements each have an initial five (5) year
term. The Employment Agreements also provide that the executive shall be
entitled to the following termination payments: (i) 100% of his current base
salary if the employment is terminated as a result of his death or disability,
(ii) up to 200% of his current base salary if the employment is terminated by
the Company for any reason other than death, disability or for Cause (as defined
in his Employment Agreement), or (iii) up to 250% of the executive's gross
income during the year preceding his termination if the Employment Agreement is
terminated by the executive for Good Reason (as defined in the Employment
Agreement) or by the Company for any reason other than death, disability or
Cause and the termination occurs within two years after a Change of Control (as
defined in the Employment Agreement) of the Company has occurred.
The Company has also entered into an employment agreement with Mr. Hernandez
effective September 23, 1996. This agreement currently provides for a base
salary of $250,000 and has an initial five (5) year term. The employment
agreement also provides that the executive shall be entitled to the following
termination payments: (i) 100% of his current base salary if the employment is
terminated as a result of his death or disability, and (ii) up to 200% of his
current base salary, if the employment is terminated by the Company for any
reason other than death, Disability or for Cause (as defined in his employment
agreement).
9
<PAGE>
DIRECTOR OPTION PLAN
The 1996 Director Option Plan provides for the grant of stock options to
existing and future outside directors of the Company. Each outside director who
is serving as a director on January 1 of each calendar year, commencing January
1, 1997, will automatically be granted an option to acquire up to 5,000 shares
of common stock at an exercise price per share less than the fair market value
per share of common stock on such date, assuming such outside director had been
serving for at least six months prior to the date of grant.
Payment of the exercise price for options granted under the Director Option Plan
may be made in cash, in shares of the Company's common stock, or in a
combination of cash and common stock. Options under the Director Option Plan are
fully exercisable upon six months of the anniversary of receipt. Options granted
under the Director Option Plan are not transferrable, except under limited
circumstances. If the outside director optionee ceases to be an outside director
other than by reason of death, disability or cause, all unexercised options
terminate three months thereafter.
The Company has reserved 500,000 shares of its common stock for issuance under
the Director Option Plan. The Director Option Plan terminates in 2006.
LONG-TERM INCENTIVE PLAN
In 1996, the Company adopted the Long Term Incentive Plan ("LTI Plan") to assist
the Company in securing and retaining key employees and consultants. The LTI
Plan authorizes grants of incentive stock options, nonqualified stock options,
stock appreciation rights ("SARs"), restricted stock performance shares and
dividend equivalents to officers and key employees of the Company and outside
consultants to the Company. There are 2,000,000 shares of Common Stock reserved
for award under the LTI Plan.
The Plan is administered by the Compensation Committee of the Board of
Directors. The Compensation Committee determines the total number and type of
award granted in any year, the number and selection of employees or consultants
to receive awards, the number and type of awards granted to each grantee and the
other terms and provisions of the awards, subject to the limitations set forth
in the LTI Plan.
Stock Option Grants. The Compensation Committee has the authority to
select individuals who are to receive options under the LTI Plan and to
specify the terms and conditions of each option so granted (incentive or
nonqualified), the exercise price (which must be at least equal to the
fair market value of the Common Stock on the date of grant with respect
to incentive stock options), the vesting provisions and the option term.
Unless otherwise provided by the Compensation Committee, any option
granted under the LTI Plan expires the earlier of 10 years from the date
of grant or, three months after the optionee's termination of service,
other than termination for cause, with the Company or three years after
the optionee's death or disability. As of October 7, 1996 the Company
has granted options to purchase 176,520 shares of Common Stock under the
LTI Plan.
Stock Appreciation Rights. The Compensation Committee may grant SARs
separately or in tandem with a stock option award. A SAR is an incentive
award that permits the holder to receive (per share covered thereby) an
amount equal to the amount by which the fair market value of a share of
Common Stock on the date of exercise exceeds the fair market value of
such share on the date the SAR was granted (the "base price"). Under the
LTI Plan, the Company
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<PAGE>
may pay such amount in cash, in Common Stock or a combination of both.
Unless otherwise provided by the Compensation Committee at the time of
grant, the provisions of the LTI Plan relating to the termination of
employment of a holder of a stock option will apply equally, to the
extent applicable, to the holder of a SAR. A SAR granted in tandem with
a related option will generally have the same terms and provisions as
the related option with respect to exercisability. A SAR granted
separately will have such terms as the Compensation Committee may
determine, subject to the provisions of the LTI Plan. As of June 30,
1996, no SARs have been granted under the LTI Plan.
Restricted Stock Awards. The Compensation Committee is authorized under
the LTI Plan to issue shares of restricted Common Stock to eligible
participants on such terms and conditions and subject to such
restrictions, if any, as the Compensation Committee may determine. As of
June 30, 1996, no restricted stock awards have been granted under the
LTI Plan.
Performance Shares. The Compensation Committee is authorized under the LTI
Plan to grant performance share units to selected employees. Typically
each performance share unit will be deemed to be the equivalent of one
share of Common Stock. As of June 30, 1996, no performance shares have
been awarded under the LTI Plan.
Dividend Equivalents. The Compensation Committee may also grant dividend
equivalent rights in conjunction with the grant of options of SARs.
Dividend equivalent rights entitle the holder to receive an additional
amount of Common Stock upon the exercise of the underlying option or
SAR. As of June 30, 1996, no dividend equivalents have been awarded
under the LTI Plan.
401(K) PLAN
Due to the recent acquisitions of Precisionaire, Inc., Air Seal Filter Housing,
Inc., and Charcoal Service Corporation ("CSC"), the Company currently has four
defined contribution 401(k) salary reduction plans intended to qualify under
section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
one for each of Flanders Filters, Inc., CSC, Flanders Airpure Products Company
and Precisionaire, Inc. (collectively, the "401(k) Plans"). The Company is in
the process of combining all of the plans into a single plan.
Employees of Flanders and Airpure are immediately eligible to enroll in their
401(k) Plans upon employment. Employees of CSC and Precisionaire are eligible
after one year of service. Eligible employees may enroll in the appropriate
401(k) Plan as of any January 1 or July 1 of each year. For each of the 401(k)
Plans, a participating employee, by electing to defer a portion of his or her
compensation, may make pre-tax contributions to the 401(k) Plan, subject to
limitations under the Code, of a percentage of his or her total compensation
which varies between the 401(k) Plans between 15% and 20%. Flanders, Airpure and
CSC may make matching contributions to the appropriate 401(k) Plans at the
discretion of their Boards of Directors. Precisionaire contributes 25 cents for
each dollar contributed, up to the first 4% of compensation deferred.
Participant contributions and earnings are 100% vested, while Company matching
contributions vest in increments over a six-year period (for FFI, Airpure and
CSC) or a seven-year period (for Precisionaire). Participants may alter their
contribution amounts as of any enrollment date. Participants may change or
transfer their investments at any time. Contributions may be withdrawn only
after the participant reaches the age of 59 1/2 or in the event of retirement,
death, disability, termination of service or financial
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<PAGE>
hardship, with possible penalties for certain early withdrawals. The Company
pays all expenses associated with administration of the 401(k) Plans.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
General
The following report shall not be deemed incorporated by reference into
any filing under the 1933 Act or under the Securities Exchange Act of 1934 (the
"1934 Act"), except to the extent that the Company specifically incorporates
this information by reference, and shall not otherwise be deemed filed under
either the 1933 Act or the 1934 Act.
The Compensation Committee is composed of two independent, non-employee
directors who have no "interlocking relationships" (as defined by the Securities
and Exchange Commission.)
Flanders operates in highly competitive businesses and competes nationally for
personnel at the executive and technical staff level. Outstanding candidates are
aggressively recruited, often at premium salaries. Highly qualified employees
are essential to the success of the Company. The Company is committed to
providing competitive compensation that helps attract, retain, and motivate the
highly skilled people it requires. The Committee strongly believes that a
considerable portion of the compensation for the Chief Executive Officer and
other top executives must be tied to the achievement of business objectives,
completing acquisitions, and to business unit and overall company performance,
both current and long-term.
Executive Compensation
The role of the Compensation Committee is to review and approve salaries and
other compensation of the executive officers of the Company, to administer the
Executive Officer Bonus Plan (the "Bonus Plan"), and administer the stock option
plans and to review and approve stock option grants to all employees, including
the executive officers of the Company. Several of the mechanisms discussed below
were not in place during 1995, but have been or are being established as the
Company further defines its executive compensation policies and goals. For
instance, the non-qualified stock option plan discussed below was not in place
during 1995, but has since been established, and will be an important part of
future compensation decisions.
General Compensation Philosophy
The Company's compensation philosophy is that total cash compensation should
vary with the performance of the Company and any long-term incentive should
be closely aligned with the interest of the stockholders.
Total cash compensation for the executive officers consists of the following
components:
* Base salary
* An executive officer bonus that is related to growth in sales and
operating earnings of the Company.
Long-term incentive is realized through the granting of stock options to
executives and key employees through a non-qualified stock option plan,
which was adopted by the Board and
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approved by a majority of the Company's shareholders in January of 1996. The
Company has no other long-term incentive plans for its officers and
employees.
Base Salary and Executive Officer Bonus Target
Current base salaries for the executive officers of the Company were
determined by arms-length negotiations with the Board of Directors, and are
set forth in the various employment contracts between the Company and the
executive officers. In establishing salaries for executive officers, the
Committee considers relative Company performance, the individual's past
performance and future potential, and compensation for persons holding
similarly responsible positions of other companies in similar industries.
The relative importance of these factors varies depending upon the
individual's responsibilities; all factors are considered in establishing
the salaries.
Stock Options
Stock options are granted to aid in the retention of executive and key
employees and to align the interests of executive and key employees with
those of the stockholders. The level of stock options granted (i.e., the
number of shares subject to each stock option grant) is based on the
employee's ability to impact future corporate results. An employee's ability
to impact future corporate results depends on the level and amount of job
responsibility of the individual. Therefore, the level of stock options
granted is proportional to the Compensation Committee's evaluation of each
employee's job responsibility. For example, Mr. Amerson, as the Chief
Executive Officer, has the highest level of responsibility and would
typically be awarded the highest level of stock options.
Stock options are granted at a price not less than the fair market value on
the date granted. They are granted to key employees, including the executive
officers, at the direction of the Compensation Committee at levels believed
to be appropriate for the amount and level of responsibility of each key
employee.
Respectfully submitted,
COMPENSATION COMMITTEE:
Thomas T. Allan
William M. Claytor
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<PAGE>
COMPARATIVE STOCK PERFORMANCE GRAPH<F1>
The following graph<F2> shows a comparison of cumulative total returns for the
Company, the NASDAQ Stock Market -- U.S. Index and the Standard & Poor's
Specialized Manufacturing Index during the period commencing February 27, 1996
and ending September 30, 1996. The comparison assumes $100 was invested on
February 27, 1996 in the Company's Common Stock with the reinvestment of all
dividends, if any. Total shareholder returns for prior periods are not an
indication of future returns.
[Graphic showing data summarized in table below]
<TABLE>
<CAPTION>
Cumulative Total Return
-----------------------
2/28/96 9/96
<S> <C> <C> <C>
Flanders Corp FLDR 100 420
NASDAQ STOCK MARKET - US INAS 100 117
NASDAQ NON-FINANCIAL INNF 100 116
</TABLE>
_______________
<F1> Note: This Section of this proxy statement shall not be deemed to be
incorporated by reference into any filing by the Company with the SEC
under the Securities Act of 1933 or the Securities Exchange Act of 1934,
notwithstanding any such incorporation by reference of any other
portions of this proxy statement.
<F2> The Company did not have a public market for its stock prior to its
listing on the OTC Bulletin Board in February 1996.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Thomas T. Allan, Robert R. Amerson and Steven K. Clark have entered into an
Indemnity Agreement with Flanders whereby Messrs. Allan, Amerson and Clark will
collectively deposit up to $1,500,000 into an escrow fund to indemnify the
Company for the payment of any claims, judgments, and expenses arising from the
potential environmental claims made by the State of North Carolina, and $525,000
due for the settlement of the lawsuits against the Company by Hartford Casualty
Insurance Co. v. Flanders Filters, Inc., and St. Paul Fire and Marine Insurance
Co. v. Flanders Filters, Inc. The indemnification is limited to $1,500,000 and
in no event will any of the individuals named be required to contribute more
than $500,000 each.
In connection with the issuance of Series A Convertible Debentures, Messrs.
Clark and Amerson have irrevocably granted and issued to certain unrelated
investors the right and option to sell to Clark and Amerson from time to time
such debentures at a purchase price of 105% of the face value of such debentures
plus any accrued interest thereon.
ABB Partnership, as landlord, and Airpure, as tenant, entered into a
month-to-month Lease Agreement, dated July 31, 1995. ABB Partnership is
controlled by Robert Amerson, President of the Company. The month-to-month lease
was entered into on terms believed by the Company to be fair and reasonable and
generally reflective of market conditions.
The Company paid Flanders Equity Corporation, a management company affiliated
through common ownership, management fees of $532,000, $420,000, and $524,008
for 1995, 1994 and 1993, respectively. The Company's liabilities at December 31,
1995, December 30, 1994 and December 31, 1993 include management fees payable to
Flanders Equity Corporation of $50,000, $0, $150,000, respectively. This
arrangement was terminated in 1995, and no management fee expenses have been
incurred in 1996 with record to Flanders Equity Corporation.
On July 3, 1996, the Company loaned to Thomas T. Allan, Chairman of the Company,
Six Hundred Fifty Thousand Dollars ($650,000), pursuant to a promissory note.
The promissory note bears interest at a rate of seven percent (7%) per annum and
the principal amount, together with all accrued interest is due and payable on
July 3, 1997. As of November 3, 1996, the total outstanding principal and
interest due under the note is $665,167.
The Company, as tenant, has entered into lease agreements with respect to
certain facilities located in Auburn, Pennsylvania, Bartow, Florida and St.
Petersburg, Florida, with the following persons or entities as landlord: POT
Realty, LHB Realty and Gustavo and Ana Hernandez. Mr. Hernandez, Vice President
of Operations and a Director of the Company, is a principal of POT Realty and
LHB Realty. These leases were entered into as a part of the Precisionaire
acquisition on terms believed by the Company to be fair and reasonable and
generally reflective of market conditions.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Officers, directors, and
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<PAGE>
greater than ten-percent beneficial owners are required by SEC regulation to
furnish the Company with copies of all Section 16(a) reports they file.
Based solely upon review of the copies of such reports furnished to the Company
and written representations that no other reports were required, the Company
believes that there was compliance for the fiscal year ended December 29, 1995
with all Section 16(a) filing requirements applicable to the Company's officers,
directors, and greater than ten-percent beneficial owners.
SHAREHOLDER PROPOSALS
Under the present rules of the Commission, the deadline for shareholders to
submit proposals to be considered for inclusion in the Company's Proxy Statement
for next year's Annual Meeting of Shareholders is June 18, 1997. Such proposals
may be included in next year's Proxy Statement if they comply with certain rules
and regulations promulgated by the Commission.
OTHER MATTERS
The Board of Directors is not aware of any other matter which may be
presented for action at the Annual Meeting. Should any other matter
requiring a vote of the shareholders be presented for action at the Annual
Meeting, it is intended that the proxy holders will vote on such matters in
accordance with their best judgment.
ANNUAL REPORTS ON FORM 10-K
The Annual Report on Form 10-K for the fiscal year ended December 31, 1995 has
been enclosed with this Proxy Statement. Unless specifically indicated in this
Proxy Statement, the Annual Report is not incorporated in the Proxy Statement
and is not considered as part of the soliciting material.
Flanders Corporation
Corporate Secretary
Washington, North Carolina
November 11, 1996.
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