SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
__________
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
___________________
Date of Report (Date of earliest event reported) June 30, 1998
FLANDERS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
NORTH CAROLINA 0-27958 13-3368271
(State of incorporation) (Commission (I.R.S. Employer Identification Number)
File Number)
Steven K. Clark
Flanders Corporation
531 Flanders Filters Road
Washington, North Carolina 27889
(Address, including zip code, of principal executive offices)
Registrant's telephone number, including area code...............(919) 946-8081
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ITEM 2. Acquisition or Disposition of Assets
On June 30, 1998, Flanders Corporation (the "Registrant") acquired approximately
97% of the issued and outstanding capital stock of Eco-Air Products, Inc.
("Eco-Air"), a California corporation, and all of the shares of Industrias Seco
de Tijuana, S.A. de C.V., Eco-Air's Mexican subsidiary, which are not owned by
Eco-Air (approximately .2%) pursuant to a Stock Purchase Agreement dated May 7,
1998 (as amended by the Amendment to Stock Purchase Agreement dated May 20,
1998, collectively the "Stock Purchase Agreement").
The Registrant acquired such interests by paying the shareholders of Eco-Air a
total of $13,000,000. Additionally, provided that Eco-Air meets certain
performance criteria over the next five years, the Registrant will issue to the
shareholders of Eco-Air, certain shares of the Registrant's common stock or an
equivalent amount in cash. The terms of the Stock Purchase Agreement and the
amount of consideration to be paid for the shareholder interests were determined
through arms-length negotiations among the parties.
Prior to the acquisition, Eco-Air was a privately-held corporation in the
business of manufacturing and marketing air filters and related products for
commercial and residential air conditioning and heating systems. The Registrant
intends to continue such business and will operate Eco-Air as a subsidiary.
The Registrant financed the acquisition by using its line of credit with
SunTrust Bank, Tampa Bay.
The description of the transactions described herein is qualified entirely by
reference to the Stock Purchase Agreement which is attached hereto as Exhibits
2.1.1 and 2.1.2 and incorporated herein by reference.
Item 7. Financial Statements and Exhibits
1. Financial Statements of Business Acquired
See Exhibit 2.1.3
2. Pro Forma Financial Information
See Exhibit 2.1.4
3. Exhibits
Exhibit No. Description
Exhibit 2.1.1
Stock Purchase Agreement by and between the
Registrant and the shareholders of Eco-Air
Products, Inc. dated May 7, 1998
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Exhibit 2.1.2
Amendment dated May 20, 1998 to Stock Purchase
Agreement by and between the Registrant and the
Shareholders of Eco-Air Products, Inc. dated May
7, 1998
Exhibit 2.1.3
Financial Statements of Eco-Air Products, Inc.
Exhibit 2.1.4
Pro-Forma Financial Statements
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FLANDERS CORPORATION
__________________________________
By: Steven K. Clark
Dated: ___________ Its: Chief Financial Officer
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EXHIBIT 2.1.1
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STOCK PURCHASE AGREEMENT
BY AND AMONG
FLANDERS CORPORATION,
a North Carolina corporation,
AND
THE SHAREHOLDERS OF
ECO-AIR PRODUCTS, INC.,
a California corporation
May 7, 1998
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TABLE OF CONTENTS
Page
1. Purchase of Eco-Air Shares 1
(a) Purchase 1
(b) Cash Payment 1
(c) Issuance of Flanders Shares After Closing 2
(d) Purchase Price Adjustment 2
(e) Employee Bonuses 4
2. Delivery 4
(a) Delivery of Eco-Air Shares 4
(b) Delivery of Cash Payment 5
(c) Liabilities 5
3. Representations and Warranties of the Sellers 5
(a) Ownership of Eco-Air Shares. 5
(b) Authority 5
(c) Compliance with Law 6
(d) No Litigation 6
(e) Solvency 6
(f) Securities Laws Compliance 6
(g) No Material Misstatements 7
(h) Indemnification. 7
4. Representations and Warranties Concerning Eco-Air and Sub-Mex 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 10
(i) Related-Party Transactions 10
(j) Safety Laws 10
(k) Environmental Compliance 10
(l) Compliance With Law 14
(m) Financial Statements 14
(n) Properties and Assets 14
(o) Accounts Receivable 15
(p) Leases 15
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(q) Inventory 15
(r) Intellectual Property 15
(s) Material Contracts 16
(t) No Undisclosed Liabilities 17
(u) Litigation 17
(v) Taxes 17
(w) Employment Contracts 17
(x) Personnel Matters 18
(y) Employee Restrictions 18
(z) Eco-Air Labor Matters 18
(aa) Sub-Mex Labor Matters 18
(bb) Employee Benefit Plans 18
(cc) Sub-Mex Manufacturing 20
(dd) No Adverse Change 20
(ee) Discrimination 21
(ff) Disputes and Charges 21
(gg) Certain Payments. 21
(ii) Accuracy of Information Furnished 22
(jj) Indemnification. 22
5. Representations, Warranties and Agreements of Buyer 22
(a) Organization, Standing and Qualification 22
(b) Authority 22
(c) Compliance with Law 22
(d) Shares Purchased for Investment 23
(e) Flanders Shares. 23
(f) Cash Payment 23
(g) Employment Contracts and Options 23
(h) Consents and Approvals 23
(i) Location of Business 23
(j) Warranty of Good Faith 24
6. The Closing 24
7. Conditions of Buyer's and Sellers' Performance 24
(a) Buyer's Conditions 24
(b) Sellers' Conditions 27
8. Indemnification 28
(a) General Indemnification Obligation of Each Seller 28
(b) General Indemnification Obligation of Buyer 29
(c) Limitation of Indemnity 29
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(d) Several Liability 29
(e) Method of Asserting Claims, Etc 29
(f) Payment 31
(g) Other Rights and Remedies Not Affected 31
9. Non-Disclosure and Non-Compete Covenants 31
(a) Proprietary Information 31
(b) Non-Compete Provisions 32
(c) Publicity 33
10. Other Matters 33
(a) No Share Purchases 33
(b) Resignation of Directors 33
(c) Further Actions 33
11. Termination and Amendment 33
(a) Pre-Closing 33
(b) Waiver 34
12. Dispute Resolution 34
(a) Mediation 34
(b) Arbitration 34
13. Miscellaneous 35
(a) Attorneys' Fees 35
(b) Brokers and Finders 35
(c) Expenses 35
(d) Survival 35
(e) Severability 35
(f) Notices 36
(g) Entire Agreement 36
(h) Counterparts 37
(i) Binding Effect 37
(j) Governing Law 37
(k) Gender and Number, etc. 37
(l) Successors and Assigns 37
(m) No Third Party Beneficiaries 37
(n) No Partnership or Joint Venture 37
Signatures 38
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EXHIBITS
Exhibit A Shareholder List of Eco-Air Products, Inc.
Exhibit B Performance Criteria
Exhibit C Eco-Air Statement of Income
Exhibit D Closing Escrow Agreement
SCHEDULES
Schedule 4(c) Subsidiaries
Schedule 4(g) Conflicts
Schedule 4(i) Related Party Transactions
Schedule 4(m) Financial Statements
Schedule 4(n) Properties and Assets
Schedule 4(o) Accounts Receivable
Schedule 4(s) Material Contracts
Schedule 4(u) Litigation
Schedule 4(bb) Employee Benefit Plans
Schedule 5(g) Employment Contracts
Schedule 7(a)(xvi) Sellers' Closing Certificate
Schedule 7(a)(xvii) Sellers' Legal Opinion
Schedule 7(a)(xxv) Non-Competition Agreement
Schedule 7(b)(iv) Buyer's Legal Opinion
Schedule 7(b)(vi) Buyer's Closing Certificate
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is executed as of this 7th day of
May, 1998, by and between FLANDERS CORPORATION, a North Carolina corporation
("Buyer" or "Flanders"), and THE SHAREHOLDERS OF ECO-AIR PRODUCTS, INC., a
California corporation ("Eco-Air"), 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;
WHEREAS, Eco-Air is a California corporation which is in the business of
manufacturing and selling air filtration products;
WHEREAS, Eco-Air owns all but two shares of the capital stock of Industrias
Seco de Tijuana, S.A. de C.V., a Mexican corporation ("Sub-Mex"), which is in
the business of manufacturing and assembling air filtration products at a
Maquiladora plant in Tijuana, Mexico for shipment to Eco-Air's facility for
distribution and sale pursuant to a certain Maquila Services Agreement between
Eco-Air and Sub-Mex; and
WHEREAS, the parties intend by this Agreement to provide for the acquisition by
Buyer of (1) all the issued and outstanding capital stock of Eco-Air, except
for those shares owned by Carl Deilgat which are subject to a Stock Purchase
Agreement dated May 4, 1993 ("Deilgat Stock Purchase Agreement"), in favor of
Eco-Air (the "C. Deilgat Shares"), and (2) the shares of Sub-Mex which are not
owned by Eco-Air, in exchange for $13,000,000 and certain shares of Flanders
common stock, 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 Eco-Air 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 Eco-Air
and the number of shares of Sub-Mex (collectively, the "Eco-Air Shares") listed
beside such Seller's name in Exhibit A hereto.
(b) Cash Payment. In consideration for the Eco-Air Shares, Buyer shall pay to
Sellers an aggregate amount of Thirteen Million Dollars ($13,000,000)
(hereinafter referred to as the "Cash Payment"), as such amount may be adjusted
as provided in Section 1(d) below. At Closing, or at such other time as the
parties may mutually agree,
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Buyer shall pay $11,500,000 of the Cash Payment to Sellers (subject to
adjustment pursuant to Section 1(d) below) and $1,500,000 of the Cash Payment to
the Escrow Agent (hereinafter defined) to be held pursuant to the terms of the
Closing Escrow Agreement (hereinafter defined).
(c) Issuance of Flanders Shares After Closing. Provided that Eco-Air meets the
performance criteria set forth on Exhibit B, in addition to the Cash Payment,
Buyer shall issue to each Seller shares of Flanders Corporation common stock
(the "Flanders Shares") equivalent in value to the cash amount set forth on
Exhibit B in proportion to the respective share of each Seller to the total
purchase price, unless a Seller notifies Buyer in writing prior to the issuance
of such shares that such Seller elects to be paid the amount set forth on
Exhibit B in cash; in which case, Buyer shall pay to such Seller the Seller's
proportionate share of the cash amount set forth on Exhibit B. The above amounts
shall be paid over a five- year period based upon achievement of certain
performance criteria set forth on Exhibit B. The Flanders Shares shall be issued
and priced at the closing price of the Flanders common stock on Nasdaq on the
day Eco-Air achieves the performance criteria. Within seventy-five (75) days of
the close of each year in which the performance criteria is to be evaluated,
Buyer shall advise Sellers of the outcome of such performance and, if the
criteria has been met, of the right of election of each Seller to the election
described herein. Each Seller shall have the right to request any information as
referenced in Section 3(f)(ii), below, which shall be immediately provided. Each
Seller shall have thirty (30) days in which to notify Buyer of his/her election
to receive cash hereunder. If notice of such election is not timely provided, it
will be presumed that such Seller has elected to receive Flanders Shares.
Payment shall be made within fifteen (15) days of the end of the thirty (30) day
period.
(d) Purchase Price Adjustment.
(i) General. As an adjustment to the purchase price, Buyer shall deduct from the
Cash Payment at Closing the amount, if any, by which Adjusted Base Capitalized
Net Income exceeds the Adjusted Final Capitalized Net Income; provided that no
such amount shall be payable unless the amounts set forth above exceed $100,000.
(ii) Definitions. The following terms, as used herein, have the following
meanings:
"Adjusted Base Capitalized Net Income" means the product of the Base Net Income
multiplied by five (5) and then reduced by the extraordinary year end bonus paid
to Leonard Fetcho.
"Adjusted Final Capitalized Net Income" means the product of Adjusted Closing
Net Income multiplied by five (5) and then reduced by the year end
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extraordinary bonus paid to Leonard Fetcho, if no notice of disagreement with
respect thereto is delivered by Sellers, or if such a notice of disagreement is
delivered, as resolved by the parties as described below.
"Adjusted Closing Net Income" means the net income of Eco-Air, before taxes and
before the year end bonus paid to Leonard Fetcho, as determined by an audit of
the books and accounts of Eco-Air by Flanders' independent auditors, as of the
close of business on March 31, 1998, determined in accordance with Generally
Accepted Accounting Principals ("GAAP") applied on a consistent basis,
increased by an add back of $1,435,207.
"Base Net Income" means $3,000,000, which amount represents the net income
before taxes of Eco-Air as set forth in its Statement of Income attached hereto
as Exhibit C adjusted to reflect the add back of the extraordinary bonus paid
at year end to Leonard Fetcho.
"Closing Balance Sheet" means a balance sheet for Eco-Air as of the Closing
date that fairly presents the financial position of Eco-Air as of the close of
business on the date immediately preceding the Closing date on a basis
consistent with the presentation in the Balance Sheet, and prepared in
accordance with GAAP. In the event of a conflict between the accounting
policies and procedures used in the preparation of the Balance Sheet and GAAP,
GAAP shall prevail.
"Closing Income Statement" means an Income Statement for Eco-Air as of March
31, 1998 that fairly presents the financial position of Eco-Air as at the close
of business on such date, in accordance with GAAP.
(iii) Preparation of Closing Balance Sheet. As promptly as practicable, Buyer
will cause the Closing Balance Sheet to be prepared by its independent auditors.
As promptly as practicable, but no later than the Closing date, Seller will
cause the Closing Balance Sheet to be delivered to Buyer.
(iv) Preparation of Income Statement. As promptly as practicable, Buyer will
cause its independent auditors to begin their audit of Eco-Air. As promptly as
practicable, but no later than the Closing date, Buyer will cause an income
statement showing the Adjusted Closing Net Income to be delivered to Sellers.
(v) Disagreement by Buyer. If Sellers disagree with Buyer's calculation of
Adjusted Closing Net Income, Sellers may, within five (5) days after delivery of
the documents referred to in Sections 1(d)(ii) and 1(d)(iv) above, deliver a
notice to Buyer disagreeing with such calculation and setting forth Sellers'
calculation of such amount. Any such notice of disagreement shall
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specify those items or amounts as to which Sellers disagree, and Sellers shall
be deemed to have agreed with all other items and amounts contained in the
Closing Income Statement and Closing Balance Sheet and the calculations of
Adjusted Closing Net Income delivered by Buyer pursuant hereto.
(vi) Dispute Resolution. If a notice of disagreement shall have been delivered
by Sellers pursuant to Section 1(d)(v), the parties shall, during the ten (10)
days following such delivery, use their best effort to reach agreement on the
disputed items or amounts in order to determine the amount of Adjusted Closing
Net Income. If the parties do not reach agreement, they shall promptly
thereafter cause a firm of independent nationally recognized accountants
mutually acceptable to Buyer and Sellers (the "Accounting Referee") promptly to
review this Agreement and the disputed items or amounts for the purpose of
calculating Adjusted Closing Net Income. The Accounting Referee shall deliver,
as promptly as practicable, a written report setting forth its calculation. Such
report shall be final and binding upon the parties. The cost of such report
shall be borne equally by Buyer and Sellers.
(vii) Cooperation. The parties agree that they will, and agree to cause their
respective independent accountants to, cooperate and assist in the preparation
of the Closing Income Statement and the calculation of the Adjusted Closing Net
Income, including, without limitation, the making available to the extent
necessary of books, records, work papers and personnel.
(viii) Time of Payment. Any adjustment pursuant to this Section 1(d) shall be
made (A) within ten (10) days after Buyer's delivery of the Closing Income
Statement and Closing Balance Sheet if no notice of disagreement with respect to
Adjusted Closing Net Income is delivered by Sellers, or (B) if a notice of
disagreement with respect to Adjusted Closing Net Income is so delivered, then
within ten (10) days after the earlier of (1) agreement of Buyer and Sellers
with respect to Adjusted Closing Net Income or (2) delivery of the calculation
of Adjusted Closing Net Income by the Accounting Referee.
(e) Employee Bonuses. Buyer agrees to cause Eco-Air to pay, within a reasonable
time after Closing, employee bonuses, to the extent Adjusted Base Capitalized
Net Income exceeds Three Million Dollars ($3,000,000), in an amount not to
exceed Fifty Thousand Dollars ($50,000).
2. Delivery.
(a) Delivery of Eco-Air Shares. At Closing, each Seller shall deliver to Buyer
certificates evidencing the Eco-Air Shares owned by Sellers immediately prior to
Closing, endorsed in blank, together with all necessary stock powers and
otherwise in proper form
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for transfer. Buyer shall not be obligated to purchase any of the Eco-Air Shares
unless ALL such Shares are delivered at Closing.
(b) Delivery of Cash Payment. At Closing, Buyer shall deliver to Sellers an
aggregate amount of Thirteen Million Dollars ($13,000,000), as follows: Eleven
Million Five Hundred Thousand Dollars ($11,500,000), as such amount may be
adjusted pursuant to Section 1(d) above, shall be delivered in the form of a
cashiers check or by wire transfer to the bank accounts of the Sellers, as the
Sellers shall direct, and One Million Five Hundred Thousand Dollars ($1,500,000)
(the "Escrowed Funds") shall be delivered to Treitler & Montisano as Escrow
Agent (the "Escrow Agent") in accordance with the Closing Escrow Agreement
attached hereto as Exhibit D (the "Closing Escrow Agreement"). Escrow Agent
shall hold Seven Hundred Fifty Thousand Dollars ($750,000) of the Escrowed Funds
for a period of six months from the date of Closing and Seven Hundred Fifty
Thousand Dollars ($750,000) of the Escrowed Funds for a period of one year from
the date of Closing to satisfy any right of indemnification as provided in
Section 8 below. At the end of each period, the Escrow Agent shall distribute
such Escrowed Funds to Sellers unless Buyer has delivered to Escrow Agent and
the Sellers a full, written report of the basis for any retention of the sales
price as set forth herein, including copies of relevant documents.
(c) Liabilities. Buyer shall not assume any state or federal tax liability of
any Eco-Air Shareholder. All shareholder notes payable or other amounts owed by
Eco-Air to any of the Sellers shall be canceled prior to or at Closing, except
obligations owing to William O'Brien as shown on the books of Eco-Air, which
shall be paid at Closing, and obligations outstanding to Carl Deilgat pursuant
to the Deilgat Stock Purchase Agreement.
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 as of the date hereof:
(a) Ownership of Eco-Air Shares. Such Seller, other than the Trustees of the
Eco-Air 401(k) Employee Stock Ownership Plan and Trust, owns, beneficially and
of record, and the Trustees own of record for the benefit of the participants in
the Eco-Air 401(k) Employee Stock Ownership Plan and Trust, the number of
Eco-Air 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 Eco-Air Shares
represent all of the issued and outstanding shares of capital stock and equity
securities of Eco-Air and Sub- Mex, except for the C. Deilgat Shares and the
Sub-Mex shares held by Eco-Air. All Eco-Air Shares are duly authorized, validly
issued, fully paid and nonassessable and have, in the hands of the Sellers, and
will have in the hands of Buyer, all the rights, privileges and preferences
ordinarily accorded to owners of the Eco-Air common stock.
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(b) Authority. Such Seller now has and will have, at the Closing, full power,
authority and legal right to sell such Seller's Eco-Air 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 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, 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 the application of
principles of public policy underlying any such laws and regulations.
(c) Compliance with Law. Assuming receipt of Federal Trade Commission ("FTC")
approval of compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act"), the consummation of the transactions contemplated hereby
will be in compliance with all applicable laws, rules, regulations 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 as such affect the obligations of Sellers to this transaction.
(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 Eco-Air.
(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,
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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) Such Seller is acquiring the Flanders Shares, if any, for Seller's own
account and not as a fiduciary for any other person, except for the Trustees of
the Eco-Air 401(k) Employee Stock Ownership Plan and Trust who are acquiring the
Flanders Shares on behalf of the plan participants. Such Seller is acquiring the
Flanders Shares 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 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) 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 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.
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(h) Indemnification. The representations, warranties and agreements of Sellers
contained in this Section 3 shall be enforced, if at all, as a matter of
Sellers' indemnity of Buyer. The rights and remedies of Buyer shall be
exclusively those set forth in Section 8, below, and subject to the limitations
of Section 8(c), including threshold damage amounts and notice requirements.
Buyer hereby waives any right of action for breach of contract, breach of
warranty or failure to fulfill any agreement or covenant contained in this
Section 3 except as asserted for indemnification purposes pursuant to Section 8
and agrees that Section 8 shall control any claim for such breach.
4. Representations and Warranties Concerning Eco-Air and Sub-Mex. To further
induce Buyer to enter into this Agreement, the Sellers represent and warrant to
Buyer that the following statements concerning the affairs of Eco-Air and Sub-
Mex are true, correct and complete as of the date hereof:
(a) Organization, Standing and Qualification.
(i) Eco-Air is duly organized, validly existing and in good standing under the
laws of the State of California 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. Eco-Air has duly filed any and all certificates and reports required
to be filed to date by the laws of California and any other applicable law.
Eco-Air 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. Eco-Air is not in default in any material respect
under any of such franchises, permits, licenses or other similar authority.
(ii) Sub-Mex is a corporation duly organized, validly existing and in good
standing under the laws of Mexico. Sub-Mex has all requisite corporate power and
authority, licenses, permits and franchises to own, lease and operate its
properties and assets in Tijuana, Mexico, and to carry on its business as
currently conducted in Tijuana, Mexico. Sub-Mex operates as an inbound
manufacturing corporation, and the Sub-Mex inventory and other tangible moveable
assets have been temporarily imported into Mexico under the In-Bond
Manufacturing Program of Mexico (commonly known as the "Maquiladora Program").
Sub-Mex has duly filed any and all certificates and reports required to be filed
to date by the laws of the Republic of Mexico and any other applicable law.
Sub-Mex 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. Sub-Mex is not in default in any material respect
under any of such franchises, permits, licenses or other similar authority.
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(b) Capitalization. As of the date of Closing, the authorized capital stock of
Eco-Air consists of 2,500 shares of common stock, no par value, of which
879.5688 shares are issued and outstanding. The authorized capital stock of
Sub-Mex consists of 1,000 ordinary shares with a nominal value of One Dollar
($1.00) per share all of which are issued and outstanding, and all of which are
permitted to be held by non-Mexican nationals. All of the outstanding shares of
common stock of Eco-Air and Sub- Mex were duly authorized and validly issued and
are fully paid and nonassessable. Neither Eco-Air nor Sub-Mex have any 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 Eco-Air or Sub-Mex common stock or other securities. No holder of
any Eco-Air or Sub-Mex security is entitled to any preemptive or similar rights
to purchase any Eco- Air securities.
(c) Subsidiaries. Other than the ownership of Sub-Mex, and except as set forth
in Schedule 4(c), Eco-Air has no subsidiaries and no other investment in any
entity. Eco-Air 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 Eco-Air
and Sub-Mex are in good order, complete, accurate and up to date, and with all
necessary signatures, and set forth all stock and securities issued, transferred
and surrendered except for Certificate No. 4 for one (1) share issued to Andrew
W. Willis on April 6, 1971, and Certificate No. 7 for one (1) share issued to
Valerie and Carl Deilgat on May 7, 1971, which certificates have been canceled
but not surrendered. No duplicate certificate has been issued at any time
heretofore. Except as noted above, 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
Eco-Air and Sub-Mex are in good order, substantially 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 Eco-Air'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. Neither Eco-Air nor Sub-Mex is in default under or in violation
of any provisions of their corporate organizational documents or any
restriction, lien, encumbrance, indenture, contract, lease, sublease, loan
agreement, note or other obligation or liability relating to their business.
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(g) No Conflict. Except as set forth in 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 Eco-Air or the
organizational documents of Sub-Mex or 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 Eco-Air or Sub-Mex is a party or
by which either company is bound, or to which any of their assets are subject,
or result in the creation of any lien or encumbrance upon such assets.
(h) Consents and Approvals. The execution, delivery and performance of this
Agreement by Sellers and the consummation of the transactions contemplated
hereby do not require Eco-Air, Sub-Mex 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 Eco-Air's business or financial condition, (iii) any
filings required under the Securities Act, or any applicable state securities
laws, and (iv) the notification requirements of the HSR Act.
(i) Related-Party Transactions. Except as set forth in Schedule 4(i), no
employee, officer, or director of Eco-Air or Sub-Mex or member of his or her
immediate family is indebted to Eco-Air or Sub-Mex, nor is Eco-Air or Sub-Mex
indebted (or committed to make loans or extend or guarantee credit) to any of
such individuals. To the best of the Sellers' knowledge, none of such
individuals has any direct or indirect ownership interest in any firm or
corporation with which Eco-Air or Sub-Mex is affiliated or with which Eco-Air or
Sub-Mex has a business relationship, or any firm or corporation that competes
with Eco-Air or Sub-Mex, except that employees, officers, or directors of
Eco-Air or Sub-Mex and members of their immediate families may own stock in
publicly traded companies that may compete with Eco- Air or Sub-Mex. No member
of the immediate family of any officer or director of Eco-Air or Sub-Mex is
directly or indirectly interested in any material contract with Eco-Air or
Sub-Mex, except as disclosed herein and on Schedule 4(i).
(j) Safety Laws. Neither Eco-Air nor Sub-Mex is in violation of any applicable
statute, law or regulation relating to occupational health and safety
(including, but not limited to OSHA and any similar state laws or Mexican law),
and to the best of Sellers' knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
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(k) Environmental Compliance.
(i) Definitions. As used in this Agreement:
(A) "Environmental Law" means any United States or Mexican 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. S. 9601, et seq.; the Resource Conservation and Recovery Act of 1976, 42
U.S.C. S. 6901, et seq.; the Toxic Substances Control Act of 1976, 15 U.S.C. S.
2601, et seq.; the Superfund Amendments and Reauthorization Act of 1986, Title
III, 42 U.S.C. S. 11001, et seq.; the Hazardous Materials Transportation Act, 49
U.S.C. S. 1801, et seq.; the Clean Air Act, 42 U.S.C. S. 7401, et seq.; the
Federal Water Pollution Control Act, 33 U.S.C. S. 1251, et seq.; the Safe
Drinking Water Act, 42 U.S.C. S. 300f, et seq.; the Solid Waste Disposal Act, 42
U.S.C. S. 3251, et seq.; and any other United States or Mexican 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:
(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
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(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, leased or occupied by Eco-Air or Sub-Mex (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. Eco-Air 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, and to Sellers' knowledge, have never been, any buried or
partially buried storage tanks located on the Property.
(C) Eco-Air 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.
(D) Eco-Air is not aware of any facts or circumstances which could give rise to
a violation of any Environmental Law.
(E) No environmental lien in favor of any governmental entity has attached to
any of the Property.
(iii) Archeological Matters. To the best of 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 the best of Sellers' knowledge, no part of the
Property is "critical habitat" as defined in the Federal Endangered
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Species Act, 16 U.S.C. S. 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.
(v) Remedial Work. If, as a result of acts or circumstances occurring or
existing prior to the Closing, any investigation, site monitoring, containment,
cleanup, removal, restoration or other remedial work of any kind or nature (the
"Remedial Work") is necessary under any Environmental Law or any judicial or
consent order, or by any governmental or non-governmental entity or person
because of, or in connection with, the violation or possible violation of any
Environmental Law, or the presence, suspected presence, release, or suspected
release of a Hazardous Substance in or into the air, soil, groundwater, or
surface water at, on, about, under or within the Property (or any portion
thereof), other than in compliance with applicable law, Buyer may elect to
terminate this Agreement without liability to either party, unless such Remedial
Work was known to Sellers, in which case Buyer may elect to require that Sellers
will promptly commence, or cause to be commenced, and thereafter diligently
prosecute to completion, all such Remedial Work unless Buyer elects to perform
the Remedial Work itself. All Remedial Work will be performed by one or more
contractors and/or consulting engineers, approved in advance in writing by Buyer
and under the supervision of one or more consulting engineers approved in
advance in writing by Buyer. All costs and expenses of such Remedial Work,
whether undertaken by Buyer or Sellers, will be paid by Sellers including,
without limitation, the charges of such contractors and the consulting
engineers, and Buyer's reasonable fees and costs, including attorneys' fees
incurred in connection with monitoring or review of such Remedial Work. Unless
Buyer has elected to perform the Remedial Work, if Sellers fail to timely
commence, or cause to be commenced, or fail to diligently prosecute to
completion, such Remedial Work, Buyer may, but will not be required to, cause
such Remedial Work to be performed and all costs and expenses thereof, or
incurred in connection therewith, shall be paid by Sellers. In connection with
any claim by Buyer for Remedial Work to be done under this paragraph, or for any
reimbursement for work so done by Buyer, Buyer must demonstrate by a
preponderance of evidence that the act or circumstance requiring such Remedial
Work occurred prior to Closing.
(vi) Environmental Indemnity. In addition to the indemnity contained in Section
8 hereof, but subject to the limitations therein, each Seller will indemnify and
hold harmless Buyer for, from, and against any and all damages, losses, claims,
deficiencies, liabilities, costs and expenses, including Remedial Work and
attorneys' fees (collectively "Claims") directly or indirectly arising out of or
attributable to any breach of the representations and warranties set forth in
this Section 4(k), except that the liability of Sellers for the representations
and warranties of Section 4(k)(ii)(A), above, shall be limited to Hazardous
Substances
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originating during the occupancy of Eco-Air or Sub-Mex on the portion of the
Property affected.
(A) For the purposes of this Environmental Indemnity Section only, and
notwithstanding the amounts set forth in Section 8(c)(i), Sellers shall not be
liable to Buyer for the first $25,000 of Claims related hereto.
(B) This indemnification obligation includes, without limitation (i) all
consequential damages; and (ii) the costs of any required or necessary
investigation, analyses, repair, cleanup, detoxification, testing or monitoring
of the Property and the preparation and implementation of any closure, remedial,
or other required plans. This indemnity shall survive the Closing or the
cancellation of this Agreement and shall continue thereafter so long as Buyer is
subject to any possible claim or threatened, pending, or completed action, suit
or proceeding, whether civil, criminal, or investigative, regarding the health,
industrial hygiene, or environmental conditions on, under, or about the Property
and included within the coverage of this Section 4(k)(vi); provided, however,
Buyer and its affiliated companies shall take full advantage of any fund or
insurance that may reduce the damage to Buyer and that Buyer shall take
reasonable action to mitigate its damages.
(l) Compliance With Law. To the best of Sellers' knowledge, none of the
directors, officers, fiduciaries, agents or employees of Eco-Air or Sub-Mex is
in material violation of any applicable law, rule, regulation or requirement of
any governmental authority in any way relating to the business of Eco-Air or
Sub-Mex. Upon receipt of FTC approval under the HSR Act, consummation of the
transactions contemplated hereby, will not violate laws, rules, regulations or
requirements applicable to Eco-Air or Sub-Mex of any governmental authorities,
nor will consummation of such transactions require any license or permit or
other action or permission in the nature thereof, or any registration with, or
consent of, any governmental authority.
(m) Financial Statements. The audited financial statements of Eco-Air and
Sub-Mex for the periods ending March 31, 1996 and March 31, 1997, attached
hereto as Schedule 4(m) (the March 31, 1998 audited financial statements will be
attached at Closing) (collectively the "Financial Statements"), are correct and
complete and fairly present in all material respects the financial condition and
the results of operations, changes in stockholders' equity, and cash flow of
Eco-Air and Sub-Mex as of the dates described therein, all in accordance with
GAAP consistently applied. The books and records of Eco-Air are complete in all
material respects and are in an auditable condition such that a complete audit
of Eco-Air and Sub-Mex can be performed as of the Closing without unreasonable
cost or expense.
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(n) Properties and Assets. Unless under Two Thousand Dollars ($2,000), or except
as set forth in Schedule 4(n), the properties and assets presently owned by
Eco-Air and Sub-Mex and shown on the respective books and records 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 Eco-Air and
Sub-Mex and necessary to the conduct of its business as presently conducted.
Eco-Air and Sub-Mex have good and indefeasible title 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,
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 Eco-Air and
Sub-Mex 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 Eco-Air and Sub-Mex. The assets of Eco-Air and Sub-Mex on the
Closing date shall include all of the assets described hereinabove or otherwise
reflected on the Financial Statements, adjusted only for inventory and other
assets acquired or disposed of in the ordinary course of business after March
31, 1998, and before the Closing date.
(o) Accounts Receivable. All accounts receivable of Eco-Air that are reflected
on the latest Financial Statements or on the accounting records of Eco-Air as of
Closing (collectively, the "Accounts Receivable") represent or will represent
valid obligations arising from sales actually made or services actually
performed in the ordinary course of business of Eco-Air. Unless paid prior to
Closing, the Accounts Receivable are or will be as of the Closing date current
and collectible net of the respective reserves shown on the latest Financial
Statements or on the accounting records of Eco-Air, provided to Buyer as of the
Closing (which reserves are adequate and calculated consistent with past
practice and, in the case of the reserve as of Closing, will not represent a
greater percentage of the Accounts Receivable as of the Closing than the reserve
reflected in the latest Financial Statements and will not represent a material
adverse change in the composition of such Accounts Receivable in terms of
aging). Subject to such reserves, one hundred percent (100%) of the Accounts
Receivable either have been or will be collected in full, without any set-off,
not later than one hundred fifty (150) days after the day on which they first
become due and payable. There is no contest, claim, or right of set-off, other
than returns in the ordinary course of business, under any contract with any
obligor of an Accounts Receivable relating to the amount or validity of such
Accounts Receivable. Schedule 4(o) contains a complete and accurate list of all
Accounts Receivable as of the date of the latest Financial Statements, which
list sets forth the aging of such Accounts Receivable. In the event a claim is
made for indemnity based on this Section 4(o), upon payment by Sellers for such
claim, Buyer and Eco-Air shall immediately assign all rights to Sellers in and
to the accounts which are the basis for the claim with the rights to sue or
otherwise act to collect such accounts.
(p) Leases. Eco-Air and Sub-Mex enjoy exclusive, peaceful and undisturbed
possession under all equipment, real property, personal property, or other
leases to which
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they are a party. All such leases are identified in the books and schedules of
Eco-Air, are valid and enforceable against Eco-Air and Sub-Mex in accordance
with their terms, and no party thereto is in default thereunder.
(q) Inventory. All inventory of Eco-Air and Sub-Mex, whether or not reflected
in the Financial Statements, consists of a quality and quantity usable and
salable in the ordinary course of business, except for obsolete items and
items of below-standard quality, all of which have been written off or
written down to net realizable value in the Financial Statements or on the
accounting records of Eco-Air and Sub-Mex as of Closing, as the case may be.
All inventories not written off have been priced at the lower of cost or
market on a first in, first out basis. The quantities of each item of
inventory (whether raw materials, work-in-process, or finished goods) are
not excessive, but are reasonable in the present circumstances of Eco-Air
and Sub-Mex.
(r) Intellectual Property. Eco-Air owns all copyrights, rights of reproduction,
trademarks, trade names, trademark applications, service marks, patent
applications, patents, and patent license rights necessary to the operation of
its business, although Eco-Air has not acquired by license or registration any
of the foregoing. Eco-Air has full rights of use for all unregistered trademarks
and service marks in connection with the goods and services identified by such
marks and the use of such marks in connection with its goods and services does
not infringe on any third party rights in any market area where Eco-Air has
conducted business. Eco-Air also 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 as
presently conducted (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, and no claim
is pending or, to the best knowledge of the Seller and Eco-Air, threatened to
the effect that the operations of Eco-Air 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). No
claim is pending or, to the best knowledge of Seller and Eco-Air, threatened to
the effect that any such Proprietary Rights owned or licensed by Eco-Air, or
which Eco-Air otherwise has the right to use, is invalid or unenforceable by
Eco-Air, and there is no reasonable basis for any such claim (whether or not
pending or threatened). All of the foregoing Proprietary Rights that are not in
the public domain stand solely in the name of Eco-Air and not in the name of any
stockholder, director, officer, agent, partner or employee or anyone else known
to Seller, and none of the same have any right, title, interest, restriction,
lien or encumbrance therein or thereon or thereto. Eco-Air 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 Eco-Air.
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(s) Material Contracts. Except as disclosed on Schedule 4(s), or as reflected in
the Financial Statements for the periods such were in effect, neither Eco-Air
nor Sub-Mex have any material obligations, contracts, commitments and
agreements, whether oral or written, to which Eco- Air is a party or by which
any of its assets are bound that are in existence as of the date hereof and are
material to Eco-Air or the operation of its business (the "Material Contracts").
As used in this Agreement, the term "Material Contracts" shall include, but not
be limited to, whether oral or written, all (i) contracts or commitments entered
into out of the ordinary course of business; (ii) bonus, incentive compensation,
pension, profit sharing, stock option, group insurance, medical reimbursement or
employee welfare or benefit plans of any nature whatsoever; (iii) collective
bargaining agreements or other contracts or commitments to or with labor unions
or other employee groups; (iv) leases, contracts, or commitments affecting
ownership of, title to, use of or any interest in real property, or any leases
or similar arrangements for use by Eco-Air of personal property involving
payments in excess of $15,000 per annum; (v) bank credit, factoring and loan
agreements, promissory notes and other documents representing indebtedness for
borrowed money, together with any other agreements or instruments securing or
otherwise pertaining to the obligations evidenced thereby; (vi) guarantees by
Eco-Air of the obligations of any other person; and (vii) covenants not to
compete given or received by Eco-Air, any shareholders of Eco-Air or Sub-Mex
which in any way related to the business of Eco-Air.
(t) No Undisclosed Liabilities. There are no material liabilities or obligations
of Eco-Air or Sub-Mex, 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 the 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 $5,000
individually or $25,000 in the aggregate.
(u) Litigation. Except as set forth in Schedule 4(u), there are no suits or
proceedings at law or in equity, or before or by any governmental agency or
arbitrator of which a Seller or Eco-Air has received notice, pending, or to
Sellers' knowledge, threatened, anticipated or contemplated, which, if decided
against Eco-Air or Sub-Mex, 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 Eco-Air or Sub-Mex or
their properties or assets or to which it is or may become a party. There are no
claims against Eco-Air or Sub-Mex of which a Seller or Eco-Air has received
notice, 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. Sellers agree that they
shall indemnify Buyer for the litigation matters identified in Schedule 4(u),
including providing defense with San Diego counsel acceptable to the parties at
Sellers' cost, and such indemnification will not be subject to the limitations
for threshold damages set forth in Section 8(c)(i). In
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consideration of such indemnification, there shall be no purchase price
adjustment pursuant to Section 1(d) for such litigation matters.
(v) Taxes. (i) Each of Eco-Air and Sub-Mex has duly filed all United States and
Mexican federal, state, local and other tax returns and reports required to be
filed by it or them on or prior to the date hereof with respect to all taxes
withheld by or imposed upon it or them; (ii) all such returns or reports reflect
in all material respects the liability for such taxes of Eco-Air and Sub-Mex as
computed therein for the periods indicated, and all taxes shown on such returns
or reports and all assessments received by Eco- Air and Sub-Mex have been paid,
or fully reserved for, to the extent that such taxes have become due; (iii)
there are no waivers or agreements by Eco-Air or Sub-Mex 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 period through the date hereof for which
tax returns have not yet been filed, or for which taxes are not yet due or
owing, Eco-Air and Sub-Mex have made adequate reserves, determined in accordance
with GAAP (or its equivalent in Mexico), for all liabilities for taxes as set
forth in its financial statements. Neither Eco-Air nor Sub-Mex is presently the
subject of any tax audit by any taxing authority.
(w) Employment Contracts. Neither Eco-Air nor Sub- Mex have any written
contracts of employment with any of their shareholders, employees or sales
representatives, and no verbal contracts of employment which cannot be
terminated without default by Eco-Air or Sub-Mex on thirty (30) days notice,
except as disclosed in Section 4(s).
(x) Personnel Matters. As of the date of Closing, the employees of Eco-Air and
Sub-Mex shall only include the individuals listed in the documents made
available to Buyer in its due diligence and such individuals' respective accrued
vacation benefits consist of unpaid vacation and sick leave as booked by Eco-Air
according to such documents. Any and all severance benefits owed to terminated
employees have been paid in full by Eco- Air or Sub-Mex prior to Closing other
than the provisions of the Settlement Agreement dated May 5, 1993 with Carl
Deilgat and the Deilgat Stock Purchase Agreement.
(y) Employee Restrictions. To Sellers' knowledge, no employee of Eco-Air or
Sub-Mex 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 Eco-Air or Sub-Mex. Employees may be subject to trade secret
confidentiality agreements.
(z) Eco-Air Labor Matters. Eco-Air is a party to a collective bargaining
agreement dated December 1, 1995 between Eco-Air and Teamsters, Chauffeurs,
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Warehousemen & Helpers, Local No. 542, and is in compliance with all aspects of
such agreement.
(aa) Sub-Mex Labor Matters. Sub-Mex (i) is registered with the Mexican Institute
of Social Security and with the Worker's Housing Fund Institute and is current
with all dues, assessments and other payments required to be made by it, and
(ii) has made all contributions for retirement insurance on behalf of its
employees as required by Mexican law. Sub-Mex is in compliance with all federal
or state Mexican law respecting employment and employment practices, terms and
conditions of employment and wage and hour regulations, and is not engaged in
any unfair labor practice as determined under Mexican law.
(bb) Employee Benefit Plans.
(i) Identification. Schedule 4(bb) 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") or equivalent Mexican law) (A) sponsored by Eco-Air or Sub-Mex, (B) to
which Eco-Air or Sub-Mex contributes on behalf of its employees, (C) with
respect to which Eco-Air or Sub-Mex participates on behalf of its employees, or
(D) previously sponsored or contributed to by Eco-Air or Sub-Mex on behalf of
its employees within the three years (3) preceding the date hereof. Each of the
Employee Benefit Plans can be terminated or amended at will by Eco-Air or
Sub-Mex, with no unfunded liability. 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 applicable laws. No Employee Benefit Plan is currently
the subject of an audit, investigation, enforcement action or other similar
proceeding conducted by any governmental authority, except a request for a
letter of determination on the tax qualified status of the Eco-Air 401(k)
Employee Stock Ownership Plan and Trust, as amended, has been filed with the
Internal Revenue Service on January 5, 1998, and as of the date of this
Agreement is still pending. No prohibited transactions (within the meaning of
Section 4975 of the Internal Revenue Code or equivalent Mexican law or
regulation) have occurred with respect to any Employee Benefit Plan, except for
the purchase of shares by the ESOP from Carl Deilgat which is an exempt
prohibited transaction under IRC Section 4975(d). 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.
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(iii) Qualification. A favorable determination letter or ruling has been
received from the Internal Revenue Service as to the current qualified status of
each Employee Benefit Plan of Eco-Air intended to be qualified within the
meaning of Section 401(a) of the Internal Revenue Code and/or tax-exempt within
the meaning of Section 501(a) of the Code, except a request for a letter of
determination on the tax qualified status of the Eco-Air 401(k) Employee Stock
Ownership Plan and Trust, as amended, has been filed with the Internal Revenue
Service on January 5, 1998, and as of the date of this Agreement is still
pending. No proceedings exist or, to Sellers' knowledge, have been threatened
against Eco-Air 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 or equivalent Mexican law or
regulation), whether waived or unwaived, exists with respect to any Employee
Benefit Plan. With respect to each Employee Benefit Plan of Eco-Air 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. With respect to each
Employee Benefit Plan of Eco-Air described in Section 501(c)(9) of the Internal
Revenue Code, the assets of such plan are at least equal in value to the benefit
liabilities under such plan as of the date hereof.
(v) Multi-employer Plans. Eco-Air 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 Eco-Air. 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. Neither Eco-Air nor Sub-Mex have any obligation or commitment to
provide medical, dental or life insurance benefits to or on behalf of any of
their employees who may retire or any of their former employees who have retired
from employment with Eco-Air or Sub-Mex, including those receiving disability
benefits other than as required by COBRA.
(cc) Sub-Mex Manufacturing. All manufacturing done by Sub-Mex is performed in a
free trade zone. There are no duties, levies, taxes or other charges due and
payable, or assessable, by reason of the exportation by Eco-Air, on a temporary
basis, to
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Sub-Mex of parts and materials for assembly and manufacture or by reason of the
delivery by Sub-Mex to Eco-Air of finished products and/or subassemblies, except
as set forth in the Financial Statements and except for the claim noted in
Schedule 4(u).
(dd) No Adverse Change. Since March 31, 1998, there has not been:
(i) any material adverse change in the properties, assets, business, affairs,
material contracts or prospects of Eco-Air or Sub-Mex and, to Sellers'
knowledge, no such changes currently are threatened, anticipated or
contemplated;
(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 Eco-Air or Sub-Mex;
(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
Eco-Air or Sub-Mex, 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 Eco-Air or Sub-Mex 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
distribution by Eco-Air, although the parties are aware that a bonus has been
approved by the Eco-Air Board of Directors for Leonard Fetcho, which bonus has
been approved by Buyer and clerical bonuses as have been approved by Buyer in
the amount of $50,000.
(ee) Discrimination. Neither Eco-Air nor Sub-Mex have 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' best knowledge, Eco-Air 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, except as set forth in Schedule 4(u).
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(ff) Disputes and Charges. There are no existing or, to Sellers' best knowledge,
threatened disputes, grievances, harassment charges, controversies or other
employment or labor troubles affecting Eco-Air or Sub-Mex.
(gg) Certain Payments. Neither Eco-Air nor Sub-Mex, nor any director, officer,
agent or employee of Eco-Air or Sub-Mex, or to the best knowledge of Eco-Air,
Sub-Mex and Sellers, any other person associated with or acting for or on behalf
of Eco-Air or Sub-Mex, has directly or indirectly (i) made any contribution,
gift, bribe, rebate, payoff, influence payment, kickback, or other payment to
any person or entity, private or public, regardless of form, whether in money,
property, or services (A) to obtain favorable treatment in securing business,
(B) to pay for favorable treatment for business secured, (C) to obtain special
concessions or for special concessions already obtained, for or in respect of
Eco-Air or Sub-Mex, or (D) in violation of any legal rule or regulation, (ii)
established or maintained any fund or asset that has not been recorded in the
books and records of Eco- Air or Sub-Mex.
(hh) Adequacy of Information Systems; No Adverse Warranties. By the year ending
December 31, 1998, each component of the management information and operating
systems of Eco-Air and Sub-Mex relating to or supportive of either companies'
sales, accounting, inventory, distribution, and other material systems and
operations, including all hardware and software relating thereto (collective
"MIS Systems"), will be adequate to support the present business operations of
such companies. To the best of Sellers' knowledge, without limiting the
generality of the foregoing, the MIS Systems (i) include design, function, and
performance capabilities such that the MIS Systems will not abnormally end or
have invalid or incorrect results from and/or performance or functional
degradation because of the then-current date; (ii) design and function ensure
year 2000 functionality and include, without limitation, date data century
recognition, calculations that accommodate same century and multicentury
formulas and date values, and date data interface values that reflect the then
current century; and (iii) except as noted above, Sellers have been assured by
Eco-Air consultants that the systems will be or are otherwise year 2000 date
compliant with present capability to implement year 2000 century date conversion
without material additional cost or devotion of management, employees, or other
resources, and will suffer no material adverse disruption resulting from such
date conversion. Neither Eco-Air nor Sub-Mex has made or provided warranties or
guaranties, or other assurances express or implied, to any other person that any
products or services sold or provided by either company are year 2000 date
compliant in any respect or that the products or services will not or are not
likely to experience year 2000 century recognition or functionality
difficulties.
(ii) 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
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forth herein, or in any Exhibit hereto or certificate or other document
furnished in connection herewith.
(jj) Indemnification. The representations, warranties and agreements of Sellers
contained in this Section 4 shall be enforced, if at all, as a matter of
Sellers' indemnity of Buyer. The rights and remedies of Buyer shall be
exclusively those set forth in Section 8, below, and subject to the limitations
of Section 8(c), including threshold damage amounts and notice requirements.
Buyer hereby waives any right of action for breach of contract, breach of
warranty or failure to fulfill any agreement or covenant contained in this
Section 4 except as asserted for indemnification purposes under Section 8 and
agrees that Section 8 shall control any claim for such breach.
5. Representations, Warranties and Agreements of Buyer. Buyer represents and
warrants to and agrees with the Sellers that:
(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 Eco-Air 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, if any, 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
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rights, privileges and preferences accorded to all other holders of shares of
Flanders common stock.
(f) Cash Payment. Buyer currently has or has immediate access to sufficient
funds with which to pay the Cash Payment.
(g) Employment Contracts and Options. Buyer has full right, power and authority
to execute and deliver, and to perform its obligations under, each of the
employment contracts attached as Schedule 5(g) hereto (the "Employment
Contracts"). Each of the Employment Contracts 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 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,
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 the application of principles of public
policy underlying any such laws and regulations.
(h) Consents and Approvals. Assuming the receipt of FTC approval of compliance
with the HSR Act, 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 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, 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.
(i) Location of Business. It is Buyer's current intention that, for a period of
at least two (2) years following the Closing, Eco-Air will remain a separate
subsidiary corporation of Buyer and that the business and operations of Eco-Air
will continue to be conducted at its present location.
(j) Warranty of Good Faith. Buyer shall take no action that would impede or
hinder the ability of Eco-Air to meet the performance criteria of Section 1(c),
above, including but not limited to (i) reorganization of Eco-Air such that
Buyer or its affiliates obtain benefit from the Eco-Air entity to the detriment
of the Shareholders, (ii) assignment of Leonard Fetcho such that he cannot
contribute adequate leadership to give Eco- Air every opportunity to meet the
performance criteria, or (iii) any change in the
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executive management of Eco-Air which would have a negative impact on the
operations of Eco-Air, including but not limited to, the collection of accounts
receivable.
(k) Agreement of Buyer to Maintain Trust. On or prior to Closing, Eco-Air shall
execute an Amendment converting the Eco-Air 401(k) Employee Stock Ownership Plan
and Trust into the Eco-Air Profit Sharing Plan and Trust (the "Plan"). Such Plan
shall be "frozen" as of May 15, 1998. Notwithstanding the above, or anything
else in this Agreement to the contrary, Buyers agree that they shall maintain
the frozen Plan for a period of sixty-six (66) months from the date of Closing,
provided that all costs of such Plan shall be paid by the Plan and not Eco-Air.
Buyer agrees that no participant distributions shall be made from the Plan
representing proceeds from the sale of Eco-Air Shares sold by the Plan, prior to
the end of thirty-six (36) months from the date of the Closing, except as
required by the Internal Revenue Code and/or the Employee Retirement Income
Security Act of 1974, as amended, including, but not limited to, the
requirements of Section 401(a)(9) of the Internal Revenue Code relating to the
minimum required distributions. Buyer shall have no obligation to contribute to
the Plan, and shall be permitted to pay all reasonable and necessary expenses of
Plan administration from the Plan. Nothing contained in this paragraph shall
prevent the distribution of any other portion of the Plan, inclusive of employee
salary deferrals, company-matching contributions, and any other portion of a
participant's account, representing discretionary employer contributions, except
such portion of the participant's account represented by the proceeds from the
sale of the Eco-Air Shares provided for in this Agreement. After sixty-six (66)
months from the date of Closing has elapsed, the Buyer shall be permitted to
distribute in full the remaining account balances of the participants including
any additional consideration received by the Plan attributable to the sale of
Eco-Air Shares pursuant to this Agreement.
6. The Closing. Subject to the audit and the purchase price adjustments set
forth in Section 1(d) above, the closing of the purchase and sale of the Eco-Air
Shares shall take place at the offices of Buyer on the later to occur of May 15,
1998 or the date on which the parties receive FTC approval under the HSR Act, or
at such other time or place as shall be fixed by the mutual consent of the
parties (the "Closing").
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) All of the Sellers shall have executed and delivered the Closing Escrow
Agreement;
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(iii) Sellers shall have delivered to the Buyer the Eco-Air Shares;
(iv) Buyer's Board of Directors shall have approved the transactions
contemplated by this Agreement;
(v) Buyer, Seller, Eco-Air and Sub-Mex shall be in compliance with all
applicable laws, including without limitation, federal and state security laws;
(vi) No action or proceeding against Eco-Air or Sub-Mex shall have been
instituted before a court or other governmental body, or shall have been
threatened which, if successful, will prohibit the consummation or require
substantial rescission of the transactions contemplated by this Agreement;
(vii) Buyer shall have received copies of any necessary consents and approvals
of governmental agencies, lenders, lessors and other third parties, including
FTC approval under the HSR Act;
(viii) Since March 31, 1998, there shall have been no material change in the
financial condition, business or properties of Eco-Air which adversely affects
the conduct of its business as presently being conducted or the condition,
financial or otherwise, of Eco-Air and no additional substantial liabilities of
Eco-Air shall have been incurred except as noted herein;
(ix) Buyer, Seller, and Eco-Air shall have taken all corporate and shareholder
action necessary to authorize and consummate the transactions contemplated by
this Agreement;
(x) Buyer and Seller shall have received assurances satisfactory to each
regarding the tax, accounting and legal aspects of the proposed transaction;
(xi) All Sellers shall have canceled any notes payable from Eco-Air or Sub-Mex
to any Sellers or such Seller's affiliates, and Buyer shall be furnished with
written evidence thereof, except for the Promissory Note(s) dated October 24,
1996, in favor of the O'Brien Family Trust, which shall be paid by Eco-Air
contemporaneously with the Closing;
(xii) All notes or other debts of Sellers or their affiliates owed to Eco-Air or
Sub- Mex shall be paid contemporaneously with the Closing and Buyer shall be
furnished with written evidence thereof;
(xiii) Buyer shall have received written evidence of any and all loan(s) of
Eco-Air and Sub-Mex which are outstanding;
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(xiv) Buyer shall have received from Leonard Fetcho and William O'Brien fully
executed Employment Contracts in a form acceptable to the parties.
(xv) Sellers shall deliver to Buyer at Closing certificates of search of the
Uniform Commercial Code for filings against Eco-Air in standard form. Such
certificates shall show searches of filings with respect to Eco-Air and all
names under which Eco-Air has conducted its business, including any subsidiaries
thereof;
(xvi) 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 on May 7, 1998 and 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)(xvi) 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 Eco-Air's Financial Statements since March 31,
1998, except as noted herein, (C) that the representations and warranties set
forth in this Agreement are true and correct as of May 7, 1998 and as of
Closing, and (D) that neither Eco-Air 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 Eco-Air or to prevent Eco-Air or Sellers from continuing to
use Eco-Air assets or to conduct business in the manner as the same were used or
conducted prior thereto, except as provided herein and in Schedule 4(u);
(xvii) Buyer shall have received a legal opinion of Sellers' counsel in the form
set forth in Schedule 7(a)(xvii), dated as of the Closing date;
(xviii) Buyer shall have received summaries of the accounts payable and accounts
receivable of Eco-Air, dated not later than five (5) days prior to Closing and
not materially different from those dated March 31, 1998, except for changes
occurring in the ordinary course of Eco-Air's business;
(xix) Buyer shall have received the resignations of such directors and officers
of Eco-Air as Buyer shall request;
(xx) Buyer shall have approved the list of Eco-Air and Sub-Mex personnel and
their respective salaries;
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(xxi) Buyer shall have received a certificate, issued by the office of the
Secretary of State of the State of California as of a date not more than five
(5) business days before the Closing, stating that Eco-Air is in good standing
in the State of California;
(xxii) Sellers shall have executed and delivered such other documents,
instruments, certificates or agreements as shall be reasonably necessary to
consummate this transaction;
(xxiii) 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;
(xxiv) Sellers shall have completed (and delivered a copy to Buyer) a Phase 1
environmental survey or its Mexican equivalent for the Property, including but
not limited to, the properties located in San Diego, California, Hayward,
California, Santa Fe Springs, California, Phoenix, Arizona, and Mexico showing
such properties are free from any violation of any Environmental Laws or are
otherwise acceptable to Buyer before the disbursement of the Escrowed Funds;
(xxv) Valerie Deilgat and J.D. Deilgat shall have executed non-competition
agreements in substantially the form set forth in Schedule 7(a)(xxv);
(xxvi) Sellers shall have converted the Eco-Air Products, Inc. 401(k) Employee
Stock Ownership Plan and Trust Agreement into a profit sharing plan with no
contribution or funding obligation; and
(xxvii) Sellers shall have amended the collective bargaining agreement dated
December 1, 1995, between Eco-Air and Teamsters, Chauffeurs, Warehousemen &
Helpers, Local No. 542, to allow the union members to participate in Flanders
Corporation 401(k) Salary Savings Plan.
(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 executed and delivered the Closing Escrow Agreement;
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(iii) Buyer shall have executed Employment Contracts with Leonard Fetcho and
William O'Brien in a form acceptable to the parties;
(iv) Sellers shall have received a legal opinion of counsel to Buyer in the form
set forth in Schedule 7(b)(iv), 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;
(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 May 7, 1998 and as of the 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 on May 7, 1998 and 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; and
(ix) Buyer shall have caused Eco-Air to pay at the Closing the loans owed to
William O'Brien as provided herein.
8. Indemnification.
(a) General Indemnification Obligation of Each Seller. From and after the
Closing, each Seller will indemnify and hold harmless Buyer and its successors
and assigns (an "Indemnified Buyer Party") against and in respect of:
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(i) Damages. Any and all damages, losses, deficiencies, liabilities, costs and
expenses (collectively, "Damages") incurred or suffered by the Indemnified Party
that result from, relate to or arise out of:
(A) Any and all liabilities and obligations of Eco-Air of any nature whatsoever,
in existence as of the Closing, except for those liabilities and obligations of
Eco-Air set forth in the Financial Statements or schedules to this Agreement;
(B) Any and all actions, suits, claims or legal, administrative, arbitration,
governmental or other proceedings or investigations against an Indemnified Buyer
Party or Eco-Air that relate to a Seller or Eco-Air 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, Eco-Air, or
any director, officer, employee, agent, representative or subcontractor of
Eco-Air, except for those set forth in the Financial Statements or schedules to
this Agreement; or
(C) Any material misrepresentation, breach of warranty or nonfulfillment of any
agreement or covenant on the part of Seller under this Agreement, or from any
material misrepresentation in or omission from any certificate, schedule,
statement, document or instrument furnished to Buyer pursuant hereto; and
(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. 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:
(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 Section 8(b).
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(c) Limitation of Indemnity. Notwithstanding any provision in this Agreement to
the contrary, neither Buyer nor Sellers shall be liable to the other under this
Section 8 for:
(i) Dollar Amounts. Damages or Actions in an amount less than $10,000 in
connection with any claim hereunder relating to a single occurrence or event, or
for Damages or Actions in an aggregate amount less than $100,000 in connection
with all claims hereunder;
(ii) Failure of Notice. Any claim for which either party has not received a
Claim Notice (as defined below) from the other on or before a date three (3)
years following the Closing;
(iii) Amounts Previously Covered. Any reduction in the purchase price pursuant
to Section 1(d), to the extent the factors resulting in such reduction also
constituted a breach of a representation or warranty of Sellers of this
Agreement, but only to the extent of such reduction.
(d) Several Liability. Notwithstanding anything in this Agreement to the
contrary, in case of any liability hereunder, each Seller shall be liable in
proportion to the respective share of each Seller to the total purchase price
and only to the extent of consideration actually received by each such Seller.
(e) Method of Asserting Claims, Etc. In the event that any claim or demand is
asserted against or sought to be collected from any party hereto (an
"Indemnified Party") by a third party, the Indemnified Party shall promptly
notify the party from which indemnification is sought pursuant to Sections 8(a)
or 8(b) above (the "Indemnifying Party") of such claim or demand, specifying the
nature of such 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 Section 8(g) hereof. Pending the resolution of any dispute by
the Indemnifying
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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 for any other matter. 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 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
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the right of the indemnified party against any person, firm or corporation with
respect to the subject matter of such claim.
(g) Other Rights and Remedies Not Affected. The indemnification rights of the
parties under this Section 8 are the sole remedy for a breach of the
representations and warranties hereunder, but are independent of and in addition
to the rights and remedies as the parties may have at law or in equity or
otherwise for any failure to fulfill any agreement or covenant under any other
section of this Agreement, including, but not limited to, sections 9,10, 11 and
12 hereunder, on the part of any party hereto, including without limitation the
right to seek specific performance, none of which rights or remedies shall be
affected or diminished hereby.
9. Non-Disclosure and Non-Compete Covenants.
(a) Proprietary Information. Each Seller acknowledges that Seller's relationship
with Eco-Air 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 Eco-Air that relates to the business of
Eco-Air or to the business of any affiliate, customer, or supplier of Eco-Air
("Proprietary Information"). Such Proprietary Information includes, but is not
limited to, any information regarding inventions, 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 Eco-Air
which is not generally known to the public. Each Seller agrees that 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 Eco-Air, except as may be necessary to perform any duties Seller may
now or hereafter have as an employee of Eco-Air. Each Seller further agrees that
at the Closing hereunder, and subsequently upon request of Eco-Air or at the
time of the termination of the Seller's employment (if any) with Eco-Air, Seller
will deliver to Eco-Air only, and 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 Eco-Air's products, projects,
programs, or business of which the Seller had knowledge, or which contain any
Proprietary Information.
(b) Non-Compete Provisions.
(i) Each Seller hereby agrees that for the period of his or her employment with
Eco-Air, or Buyer or any of its affiliates, and for a period of two (2) years
thereafter, he/she will not, directly or indirectly, individually or in concert
with others, as promoter, shareholder, officer, director, employee, agent,
representative, independent contractor or otherwise:
33
<PAGE>
(A) Within any jurisdiction or marketing area in which Eco-Air or any subsidiary
thereof, is doing business, own, manage, operate or control any business of the
type and character engaged in and competitive with Eco-Air, or any subsidiary
thereof. For purposes of this paragraph, ownership of securities of not in
excess of five percent (5%) of any class of securities of a public company shall
not be considered to be competition with Eco-Air or any subsidiary thereof;
(B) Within any jurisdiction or marketing area in which Eco-Air or any subsidiary
thereof, is doing business, act as, or become employed as, an officer, director,
employee, consultant or agent of any business of the type and character engaged
in and competitive with Eco-Air, or any of its subsidiaries;
(C) Solicit the business of or sell any products to any company located within
any jurisdiction or marketing area in which Eco-Air or any subsidiary thereof is
doing business on behalf of any business of the type and character engaged in
and competitive with Eco-Air, any of its subsidiaries, which is, as the date
hereof, a customer or client of Eco-Air, or any subsidiaries of Eco-Air, or was
such a customer or client thereof within two (2) years prior to the date of this
Agreement; or
(D) Solicit the employment of, or hire, any full-time employee employed by
Eco-Air, or its subsidiaries.
(ii) As used in this Agreement, the term "affiliate" shall mean any individual,
joint venture, partnership, corporation, limited liability company, or
stockholder which controls, is controlled by, or is under common control with,
or the management and operations of which are substantially influenced by,
Buyer, or in which Buyer owns any interest, as required by the context of this
Agreement.
(iii) In addition to any other remedies available to Buyer hereunder or
otherwise, Buyer shall be entitled to seek injunctive relief for breach of the
foregoing covenant not to compete. In addition, each Seller subject to this
non-compete agreement, agrees to reimburse Buyer for all costs reasonably
incurred by Buyer in enforcing or attempting to enforce Buyer's rights under
this Agreement with respect to a breach by such Seller of this non-compete
provision, including without limitation, reasonable attorneys' fees.
(iv) The covenant not to compete found in this Section may be superseded by a
covenant not to compete found in any employment contract with a Seller.
34
<PAGE>
(e) 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 Eco-Air in the ordinary course of business. Eco- Air 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) Resignation of Directors. At Closing, Valerie Deilgat and William O'Brien
shall resign as directors of Eco-Air, and Valerie Deilgat shall resign as an
officer thereof. The remaining director, Leonard Fetcho, shall then appoint
Steven K. Clark and Robert R. Amerson to the board for the remaining terms of
Deilgat and O'Brien.
(c) 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 Eco-Air 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.
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 Eco-Air 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;
35
<PAGE>
(iii) By mutual written agreement of the parties;
(iv) If the Closing has not occurred by August 15, 1998.
(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.
12. Dispute Resolution.
(a) Mediation. Any claim, dispute, or controversy between the parties arising in
connection with or relating to this Agreement or the making, performance or
interpretation thereof shall, if not settled by negotiation, be submitted to
non-binding mediation under the Commercial Mediation Rules of the American
Arbitration Association then in effect. Any demand for mediation shall be made
in writing and served upon the other party in the same manner as otherwise
provided for notice in this Agreement. The demand shall set forth with
reasonable specificity the basis of the dispute and the performance or relief
sought. The parties shall, within thirty (30) days of receipt of a demand to
mediate, confer and select a mediator. The mediation shall take place at a time
and location in Carson City, Nevada mutually agreeable to the parties and the
mediator, but not later than sixty (60) days after a demand for mediation is
received.
(b) Arbitration. All disputes under this Agreement shall be settled by
arbitration in Carson City, Nevada 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 Agreement. The arbitrator(s) shall
be selected by the joint agreement of Seller 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. (Arbitration shall be pursuant to California Code of Civil Procedure
Section 1281, et seq., including, but not limited to, Section 1283.05, which
provisions are incorporated herein and made applicable to this Agreement.) 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 or any defense or objection thereto was unreasonable,
the arbitrator may assess, as part of his award, all or any part of the
arbitration expenses of the other party (including reasonable attorneys' fees)
and of the arbitrator against the party
36
<PAGE>
raising such unreasonable claim, defense or objection. Nothing contained in this
paragraph shall prevent the parties from settling any dispute by mutual
agreement at any time.
13. Miscellaneous.
(a) Attorneys' Fees. In any action, arbitration 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. 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 13(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 attorneys' fees) to the extent that the same arise or
result from such finder's fee or broker's commission.
(c) Expenses. Each of the parties hereto will bear its own legal fees and other
expenses in connection with the transactions contemplated by this Agreement. The
Sellers' legal fees include, but are not limited to, fees from Fischbeck &
Oberndorfer, Treitler & Montisano, Duckor Spradling & Metzger and Hinchy Witte
Wood Anderson & Hodges.
(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 following the Closing for a period
of three (3) years.
(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
37
<PAGE>
straight telegram, telegraphic charges prepaid, or by facsimile if confirmed
receipt, or upon receipt if delivered personally, as follows:
To Sellers: At the addresses set forth in Exhibit A hereto
with simultaneous copy to:
Fischbeck & Oberndorfer, APC
5464 Grossmont Ctr. Dr., Suite 300
La Mesa, CA 91942
Attn: William L. Fischbeck
Facsimile: (619) 464-1200
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, Esq.
Telecopier: (801) 237-1950
except that any of the foregoing may from time to time by written notice to the
others designate another address which shall thereupon become its effective
address for the purposes of this Section.
(g) 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. Buyer acknowledges that no person
is authorized by Sellers, or any of them, to have made any representation or
warranty about any matter, fact or thing except as set forth in the documents
referenced herein.
38
<PAGE>
(h) 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.
(i) 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.
(j) Governing Law. This Agreement shall be governed by the laws of the State of
California.
(k) Gender and Number, etc. All words or terms used in this Agreement,
regardless of the number or gender in which they are used, shall be deemed to
include any other number and any other gender as the context may require.
"Hereof," "herein," and "hereunder" and words of similar import shall be
construed to refer to this Agreement as a whole, and not to any particular
paragraph or provisions, unless expressly so stated.
(l) Successors and Assigns. This Agreement shall not be assignable by any party
without the prior written consent of all other parties hereto; provided,
however, any Seller may assign for any purposes such Seller's right to receive
consideration, provided such assignment is subject to any defenses of Buyer.
Subject to the foregoing, this Agreement shall be binding upon and inure to the
benefit of the respective successors and assigns of the parties hereto.
(m) No Third Party Beneficiaries. Nothing herein expressed or implied is
intended to confer upon any person, other than the parties hereto or their
respective permitted assigns, successors, heirs and legal representatives, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
(n) No Partnership or Joint Venture. Notwithstanding anything to the contrary
contained herein, nothing contained herein shall be construed as creating a
partnership or joint venture relationship between the parties hereto, and the
parties hereto shall be deemed to have made any elections necessary under any
applicable law, rule or regulation to prevent their being considered or deemed
to be a partnership or joint venture.
39
<PAGE>
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:
Its:
SELLERS:
BENNETT EXCHANGE CORPORATION
By: /s/ Steven K. Clark
Its: ______________________________________
/s/ William O'Brien
William O'Brien
/s/ George S. Williams
George S. Williams
ECO-AIR 401(k) EMPLOYEE STOCK
IMPERIAL TRUST COMPANY OWNERSHIP PLAN
/s/ Vail Ring, V.P. /s/ Valerie B. Deilgat by
By: /s/ Cathy Leider W.M. Treitler, Attorney in Fact
By: Valerie D. Deilgat
Its: V.P. Member, ESOP Committee
ESOP Trustee
__________________________________________
By: William O'Brien
Member, ESOP Committee
40
<PAGE>
EXHIBIT A
Shareholder List of Eco-Air Products, Inc.
<TABLE>
<CAPTION>
Shares Purchase Price
Shareholder Name Address Owned Allocation
- ---------------- ------- ------ --------------
<S> <C> <C> <C>
William O'Brien 7645 Caminito 251 3,836,566
Avola
La Jolla, CA
92037
Bennett Exchange William B. Treitler, Esq. 389.5 5,953,556
Corporation Treitler & Montisano
3737 Camino Del Rio
South, Suite 109
San Diego, CA 92108
George S. Williams 1910 Shire Drive 10 152,851
El Cajon, CA 92019
Eco-Air 401(K) Imperial Trust Company 200 3,057,025
Employee Stock c/o Cathy Leider
Ownership Plan 201 N. Figureroa, Ste. 610
Los Angeles, CA 90012
------- -----------
850.50 $12,999,98
======= ===========
</TABLE>
Shareholder List of Sub-Mex
<TABLE>
<CAPTION>
Shares Purchase Price
Shareholder Name Address Owned Allocation
- ---------------- ------- ------ --------------
<S> <C> <C> <C>
William O'Brien 7645 Caminito Avola 1 1
La Jolla, CA 92037
Valerie B. Deilgat c/o Bennett Corporation 1 1
William B. Treitler, Esq.
Treitler & Montisano
3737 Camino Del Rio South,
Ste. 109
San Diego, CA 92108
------- -----------
2 2
======= ===========
</TABLE>
<PAGE>
EXHIBIT B
Performance Criteria
With respect to any period set forth below, upon Eco-Air attaining the gross
sales criteria set forth for such period (the "Performance Criteria"), Flanders
shall issue to Sellers shares of Flanders Corporation common stock equivalent in
value to one-third of $5,000,000, unless a Seller notifies Buyer in writing
prior to the issuance of such shares that such Seller elects to be paid in cash;
in which case, Buyer shall pay such Seller in cash. The Flanders Shares shall be
issued and priced at the closing price of Flanders' common stock on NASDAQ on
the day Eco-Air achieves the Performance Criteria for the period.
<TABLE>
<CAPTION>
Cash/Value of Shares
to be Issued if
Period Gross Sales Objective(1) Gross Sales Obtained
- ------ ------------------------ --------------------
<S> <C> <C>
Fiscal year ended March 31, 1999 $25,875,000 $1,666,667
Fiscal year ended March 31, 2000 $29,756,000 (2) $1,666,667
Fiscal year ended March 31, 2001 $34,219,000 (2) $1,666,667
</TABLE>
(1) Includes sales from SRI, Inc.'s Utah sales office
(2) Includes sales from SRI, Inc.'s Las Vegas sales office, if any
If the Performance Criteria is not reached for any period set forth above, the
Sellers may still earn the scheduled shares for such period if Eco-Air attains
the following gross sales criteria set forth for either of the following periods
(the "Substitute Performance Criteria").
<TABLE>
<CAPTION>
Period (1) (2) Gross Sales Objective
- -------------- ---------------------
<S> <C>
Fiscal year ended March 31, 2002 $37,000,000
Fiscal year ended March 31, 2003 $40,700,000
</TABLE>
(1) Includes sales from SRI, Inc.'s Utah sales office
(2) Includes sales from SRI, Inc.'s Las Vegas sales office, if any
<PAGE>
EXHIBIT C
Eco-Air Statement of Income
<PAGE>
ECO-AIR PRODUCTS, INC.
INCOME ESTIMATE
Fiscal Year Ended March 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Income at February 28, 1998 1,546,747
estimated March (74,194)
80% expensed items reclass as assets 22,556
consolidation of Seco (2-28-98) 69,684
------------
Total before adjustments 1,564,793
Add back owners 925,204
------------
Income adjusted for owners 2,489,997
Add back non-recurring costs
Carl Deilgat Prior Owner 23,012
Related party (DSO trucks) 24,000
Professional fees for owners 43,753
Victor Related party "retirement" 8,838
Len's prior years deferred comp 90,000
Higher interest notes to stockholders 2,400
------------
2,682,000
Add Back "investment in future" expenses
Setup cost for Singapore 90,000
Computer installation 150,000
Expansion of San Francisco 78,000
------------
Fully adjusted income before taxes 3,000,000
Base net income 3,000,000
</TABLE>
<PAGE>
EXHIBIT D
Closing Escrow Agreement
<PAGE>
CLOSING ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Agreement") is entered into as of this 7th day of
May, 1998, by and between FLANDERS CORPORATION ("Buyer"), the SHAREHOLDERS OF
ECO-AIR PRODUCTS, INC. ("Sellers") and TREITLER & MONTISANO ("Escrow Agent").
R E C I T A L S
WHEREAS, Buyer and Sellers have entered into a Stock Purchase Agreement, dated
May 7, 1998 (the "Stock Purchase Agreement"), for the purchase of all the issued
and outstanding capital stock of Eco-Air Products, Inc. ("Eco-Air"), except for
those shares owned by Carl Deilgat which are subject to a Stock Purchase
Agreement dated May 4, 1993 in favor of Eco-Air. Any term used herein not
otherwise defined shall have the meaning set forth in the Stock Purchase
Agreement;
WHEREAS, to facilitate the performance of the Stock Purchase Agreement, Buyer
shall deliver One Million Five Hundred Thousand Dollars ($1,500,000) into escrow
(the "Escrowed Funds") to be held by the Escrow Agent. The Escrow Agent has
agreed to hold and distribute the Escrowed Funds pursuant to the terms and
conditions set forth in this Agreement; and
WHEREAS, Buyer, Sellers and Escrow Agent desire to enter into this Agreement
upon the terms and conditions hereinafter contained.
NOW, THEREFORE, in consideration of the covenants and agreements contained in
this Agreement and in the Stock Purchase Agreement, the parties agree as
follows:
1. ESCROW AGENT. Buyer and Sellers hereby appoint and designate TREITLER &
MONTISANO to serve as Escrow Agent for the purposes set forth herein and Escrow
Agent accepts such appointment and designation.
2. ESTABLISHMENT OF ESCROW ACCOUNT. The Escrow Agent shall establish an escrow
account in the names of the Sellers (the "Escrow Account") in which to hold the
Escrowed Funds.
3. DELIVERY OF ESCROWED FUNDS. At Closing, or at such other time as the parties
may mutually agree, Buyer shall deliver to the Escrow Agent the Escrowed Funds.
During the term of this Agreement, the Escrow Agent shall take no action with
respect to the Escrowed Funds inconsistent with the terms of this Agreement, and
shall disburse the Escrowed Funds only as permitted by the provisions hereof.
4. INSTRUCTIONS TO ESCROW AGENT REGARDING DISBURSEMENT OF ESCROWED FUNDS. Escrow
Agent shall hold Seven Hundred Fifty Thousand Dollars
1
<PAGE>
($750,000) of the Escrowed Funds for a period of six months from the date of
Closing and Seven Hundred Fifty Thousand Dollars ($750,000) of the Escrowed
Funds for a period of one year from the date of Closing to satisfy any right of
indemnification as provided in Section 8 of the Stock Purchase Agreement. All
interest on the Escrowed Funds shall accrue to the benefit of Sellers. Escrow
Agent shall disburse the Escrowed Funds plus accrued interest at the respective
six months and one year anniversary dates unless Buyer has delivered to Escrow
Agent and the Sellers a full, written report of the basis for any retention of
the sales price as set forth in the Stock Purchase Agreement, including copies
of relevant documents.
5. ESCROW AGENT'S COMPENSATION AND EXPENSES. For its services hereunder, the
Escrow Agent shall be entitled to be reimbursed for all out of pocket expenses
incurred by it in connection with the performance of its duties under this
Agreement. The expenses of the Escrow Agent shall be paid by the Sellers.
6. ESCROW AGENT'S LIABILITY. The Escrow Agent shall not be liable for any error
of judgment or for any act done or omitted by it in good faith, or for anything
which the Escrow Agent may in good faith do or refrain from doing in connection
herewith, or for any negligence other than its gross negligence; no liability
shall be incurred by the Escrow Agent, if, in the event of any dispute or
questions as to its duties or obligations hereunder, it acts in accordance with
Paragraph 8. The Escrow Agent is authorized to act upon any document believed by
it to be genuine and to be signed by the proper parties and shall incur no
liability in so acting. Buyer and the Sellers shall jointly and severally
indemnify, defend and hold the Escrow Agent harmless from any and all loss,
damage, or liability, and all expenses (including without limitation, reasonable
attorney's fees and costs) incurred, arising out of, or in connection with, its
entering into or performing its duties pursuant to this Agreement, except to the
extent arising out of the gross negligence or bad faith of the Escrow Agent.
7. RESIGNATION OF ESCROW AGENT. The Escrow Agent may at any time resign and be
discharged of the escrow hereby created by giving written notice to the Buyer
and the Sellers, specifying the date upon which it desires that such resignation
take effect. Such resignation shall take effect on the date specified in such
notice, which shall be the earlier of: (i) five (5) days after giving such
notice; or (ii) the date upon which the successor to the Escrow Agent (the
"Successor Escrow Agent") shall have been chosen by the Buyer and the Sellers
and shall have accepted its appointment as such. Upon such acceptance, the
Escrowed Funds may be transferred to an escrow account, if necessary or
desirable, established by the Successor Escrow Agent pursuant to the provisions
of this Agreement. The Successor Escrow Agent shall administer the Escrowed
Funds and assume all other duties of the Escrow Agent as set forth in this
Agreement. If no Successor Escrow Agent shall have been appointed as of the
effective date of the resignation of the Escrow Agent as set forth above, the
Escrow Agent may petition a court of competent jurisdiction for the appointment
of a Successor Escrow Agent.
8. DISPUTES. In the event of a dispute concerning the subject matter of this
Agreement such that the Escrow Agent deems it necessary for its protection, the
Escrow Agent
2
<PAGE>
may (i) deposit the Escrowed Funds, together with any notices received by it,
into a court of competent jurisdiction until such time as a civil action shall
have been finally concluded determining any rights hereunder, (ii) appoint a new
escrow agent, provided such new agent agrees to be bound by the terms hereof, or
(iii) at its discretion at any time, commence a civil action to interplead any
conflicting demands to a court of competent jurisdiction to determine its rights
and the rights of Buyer and the Sellers.
9. NOTICES. All notices, demands and other communications pursuant to this
Agreement shall be in writing and shall be given to the Escrow Agent at 3737
Camino Del Rio South, Suite 109, San Diego, CA 92108. All notices, requests,
demands, other communications and deliveries pursuant to this Agreement shall be
made as follows:
If to Buyer: Flanders Corporation
531 Flanders Filters Road
Washington, NC 27889
Fax (919)946-4738
With a copy to: William C. Gibbs, Esq.
Snell & Wilmer, L.L.P.
111 East Broadway, Suite 900
Salt Lake City, Utah 84111
If to Sellers: The Shareholders of Eco-Air Products, Inc.
See Exhibit A
With a copy to: William Fischbeck, Esq.
Fischbeck & Oberndorfer
5464 Grossmont Center Drive, Suite 300
La Mesa, CA 91942
or to such other address as a party may have furnished to the others in writing.
Communications shall be effective only when received.
10. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
which together shall constitute one instrument.
11. BINDING EFFECT; GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada and shall be
binding upon and inure to the benefit of the parties and their successors and
assigns.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
hereof.
BUYER:
FLANDERS CORPORATION
a North Carolina corporation
By: /s/ Steven K. Clark
Its:
SELLERS:
IMPERIAL TRUST COMPANY, TRUSTEE BENNETT EXCHANGE CORPORATION
a California corporation
/s/ Vail D. Ling, V.P. /s/ William B. Treitler
/s/ Cathy Leider, V.P. By: William B. Treitler
Its: President
/s/ William O'Brien
William O'Brien
/s/ George S. Williams
George S. Williams
ECO-AIR 401(K) EMPLOYEE STOCK
OWNERSHIP PLAN
/s/ Valerie B. Deilgat,
by W.B. Treitler, Attorney in Fact
By: Valerie D. Deilgat
/s/ William O'Brien
By: William O'Brien
4
<PAGE>
ESCROW AGENT
Treitler & Montisano
/s/ William B. Treitler
By: William B. Treitler
Its: Partner
5
<PAGE>
EXHIBIT A
Shareholder List of Eco-Air Products, Inc.
Shareholder Name Address
- ---------------- -------
William O'Brien 7645 Caminito Avola
La Jolla, CA 92037
Bennett Exchange Corporation William B. Treitler, Esq.
Treitler & Montisano
3737 Camino Del Rio South,
Suite 109
San Diego, CA 92108
George S. Williams 1910 Shire Drive
El Cajon, CA 92019
Eco-Air 401(k) Imperial Trust Company
c/o Cathy Litghter
201 N. Figureroa, Ste. 610
Los Angeles, CA 90012
Shareholder List of Sub-Mex
Shareholder Name Address
- ---------------- -------
William O'Brien 7645 Caminito Avola
La Jolla, CA 92037
Valerie B. Deilgat c/o Bennett Corporation
William B. Treitler, Esq.
Treitler & Montisano
3737 Camino Del Rio South, Ste. 109
San Diego, CA 92108
6
<PAGE>
EXHIBIT 2.1.2
<PAGE>
AMENDMENT TO
STOCK PURCHASE AGREEMENT
THIS AMENDMENT TO STOCK PURCHASE AGREEMENT is entered into this 20th day of
May, 1998, by and between FLANDERS CORPORATION, a North Carolina corporation
("Buyer" or "Flanders") and the Shareholders of Eco-Air Products, Inc., a
California Corporation ("Eco-Air") which shall include BENNETT EXCHANGE
CORPORATION ("Bennett"), WILLIAM O'BRIEN ("O'Brien"), GEORGE S. WILLIAMS
("Williams") and IMPERIAL TRUST COMPANY as Trustee of the Eco-Air Products,
Inc. 401(K) Employee Stock Ownership Plan ("ESOP"), (Bennett, O'Brien, Williams
and ESOP collectively the "Sellers").
WHEREAS, the parties have or propose to enter into a Stock Purchase Agreement
(the "Agreement") pursuant to which substantially all of the outstanding stock
of Eco-Air (the "Shares") will be sold by the Sellers to Buyer.
WHEREAS, the ESOP is, in relevant part, an employee stock ownership plan which
is subject to the qualification, fiduciary duty and prohibited transaction
rules of the Internal Revenue Code ("Code") and the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
WHEREAS, counsel to Imperial Trust Company ("Imperial"), representing Imperial
in its capacity as trustee of the ESOP and not representing the ESOP itself,
has advised that the state of the law requires that Imperial perform certain
amounts of due diligence in connection with said transaction before it enters
into a binding contract for the sale of Shares to Buyer; and
NOW, THEREFORE, it is agreed as follows:
1. Section 7(b) of the Agreement is hereby amended by adding a new paragraph (x)
to read as follows:
"(x) Imperial and the ESOP shall have received on or prior to the date of
Closing an opinion from an independent appraise for the ESOP that the price to
be received by the ESOP for its Shares is not less than their fair market value,
and Imperial shall have made inquiries and, if it deems it necessary, obtained
such additional opinions as to permit it to conclude
<PAGE>
that the transaction is prudent and fair to the ESOP and its beneficiaries from
a financial point of view.
2. The additional condition of Section 7(b) is a condition to the Closing of the
transaction with respect to the Shares held by the ESOP and may not be waived by
anyone other than Imperial. Imperial shall be required to certify to the
satisfaction of said condition prior to the Closing of the sale of the Shares by
the ESOP.
3. The entirety of this document constitutes an amendment to the Agreement
which, except for the provisions hereof, shall continue in effect as written.
IN WITNESS WHEREOF, the parties have executed this Amendment to the Stock
Purchase Agreement on the 20th day of May, 1998.
ECO-AIR PRODUCTS, INC.
401(K) EMPLOYEE STOCK
OWNERSHIP PLAN
By: IMPERIAL TRUST COMPANY, solely
in its capacity as trustee of said Plan
and in no other capacity
/s/ Cathy Leider, V.P.
By /s/ Vail P. Ling, V.P.
FLANDERS CORPORATION BENNETT EXCHANGE CORPORATION
a North Carolina corporation
BY:/s/ Steven K. Clark By /s/ W. B. Treitler
Its: CFO
/s/ William O'Brien
William O'Brien
/s/ George S. Williams
George S. Williams
<PAGE>
EXHIBIT 2.1.3
<PAGE>
ECO-AIR PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
MARCH 31, 1998
<PAGE>
CONTENTS
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Consolidated balance sheet 2
Consolidated statement of operations 3
Consolidated statement of retained earnings 4
Consolidated statement of cash flows 5 - 6
Notes to consolidated financial statements 7 - 18
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Eco-Air Products, Inc.
San Diego, California
We have audited the accompanying consolidated balance sheet of Eco-Air Products,
Inc. and subsidiary as of March 31, 1998, and the related consolidated
statements of operations, retained earnings and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Eco-Air Products,
Inc. and subsidiary as of March 31, 1998, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
San Diego, California
May 20, 1998, except for the fourth paragraph of
Note 5 as to which the date is June 8, 199
1
<PAGE>
ECO-AIR PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
March 31, 1998
<TABLE>
<CAPTION>
ASSETS (Notes 5 and 6)
- ----------------------------------------------------
<S> <C>
Current Assets
Cash $ 124,460
Trade receivables, net of allowance for doubtful
accounts of $60,000 (Note 2) 2,782,899
Inventories, net (Note 3) 2,626,172
Prepaid and refundable income taxes 409,050
Prepaid expenses and other assets (Note 10) 69,682
Deferred taxes (Note 8) 175,000
-------------
Total current assets 6,187,263
Furniture, Equipment and Leasehold Improvements,
net (Note 4) 762,023
Deposits and Other Assets 70,522
-------------
$ 7,019,808
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------
Current Liabilities
Line of credit (Note 5) $ 1,300,000
Current maturities of long term debt (Note 6) 120,000
Related party debt (Note 6) 181,521
Accounts payable 1,019,724
Accrued expenses (Note 7) 2,712,921
-------------
Total current liabilities 5,334,166
-------------
Long-Term Liabilities
Deferred taxes (Note 8) 74,000
Deferred rent (Note 11) 88,524
Long-term debt, less current maturities (Note 6) 60,000
-------------
222,524
-------------
Commitments And Contingencies (Notes 10, 11 and 13)
Common Stock Subject to Repurchase, 29 shares
outstanding (Note 10) 36,895
-------------
Stockholders' Equity (Note 10)
Common stock, no par value; 2,500 shares
authorized; 850 shares issued and outstanding 8,503
Retained earnings 1,417,720
-------------
1,426,223
-------------
$ 7,019,808
=============
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
ECO-AIR PRODUCTS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1998
- ----------------------------------------------------
<S> <C>
Net sales (Note 2) $ 22,351,638
Cost of sales 13,834,523
-------------
Gross profit 8,517,115
-------------
Operating expenses:
Sales and marketing 4,843,287
General and administrative 3,781,951
Research and development 338,624
-------------
Total operating expenses 8,963,862
-------------
Operating loss (446,747)
Nonoperating income (expense)
Interest expense (Note 6) (177,704)
Insurance settlement 194,464
-------------
16,760
-------------
Loss before income taxes (429,987)
Income tax benefit (Note 8) (100,000)
-------------
Net loss $ (329,987)
=============
Basic and diluted loss per share $ (382.37)
=============
Weighted average common shares outstanding 863
=============
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
ECO-AIR PRODUCTS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
YEAR ENDED MARCH 31, 1998
- ----------------------------------------------------
<S> <C>
Balance, March 31, 1997 $ 1,747,707
Net loss (329,987)
-------------
Balance, March 31, 1998 $ 1,417,720
=============
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
ECO-AIR PRODUCTS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended March 31, 1998
- ----------------------------------------------------
<S> <C>
Cash Flows from Operating Activities
Net loss $ (329,987)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Loss on disposal of equipment 9,792
Depreciation and amortization 243,799
Deferred income taxes (51,000)
Changes in working capital components:
(Increase) decrease in:
Trade receivables 8,979
Prepaid and refundable income taxes (409,050)
Inventories (148,612)
Prepaid expenses and other assets 12,989
Increase (decrease) in:
Accounts payable 143,472
Accrued expenses 1,557,103
Income taxes payable (143,110)
-------------
Net cash provided by operating activities 894,375
-------------
Cash Flows from Investing Activities
Capital expenditures (222,981)
Increase in deposits and other assets 3,495
Advances to related parties (57,495)
-------------
Net cash used in investing activities (276,981)
-------------
</TABLE>
5
<PAGE>
ECO-AIR PRODUCTS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
Year Ended March 31, 1998
- ----------------------------------------------------
<S> <C>
Cash Flows from Financing Activities
Net payments on line of credit $ (130,000)
Principal payments on long term debt (372,159)
Payments to repurchase Company common stock (31,625)
-------------
Net cash used in financing activities (533,784)
-------------
Net increase in cash 83,610
Cash at beginning of year 40,850
-------------
Cash at end of year $ 124,460
=============
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest $ 184,584
=============
Income taxes $ 503,160
=============
Supplemental Schedule of Noncash Financing Activities
Interest on related party debt added to principal $ 28,746
=============
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
ECO-AIR PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies
Nature of business
Eco-Air Products, Inc. and subsidiary (the Company) is engaged in the business
of designing, manufacturing and selling air filtration equipment for commercial
and residential purposes. The Company has five distribution points; four
domestic distribution points located in California and Arizona and one
international distribution point located in Singapore. Manufacturing facilities
are located in California and in Tijuana, Mexico through a wholly- owned foreign
subsidiary, Industrias Seco de Tijuana, S.A. de C.V. ("Industrias Seco").
Industrias Seco produces products exclusively for the Company under the
Maquiladora Program that represented approximately 51% of the Company's total
products produced for the year ended March 31, 1998.
A summary of significant accounting policies follows:
Principles of consolidation
The accompanying consolidated financial statements include the accounts of the
above named businesses. All material intercompany balances and transactions have
been eliminated in consolidation. Industrias Seco utilizes a calendar year end,
while the Company utilizes a fiscal year ending March 31. The consolidated
financial statements have been adjusted to present the consolidated accounts as
of March 31, 1998.
Use of estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Financial instruments
Based on the borrowing rates currently available to the Company for bank loans
with similar maturities and similar collateral requirements, the fair value of
notes payable and long-term debt approximates the carrying amounts at March 31,
1998.
7
<PAGE>
ECO-AIR PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies (Continued)
Cash
The Company maintains its cash in bank deposits which, at times, may exceed
federally insured limits. The Company has not experienced any losses in such
accounts.
Revenues
The Company recognizes revenue in the month in which product is shipped. Sales
to international customers during the year ended March 31, 1998 were
approximately $480,000.
Inventories
Inventories are stated at the lower of cost (first-in, first-out ) or market.
During 1998, the Company changed from LIFO to the FIFO method. The change in
accounting principle was made to provide a better matching of revenue and
expenses. This accounting change was not material to the consolidated financial
statements on an annual basis, and accordingly, no retroactive restatement of
prior years' financial statements was made.
Furniture, equipment and leasehold improvements
Furniture, equipment and leasehold improvements are recorded at cost.
Depreciation is computed utilizing the straight-line method over the estimated
useful lives of the related assets, principally three to seven years. Leasehold
improvements are amortized on the straight-line basis over the lesser of the
term of the lease or the useful lives of the related improvements.
Foreign currency translation
The U.S. dollar is considered the functional currency for Industrias Seco.
Accordingly, the monetary assets and liabilities of this entity have been
remeasured using the current rate of exchange and nonmonetary assets have been
remeasured using the appropriate historical rates of exchange. Adjustments
resulting from the translation of the financial statements of the entity are
included in results of operations and are not significant.
The Mexican economy has experienced a cumulative inflation rate of approximately
125% over the three year period ended March 31, 1998 and is considered a highly
inflationary economy. Future devaluations of monetary assets and liabilities
located in Mexico could occur.
8
<PAGE>
ECO-AIR PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies (Continued)
Income taxes
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences, and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Industrias Seco is a Mexican corporation taxable under Mexican tax law.
Research and development costs
Research and development costs are charged to expense as incurred. The Company
is involved in activities which include continual development of new products
and improvement of existing products.
Advertising and promotion
Costs associated with advertising and promotion of products are expensed in the
year incurred. Advertising expense was approximately $57,000 for the year ended
March 31, 1998.
Earnings per share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), Earnings per Share. SFAS 128
establishes standards for computing and presenting earnings per share (EPS),
including replacing the presentation of primary EPS with a presentation of basic
EPS. SFAS 128 also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with a complex capital structure
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation. The
Company adopted SFAS 128 for its fiscal year ended March 31, 1998. SFAS 128 did
not have a material impact on the Company. The Company has no dilutive potential
common shares. Accordingly, the Company's presentation of diluted earnings per
share is the same as that of basic earnings per share for the year ended March
31, 1998.
Note 2. Concentrations and Credit Risk
The Company performs ongoing credit evaluation of its customers and does not
require collateral. The Company extends credit to certain customers, located
throughout the United States, Mexico, and Asia, generally on a net 30 day basis.
All sales are denominated in the U.S. dollar and provisions are made for
estimated uncollectible trade receivables as considered necessary. To date,
losses on trade receivables have been minimal in relation to the volume of sales
and have been within management's expectations.
9
<PAGE>
ECO-AIR PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 2. Concentrations and Credit Risk (Continued)
During the year ended and as of March 31, 1998, the Company's net sales and
accounts receivable included sales to and accounts receivable from a major
customer of approximately $2,328,000 and $193,000, respectively. Although there
are no long-term commitments with this customer, management expects the
relationships to continue.
Note 3. Inventories
Inventories at March 31, 1998 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Raw materials $ 1,508,660
Finished goods 1,137,512
Less provision for obsolete inventories (20,000)
-------------
$ 2,626,172
=============
</TABLE>
The carrying value of inventory located in Mexico at March 31, 1998, is
approximately $592,000, which consists primarily of raw materials.
Note 4. Furniture, Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements consist of the following at
March 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Machinery and equipment $ 2,189,900
Office furniture and equipment 571,778
Automobiles and trucks 139,860
Leasehold improvements 278,470
-------------
3,180,008
Less accumulated depreciation and amortization (2,417,985)
-------------
$ 762,023
=============
</TABLE>
Included in furniture, equipment, and leasehold improvements at March 31, 1998
are assets in service at Industrias Seco in Tijuana, Mexico with a cost of
$339,389 and a net book value of $56,344. Cost of assets located in Mexico but
reported on the U.S. parent financial statements and included in the total
amounts above is $303,308 with a net book value of $35,840.
10
<PAGE>
ECO-AIR PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 5. Line of Credit
The Company has a line of credit agreement with a bank which allows for advances
based on 80% of eligible accounts receivable up to a maximum of $2,500,000, of
which $1,300,000 was outstanding and $1,200,000 was available for borrowing at
March 31, 1998. Borrowings under this arrangement are collateralized by
substantially all of the Company's assets. Outstanding amounts on the line of
credit bear interest at the bank's prime rate (8.5% at March 31, 1998). The
Company may elect to fix the rate for any or all advances under this line of
credit agreement for a term of 30 to 90 days at the then current LIBOR rate (90
day LIBOR rate was 5.69% at March 31, 1998) plus 2.0%. The line of credit
agreement expires in August 1998.
In connection with this line of credit, as well as other obligations (Note 6),
the Company has agreed, among other things, to maintain certain consolidated
financial ratios and consolidated amounts relating to any fiscal year period,
including:
* a current ratio of not less than 1.0 to 1.0;
* a total debt to tangible net worth ratio not to exceed 2.75 to 1.0;
* a net profit, after provision for income taxes, of not less than
$50,000;
* a ratio of cash flow to debt service of not less than 1.5 to 1.0;
* capital expenditures not to exceed $500,000;
* new lease obligations resulting in aggregate lease payments not to
exceed $50,000.
The agreement also provides for certain covenants including restrictions on
loans or advances, investments in debt or equity securities, new indebtedness or
loans other than trade debt or loans incurred in the ordinary course of
business, paying dividends on Company stock other than those payable solely in
the Company's stock, purchasing or retiring any Company stock, or amending or
altering the Company's capital structure.
At March 31, 1998, the Company was not in compliance with certain debt
covenants. On June 8, 1998, the Company received a written waiver from the bank
for the covenant noncompliance.
The Company also has an additional $500,000 available to provide working capital
under the above agreement which will convert to a term loan as of August 1998.
There are no amounts outstanding under this option as of March 31, 1998
11
<PAGE>
ECO-AIR PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 6. Related Party and Long-Term Debt
Related party debt at March 31, 1998 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Unsecured note payable to related party, interest only at
prime plus .75% payable monthly, due in April 1998 (a) $ 141,413
Unsecured note payable to related party, interest only at 10%
payable quarterly, due in April 1998 (a) 35,000
Unsecured note payable to related party, bearing interest at
8%, due in monthly payments of $3,491 plus interest,
due in May 1998 (a) 5,108
-------------
$ 181,521
=============
</TABLE>
Long-term debt at March 31, 1998 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Note payable to a bank, due in monthly installments of
$10,000 plus interest at bank's prime rate plus .25%
through August 1999 (b) $ 180,000
Less current maturities 120,000
-------------
$ 60,000
=============
</TABLE>
(a) Interest expense on related party notes payable was approximately
$21,000 for the year ended March 31, 1998.
(b) Subject to the loan agreement covenants on line of credit (Note 5).
Note 7. Accrued Expenses
Accrued expenses consist of the following at March 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Payroll and related payroll taxes $ 333,662
Compensated absences 239,808
Bonuses payable (Note 9) 2,050,000
Deferred rent (Note 11) 27,097
Sales and use taxes 32,077
Other accrued expenses 30,277
-------------
$ 2,712,921
=============
</TABLE>
12
<PAGE>
ECO-AIR PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 8. Income Taxes
Deferred income taxes reflect the net tax effects of the temporary differences
between the carrying amount of assets and liabilities for financial reporting
and the amounts used for income tax purposes. Net deferred tax assets consist of
the following components as of March 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Deferred liabilities:
Property and equipment $ (68,000)
Other (6,000)
-------------
(74,000)
-------------
Deferred assets:
Payroll and related benefits 80,000
Deferred rent 46,000
Net operating loss carryforwards 18,000
Other 7,000
Allowance for doubtful accounts 24,000
-------------
175,000
-------------
Net deferred tax assets $ 101,000
=============
</TABLE>
Realization of deferred tax assets is dependent upon sufficient future taxable
income during the period that deductible temporary differences and carryforwards
are expected to be available to reduce taxable income. Based upon the Company's
historical levels of profitability, management believes achievement of required
future taxable income is likely. Accordingly, a valuation allowance has not been
recorded as of March 31, 1998. In the event the Company does not generate
sufficient future taxable income, the amount of deferred tax asserts will be
reduced.
The components giving rise to the net deferred tax assets and liabilities
described above have been included in the accompanying consolidated balance
sheet at March 31, 1998 as follows:
<TABLE>
<CAPTION>
<S> <C>
Current assets $ 175,000
Noncurrent liabilities (74,000)
-------------
$ 101,000
=============
</TABLE>
13
<PAGE>
ECO-AIR PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 8. Income Taxes (Continued)
The provision for income taxes charged to operations for the year ended March
31, 1998 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Current expense (benefit):
Domestic $ (99,000)
State 5,000
Foreign 45,000
-------------
(49,000)
-------------
Deferred:
Domestic (4,000)
State (47,000)
-------------
(51,000)
-------------
$ (100,000)
=============
</TABLE>
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate of 34% to pretax net income for the
year ended March 31, 1998 due to the following:
<TABLE>
<CAPTION>
<S> <C>
Computed "expected" tax benefit $ (146,000)
Increase (decrease) in income taxes resulting from:
Nondeductible expenses 21,000
State net operating loss carryforward (18,000)
Benefit of income tax at lower rates 82,000
Foreign income taxes (45,000)
Other 6,000
-------------
$ (100,000)
=============
</TABLE>
A provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of the Company's majority-owned foreign subsidiary. Those
earnings have been and will continue to be reinvested. These earnings could
become subject to additional tax if they were remitted as dividends, if foreign
earnings were lent to the Company or a U.S. affiliate or if the Company should
sell its stock in the subsidiary. It is not practicable to estimate the amount
of additional tax that might be payable on the foreign earnings; however,
management believes that U.S. foreign tax credits would largely eliminate any
U.S. tax and offset any foreign tax, the net effect of which is not considered
material.
As of March 31, 1998, the Company had available California net operating loss
carryforwards of approximately $200,000. The California net operating loss
carryforwards will expire in 2003, if not utilized. Utilization of the
California net operating loss carryforwards is subject to annual limitations
under the ownership change rules provided by the Internal Revenue Code.
14
<PAGE>
ECO-AIR PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 9. Deferred Compensation
The Company had a deferred compensation agreement with the President of the
Company which provided for future compensation based on the value of the
Company's stock. The Board of Directors approved a $2,000,000 discretionary
bonus in settlement of the agreement as of March 31, 1998. The bonus is included
in accrued expenses.
Note 10. Related Party Transactions
In addition to related party transactions discussed in other sections of the
financial statements, the Company has related party transactions as follows:
Related party receivables
Included in prepaid expenses and other assets at March 31, 1998 are amounts due
from related parties totaling $57,495. The amounts are unsecured, non-interest
bearing and are anticipated to be collected prior to March 31, 1999.
Related party leasing
The Company rents a warehouse facility from D.S.O. Leasing (a related party
partnership which leases principally to the Company) under an operating lease.
The facility lease is noncancelable and has been included in the schedule of
minimum lease commitments (Note 11). D.S.O. Leasing rental charges included in
total rent expense for the year ended March 31, 1998 was approximately $80,000.
The Company has guaranteed approximately $160,000 of the obligations of D.S.O.
Leasing. The debt agreement calls for monthly payments of $4,250 plus interest
through August 2002, at which time all unpaid principal and interest are due. No
material loss is anticipated under this guarantee.
Agreements with stockholders
Stock purchase agreement
On May 4, 1993, the Company entered into an agreement to purchase 149.5 shares
of the Company's common stock from a stockholder for approximately $189,750.
These shares are being purchased and retired by the Company ratably over 72
months beginning June 1, 1993, by payment of equal monthly installments of
$2,635, representing the repurchase of approximately 2.076 shares of Company
common stock per month. During the year ended March 31, 1998, the Company
repurchased 25 shares of common stock for a total of $31,625. The cumulative
number of shares purchased under this agreement as of March 31, 1998 was
approximately 121 shares of common stock.
Stockholders' equity
At March 31, 1998 there are 879 shares of common stock issued and outstanding
including 29 shares which remain outstanding under the stock repurchase
agreement.
15
<PAGE>
ECO-AIR PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 10. Related Party Transactions (Continued)
Consulting agreement
The Company also entered into a 72 month consulting agreement beginning June 1,
1993 with the above stockholder for $1,800 per month. During the year March 31,
1998, $21,600 was charged to expense in relation to this agreement.
The aggregate minimum amounts to be paid to this stockholder under the stock
purchase agreement and consulting agreement are as follows:
<TABLE>
<CAPTION>
<S> <C>
Years Ending March 31,
1999 $ 53,220
2000 8,870
-------------
$ 62,090
=============
</TABLE>
Note 11. Commitments and Contingencies
Purchase commitment
The Company currently buys certain of its raw materials from one supplier.
Although there are a limited number of suppliers of this material, management
believes that other suppliers could provide similar products on comparable
terms. As of March 31, 1998, the Company has a commitment to purchase raw
materials from this supplier in an amount of approximately $250,000. The raw
materials will be purchased ratably through December 31, 1998.
Litigation
The Company is party to legal proceedings incidental to its business and
employees which, in the opinion of management, will not have a material adverse
effect on the Company's consolidated financial position, liquidity or results of
operations.
Leases
The Company leases vehicles, equipment, and facilities from outside parties and
related parties (Note 10) under noncancelable operating leases expiring through
April 2005. Certain of the leases provide for scheduled rental increases over
the lease term. The Company recognizes rent expense on a straight-line basis;
accordingly, rent expense is accrued when it exceeds cash payments and is
amortized during periods when cash payments exceed rent expense. Total rental
expense included in the consolidated financial statements was approximately
$841,000 for the year ended March 31, 1998.
16
<PAGE>
ECO-AIR PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 11. Commitments and Contingencies (Continued)
Approximate annual future commitments under the noncancelable leases at March
31, 1998 are as follow:
<TABLE>
<CAPTION>
<S> <C>
Years Ending March,
1999 $ 971,000
2000 968,000
2001 355,000
2002 152,000
2003 80,000
Thereafter 167,000
-------------
$ 2,693,000
=============
</TABLE>
Bonuses
The Company pays discretionary cash bonuses to its employees. The amount of
these cash bonuses included in cost of goods sold and operating expenses totaled
approximately $514,000 for the year ended March 31, 1998.
Note 12. Employee Benefit Plan
The Company has a 401(k) Employee Stock Ownership Plan (the Plan) which includes
an employee stock ownership plan (ESOP) component in addition to a typical
401(k) investment fund. Under the plan, eligible employees, as defined by the
agreement, may defer from 1% to 15% of their compensation each year. The Plan
allows the Corporation to make a discretionary matching contribution on behalf
of those who actively participate. In addition, the Company may make a
discretionary contribution to the ESOP. Employees vest 20% in employer
contributions after 3 years of service with annual increases of 20% thereafter
through year 7, at which time the employee is 100% vested in all matching and
discretionary contributions. The ESOP component of the Plan covers all employees
of the Company who have completed 6 consecutive months of service. The Company
contributed approximately $108,000 to the Plan for the year ended March 31,
1998. No Company stock was acquired by or contributed to the Plan during the
year ended March 31, 1998. As of March 31, 1998, the Plan held 200 shares of the
Company's common stock, which represents approximately 22.7% of the Company's
total outstanding shares. The fair value of those shares was approximately
$567,600 as of March 31, 1997.
In the event a terminated Plan participant desires to sell his or her shares of
the Company's stock, the Company may be required to purchase the shares from the
participant at their fair market value.
17
<PAGE>
ECO-AIR PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 13. Subsequent Event
On May 7, 1998, the stockholders of Eco-Air Products, Inc., reached an agreement
with Flanders Corporation (Flanders), a publicly-held North Carolina
corporation, for the sale of substantially all of the issued and outstanding
capital stock of Eco-Air Products, Inc. and its wholly-owned subsidiary,
Industrias Seco. The agreement did not include those shares which are subject to
the stock repurchase agreement (Note 10). The agreement provided for a cash
payment of $13,000,000 and a certain number of Flanders common shares, as
defined by the agreement.
In connection with the sale of stock, the Company issued an unsecured $2,000,000
promissory note to Flanders in settlement of the bonus due to the President of
the Company which is included in accrued expenses at March 31, 1998. The note
bears interest at 7.5% and is due upon demand if the purchase does not close on
or before June 30, 1998, or on January 30, 1999. The note is guaranteed by the
majority stockholders of the Company.
18
<PAGE>
EXHIBIT 2.1.4
<PAGE>
Unaudited Pro Forma Financial Information
The Unaudited Pro Forma Consolidated Statements of Income for the year ended
December 31, 1997 and the three months ended March 31, 1998 and the Unaudited
Pro Forma Consolidated Balance Sheet as of March 31, 1998 for Flanders
Corporation are set forth below.
The Unaudited Pro Forma Consolidated Statements of Income have been prepared
assuming that the Acquisition had occurred on the first day of the periods
presented therein. These Unaudited Pro Forma Consolidated Statements of Income
do not purport to represent the operations of the Company had the Acquisition,
in fact, occurred at the beginning of the respected periods, or to project the
results of operations for any future period.
Flanders Corporation
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1998
<TABLE>
<CAPTION>
Historical
---------------------------- Pro-Forma
ASSETS Company Eco-Air Adjustments Pro-Forma
- ------------------------------------------------------------ -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 35,454,580 $ 124,460 $ - $ 35,579,040
Receivables:
Trade 20,794,675 2,782,899 - 23,577,574
Other 1,336,282 - - 1,336,282
Inventories 16,520,154 2,626,172 - 19,146,326
Deferred income taxes 1,057,383 175,000 - 1,232,383
Prepaid expenses and other current assets 1,088,634 478,732 - 1,567,366
-------------- ------------- -------------- --------------
Total current assets 76,251,708 6,187,263 - 82,438,971
Intangible Assets 17,164,629 - 10,871,515(1) 28,036,144
Other assets 4,703,772 70,522 - 4,774,294
Fixed assets, net 47,760,407 762,023 830,367(2) 49,352,797
-------------- ------------- -------------- --------------
$145,880,516 $ 7,019,808 $ 11,701,882 $151,437,206
============== ============= ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------
Current liabilities
Notes payable $ - $ 1,481,521 $ - $ 1,481,521
Current maturities of long-term debt 1,092,442 120,000 - 1,212,442
Accounts payable 16,940,981 1,019,724 - 17,960,705
Accrued expenses 3,038,800 2,712,921 - 5,751,721
-------------- ------------- -------------- --------------
Total current liabilities 21,072,223 5,334,166 - 26,406,389
Long-Term Debt, less current maturities 13,679,052 148,524 13,165,000(1) 13,827,576
Deferred income taxes 4,922,383 74,000 - 4,996,383
Commitments
-------------- ------------- -------------- --------------
Total liabilities 39,673,658 5,556,690 13,165,000 45,230,348
Stockholders' Equity
Capital stock 25,663 45,398 (45,398)(1) 25,663
Paid-in capital 91,969,830 - - (1) 91,969,830
Retained earnings 14,211,365 1,417,720 (1,417,720)(1) 14,211,365
-------------- ------------- -------------- --------------
Total Stockholders' Equity 106,206,858 1,463,118 (1,463,118) 106,206,858
-------------- ------------- -------------- --------------
$145,880,516 $ 7,019,808 $ 11,701,882 $151,437,206
============== ============= ============== ==============
</TABLE>
(1) To reflect purchase of Eco-Air's common stock for $13,000,000.
(2) To reflect write-up of leasehold improvements and equipment of Eco-Air
to market value.
<PAGE>
Flanders Corporation
Pro Forma Condensed Consolidated Statement of Income
Fiscal Year Ended December 31, 1997
<TABLE>
<CAPTION>
Historical
---------------------------- Pro-Forma
ASSETS Company Eco-Air Adjustments Pro-Forma
- ------------------------------------------------------------ -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $134,135,433 $22,351,638 $ - $156,487,071
Cost of goods sold 100,812,262 13,834,523 - 114,646,785
-------------- ------------- -------------- --------------
Gross profit 33,323,171 8,517,115 - 41,840,286
General and administrative expenses 24,156,197 8,963,862 209,246 (1)
(2,000,000)(2) 31,329,305
-------------- ------------- -------------- --------------
Operating income 9,166,974 (446,747) 1,790,754 10,510,981
Nonoperating income (expense): 377,014 16,760 (520,000)(3) (126,226)
-------------- ------------- -------------- --------------
Income before income taxes 9,543,988 (429,987) 1,270,754 10,384,755
Income taxes 3,704,723 (100,000) 493,053 4,097,776
-------------- ------------- -------------- --------------
Net income $ 5,839,265 $ (329,987) $ 777,701 $ 6,286,979
============== ============= ============== ==============
Earnings per common share
Basic $ 0.32 $ 0.34
============== ============= ============== ==============
Diluted $ 0.27 $ 0.28
============== ============= ============== ==============
Weighted average common shares
outstanding:
Basic 18,508,763 18,508,763
============== ============= ============== ==============
Diluted 22,477,184 22,477,184
============== ============= ============== ==============
</TABLE>
(1) To reflect amortization of goodwill and depreciation of write-up of
market value of fixed assets.
(2) To reflect removal of bonus paid to president of Eco-Air for completion
of sale of company.
(3) To reflect decrease in interest income for payment of $13,000,000 for
stock of Eco-Air.
</PAGE>
Flanders Corporation
Pro Forma Condensed Consolidated Statement of Income
Three Months Ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Historical
---------------------------- Pro-Forma
ASSETS Company Eco-Air Adjustments Pro-Forma
- ------------------------------------------------------------ -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 30,685,093 $ 5,249,077 $ - $ 35,934,170
Cost of goods sold 23,135,827 3,386,607 - 26,522,434
-------------- ------------- -------------- --------------
Gross profit 7,549,266 1,862,470 - 9,411,736
General and administrative expenses 5,587,443 3,884,101 52,311 (1)
(2,000,000)(2) 7,523,855
-------------- ------------- -------------- --------------
Operating income 1,961,823 (2,021,631) 1,947,689 1,887,881
Nonoperating income (expense): 261,709 92,036 (130,000)(3) 223,745
-------------- ------------- -------------- --------------
Income before income taxes 2,223,532 (1,929,595) 1,817,689 2,111,626
Income taxes 864,531 (616,408) 705,263 953,386
-------------- ------------- -------------- --------------
Net income $ 1,359,001 $(1,313,187) $ 1,112,426 $ 1,158,240
============== ============= ============== ==============
Earnings per common share
Basic $ 0.05 $ 0.05
============== ============= ============== ==============
Diluted $ 0.05 $ 0.04
============== ============= ============== ==============
Weighted average common shares
outstanding:
Basic 25,171,130 25,171,130
============== ============= ============== ==============
Diluted 29,237,164 29,237,164
============== ============= ============== ==============
</TABLE>
(1) To reflect amortization of goodwill and depreciation of write-up of
market value of fixed assets.
(2) To reflect removal of bonus paid to president of Eco-Air for completion
of sale of company.
(3) To reflect decrease in interest income for payment of $13,000,000 for
stock of Eco-Air.
