SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission File No. 0-27958
FLANDERS CORPORATION
(Exact name of registrant as specified in its charter)
North Carolina 13-3368271
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization.)
531 Flanders Filters Road, Washington, North Carolina 27889
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (919) 946-8081
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
25,663,425 shares common stock, par value $.001, as of May 15, 1998
(Title of Class)
<PAGE>
FLANDERS CORPORATION
FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1998
PART I - FINANCIAL INFORMATION Page
Item 1 -
Financial Statements
Consolidated Condensed Balance Sheet for March 31, 1998 and
December 31, 1997 2
Consolidated Condensed Statements of Operations for the three
months ended March 31, 1998 and 1997 4
Consolidated Condensed Statements of Shareholders' Equity for
the three months ended March 31, 1998 and the year ended
December 31, 1997 5
Consolidated Condensed Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 6
Notes to Consolidated Condensed Financial Statements 7
Item 2 -
Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 16
Item 2 - Changes in Securities 16
Item 3 - Defaults Upon Senior Securities 16
Item 4 - Submission of Matters to a Vote of Security Holders 16
Item 5 - Other Information 16
Item 6 - Exhibits and Reports on Form 8-K 16
SIGNATURES 19
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
FLANDERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
March 31, December 31,
ASSETS 1998 1997
- ----------------------------------------------- -------------- --------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 27,982,899 $ 35,454,580
Short-term investments 293,982 -
Receivables:
Trade, less allowance for doubtful
accounts of $380,566 29,990,030 20,794,675
Other 682,721 1,336,282
Inventories (See Note 2) 23,147,688 16,520,154
Deferred taxes 1,059,866 1,057,383
Other current assets 4,496,288 1,088,634
-------------- --------------
Total current assets 87,653,474 76,251,708
-------------- --------------
Related party receivables 2,019,196 1,861,005
Other assets 1,028,750 2,842,767
Intangible assets, net 17,206,867 17,164,629
Property and equipment, net of accumulated
depreciation and amortization of
$10,447,912 at March 31, 1998; $9,646,832
at December 31, 1997 51,378,202 47,760,407
-------------- --------------
$ 159,286,489 $ 145,880,516
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 1,204,320 $ 1,092,442
Accounts payable 24,331,640 16,940,981
Accrued expenses and other current
liabilities 6,877,205 3,038,800
Total current liabilities 32,413,165 21,072,223
Long-term debt, less current maturities 14,128,418 13,679,052
Deferred income taxes 4,837,971 4,922,383
Commitments and contingencies
Stockholders' equity
Preferred stock, no par value, 10,000,000
shares authorized; none issued - -
Common stock, $.001 par value; 50,000,000
shares authorized; issued and
outstanding: 25,663,425 shares 25,663 25,663
Additional paid-in capital 92,310,906 91,969,830
Retained earnings 15,570,366 14,211,365
-------------- --------------
Total stockholders' equity 107,906,935 106,206,858
-------------- --------------
$ 159,286,489 $ 145,880,516
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
Page 3
<PAGE>
<TABLE>
<CAPTION>
FLANDERS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three Months ended
March 31,
1998 1997
-------------- --------------
<S> <C> <C>
Net sales $ 30,685,093 $ 27,866,841
Cost of goods sold 23,135,827 20,863,277
-------------- --------------
Gross Profit 7,549,266 7,003,564
-------------- --------------
Operating expenses 5,587,443 5,742,603
-------------- --------------
Operating income 1,961,823 1,260,961
-------------- --------------
Nonoperating income (expense): 261,709 (10,697)
-------------- --------------
Income before income taxes 2,223,532 1,250,264
Income taxes 864,531 382,876
-------------- --------------
Net income $ 1,359,001 $ 867,388
============== ==============
Earnings per weighted average common
and common equivalent share
outstanding:
Basic $ 0.05 $ 0.05
============== ==============
Diluted $ 0.05 $ 0.04
============== ==============
Weighted average common and common
equivalent shares outstanding:
Basic 25,171,130 16,457,212
============== ==============
Diluted 29,237,164 22,636,923
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
Page 4
<PAGE>
<TABLE>
<CAPTION>
FLANDERS CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional
Common Paid-In Retained
Stock Capital Earnings
-------------- -------------- --------------
<S> <C> <C> <C>
Balance, December 31, 1996 $ 15,952 $ 16,964,713 $ 8,372,100
Release of committed capital (Note 2) - 8,000,005 -
Issuance of 8,377,000 shares of common stock 8,377 57,045,636 -
Issuance of 722,375 shares of common stock
upon conversion of convertible debt 722 4,381,689 -
Issuance of 425,000 shares of common stock
upon exercise of options 425 1,262,075 -
Valuation and release from escrow of 344,691
shares of common stock related to the
Acquisitions - 2,984,635 -
Issuance of 187,502 shares of common stock
related to the Acquisitions 187 1,394,452 -
Income tax benefit from stock options
exercised - 969,125 -
Issuance of receivables secured by stock
related to exercise of options - (1,262,500) -
Payment on receivables secured by stock
related to exercised warrants and options - 230,000 -
Net income - - 5,839,265
-------------- -------------- --------------
Balance, December 31, 1997 25,663 91,969,830 14,211,365
Payment on receivables secured by stock
related to exercised warrants and options - 235,700 -
Issuance of shares related to the
Acquisitions - 105,376 -
Net income (unaudited) - - 1,359,001
-------------- -------------- --------------
Balance, March 31, 1998 25,663 92,205,530 15,570,366
============== ============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
Page 5
<PAGE>
<TABLE>
<CAPTION>
FLANDERS CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months ended
March 31,
1998 1997
-------------- --------------
<S> <C> <C>
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES $ (3,828,160) $ 1,868,299
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (4,146,483) (1,740,637)
-------------- --------------
NET CASH (USED) BY
INVESTING ACTIVITIES (4,146,483) (1,740,637)
CASH FLOWS FROM FINANCING ACTIVITIES
Release of restricted cash from escrow - 8,000,005
Payments on receivables secured by common
stock 235,700 294,590
Short-term investments (293,982) 294,590
Net change in long-term borrowings 561,244 (23,830,219)
Proceeds from issuance of common stock - 15,645,250
-------------- --------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 502,962 404,216
-------------- --------------
NET INCREASE (DECREASE) IN CASH (7,471,681) 531,878
CASH AT BEGINNING OF PERIOD 35,454,580 2,390,411
-------------- --------------
CASH AT END OF PERIOD $ 27,982,899 $ 2,922,289
============== ==============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid for income taxes $ - $ 449,646
============== ==============
Cash payments for interest $ 337,190 $ 198,146
============== ==============
SUPPLEMENTAL DISCLOSURES OF NONCASH
FINANCING ACTIVITIES
Conversion of debentures plus
accumulated interest into common
stock $ - $ 834,798
============== ==============
Issuance of 12,000 shares of common
stock upon exercise of warrants
in exchange for receivable $ - $ 30,000
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
Page 6
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Interim Financial Statements
Nature of business: Flanders Corporation (the "Company") designs, manufactures
and markets a broad range of air filtration products, including (i) high
efficiency particulate air ("HEPA") filters, with at least 99.97% efficiency,
and absolute isolation barriers ("Absolute Isolation Barriers") for the creation
of synthesized atmospheres to control manufacturing environments and for the
absolute control and containment of contaminants and toxic gases in certain
manufacturing processes; (ii) mid-range filters for individual and commercial
use, which fall under specifications which are categorized by efficiency ratings
established by the American Society of Heating Refrigeration and Air
Conditioning Engineers ("ASHRAE"); and (iii) standard-grade, low cost filters
with efficiency ratings below 30% sold typically off-the-shelf for standard
residential and commercial furnace and air conditioning applications.
Approximately 55% of the Company's net sales are from products with high
replacement potential. The Company's air filtration products are utilized by
many industries, including those associated with commercial and residential
heating ventilation and air conditioning systems ("HVAC" systems), semiconductor
manufacturing, ultra-pure materials, biotechnology, pharmaceuticals, synthetics,
nuclear power and nuclear materials processing. The Company also designs and
manufactures its own production equipment to allow for highly automated
manufacturing of these products. Furthermore, the Company produces glass-based
filter media for some of its products to maintain control over the quality and
composition of such media.
Although the Company historically has specialized in HEPA and mid-range filters,
the Company has positioned itself to offer its customers a full range of air
filtration products. As a result of certain acquisitions and its operation of
various subsidiaries, the Company has the ability to design, manufacture and
market high-end, mid-range and standard-grade air filtration products and
related equipment and hardware.
Interim financial statements: The interim financial statements presented herein
are unaudited and have been prepared in accordance with the instructions to Form
10-Q. These statements should be read in conjunction with financial statements
and notes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1997. The accompanying financial statements have not
been examined by independent accountants in accordance with generally accepted
auditing standards, but in the opinion of management such financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary to summarize fairly the Company's financial position, results of
operations, and cash flows. The results of operations and cash flows for the
three months ended March 31, 1998 may not be indicative of the results that may
be expected for the year ending December 31, 1998.
Earnings per common share: The Company has adopted FASB Statement No. 128 which
requires the presentation of earnings per share by all entities that have
outstanding common stock or potential common stock, such as options, warrants
and convertible securities, that trade in a public market. Those entities that
have only common stock outstanding are required to present basic earnings
per-share amounts. Basic per-share amounts are computed by dividing net income
(the numerator) by the weighted-average number of common shares outstanding (the
denominator). All other entities are required to present basic and diluted
per-share amounts. Diluted per-share amounts assume the conversion, exercise or
issuance of all potential common stock instruments unless the effect is to
reduce the loss or increase the income per common share from continuing
operations. The Company has applied Statement No. 128 for the quarter ended
March 31, 1998 and, as required by the Statement, has restated all per share
information for the prior periods to conform to the Statement.
Page 7
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Inventories
Inventories consist of the following at March 31, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
3/31/98 12/31/97
-------------- --------------
<S> <C> <C>
Finished goods $ 10,180,452 $ 7,456,542
Work in progress 2,443,383 1,924,024
Raw materials 10,574,853 7,201,588
-------------- --------------
23,198,688 16,582,154
Less allowance for obsolete raw materials 51,000 62,000
-------------- --------------
$ 23,147,688 $ 16,520,154
============== ==============
</TABLE>
Note 3. Stock Options and Warrants
The following table summarizes the activity related to the Company's stock
options and warrants for the three months ended March 31, 1998 and the year
ended December 31, 1997:
<TABLE>
<CAPTION>
Weighted Average
Exercise Price Exercise Price
per Share per Share
Stock ---------------------------- ------------------
Warrants Options Warrants Options Warrants Options
--------- ----------- ------------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1, 1997 25,000 7,623,320 $ 9.63 $ 1.00 - 9.50 $ 9.63 $ 3.43
Granted 612,239 100,600 5.54 - 14.73 7.13 - 7.38 9.57 7.14
Exercised - 425,000 - 2.50 - 3.50 - 2.97
Canceled or expired - 6,000 - 7.50 - 7.50
--------- -----------
Outstanding at December 31, 1997 637,239 7,292,920 5.54 - 14.73 1.00 - 9.50 7.32 3.43
Granted - 15,000 - 8.50 - 8.50
Exercised - - - - - -
Canceled or expired - - - - - -
--------- -----------
Outstanding at March 31, 1998 637,239 7,307,920 $5.54 - 14.73 $ 1.00 - 9.50 $ 11.00 $ 3.44
========= ===========
Exercisable at March 31, 1998 237,239 7,202,320 $5.54 - 14.73 $ 1.00 - 9.50 $ 9.63 $ 3.43
========= ===========
</TABLE>
The options and warrants expire at various dates ranging from September 1999
through February 2006.
Note 4. Litigation
There were no material additions to, or changes in status of, any ongoing,
threatened or pending legal proceedings during the three months ended March 31,
1998. From time to time, the Company is a party to various legal proceedings
incidental to its business. None of these proceedings are material to the
conduct of the Company's business, operations or financial condition.
Page 8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussions should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto presented in "Item 1 -
Financial Statements". The information set forth in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
includes forward-looking statements that involve risks and uncertainties. Many
factors could cause actual results to differ materially from those contained in
the forward-looking statements below. See "Outlook".
Overview
The Company is a full-range air filtration product company engaged in designing,
manufacturing and marketing high performance, mid-range and standard-grade air
filtration products and certain related products and services. The Company
focuses on those products with high replacement potential. The Company designs
and manufactures its own production equipment and also produces glass-based
media for many of its products. During 1996 and the first quarter of 1997, the
Company experienced significant growth from the acquisition of other air
filtration related companies. The Company acquired both Charcoal Service
Corporation ("CSC") and Air Seal Filter Housings, Inc. ("Air Seal") as of May
31, 1996 and Precisionaire, Inc. ("Precisionaire") as of September 30, 1996. CSC
specializes in the manufacture of high-end charcoal filters and containment
environments, and has a service arm. Air Seal produces customized mid-range
housings and HVAC equipment. Precisionaire manufactures air filters and related
products for commercial and residential air conditioning and heating systems.
The Company also established two new subsidiaries in 1996: Flanders
International, Ltd. ("FIL") and Airpure West, Inc. ("Airpure West"). FIL is a
Singapore-based sales and marketing subsidiary marketing the Company's products
to customers in the Pacific Rim. In 1997, Airpure West's operations were moved
to the Company's newly opened Henderson, Nevada, manufacturing and distribution
facility. As of March 1997, the Company acquired the majority of the assets of
BB&D Manufacturing and Intermountain Painting and Subassembly and placed them in
a newly formed, majority owned subsidiary, Airseal West, Inc. ("Airseal West").
Airseal West sells, manufactures and distributes specialty and standard air
filter housings and HVAC systems in the western United States. As of December
1997, the Company acquired GFI, Inc. ("GFI") in a stock for stock exchange. GFI
manufactures glass-based filter media and specialty air filters (hereinafter,
CSC, Precisionaire, Air Seal, Airseal West and GFI are referred to as the
"Acquisitions"). The results of operations for the acquired businesses are
included in the Company's financial statements only from the applicable date of
acquisition. As a result, the Company's historical results of operations for the
periods presented should be evaluated specifically in the context of the
Acquisitions. Additionally, the historical results of operations do not fully
reflect the operating efficiencies and improvements expected from upgrading and
integrating the acquired businesses into the Company's operations. There can be
no guarantee that the Company will be able to achieve these objectives and gains
in efficiency. The Company believes the Acquisitions will have a positive impact
on its future results of operations.
Results of Operations for Three Months Ended March 31, 1998 Compared to March
31, 1997
The following table summarizes the Company's results of operations as a
percentage of net sales for the three months ended March 31, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
------------------ ------------------
(000's omitted)
<S> <C> <C> <C> <C>
Net sales 30,685 100.0% 27,867 100.0%
Gross profit 7,549 24.6 7,004 25.1
Operating expenses 5,587 18.2 5,743 20.6
Operating income 1,962 6.4 1,261 4.5
Income before income taxes 2,224 7.2 1,250 4.5
Income taxes 865 2.8 455 1.6
Net income 1,359 4.4 795 2.9
</TABLE>
Page 9
<PAGE>
Net sales: Net sales for the three months ended March 31, 1998 increased by
$2,818,000, or 10.1%, to $30,685,000 from $27,867,000 for the three months ended
March 31, 1997. The increase was primarily due to the Company capturing
additional market share, particularly in the Western and Central United States,
which are serviced by the Company's newly established manufacturing facilities
in Nevada and Illinois. See "Outlook".
Gross Profit: Gross profit for the three months ended March 31, 1998 increased
by $545,000, or 7.8%, to $7,549,000, which represented 24.6% of net sales, from
$7,004,000, which represented 25.1% of net sales, for the three months ended
March 31, 1997. The primary reasons for the decrease in gross profit margin were
inefficiencies associated with operations at the Company's newly established
manufacturing facilities in Nevada and Illinois, consisting of higher labor
costs associated with inexperienced personnel, start-up costs associated with
new facilities, and other inefficiencies typical of new plants. Other factors
affecting gross profit margins included ordinary variations in the timing and
product mix of orders, and the Company's ongoing automation project for stock
product lines.
Operating expenses: Operating expenses for the three months ended March 31, 1998
decreased by $156,000, or 2.7%, to $5,587,000, representing 18.2% of net sales,
from $5,743,000, representing 20.6% of net sales, for the three months ended
March 31, 1997. The primary reason for the overall decrease in operating
expenses was the consolidation of administrative activities at the various
subsidiaries to eliminate duplication, partially countered by expenses
associated with opening new facilities and developing new products.
Net income: Net income for the three months ended March 31, 1998 increased by
$564,000, or 71%, to $1,359,000, or $0.05 per share (both basic and diluted),
from $795,000, or $0.04 per share (diluted, or $0.05 basic) for the three months
ended March 31, 1997. As a result of capital raising activities during the
twelve months ended March 31, 1998, including: (i) the sale of 6,480,000 shares
of common stock at $7.00 per share; (ii) the sale of 45,000 shares of common
stock at $5.25 per share; (iii) the conversion of options and warrants into
approximately 425,000 shares of common stock; and (iv) the conversion of
$3,200,000 of convertible debt into approximately 620,000 shares, the Company's
average basic and diluted shares outstanding increased to 25,171,000 and
29,237,000 shares outstanding, respectively, for the three months ended March
31, 1998, up from 16,457,000 and 22,637,000 shares, respectively, for the three
months ended March 31, 1997.
Liquidity and Capital Resources
Working capital was $55,240,000 at March 31, 1998, compared to $55,179,000 at
December 31, 1997. This includes cash, cash equivalents and other short-term
investments of $28,277,000 and $35,455,000 at March 31, 1998 and December 31,
1997, respectively. Working capital does not include available amounts on the
Company's revolving credit line.
Trade receivables increased $9,195,000, or 44%, to $29,990,000 at March 31, 1998
from $20,795,000 at December 31, 1996. The increase was due to the higher volume
of sales during the three months ended March 31, 1998, compared to the three
months ended December 31, 1997, and normal variations in the timing of shipments
to customers and receipt of payments. Included in trade receivables is
approximately $2.3 million which is in dispute. The dispute involves HEPA
filters manufactured by the Company on behalf of a customer to conform to
certain specifications. Based on independent testing performed on such filters
and other relevant information, the Company believes its receivable is valid and
collectible. Nevertheless, it is reasonably possible that the Company's estimate
of collection could be reduced significantly in the near term.
Operating activities used $3,828,000 of cash during the three months ended March
31, 1998, compared to generating $1,868,000 of cash during the three months
ended March 31, 1997, consisting primarily of earnings, less changes in
receivables and inventories. Investing activities consumed $4,146,000 and
$1,741,000 during the three months ended March 31, 1998 and 1997, respectively,
primarily for the purchase of equipment and other assets. Financing activities
generated $503,000 and $110,000 of cash during the three months ended March 31,
1998 and 1997, respectively.
Page 10
<PAGE>
The Company has arranged a revolving line of credit facility with SunTrust Bank
of Tampa, N.A. The credit agreement is for a term of two years and provides the
Company with a line of credit up to a maximum principal amount of $30,000,000.
Outstanding balances on the credit line bear interest at the option of the
Company, at either (a) the "prime" rate of interest publicly announced by
SunTrust Bank, or (b) the "LIBOR" rate as reported by the Wall Street Journal
plus an amount equal to 1.00% to 1.95%, depending on the ratio of total
liabilities of the Company to its tangible net worth; as of March 31, 1998, this
rate would be 6.719%. As of March 31, 1998, the Company had used none of the
revolving credit facility.
Expansion of the Company will require substantial continuing capital investment
for the manufacture of filtration products. Although the Company has been able
to arrange debt facilities or equity financing to date, there can be no
assurance that sufficient debt financing or equity will continue to be available
in the future, or that it will be available on terms acceptable to the Company.
Failure to obtain sufficient capital could materially adversely impact the
Company's growth strategy.
The Company purchased property in Momence, County of Kankakee, Illinois (the
"Illinois Property") for a mid-range manufacturing facility. In connection with
such purchase, the Company agreed to assume all risk of environment liability
for past, present or future conditions on the Illinois Property except for any
liability for environmental problems related to ground water. The Illinois
Property had certain environmental problems which required remediation under
federal and Illinois law. The seller of the Illinois Property has worked
extensively with the Illinois Environmental Protection Agency ("IEPA") with
regard to the environmental matters and the Company has completed Phase I and
Phase II environmental surveys with respect to the property, and it appears that
the environmental matters have been resolved, except for certain monitoring
procedures required by the IEPA. However, resolution of state issues has no
effect on any potential federal or common law claims, and there can be no
assurance that such claims will not be made.
The Company's business and operations have not been materially affected by
inflation during the periods for which financial information is presented.
Subsequent Events
As of April 1, 1998, the Company entered into a Loan Agreement and issued a Note
to the Johnston County Industrial Facilities and Pollution Control Financing
Authority and such authority issued Industrial Development Revenue Bonds (the
"Bonds") for an aggregate of $4,500,000, the proceeds of which were loaned to
the Company for the construction of a 400,000 square foot manufacturing facility
in Johnston County, North Carolina. The Note extends for a term of fifteen (15)
years and bears interest at a variable rate determined by the remarketing agent
of the Bonds on a weekly basis equal to the minimum rate necessary to sell such
Bonds at their par value which, as of May 1, 1998, was 4.25% per annum.
Outlook: Issues and Uncertainties
This Outlook section, and other sections of this document, contains many
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, including, among others (i) results of operations
(including expected changes in the Company's gross margin and general,
administrative and selling expenses); (ii) the Company's business strategy for
expanding its market share of the air filtration industry (iii) the Company's
strategy to increase the size and customer base of the air filtration market;
and (iv) the Company's ability to distinguish itself from its current and future
competitors.
These forward-looking statements are based largely on the Company's current
expectations and are subject to a number of risks and uncertainties. Actual
results could differ materially from these forward-looking statements. Important
factors to consider in evaluating such forward-looking statements include (i)
the shortage of reliable market data regarding the air filtration market; (ii)
changes in external competitive market factors or in the Company's internal
budgeting process which might impact trends in the Company's results of
operations; (iii) anticipated working capital or other cash requirements; (iv)
changes in the Company's business strategy or an inability to execute its
strategy due to unanticipated changes in the market; (v) product obsolescence
due to the development of new technologies, and (vi) various competitive factors
that may prevent the Company from
Page 11
<PAGE>
competing successfully in the marketplace. In light of these risks and
uncertainties, there can be no assurance that the events contemplated by the
forward-looking statements contained in this Form 10-Q will in fact occur.
Additionally, while management of Flanders is optimistic about the Company's
long-term prospects, the following issues and uncertainties, among others,
should be considered in evaluating the Company's prospects.
Integration of Acquired Companies. Prior to their acquisition by the Company in
1996, CSC, Air Seal and Precisionaire operated under different management
philosophies, management teams and marketing strategies. These companies'
operations are currently being integrated into the Company's and there can be no
assurance that the Company's systems, procedures and controls will be adequate
to accommodate integration of these companies. Failure to successfully integrate
these companies could materially adversely affect the Company's business and
results of operation.
Management of Growth. With the Company's recent acquisitions, the Company's net
sales increased by approximately 83.6% from the year ended December 31, 1996 to
the year ended December 31, 1997, and approximately 10.1% from the quarter ended
March 31, 1997 to the same period ended March 31, 1998. There can be no
assurance that the Company will continue to expand at this rate, or at all.
Additionally, the Company plans to continue opening new facilities and has
recently opened three new facilities. If the Company continues to grow, the
additional growth will place burdens on management to manage such growth while
maintaining the Company's profitability. Additional growth may require the
Company to recruit and train additional management personnel in the areas of
corporate management, sales, accounting, marketing, research and development and
operations. There can be no assurance that the Company will be able to do so.
Both the Company's growth by acquisition and expansion may also significantly
strain the Company's management, financial and other resources. There can be no
assurance that the Company's systems, procedures and controls will be adequate
to support the Company's operations and growth.
Acquisition Strategy. The Company intends to continue to seek increased market
share through strategic acquisitions of synergistic businesses. The Company
seeks to identify potential acquisition targets with (i) dominant positions in
local or regional markets, (ii) excess or under-utilized capacity, (iii) an
ability to add new product lines to the Company's business, and (iv) significant
asset value to enable the Company to obtain debt financing or non-diluted equity
financing for such acquisition. The Company is continuously evaluating
acquisition opportunities in light of the above criteria. Once a potential
target is identified, the Company commences an in-depth due diligence evaluation
of the target's operations, markets, profitability and examines all potential
liabilities including environmental liabilities and any contingent liabilities.
The Company's strategy of growth through acquisition exposes the Company to the
potential risks inherent in assessing the value, strengths, weaknesses,
contingent or other liabilities and potential profitability of acquisition
candidates and in integrating the operations of acquired companies.
Additionally, an essential component of the Company's acquisition strategy is
improving the operating efficiency, output and capacity of each acquired
company, and the facilities they operate. This process may include the repair or
replacement of outdated and inefficient equipment to improve the operations and
output. Although the Company generally has been successful in pursuing these
acquisition targets, there can be no assurance that acquisition opportunities
will continue to be available, that the Company will have access to the capital
required to finance potential acquisitions, that the Company will continue to
acquire businesses or that any business acquired will be integrated successfully
or prove profitable. Other than a non-binding letter of intent with Eco-Air
Products, Inc., the Company has no specific agreements with respect to future
acquisitions, but is continuing to investigate potential acquisition
opportunities.
Need for Additional Financing for Future Acquisitions. The Company believes that
the revenues from current operations will provide the Company with sufficient
capital to fund continuing operations for the foreseeable future. However, to
continue its growth through acquisition, substantial additional debt or equity
financing may be needed. Failure to obtain sufficient capital could materially
adversely affect the Company's acquisition strategy.
Page 12
<PAGE>
Need for Technical Employees. The Company's future operating results depend in
part upon its ability to retain and attract qualified engineering,
manufacturing, technical, sales and support personnel for its operations.
Competition for such personnel is intense, and there can be no assurance that
the Company will be successful in attracting or retaining such personnel. The
failure to attract or retain such persons could materially adversely affect the
Company's business and results of operations.
Technological Change; New Product Introduction. For the period ended March 31,
1998, approximately 28% of the Company's net sales resulted from sales of
high-end filtration products which are especially vulnerable to new technology
development. The Company's ability to remain competitive will depend in part
upon its ability to anticipate technological changes, to develop new and
enhanced filtration systems and to introduce these systems at competitive prices
in a timely and cost-efficient manner. There can be no assurance that the
Company will successfully anticipate future technological changes or that
technologies or systems developed by others will not render the Company's
technology obsolete. The Company also plans to develop new products as part of
its strategy to increase the size and customer base of the air filtration
market. There can be no assurance that the Company will be successful in
developing the new products or that any product developed will be commercially
viable.
Acquiring and Maintaining Equipment. The Company designs, manufactures and
assembles the majority of the automatic production equipment used in its
facilities. The Company also uses other technologically advanced equipment, for
which manufacturers may have limited production capability or service
experience, which could result in delays in the acquisition and installation of
such equipment or extended periods of down-time in the event of malfunction or
equipment failure. Any such extended period of down-time for any critical
equipment could have a material adverse impact on the Company, its financial
condition and operations.
Product Demand. Approximately 10% of the Company's net sales in 1997 were from
high-end products sold for use in the semiconductor industry. The Company
believes that new fabricated plant construction for the semiconductor
manufacturing industry, which typically occurs in large phases as new
manufacturing capacity is brought on line, is in a periodic slowdown. As such,
the demand for the Company's laminar flow HEPA products may be less in future
years than previous years.
Potential Environmental Risks. The Company's business and products may be
significantly influenced by the constantly changing body of environmental laws
and regulations, which require that certain environmental standards be met and
impose liability for the failure to comply with such standards. While the
Company endeavors at each of its facilities to assure compliance with
environmental laws and regulations, there can be no assurance that the Company's
operations or activities, or historical operations by others at the Company's
locations, will not result in civil or criminal enforcement actions or private
actions that could have a materially adverse effect on the Company.
Competition. The Company currently faces significant competition in its business
activities, and this competition may increase as new competitors enter the
market. Several of these competitors may have longer operating histories and
greater financial, marketing and other resources than the Company. There can be
no assurance that the Company will be able to compete successfully with existing
or new entrant companies. In addition, new product introductions or enhancements
by the Company's competitors could cause a decline in sales or loss of market
acceptance of the Company's existing products. Increased competitive pressure
could also lead to intensified price-based competition resulting in lower prices
and profit margins, which could adversely affect the Company's business and
results of operations.
Dependence on Key Personnel. The Company's success will depend in significant
part upon the continued contributions of its officers and key personnel, many of
whom would be difficult to replace. The Company has entered into employment
agreements with Robert R. Amerson, its President, and Steven K. Clark, its Chief
Financial Officer. The loss of any key person could have a material adverse
effect on the business, financial condition and results of operations of the
Company.
Page 13
<PAGE>
Distribution Channels. The Acquisitions give the Company a broader product line
of air filtration products. As part of the integration of the Acquisitions, the
Company has adopted a strategy of increasing its market share by providing its
manufacturers' representatives with the ability to offer a full product line of
the Company's products and "one stop" purchasing of air filtration products to
existing and new customers. Many of the Company's representatives have indicated
a willingness to offer the Company's products exclusively now that the Company
offers a broader range of products. These representatives may decide to work
exclusively with some other company for various reasons; thus, the current
distribution channels would be unavailable.
Automation. The Company has begun a program to increase its gross margins by
automating portions of its production lines at FFI, Precisionaire and Airpure
using technology developed at Precisionaire and FFI. Currently, approximately
35% of the Company's production lines incorporate the new automated equipment
designs. The Company will continue to implement the additional automation for
these production lines one at a time, to minimize down time. The Company
estimates the total cost for automation of its facilities will be approximately
$10,000,000, and will fund such automation from funds raised in its recent
public offering.
New Markets. The Company intends to develop new markets and products for those
markets by applying existing technology developed for high-technology niche
markets to new applications. For each new application, the Company will first
develop a line of products to meet the needs of the specific application, and
through trade shows, technical publications, mass marketing, distributor
education and other appropriate methods, will create demand for the application
in the new target market. The Company has established the Absolute Isolation
Division and the Integrated Environmental Control Division to focus on (i)
methods to manufacture pharmaceutical and other products in synthesized
atmospheres and completely isolated and secure environments using Absolute
Isolation Barriers and (ii) Indoor Air Quality ("IAQ") diagnosis and solutions
for commercial and public buildings and for residential application. The Company
believes there will be an increase in interest in Absolute Isolation Barriers in
the future because these products prevent cross-contamination between different
products and different lots of the same product being manufactured at the same
facility, as well as increase production yields. Additionally, the Company
believes there is an increase in public concern regarding the effects of IAQ on
employee productivity, as well as an increase in interest in standards for
detecting and solving IAQ problems. The Company will continue to concentrate its
efforts on products with high replacement potential.
Year 2000. The Company is in the process of identifying operating and
application software problems related to the "Year 2000" issue, both internally
and externally. The Company expects to resolve its internal Year 2000 compliance
issues substantially through replacement and upgrades of software and hardware.
The Company estimates it will spend approximately $275,000 to modify existing
systems. Additionally, the Company is working with third parties to resolve
external Year 2000 issues. However, there can be no assurance that there will
not be interruption of operations or other limitations of system functionality
or that the Company will not incur substantial costs to avoid such limitations.
Any failure to effectively monitor, implement or improve the Company's
operational, financial, management and technical support systems could have a
material adverse effect on the Company's business and consolidated results of
operations.
Centralize Overhead Functions. The Company is continuing to implement plans to
centralize and eliminate duplication of efforts between its subsidiaries in the
following areas: purchasing, production planning, shipping coordination,
marketing, accounting, personnel management, risk management and benefit plan
administration. The Company believes this will have a beneficial impact upon its
future operating results as these changes are phased in during the next year.
Because of the foregoing factors, as well as other variables affecting the
Company's operating results, past financial performance should not be considered
a reliable indicator of future performance, and investors should not use
historical trends to anticipate results or trends in future periods.
Page 14
<PAGE>
Industry Outlook
The Company believes that the semiconductor industry has been experiencing a
cyclical slowdown in capital spending for new facilities, and thus spending on
filtration products, since the first quarter of 1997. While the Company does
expect capital spending for new semiconductor facilities to increase in the
future, it does not expect this to be a significant factor in the Company's
overall business during 1998, where sales for semiconductor plants are expected
to remain flat.
Because of this slowdown, the Company has determined to utilize its excess
production capacity and development resources toward the production and
marketing of isolation environments to the semiconductor and pharmaceutical
industries. Isolating critical process steps from contaminants and the outside
environment may increase production yields and operator safety, while decreasing
the costs and risks associated with environmental contamination.
Data collected by the Company indicates that residential filter users replace
their filters, on average, approximately once per year. Manufacturers of
residential furnace and air condition systems recommend that these filters be
changed every month. A minor trend toward increased maintenance of these
residential heating and cooling systems could have a positive impact on the
Company's business.
The Company's most common products, in terms of both unit and dollar volume, are
residential "throw-away" filters, which usually sell for prices under $1.00. Any
increase in consumer concern regarding air pollution, airborne pollens,
allergens, and other residential airborne contaminants could result in
replacement of some of these sales with higher value sales, such as the
Company's anti-microbial or higher-efficiency filters for residential use, with
associated sales prices typically over $5.00 each. Any such trend would have a
beneficial effect on the Company's business.
Currently, the largest domestic market for air filtration products is for
mid-range "ASHRAE-rated" products and HVAC systems, typically used in commercial
and industrial buildings. To date, the Company's penetration of this market has
been relatively small, consisting of approximately $17 million, or 13% of net
sales, in 1997. The Company believes that its ability to offer a "one stop"
supply of air filtration products to HVAC distributors and wholesalers will
increase its share of this market segment.
Page 15
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There were no material additions to, or changes in status of, any ongoing,
threatened or pending legal proceedings during the three months ended March 31,
1998. From time to time, the Company is a party to various legal proceedings
incidental to its business. None of these proceedings are material to the
conduct of the Company's business, operations or financial condition.
Item 2. Changes in Securities - None.
Item 3. Defaults Upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders - None.
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
3.1 Articles of Incorporation of Flanders Corporation, filed with the
Form 8-A dated March 8, 1996, incorporated herein by reference.
3.2 Bylaws of Flanders Corporation, filed with the Form 8-A dated March
8, 1996, incorporated herein by reference.
10.1 Agreement and Plan of Merger between Elite Acquisitions and
Flanders Filters, Inc., filed with the December 31, 1995 Form 10-K,
incorporated herein by reference.
10.2 Stock Purchase Agreement between Flanders Corporation and the
Shareholders of Charcoal Service Corporation, filed with the May 31,
1996 Form 8-K, incorporated herein by reference.
10.3 Stock Purchase Agreement between Flanders Corporation and the
Shareholders of Air Seal Filter Housings, Inc. (filed with the
October 21, 1996 Form S-1 (Reg. No. 333-14655), incorporated
herein by reference.
10.4 Stock Purchase Agreement between Flanders Corporation and the
Shareholders of Precisionaire, Inc., filed with the Form 8-K dated
September 23, 1996, incorporated herein by reference.
10.5 Indemnification Agreement between Flanders Corporation, Steven K.
Clark, Robert R. Amerson and Thomas Allan, filed with the December
31, 1995 Form 10-K, incorporated herein by reference.
10.6 Guaranty Agreement between Flanders Corporation and American
National Bank of Texas, filed with the September 30, 1996 Form
10-Q, incorporated herein by reference.
Page 16
<PAGE>
10.7 Promissory Note from Precisionaire, Inc. to SunTrust Bank, Tampa
Bay, in the amount of $2,134,524 dated August 28, 1997, filed with
the September 15, 1997 Form S-1 (Reg No. 333-33635), and
incorporated herein by reference.
10.8 Assumption Agreement between POF Realty, Precisionaire, Inc., Polk
County Industrial Development Authority and SunTrust Bank, dated
August 1, 1997, filed with the September 15, 1997 Form S-1 (Reg No.
333-33635), and incorporated herein by reference.
10.9 Mortgage Deed and Security Agreement between Precisionaire, Inc.
and Sun Trust Bank, Tampa Bay dated August 28, 1997, filed with the
September 15, 1997 Form S-1 (Reg No. 333-33635), and incorporated
herein by reference.
10.10 Credit Agreement between Flanders Corporation, SunTrust Bank, Tampa
Bay and Zions First National Bank, dated November 10, 1997, filed
with the December 31, 1997 Form 10-K, and incorporated herein by
reference.
10.11 Loan Agreement between Will-Kankakee Regional Development Authority
and Flanders Corporation dated December 15, 1997, filed with the
December 31, 1997 Form 10-K, and incorporated herein by reference.
10.12 Letter of Credit Agreement between Flanders Corporation and SunTrust
Bank, Tampa Bay, dated April 1, 1998.
10.13 Loan Agreement between Flanders Corporation and the Johnston County
Industrial Facilities and Pollution Control Financing Authority,
dated April 1, 1998.
27 Financial Data Schedule.
99.1 Flanders Corporation Long-Term Incentive Plan, filed with the
December 31, 1995 Form 10-K, incorporated herein by reference.
99.2 Flanders Corporation 1996 Director Option Plan, filed with the
December 31, 1995 Form 10-K, incorporated herein by reference.
99.3 Employment Agreement between Elite Acquisitions, Inc., Flanders
Filters, Inc. and Steven K. Clark, filed with the December 31, 1995
Form 10-K, incorporated herein by reference.
99.4 Amendment to Employment Agreement between Elite Acquisitions, Inc.,
Flanders Filters, Inc. and Steven K. Clark, filed with Form S-1,
filed October 21, 1996 (Reg. No. 333-14655), incorporated herein
by reference.
99.5 Amendment to Employment Agreement between Elite Acquisitions, Inc.,
Flanders Filters, Inc. and Steven K. Clark, filed with the December
31, 1997 Form 10-K, incorporated herein by reference.
99.6 Employment Agreement between Elite Acquisitions, Inc., Flanders
Filters, Inc. and Robert R. Amerson, filed with the December 31,
1995 Form 10-K, incorporated herein by reference.
99.7 Amendment to Employment Agreement between Elite Acquisitions, Inc.,
Flanders Filters, Inc. and Robert R. Amerson, filed with Form S-1,
filed October 21, 1996 (Reg. No. 333-14655), incorporated herein
by reference.
Page 17
<PAGE>
99.8 Amendment to Employment Agreement between Elite Acquisitions, Inc.,
Flanders Filters, Inc. and Robert R. Amerson, filed with the
December 31, 1997 Form 10-K, incorporated herein by reference.
99.9 Employment Agreement between Flanders Corporation, Precisionaire,
Inc. and Gustavo Hernandez, filed with Form S-1, dated October 21,
1996 (Reg. No. 333-14655) and incorporated herein by reference.
99.10 Stock Option Agreement between Elite Acquisitions, Inc. and Robert
R. Amerson, filed with the Form 10-K dated December 31, 1995,
incorporated herein by reference.
99.11 Stock Option Agreement between Elite Acquisitions, Inc. and Steven
K. Clark, filed with the Form 10-K dated December 31, 1995,
incorporated herein by reference.
99.12 Stock Option Agreement between Flanders Corporation and Steven K.
Clark dated February 22, 1996, filed with Form S-8 on July 21,
1997, incorporated herein by reference.
99.13 Stock Option Agreement between Flanders Corporation and Robert R.
Amerson dated February 22, 1996, filed with Form S-8 on July 21,
1997, incorporated herein by reference.
99.14 Stock Option Agreement between Flanders Corporation and Steven K.
Clark dated June 3, 1996, filed with Form S-8 on July 21, 1997,
incorporated herein by reference.
99.15 Stock Option Agreement between Flanders Corporation and Robert R.
Amerson dated June 3, 1996, filed with Form S-8 on July 21, 1997,
incorporated herein by reference.
99.16 Stock Option Agreement between Elite Acquisitions, Inc. and Thomas
T. Allan, filed with the December 31, 1995 Form 10-K, incorporated
herein by reference.
99.17 Stock Option Agreement between Elite Acquisitions, Inc. and William
M. Claytor, filed with the December 31, 1995 Form 10-K,
incorporated herein by reference.
(b) Reports on Form 8-K - None
Page 18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated this 18th day of May, 1998.
FLANDERS CORPORATION
By: /s/ Steven K. Clark
------------------------
Steven K. Clark
Vice President Finance/
Chief Financial Officer
and Director
Exhibit 10.12
<PAGE>
LETTER OF CREDIT AGREEMENT
Dated as of April 1, 1998
By and Between
FLANDERS CORPORATION
AND
SUNTRUST BANK, TAMPA BAY
_______________________________
relating to
Johnston County Industrial Facilities and
Pollution Control Financing Authority
Industrial Development Revenue Bonds
(Flanders Corporation Project),
Series 1998
_______________________________
<PAGE>
TABLE OF CONTENTS
(Not Part of Agreement)
Page
1. Definitions 1
1A. General Definitions 1
1B. Other Accounting Definitions 3
2. Issuance of Letter of Credit; Fees 3
2A. Amount and Terms of Letter of Credit 3
2B. Letter of Credit Fee 3
2C. Drawing Fees 4
2D. Transfer Fees 4
2E. Additional Payments 4
2F. Capital Adequacy 4
2G. Interest on Overdue Payments 5
3. Agreement to Repay Letter of Credit Drawings; Pledged Bonds 5
3A. Reimbursement 5
3B. Pledge of Bonds 5
3C. Reinstatement of Letter of Credit 8
3D. Credit for Amount Paid on Bonds 8
3E. Computation of Interest; Place of Payment 8
4. Conditions Precedent to Issuance of the Letter of Credit 9
4A. Delivery of the Bonds and Operative Documents 9
4B. No Default 9
4C. Representations and Warranties 9
4D. Opinions of Counsel 9
4E. Certificates of Compliance 9
4F. Opinion of Bond Counsel 9
4G Other Documents 10
4H. Documentation and Proceedings 10
5. Character of Obligations Hereunder 10
6. Representations and Warranties 10
7. Affirmative Covenants 12
8. Negative Covenants 13
9. Events of Default 13
10. Nature of Bank's Duties; Indemnification 16
11. Miscellaneous 17
11A. Amendments 17
i
<PAGE>
11B. Survival of Representations and Warranties 17
11C. Expenses 17
11D. Set-off 18
11E. Notices 18
11F. Satisfaction Requirement 18
11G. Binding Effect; Assignment 19
11H. Venue; Personal Jurisdiction 19
11I. Governing Law 19
11J. Counterparts 19
11K. Incorporation of Preambles and Annexes 19
11L. WAIVER OF TRIAL BY JURY 19
Annex I Irrevocable Letter of Credit
Annex II Pending Litigation
ii
<PAGE>
LETTER OF CREDIT AGREEMENT
THIS LETTER OF CREDIT AGREEMENT (the "Agreement"), dated as of April 1, 1998, by
and between FLANDERS CORPORATION, a North Carolina corporation (the "Company")
and SUNTRUST BANK, TAMPA BAY, a state banking corporation (the "Bank");
W I T N E S S E T H:
WHEREAS, the Company has requested that the Johnston County Industrial
Facilities and Pollution Control Financing Authority (the "Issuer") issue its
Industrial Development Revenue Bonds (Flanders Corporation Project), Series 1998
(the "Bonds"), which shall not in the aggregate be outstanding in a principal
amount in excess of $4,500,000 pursuant to an Indenture of Trust, dated as of
April 1, 1998 (the "Indenture"), by and between the Issuer and First-Citizens
Bank & Trust Company, as trustee (the "Trustee"), and to lend the proceeds of
the sale of the Bonds to the Company in order to enable the Company to finance
the acquisition, rehabilitation and equipping of manufacturing assets located in
Smithfield, North Carolina; and
WHEREAS, as security for the payment of the Bonds, the Company has requested
that the Bank issue its irrevocable direct pay letter of credit in the form of
Annex I attached hereto (the "Letter of Credit"); and
WHEREAS, it is a condition of the obligation of the Bank to execute and deliver
the Letter of Credit that this Agreement shall have been executed and delivered
by the Company;
NOW, THEREFORE, in consideration of the mutual promises contained herein and
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions.
1A. General Definitions. For the purpose of this Agreement, in addition to terms
defined elsewhere herein, including in the preamble hereto (capitalized terms
not otherwise defined below shall have the meanings provided in the Line of
Credit Agreement, as hereinafter defined, or in the Indenture) the following
terms shall have the following meanings:
"A Drawing" shall have the meaning specified in the Letters of Credit which
shall be a drawing in respect of the payment of the portion of the purchase
price of Bonds corresponding to principal of the respective series of Bonds.
<PAGE>
"B Drawing" shall have the meaning specified in the Letter of Credit which shall
be a drawing in respect of the payment of principal of the Bonds.
"Business Day" shall mean a day on which commercial banks located in St.
Petersburg, Florida, Raleigh, North Carolina and Atlanta, Georgia are required
or permitted by law or executive order to be open for the purpose of conducting
a commercial banking business.
"C Drawing" shall have the meaning specified in the Letters of Credit which
shall be a drawing in respect of the payment of interest, or the portion of the
purchase price corresponding to interest, on the Bonds.
"Date of Issuance" shall mean the date of issuance and delivery of the Letter of
Credit.
"Default" shall mean any event which with notice or lapse of time, or both,
would become an Event of Default.
"Event of Default" shall have the meaning specified in Paragraph 9.
"Hazardous Materials" shall mean any hazardous substance or any pollutant or
contaminant, toxic or dangerous waste, substance or material, as defined in or
regulated by any applicable law, regulation or governmental authority from time
to time, including, without limitation, friable asbestos and polychlorinated
biphenyls.
"Hazardous Materials Laws" shall mean, collectively, all federal, state and
local laws, ordinances or regulations, now or hereafter in effect, relating to
environmental conditions or Hazardous Materials, including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. 9601, et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. 6901, et seq., (the "RCRA"), the Clean Air Act, 42
U.S.C. 7401, et seq. (the "CAA"), the Toxic Substances Control Act, 15 U.S.C.
2601 through 2929 (the "TSCA"), and all similar federal, state and local laws
and ordinances, together with all regulations now or hereafter adopted,
published or promulgated pursuant thereto.
"Interest Component" shall mean that portion of the Stated Amount of the Letter
of Credit equal to the sum of 50 days' interest on the Bonds, computed at the
rate of 13% per annum, notwithstanding the actual rate of interest borne by the
Bonds.
"Line of Credit Agreement shall mean that certain Credit Agreement dated as of
November 10, 1997, between the Borrower and the Bank, as a Lender and
Administrative Lender, as the same may be
2
<PAGE>
supplemented and amended, and any successor document thereto or replacement
document thereof.
"Operative Documents" shall have the meaning specified in Paragraph 4A hereof.
"Person" or "person" shall mean any individual, corporation, company,
partnership, unincorporated association, trust, joint venture, estate or other
juridical entity or any governmental body or other entity of any kind.
"Principal Component" shall mean that portion of the Stated Amount of the Letter
of Credit equal to the principal amount outstanding of the Bonds secured by the
Letter of Credit.
"Project" shall mean the Project Site and the approximately 400,000-square foot
air conditioning filter manufacturing facility thereon.
"Project Site" shall mean the site of the Project located at 2120 Walpat Road,
Smithfield, North Carolina.
"Remarketing Agreement" shall mean the Remarketing Agreement dated as of the
date hereof between the Company and the Remarketing Agent, as defined in the
Indenture.
"Stated Amount" shall have the meaning specified in the Letter of Credit.
"Termination Date" shall mean the date the Letter of Credit expires in
accordance with its terms.
1B. Other Accounting Definitions. All accounting terms not specifically defined
in Paragraph 1A or in the Line of Credit Agreement shall have the meanings
normally given them by Generally Accepted Accounting Principles.
2. Issuance of Letter of Credit; Fees.
2A. Amount and Terms of Letter of Credit. The Bank agrees, on the terms and
subject to the conditions hereinafter set forth, to issue (i) the Letter of
Credit to the Trustee with a Principal Component equal to $4,500,000 initially
and with an initial Interest Component of $81,250. The Letter of Credit shall
expire on October 16, 1999, unless otherwise terminated or extended. Should the
Letter of Credit be extended, the expiration date hereof would be at least two
Business Days or five calendar days after an interest payment date on the Bonds.
2B. Letter of Credit Fee. The Company hereby agrees to pay to the Bank a
non-refundable letter of credit fee computed at the percentage rate equal to the
Applicable Margin multiplied times
3
<PAGE>
the Stated Amount of the Letter of Credit (as the same may be reduced from time
to time but including, in any event, the principal amount of any Pledged Bonds)
on the date of payment of such letter of credit fee, which letter of credit fee
shall be payable quarterly in advance in immediately available funds, with the
first payment due on the Date of Issuance, and additional payments due on the
first day of each July, October, January and April thereafter during the term of
the Letter of Credit.
2C. Drawing Fees. The Company hereby agrees to pay to the Bank, upon each
drawing for principal, interest or purchase price by the Trustee under the
Letter of Credit, the sum of $100.
2D. Transfer Fees. The Company agrees to pay to the Bank, upon each transfer of
the Letter of Credit in accordance with its terms, the sum of $1,500 or such
other amount as shall at the time of such transfer be the charge which the Bank
is making for transfers of similar letters of credit.
2E. Additional Payments. If any change in any law of regulation or in the
interpretation thereof by any court or administrative or governmental authority
charged with the administration thereof, or any change in Generally Accepted
Accounting Principles which shall be mandated and not optionally elected by the
Bank, shall either (i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against letters of credit issued by the Bank or
(ii) impose on the Bank any other condition relating, directly or indirectly, to
this Agreement or the Letter of Credit, and the result of any event referred to
in the preceding clause (i) or (ii) shall be to increase the cost to the Bank of
issuing or maintaining the Letter of Credit, then, upon demand by the Bank, the
Company hereby agrees to pay promptly to the Bank, from time to time as
specified by the Bank, such additional amounts as shall be sufficient to
compensate the Bank for such increased cost. A certificate of the Bank claiming
compensation under this subsection and setting forth the additional amount or
amounts to be paid to it hereunder and setting forth the basis upon which such
amounts were calculated shall be conclusive absent manifest error. In
determining any such amount, the Bank may use any reasonable averaging and
attribution methods.
2F. Capital Adequacy. If, after the date of this Agreement, the Bank shall have
determined that the adoption or implementation of any applicable law, rule or
regulation regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Bank with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has the effect of reducing the
rate of return on the Bank's capital, on this credit facility or otherwise, as a
4
<PAGE>
consequence of its obligations hereunder and under the Letter of Credit, or
either of them, to a level below that which the Bank could have achieved but for
such adoption, change or compliance (taking into consideration the Bank's
policies with respect to capital adequacy) by an amount deemed by the Bank to be
material, then from time to time, promptly upon demand by the Bank, the Company
hereby agrees to pay the Bank such additional amount or amounts as will
compensate the Bank for such reduction A certificate of the Bank claiming
compensation under this subsection and setting forth the additional amount or
amounts to be paid to it hereunder and setting forth the basis upon which such
amounts were calculated shall be conclusive absent manifest error. In
determining any such amount, the Bank may use any reasonable averaging and
attribution methods.
2G. Interest on Overdue Payments. The Company hereby agrees to pay to the Bank
interest on any and all amounts required to be paid as provided in this Section
2 from and after the due date thereof until payment in full, payable on demand,
at the Prime Rate plus two percent (2%) per annum, but in no event in excess of
the highest lawful rate.
3. Agreement to Repay Letter of Credit Drawings; Pledged Bonds.
3A. Reimbursement. Each A Drawing, B Drawing and C Drawing on the Letter of
Credit the amount of which is not reimbursed by or on behalf of the Borrower to
the Bank prior to the close of business on the date of such drawing shall be
deemed a Base Advance under the Line of Credit Agreement advanced on the date of
such drawing and shall be payable and bear interest in accordance with the terms
of the Line of Credit Agreement. To the extent that the notices to the Bank
required by Section 2.2 of the Line of Credit Agreement can not be timely given
in connection with any such A Drawing or C Drawing related to payment of the
purchase price of Bonds, such notices are hereby waived by the Bank. Any Note
required by the terms of the Line of Credit Agreement in connection with any
Base Advance made pursuant to this paragraph shall be executed and delivered by
the Borrower as soon as possible, but shall be dated and shall be effective as
of the date of the drawing on the Letter of Credit. To the extent that the terms
of this paragraph are inconsistent with the terms of the Line of Credit
Agreement, the parties hereto agree that the Line of Credit Agreement shall be
deemed to be amended to conform hereto.
3B. Pledge of Bonds. (i) As security for the payment of the obligations of the
Company pursuant to Paragraph 3A above, the Company hereby pledges to the Bank,
and grants to the Bank a security interest in, its right, title and interest in
and to Bonds delivered to the Bank in connection with A Drawings (herein called
"Pledged Bonds"). Any amounts from time to time owing to the bank pursuant to
paragraph 3A above may be paid (a) at any time by the
5
<PAGE>
Company in accordance with the terms of the Line of Credit Agreement on one
Business Day's notice stating the amount to be paid (which shall be $5,000 or an
integral multiple thereof) and (b) at any time on behalf of the Company on one
Business Day's notice from the Company directing the Bank to deliver (or to
cause the Trustee to deliver) a specified principal amount of Pledged Bonds held
by or on behalf of the Bank for sale pursuant to the Indenture. Upon payment to
the Bank of the amount to be paid pursuant to clause (a) or (b) above, together
with accrued interest as provided in Paragraph 3A, to the date of such payment
on the amount to be paid, the outstanding obligations of the Company under
Paragraph 3A above shall be reduced by the amount of such payment, interest
shall cease to accrued on the amount paid and the Bank shall release (or shall
be deemed to have released) from the pledge and security interest created hereby
a principal amount of Pledged Bonds equal to the amount of such payment,
provided that prior to such release from the pledge and security interest
created hereby of Bonds delivered to or for the benefit of the Bank in
connection with an A Drawing, the Company shall have paid to the Bank the amount
owing in respect of the C Drawing, if any, made in conjunction with such A
Drawing. Such Bonds shall be delivered to the Company on payment to the Bank as
aforesaid or to the Trustee for sale pursuant to the Indenture. Notwithstanding
the foregoing, no payment of amounts owing to the Bank pursuant to Paragraph 3A
may be made, and no Pledged Bonds shall be released, during the period
commencing two Business Days prior to an Interest Payment Date with respect to
the Bonds and ending at the close of business on such Interest Payment Date.
(ii) The Company hereby pledges, assigns, hypothecates, transfers, and delivers
to the Bank all its right, title and interest to, and hereby grants to the Bank
a first lien on, and security interest in, all right, title and interest of the
Company in and to (a) all Pledged Bonds; (b) all income, earnings, profits,
interest, premium or other payments in whatever form in respect of the Pledged
Bonds; and (c) all proceeds (cash and non-cash) arising out of the sale,
exchange, collection, enforcement or other disposition of all or any portion of
the Pledged Bonds (collectively, the "Pledged Bond Collateral"). The Pledged
Bond Collateral shall serve as security for the payment and performance when due
of the obligations of the Company hereunder. The Company shall deliver, or cause
to be delivered, the Pledged Bonds to the Bank or to an agent designated by the
Bank immediately upon receipt thereof or, in the case of Pledged Bonds held
under a book-entry system administered by the Securities Depository, the Company
shall cause the Pledged Bonds to be reflect on the records of the Securities
Depository as a position held by the Bank (or an agent accepted to the Bank) as
a Participant and the Bank (or its agent) shall reflect on its records that the
Pledged Bonds are owned beneficially by the Company subject to the pledge in
favor of the Bank.
6
<PAGE>
(iii) If any Event of Default shall have occurred and be continuing, the Bank,
without demand of performance or other demand, advertisement or notice of any
kind (except the notice specified below of time and place of public or private
sale) to or upon the Company or any other person (all and each of which demands,
advertisements and/or notices are hereby expressly waived) may forthwith
collect, receive, appropriate and realize upon the Pledged Bond Collateral, or
any part thereof, and/or may forthwith sell, assign, give option or options to
purchase, contract to sell or otherwise dispose of and deliver said Pledged Bond
Collateral, or any part thereof, in one or more parcels at public or private
sale or sales, at any exchange, broker's board or at any of the Bank's offices
or elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk, with the right to the Bank upon any such sale or
sales, public or private, to purchase the whole or any part of said Pledged Bond
Collateral so sold, free of any right or equity of redemption in the Company,
which right or equity is hereby expressly waived or released. The Bank shall
apply the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and expenses of every
kind incurred therein or incidental to the care, safekeeping or otherwise o any
and all of the Pledged Bond Collateral or in any way relating to the rights of
the Bank hereunder, including reasonable attorneys' fees and legal expenses, to
the payment in whole or in part of the obligations of the Company hereunder in
such order as the Bank may elect, the Company remaining liable for any
deficiency remaining unpaid after such application, and only after so applying
such net proceeds and after the payment by the Bank of any other amount required
by any provision of law, including, without limitation, Section 9-504(1)(c) of
the Uniform Commercial Code, need the Bank account for the surplus, if any, to
the Company. The Company agrees that the Bank need not give more than ten (10)
days written notice of the time and place of any public sale or of the time
after which a private sale or other intended disposition is to take place and
that such notice is reasonable notification of such matters. No notification
need be given to the Company if it has signed after Default a statement
renouncing or modifying any right to notification of sale or other intended
disposition. In addition to the rights and remedies granted to the Bank in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to any of the obligations of the Company hereunder, the Bank shall have
all the rights and remedies of a secured party under the Uniform Commercial Code
in effect in the State of Florida at that time.
(iv) The Company covenants that the pledge, assignment and delivery of the
Pledged Bond Collateral hereunder will create a valid, perfect, first priority
security interest in all right, title and interest of the Company in or to such
Pledged Bond
7
<PAGE>
Collateral, and the proceeds thereof, subject to no prior pledge, lien,
mortgage, hypothecation, security interest, charge, option or encumbrance or to
any agreement purporting to grant to any third party a security interest in the
property or assets of the Company which would include the Pledged Bond
Collateral. The Company covenants and agrees that it will defend the Bank's
right, title and security interest in and to the Pledged Bond Collateral and the
proceeds thereof against the claims and demands of all persons whomsoever.
(v) Pledged Bonds shall be released from the security interest created hereunder
upon satisfaction of the obligations of the Company with respect to such Pledged
Bonds as provided in Paragraph 3 hereof.
3C. Reinstatement of Letter of Credit. After any "C Drawing", the obligation of
the Bank to honor demands for payment under the Letter of Credit with respect to
payment of interest, or the portion of Purchase Price of the Bonds corresponding
to interest, on the Bonds will automatically be reinstated up to the total
amount specified therein, upon the terms and conditions set forth in the Letter
of Credit. Upon release by or on behalf of the Bank pursuant to Paragraph 3B
hereof of any Pledged Bonds, the obligation of the Bank to honor demands for
payment under the Letter of Credit with respect to payment of the principal, or
the portion of Purchase Price of the Bonds corresponding to principal, of such
bonds will be automatically reinstated up to the total amount specified therein
upon the terms and conditions set forth in the Letter of Credit.
3D. Credit for Amount Paid on Bonds. The Company shall (i) receive a credit
against the obligation to pay interest pursuant to Paragraph 3A above to the
extent of any amounts actually paid by or on behalf of the Company or the Issuer
to the Bank in respect of the interest due on any Pledged Bonds and (ii) receive
a credit against its reimbursement obligation pursuant to paragraph 3A above to
the extent of any amounts actually paid by or on behalf of the Company or the
Issuer to the Bank in respect of the principal due on any Pledged Bonds.
3E. Computation of Interest; Place of Payment. Interest payable hereunder shall
be computed, and all payments by the Company to the Bank hereunder shall be made
in awful currency of the United States and in immediately available funds at the
Bank's office, all as provided in the Line of Credit Agreement. In the event the
date specified for any payment hereunder is not a Business Day (as defined in
the Line of Credit Agreement), such payment shall be made on the next following
Business Day (as defined in the Line of Credit Agreement) and interest shall be
paid at the rate provided for herein on any such payment to the Business Day (as
defined in the Line of Credit Agreement) on which such payment is made.
8
<PAGE>
4. Conditions Precedent to Issuance of the Letter of Credit. This Agreement
shall become effective, and the Bank will issue the Letter of Credit, on the
date the Bonds are issued and sold to the purchaser(s) thereof, provided that
all of the following conditions are met:
4A. Delivery of the Bonds and Operative Documents. This Agreement, the Loan
Agreement, the Indenture, the Pledge Agreement, the Remarketing Agreement
(collectively, the "Operative Documents") and such other documents as the Bank
shall reasonable require, and the Bonds shall have been executed and delivered
by the parties thereto, each in form and substance satisfactory to the Bank. The
Bank shall have received an executed or conformed copy of each of the Operative
Documents.
4B. On the Date of Issuance and after giving effect to the issuance of the
Letter of Credit, there shall exist no Default or Event of Default.
4C. Representations and Warranties. On the Date of Issuance and after giving
effect to the issuance of the Letter of Credit, all representations and
warranties of the Company contained herein, in the other Operative Documents, in
the Line of Credit Agreement or otherwise made in writing in connection herewith
shall be true and correct with the same force and effect as though such
representations and warranties had been made on and as of such date.
4D. Opinions of Counsel. There shall have been delivered to the Bank opinions of
Snell & Wilmer, in their capacity as counsel to the Company, dated the Date of
Issuance, which opinions shall be in form and substance satisfactory to the Bank
and shall cover such matters as the Bank may reasonable request.
4E. Certificates of Compliance. There shall have been delivered to the Bank
certificates of duly authorized officers of the Company, dated the Date of
Issuance, to the effect that all of the conditions specified in Paragraphs 4B
and 4C have been satisfied as of such date and covering such additional matters
as the Bank may reasonably request.
4F. Opinion of Bond Counsel. There shall have been delivered to the Bank an
opinion (or a signed copy of such opinion together with a satisfactory reliance
letter) of Hunton & Williams in its capacity as Bond Counsel, dated the Date of
Issuance and in form and substance satisfactory to the Bank, to the effect that
the Bonds are legal, valid and binding obligations of the Issuer and that as of
the Date of Issuance interest on the Bonds issued on such date is not includable
in gross income for federal income tax purposes under existing statutes,
regulations and rulings, and covering such other matters as the Bank may
reasonably request.
9
<PAGE>
4G. Other Documents. There shall have been delivered to the Bank such other
information, documents, instruments, approvals (and if requested by the Bank,
certified duplicates of executed copies thereof) or opinions as the Bank or its
counsel may reasonably request.
4H. Documentation and Proceedings. All corporate and legal proceedings and all
instruments in connection with the transactions contemplated by this Agreement
and the other Operative Documents shall be satisfactory in form and substance to
the Bank and its counsel and the Bank shall have received all information and
copies of all documents, including records of corporate proceedings,
governmental approvals and incumbency certificates which it may have reasonably
requested in connection with the transactions contemplated by this Agreement and
the other Operative Documents, such documents where appropriate to be certified
by proper officers.
5. Character of Obligations Hereunder. The obligations of the Company under this
Agreement are primary, absolute, independent, irrevocable and unconditional. The
Company understands and agrees that no payment by it under any other agreement
(whether voluntary or involuntary or pursuant to court order or otherwise) shall
constitute a defense to the several obligations hereunder except to the extent
that the Bank has been indefeasibly paid in full.
6. Representations and Warranties. All representations and warranties of the
Company made in Section 4 of the Line of Credit Agreement are deemed hereby
repeated as of the date hereof and incorporated herein by reference to the same
extent as if fully repeated herein. Any amendment or modification of Section 4
of the Line of Credit Agreement shall be deemed an amendment or modification
hereof. All representations and warranties hereby incorporated shall continue
herein for the entire term of this Agreement despite the termination or
expiration of the Line of Credit Agreement.
In addition, the Company hereby represents and warrants as follows:
(a) Authorization; no Conflict.
The execution, delivery and performance by the Company of this Agreement and
each other Operative Document and the consummation of the transactions
contemplated hereby and thereby are within the Company's corporate powers, have
been duly authorized by all necessary corporate action, and do not and will not
(i) conflict with, contravene or violate any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
presently in effect having applicability to the Company or of the Articles of
10
<PAGE>
Incorporation or bylaws of the Company, including all amendments thereto, which
violation could have a material adverse effect on the Company, including,
without limitation, on the financial condition thereof, (ii) result in a breach
of or constitute a default under any material indenture or loan or credit
agreement or any other agreement, lease or instrument to which the Company is a
party or by which it or its properties may be bound or affected, or (iii) except
as provided in or contemplated by the Operative Documents, result in or require
the creation of any material lien, security interest or other charge or
encumbrance upon or with respect to any of the Company's properties.
(b) Approvals. No consent of any person and no authorization or approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the valid or due execution, delivery and
performance by the Company of any Operative Document, other than such consents,
authorizations, approvals or actions as have already been obtained or which
cannot be obtained on the date hereof and are not required to be obtained on the
date hereof. The Company is in compliance with all of the terms and conditions
of each such consent, authorization, approval or action already obtained, has
applied for each such consent, authorization, approval or action that may be
applied for at this time and has met or has made provisions adequate for meeting
all requirements for each such consent, authorization, approval or action not
yet obtained.
(c) Binding Obligations. Each of the Operative Documents is a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws or equitable principles
relating to or limiting creditors' rights generally.
(d) Information. No certificate, report or other paper furnished by the Company
to the Bank or any other Person in connection with the Operative Documents
contains as of its effective date any material misstatement of fact or fails to
state a material fact or any fact necessary to make the statements contained
therein not misleading in any material respect as of such date, and all of the
information contained therein is true, accurate and complete in all material
respects as of such date.
(e) Environmental Matters. Except with respect to matters that have been
previously disclosed to the Bank in writing, the Company is in compliance in all
material respects with all federal, state and local environmental laws, rules,
regulations, ordinances and other requirements including, without limitation,
all Hazardous Materials Laws.
11
<PAGE>
(f) Line of Credit Agreement. The Line of Credit Agreement has been duly
authorized, executed and delivered by the Company and is and continues to be on
the date hereof a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms.
7. Affirmative Covenants. All affirmative covenants of the Company set forth in
Section 6 of the Line of Credit Agreement are deemed hereby repeated and
incorporated herein by reference to the same extent as if fully repeated herein.
Any amendment or modification of Section 6 of the Line of Credit Agreement shall
be deemed an amendment or modification hereof. All covenants hereby incorporated
shall continue herein for the entire term of this Agreement despite the
termination or expiration of the Line of Credit Agreement. In addition to the
foregoing, the Company shall, unless the Bank shall otherwise consent in
writing, observe and perform the following covenants and agreements:
(a) duly and punctually pay all amounts payable hereunder at the times and
places and in the manner required by the terms thereof;
(b) at the time of delivery of the certificate required by Section 6.1(c) of the
Line of Credit Agreement, deliver to the Bank a certificate executed by the
chief financial officer of the Company indicating compliance with Paragraphs 7
and 8 hereof and stating that to the best of such officer's knowledge, (i) the
Company has kept, performed and fulfilled each and every agreement binding on it
contained in the Operative Documents and is not at this time in default of the
keeping, observance, performance or fulfillment of any of the terms, provisions
and conditions thereof, and (ii) no Events of Default or Defaults have occurred
(or specifying all Events of Default or Defaults of which such officer has
knowledge and what actions the Company is taking or proposes to take with
respect thereto);
(c) immediately notify the Bank of any Event of Default of which it becomes
aware, using reasonable diligence, and provide the Bank at the time of
notification with a certificate of an officer of the Company setting out the
action or proposed action to be taken by the Company with respect thereto to
cure such Event of Default;
(d) immediately notify the Bank (including in the notification the intended
action to be taken by the Company), upon (i) learning of any environmental
claim, complaint, notice or order affecting it or any of its Subsidiaries, (ii)
learning of the existence of Hazardous Materials located on, above or below the
surface of any land which it or any of its Subsidiaries occupies or controls
(except those being stored, used or otherwise handled in compliance with
applicable Requirements of Law), or contained in the soil or water constituting
such land and (iii) the occurrence
12
<PAGE>
of any reportable release, spill, leak, emission, discharge, leaching, dumping
or disposal of Hazardous Materials that has occurred on or from such land which,
as to either (i), (ii) or (iii), could have a material and adverse effect on the
financial condition of the Company and its Subsidiaries, considered as a whole,
or the ability of any of the Company or its Subsidiaries to perform its
obligations under this Agreement, or the Operative Documents to which it is a
party from time to time;
(e) upon the request of the Bank, use reasonable efforts to provide the Bank
with such other documents, opinions, consents, acknowledgments and agreements as
are reasonably necessary to implement, and monitor compliance with, this
Agreement from time to time;
8. Negative Covenants. All negative covenants of the Company set forth in
Section 7 of the Line of Credit Agreement are deemed hereby repeated and
incorporated herein by reference to the same extent as if fully repeated herein.
Any amendment or modification of Section 7 of the Line of Credit Agreement shall
be deemed an amendment or modification hereof. All covenants hereby incorporated
shall continue herein for the entire term of this Agreement despite the
termination or expiration of the Line of Credit Agreement.
In addition, the Company covenants and agrees that it shall not create, incur,
assume or suffer to exist any mortgage or lien upon or security interest in any
property, real or personal, including without limitation, the Project and the
Project Site, financed with the proceeds of the Bonds, whether now owned or
hereafter acquired, except:
i. Liens existing on the date hereof and identified in writing to the Bank;
ii. Liens for taxes not yet due or which are being contested in good faith and
by appropriate proceedings and for which adequate reserves in accordance with
generally accepted accounting principles have been established on the books of
the Company;
iii. Easements, reservations, exceptions, rights-of-way, covenants, conditions,
restrictions and other similar encumbrances incurred in the ordinary course of
business which, in the aggregate, are not substantial in amount, and which do
not in any case materially detract from the value of the property subject
thereto or interfere with the ordinary conduct of its business.
9. Events of Default. Upon the occurrence of any of the following events (herein
referred to as an "Event of Default"), unless waived by the Bank:
13
<PAGE>
(i) the occurrence of a "Default" or an "Event of Default" as described and
defined in any of the Operative Documents or the occurrence of an "Event of
Default" as described and defined in the Line of Credit Agreement or the
expiration or termination or the Line of Credit Agreement;
(ii) failure of the Company to pay any amount when due under the terms of this
Agreement;
(iii) failure on the part of the Company to perform or observe any term,
covenant or agreement contained or incorporated in this Agreement, in any of the
Operative Documents or in the Line of Credit Agreement to which it is a party on
its part to be performed or observed, other than payment obligations, and (a)
with respect to any such term, covenant or agreement contained or incorporated
herein, any such failure remains unremedied for 30 days after the earlier of its
discovery by the Company or written notice thereof to the Company by the Bank;
and (b) with respect to any such term, covenant or agreement contained in any of
the other Operative Documents to which the Company is a party or in the Line of
Credit Agreement, any such failure remains unremedied after any applicable grace
period specified in such Operative Documents;
(iv) a default or event of default shall occur under any loan agreement, line of
credit or other loan document or contract between the Company and the Bank and
the Company shall not cure the same within any cure period provided therein;
(v) any warranty, representation or other written statement made by or on behalf
of the Company contained or incorporated herein, in any of the other Operative
Documents to which it is a party or in any instrument furnished in compliance
with or in reference to this Agreement is false or misleading in any material
respect on the date as of which made;
(vi) the Company shall fail to pay its debts generally as they come due, or
shall file any petition or action for relief under any bankruptcy,
reorganization, insolvency or moratorium law, or any other law or laws for the
relief of, or relating to, debtors;
(vii) an involuntary petition shall be filed under any bankruptcy statute
against the Company, or a custodian, receiver, trustee, assignee for the benefit
of creditors (or other similar official) shall be appointed to take possession,
custody, or control of the properties of the Company, unless such petition or
appointment is set aside or withdrawn or
14
<PAGE>
ceases to be in effect within sixty (60) days from the date of said filing or
appointment;
(viii) any default shall occur under any other agreement involving the material
borrowing of money or the material extension of credit under which the Company
may be obligated as borrower or guarantor, (I) if such default consists of the
failure to pay indebtedness when due or (II) if such default causes the
acceleration of any indebtedness or the termination of any commitment to lend,
or (III) if such default permits, or would permit with notice and/or the passage
of time, the holder of any such obligation to accelerate any indebtedness or to
terminate any commitment to lend, unless the Company is, in good faith,
contesting such default and such contest will toll or stay the acceleration of
such indebtedness or termination of such commitment;
then, and in any such event, the Bank may, in its sole discretion, but shall not
be obligated to, (1) by notice to the Company, declare all amounts payable by
the Company hereunder (including, without limitation, amounts payable pursuant
to Paragraph 3A hereof) to be forthwith due and payable, and the same shall
thereupon become due and payable without demand, presentment, protest or further
notice of any kind, all of which are hereby expressly waived, and/or (2)
exercise all of its rights and remedies under the Operative Documents and/or (3)
by notice to the Trustee, require the Trustee to accelerate payment of all Bonds
and interest accrued thereon as provided in Section 9.02 of the Indenture.
No remedy herein conferred or reserved is intended to be exclusive of any other
available remedy or remedies, but each and every such remedy shall be cumulative
and shall be in addition to every other remedy given under this Agreement or any
other Operative Document or now or hereafter existing at law or in equity or by
statute. No delay or omission to exercise any right or power accruing upon any
default, omission or failure of performance hereunder shall impair any such
right or power or shall be construed to be a waiver thereof, but any such right
or power may be exercised from time to time and as often as may be deemed
expedient. In order to exercise any remedy reserved to the Bank in this
Agreement, it shall not be necessary to give any notice, other than such notice
as may be herein expressly required. In the event any provision contained in
this Agreement should be breached by any party and thereafter duly waived by the
other party so empowered to act, such waiver shall be limited to the particular
breach so waived and shall not be deemed to waive any other breach hereunder. No
waiver, amendment, release or modification of this Agreement shall be
established by conduct, custom or course of dealing, but solely by an instrument
in writing duly executed by the parties thereunto duly authorized by this
Agreement.
15
<PAGE>
10. Nature of Bank's Duties; Indemnification. As between the Company and the
Bank, the Company shall assume all risks of the acts, omissions or misuse of the
Letter of Credit by the Trustee. The Bank shall not be responsible: (i) for the
form, validity, sufficiency, accuracy, genuineness or legal effect of any
document submitted by any party in connection with the application for and
issuance of the Letter of Credit even if it should in fact prove to be in any or
all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for
the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign the Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) for failure of the Trustee to
comply fully with conditions required in order to draw upon the Letter of
Credit; (iv) for errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether
or not they be in cipher; (v) for errors in interpretation of technical terms;
(vi) for any loss or delay in the transmission or otherwise of any document or
draft required in order to make a draw under the Letter of Credit or of proceeds
thereof; and (vii) for any consequences arising from causes beyond the control
of the Bank. None of the above shall affect, impair, or prevent the vesting of
any of the Bank's rights or powers hereunder.
In furtherance and extension and not in limitation of the specific provisions
hereinabove set forth, any action taken or omitted by the Bank, under or in
connection with the Letter of Credit or the related drafts of document(s), if
taken or omitted in good faith, shall be binding upon the Company and shall not
put the Bank under any resulting liability to the Company.
The Company hereby agrees at all times to protect, indemnify and save harmless
the Bank from and against any and all claims, actions, suits and other legal
proceedings, and from and against any and all losses, claims, demands,
liabilities, damages, costs, charges, counsel fees and other expenses which the
Bank may, at any time, sustain or incur by reason of or in consequences of or
arising out of (i) the issuance of the Letter of Credit, (ii) any breach by any
party (other than the Bank or an affiliate of the Bank) of any warranty,
covenant, term or condition in, or the occurrence of any default under, this
Agreement, any other Operative Document or the Bonds, together with all
reasonable expenses resulting from the compromise or defense of any claims or
liabilities arising as a result of any such breach or default, and (iii) defense
against any legal action commenced to challenge the validity of any of the above
referred to instruments, it being the intention of the parties that this
Agreement shall be construed and applied to protect and indemnify the Bank
against any and all risks involved in the issuance of the Letter of Credit, all
of which risks are hereby assumed by the Company, including, without limitation,
any and all risks of the acts or omissions, whether
16
<PAGE>
rightful or wrongful, of any present or future de jure or de facto government or
governmental authority (all such acts and omissions, herein called "Government
Acts"). The Bank shall not, in any way, be liable for any failure by the Bank or
anyone else to pay any draft under the Letter of Credit as a result of any
Government Acts or any other cause beyond the control of the Bank. The
obligations of the Company under this Paragraph 10 shall survive the payment of
the Bonds and the termination of this Agreement.
Notwithstanding anything to the contrary contained in this Paragraph 10, the
Company shall not have any obligation to indemnify the Bank in respect of any
liability incurred by the Bank arising solely out of the gross negligence or
willful misconduct of the Bank or out of the wrongful dishonor by the Bank of a
proper demand for payment made under the Letter of Credit.
11. Miscellaneous.
11A. Amendments. This Agreement may be amended, and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, if the Company shall obtain the written consent of the Bank. No
course of dealing between the Company and the Bank, nor any delay in exercising
any rights hereunder shall operate as a waiver of any rights of the Bank
hereunder.
11B. Survival of Representations and Warranties. All representations and
warranties contained herein or made in writing by the Company in connection
herewith shall survive the execution and delivery of this Agreement, regardless
of any investigation made by the Bank or on its behalf.
11C. Expenses. The Company hereby agrees to pay promptly all reasonable costs
and expenses in connection with the preparation, issuance, delivery, filing,
recording and administration of the Letter of Credit, this Agreement, the other
Operative Documents, the Bonds and any other documents which may be delivered in
connection with this Agreement, including, without limitation, the fees and
expenses of Holland & Knight LLP (not to exceed $22,500), and all costs and
expenses (including reasonable counsel fees and expenses) in connection with (i)
the transfer, drawing upon, change in terms, maintenance, renewal or
cancellation of the Letter of Credit, (ii) any and all amounts which the Bank
has paid relative to the Bank's curing of any Event of Default resulting from
the acts or omissions of the Company under this Agreement, any other Operative
Document or the Bonds, (iii) the enforcement of this Agreement or any other
Operative Document, or (iv) any action or proceeding relating to a court order,
injunction or other process or decree restraining or seeking to restrain the
Bank from paying any amount under the Letter of Credit. In addition, the Company
hereby agrees to pay any and all stamp and other taxes and fees payable or
determined to be payable in
17
<PAGE>
connection with the execution, delivery, filing and recording of the Letter of
Credit, this Agreement, any other Operative Document or the Bonds, or any other
documents which may be delivered in connection with this Agreement, and agrees
to save the Bank harmless from and against any and all liabilities with respect
to or resulting from any delay in paying or omission to pay such taxes and fees.
Notwithstanding the foregoing, not payment shall be required under this
Paragraph 11C in respect of any cost or expense the Bank has incurred because of
its gross negligence or willful misconduct.
11D. Set-off. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, during the
continuance of any Event of Default hereunder the Bank is hereby authorized at
any time and from time to time, without notice to the Company or to any other
person or entity, any such notice being hereby expressly waived, to set-off and
to appropriate and apply any and all deposits (general or special) and any other
indebtedness at any time held or owing by the Bank to or for the credit or the
account of the Company against and on account of the obligations and liabilities
of the Company to the Bank under this Agreement, irrespective of whether or not
the Bank shall have made any demand hereunder and although said obligations,
liabilities or claims, or any of them, shall be contingent or unmatured.
11E. Notices. Except as otherwise specified herein, all notices hereunder shall
be given by United States certified or registered mail, by overnight courier or
delivery service for which a receipt must be sighed by the recipient, or by
telecommunication device capable of creating written record of such notice and
its receipt. Notices hereunder shall be effective when received and shall be
addresses as follows:
If to the Bank, to: SunTrust Bank, Tampa Bay
300 1st Avenue South
St. Petersburg, Florida 33701
Attn: Corporate Banking Division
If to the Company, to: Flanders Corporation
c/o Precisionaire, Inc.
2399 26th Avenue North
St. Petersburg, Florida 33713
Attention: Steven K. Clark
11F. Satisfaction Requirement. If any agreement, certificate or other writing,
or any action taken or to be taken, is by the terms of this Agreement required
to be satisfactory to the Bank, the determination of such satisfaction shall be
made by the Bank in its sole and exclusive judgment exercised in good faith.
18
<PAGE>
11G. Bind Effect; Assignment. This Agreement is a continuing obligations and
shall (i) be biding upon the Company and its successors, transferees and assigns
and (ii) inure to the benefit of and be enforceable by the Bank and its
successors, transferees and assigns; provided, however, that the Company may not
assign all or any part of this Agreement without the prior written consent of
the Bank. The Bank may assign, negotiate, pledge or otherwise hypothecate all of
any portion of this Agreement, or grant participations herein, in the Letter of
Credit or in any of its rights or security hereunder, including, without
limitation, the instruments securing the Company's obligations hereunder. No
such assignment or participation by the Bank, however, will relieve the Bank of
its obligation under the Letter of Credit. In connection with any assignment or
participation, the Bank may disclose to the proposed assignee or participant any
information that the Company is required to deliver to the Bank pursuant to this
Agreement.
11H. Venue; Personal Jurisdiction. In any litigation in connection with or to
enforce the provisions hereof or of the Line of Credit Agreement, the Company
irrevocably consents to and confers personal jurisdiction on the courts of the
State of Florida or the United States courts within the State of Florida,
expressly waives any objections as to venue in any of such courts, and agrees
that service of process may be made on the Company by mailing a copy of the
summons and complaint by registered or certified mail, return receipt requested,
to the address set forth herein (or otherwise expressly provided in writing).
Nothing contained herein shall, however, prevent the Bank from bringing any
action or exercising any rights within any other state or jurisdiction or from
obtaining personal jurisdiction by any other means available by applicable law.
11I. Governing Law. This Agreement is being delivered and is intended to be
performed in the State of Florida, and shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
such State.
11J. Counterparts. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
11K. Incorporation of Preambles and Annexes. The preambles appearing at the
beginning of this Agreement and all annexes to this agreement are hereby
incorporated into this Agreement by reference.
11L. WAIVER OF TRIAL BY JURY. THE COMPANY AND THE BANK HEREBY KNOWINGLY,
IRREVOCABLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RGHT TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED ON
19
<PAGE>
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH THIS AGREEMENT, OR ANY OTHER DOCUMENT EXECUTED IN CONJUNCTION
WITH THE TRANSACTIONS CONTEMPLATED THEREUNDER, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENT (WHETHER ORAL OR WRITTEN), OR ACTION OF ANY PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK TO ENTER INTO THE TRANSACTIONS
EVIDENCED HEREBY.
[Signature page follows]
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their respective duly authorized officers as of the
day and year first above written.
ATTEST: FLANDERS CORPORATION
By: _______________________________
Title: ____________________________ By: /s/ Steven K. Clark
Title: Vice President
SUNTRUST BANK, TAMPA BAY
By: /s/ Frank A. Coe
Title: Vice President
[CORPORATE SEAL]
CONSENTED TO:
ZIONS FIRST NATIONAL BANK
By: /s/ Brett Eliason
Title: Vice President
21
EXHIBIT 10.13
<PAGE>
THE JOHNSTON COUNTY INDUSTRIAL FACILITIES AND
POLLUTION CONTROL FINANCING AUTHORITY,
as Issuer,
and
FLANDERS CORPORATION,
as Company
____________________________________
LOAN AGREEMENT
____________________________________
Dated as of April 1, 1998
Relating to
$4,500,000
The Johnston County Industrial Facilities and
Pollution Control Financing Authority
Industrial Development Revenue Bonds
(Flanders Corporation Project), Series 1998
The interest of The Johnston County Industrial Facilities and Pollution Control
Financing Authority (the "Issuer") in this Loan Agreement has been assigned
(except for "Reserved Rights" defined in this Loan Agreement) pursuant to the
Indenture of Trust dated as of the date hereof from the Issuer to First-Citizens
Bank & Trust Company, Raleigh, North Carolina, as trustee (the "Trustee"), and
is subject to the security interest of the Trustee thereunder.
<PAGE>
LOAN AGREEMENT
TABLE OF CONTENTS
(This Table of Contents is not a part of the Loan Agreement and is only for
convenience of reference.)
Page
ARTICLE I
DEFINITIONS
Section 1.1. Definitions 2
Section 1.2. Uses of Words and Phrases 4
ARTICLE II
REPRESENTATIONS, CERTAIN COVENANTS AND WARRANTIES
Section 2.1. Representations and Warranties of the Issuer 5
Section 2.2. No Representation or Warranty by Issuer as to Project 6
Section 2.3. Representations and Warranties of the Company 7
Section 2.4. Notice of Determination of Taxability 9
ARTICLE III
ACQUISITION AND CONSTRUCTION OF THE PROJECT; ISSUANCE OF THE BONDS;
SPECIAL COVENANTS
Section 3.1. Agreement to Acquire the Project 9
Section 3.2. Agreement to Issue the Bonds; Application of Bond Proceeds 10
Section 3.3. Disbursements from the Project Fund 10
Section 3.4. Furnishing Documents to the Trustee 10
Section 3.5. Establishment of Completion Date 10
Section 3.6. Company Required to Pay in Event Project Fund Insufficient 11
Section 3.7. Special Arbitrage Certifications 11
Section 3.8. Use of Proceeds; Special Tax Covenants 11
Section 3.9. Modification and Termination of Special Tax Covenants 15
Section 3.10. Arbitrage and Rebate 15
ARTICLE IV
LOAN PROVISIONS; SUBSTITUTE CREDIT FACILITY
Section 4.1. Loan of Proceeds 16
Section 4.2. Amounts Payable 16
Section 4.3. Obligations of Company Unconditional 17
Section 4.4. Substitute Credit Facility 18
- i -
<PAGE>
ARTICLE V
PREPAYMENT, PURCHASE AND REDEMPTION
Section 5.1. Prepayment and Redemption 19
ARTICLE VI
SPECIAL COVENANTS
Section 6.1. No Warranty of Condition or Suitability by Issuer 19
Section 6.2. Access to the Project 20
Section 6.3. Further Assurances and Corrective Instruments 20
Section 6.4. Issuer and Company Representatives 20
Section 6.5. Financing Statements 20
Section 6.6. Covenant to Provide Continuing Disclosure 20
Section 6.7. Annual Report of Outstanding Bonds 20
ARTICLE VII
ASSIGNMENT, SELLING, LEASING; INDEMNIFICATION, MERGER OR ASSET SALE,
MAINTENANCE AND REPAIR, TAXES
Section 7.1. Assignment, Selling and Leasing 21
Section 7.2. Release and Indemnification 21
Section 7.3. Indemnity Against Claims 22
Section 7.4. Issuer to Grant Security Interest to Trustee 22
Section 7.5. Maintenance of Existence; Merger; Asset Transfer 22
Section 7.5. Company's Obligations to Maintain and Repair 23
Section 7.6. Taxes and Other Charges 23
Section 7.7. Damage, Destruction or Loss of Property; Obligation
to Rebuild; Use of Insurance Proceeds and Condemnation
Awards 23
ARTICLE VIII
DEFAULTS AND REMEDIES
Section 8.1. Defaults Defined 24
Section 8.2. Remedies on Default 25
Section 8.3. No Remedy Exclusive 25
Section 8.4. Agreement to Pay Attorneys' Fees and Expenses 26
Section 8.5. No Additional Waiver Implied by One Waiver 26
ARTICLE IX
MISCELLANEOUS
Section 9.1. Term of Agreement 26
Section 9.2. Notices 26
Section 9.3. Binding Effect 27
Section 9.4. Severability 28
Section 9.5. Amounts Remaining in Funds 28
- ii -
<PAGE>
Section 9.6. No Liability of Issuer; No Charge Against Issuer's Credit 28
Section 9.7. If Performance Date Not a Business Day 29
Section 9.8. Amendments, Changes and Modifications 29
Section 9.9. Execution in Counterparts 29
Section 9.10. Applicable Law 29
Section 9.11. Captions 29
Section 9.12. No Third Party Beneficiary 29
EXHIBIT A - Description of Project A-1
EXHIBIT B - Form of Promissory Note B-1
EXHIBIT C - Form of Project Fund Certificate and Requisition C-1
EXHIBIT D - Certificate of Completion D-1
- iii -
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of April 1, 1998, between THE JOHNSTON COUNTY
INDUSTRIAL FACILITIES AND POLLUTION CONTROL FINANCING AUTHORITY (the "Issuer"),
a political subdivision duly organized and existing under the laws and
Constitution of the State of North Carolina (the "State") and FLANDERS
CORPORATION, a corporation duly organized and existing under the laws of the
State of North Carolina (the "Company");
W I T N E S S E T H:
WHEREAS, the Industrial and Pollution Control Facilities Financing Act, Chapter
159C of the General Statutes of North Carolina, as amended (the "Act"),
authorizes the creation of industrial facilities and pollution control financing
authorities by the several counties in North Carolina and empowers such
authorities to acquire, construct, own, repair, maintain, extend, improve,
rehabilitate, renovate, furnish, equip and sell, lease, exchange, transfer or
otherwise dispose of industrial or manufacturing facilities to the end that such
authorities may be able to promote the right to gainful employment opportunity
and private industry and thereby promote the general welfare of the inhabitants
of North Carolina by exercising such powers to aid in financing industrial or
manufacturing facilities for the purpose of alleviating unemployment or raising
below average manufacturing wages, and further authorizes such authorities to
loan to others the proceeds of bonds issued for the purpose of paying for all or
any part of an industrial or manufacturing facility, to mortgage and pledge any
or all of such facilities, whether then owned or thereafter acquired, as
security for the payment of the principal of, premium, if any, and interest on
any such bonds and any agreements made in connection therewith and to pledge or
assign the revenues and receipts from such facilities or loan or from any other
source to the payment of such bonds; and
WHEREAS, the Issuer has been duly organized pursuant to the Act; and
WHEREAS, in order to further the purposes of the Act, the Issuer proposes to
undertake the financing of the acquisition and rehabilitation of a building and
installation of equipment therein for the manufacture of air conditioning
filters (the "Project") in Johnston County, North Carolina, which constitutes an
industrial project under the Act, and to obtain the funds therefor by the
issuance of its Bonds (as hereinafter defined) under an Indenture of Trust
securing such Bonds, between the Issuer and First-Citizens Bank & Trust Company,
Raleigh, North Carolina, as Trustee, dated as of the date hereof (the
"Indenture"); and
WHEREAS, the Issuer proposes to loan the proceeds from the sale of the Bonds, as
hereinafter defined, to the Company to acquire and install the Project upon the
terms and conditions hereinafter set forth; and
WHEREAS, the Company and SunTrust Bank, Tampa Bay, will enter into a Letter of
Credit Agreement (the "Credit Agreement") dated as of the date hereof pursuant
to which the Bank will issue an irrevocable letter of credit in an amount not to
exceed $4,581,250 to the
- 1 -
<PAGE>
Trustee at the request and for the account of the Company upon the terms set
forth in the Credit Agreement; and
WHEREAS, it has been determined that the financing of the Project will require
the issuance, sale and delivery by the Issuer of a series of bonds in the
aggregate principal amount of Four Million Five Hundred Thousand Dollars
($4,500,000) (the "Bonds");
NOW THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto covenant, agree and bind themselves as
follows: provided, that any obligation of the Issuer created by or arising out
of this Agreement shall never constitute a debt or a pledge of the faith and
credit or the taxing power of the Issuer or any political subdivision or taxing
district of the State of North Carolina but shall be payable solely out of the
Trust Estate (as defined in the Indenture), anything herein contained to the
contrary by implication or otherwise notwithstanding:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. All capitalized, undefined terms used herein shall
have the same meanings as used in Article I of the Indenture (defined below). In
addition, the following words and phrases shall have the following meanings:
"Acquisition", when used with respect to the Project means the acquisition,
rehabilitation, construction, installation and equipping of the Project,
including payment of Costs of the Project, by the Company.
"Act" means the Industrial and Pollution Control Facilities Financing Act,
Chapter 159C of the North Carolina General Statutes, as amended.
"Agreement" means this Loan Agreement between the Issuer and the Company and any
modifications, alterations and supplements hereto made in accordance with the
provisions hereof and of the Indenture.
"Bond Documents" means this Agreement, the Indenture and the Bonds, and the
Note.
"Company Documents" means this Agreement, the Note, the Placement Contract, the
Remarketing Agreement and the Credit Agreement.
"Completion Date" means the date of delivery to the Trustee of the Certificate
of Completion of the Project required by Section 3.5 of the Agreement.
- 2 -
<PAGE>
"Cost(s) of the Project", "Cost" or "Costs" means all costs and allowances which
the Issuer or the Company may properly pay or accrue, or reimburse itself (under
the Code), for the Project and which, under generally accepted accounting
principles, are chargeable to the capital account of the Project or could be so
charged either with a proper election to capitalize such costs or, but for a
proper election, to expense such costs, including (without limitation) the
following costs:
(a) fees and expenses incurred in preparing the plans and specifications for the
Project (including any preliminary study or planning or any aspect thereof); any
labor, services, construction materials and supplies used and/or furnished in
site improvement; any equipment for the Project; any acquisition necessary to
provide utility services or other services, including trackage to provide the
Project with public transportation facilities, roadways, parking lots, water
supply, sewage and waste disposal facilities; and all real and tangible personal
property deemed necessary by the Company and acquired in connection with the
Project;
(b) fees for architectural, engineering, supervisory and consulting services;
(c) any fees and expenses incurred in connection with perfecting and protecting
title to the Project and any fees and expenses incurred in connection with
preparing, recording or filing such documents, instruments or financing
statements as either the Company or the Issuer may deem desirable to perfect or
protect the rights of the Issuer or the Trustee under the Bond Documents;
(d) any legal, accounting or financial advisory fees and expenses, including,
without limitation, fees and expenses of Bond Counsel and counsel to the Issuer,
the Company, the Credit Facility Provider, the Placement Agent, the Remarketing
Agent or the Trustee, any fees and expenses of the Issuer, Trustee, Remarketing
Agent, Placement Agent, Credit Issuer, Tender Agent, Paying Agent or any rating
agency, filing fees, and printing and engraving costs, incurred in connection
with the authorization, issuance, sale and purchase of the Bonds, and the
preparation of the Bond Documents and all other documents in connection with the
authorization, issuance and sale of the Bonds;
(e) interest to accrue on the Bonds during construction of the Project;
(f) any administrative or other fees charged by the Issuer or reimbursement
thereto of expenses in connection with the Project until the Completion Date;
and
(g) any other costs and expenses relating to the Project which could constitute
costs or expenses for which the Issuer may expend Bond proceeds under the Act.
"Date of Issuance" means April 28, 1998, being the date of the original issuance
and delivery of the Bonds by the Issuer.
- 3 -
<PAGE>
"Default" means any Default under this Agreement as specified in and defined by
Section 8.1 hereof.
"Governing Body" means the Board of Commissioners of the County of Johnston,
North Carolina.
"Indenture" means the Indenture of Trust dated as of this date between the
Issuer and the Trustee, pursuant to which the Bonds are authorized to be issued,
and any amendments and supplements thereto.
"LGC" means the Local Government Commission of North Carolina, a division of the
Department of State Treasurer, and any successor or successors thereto.
"Net Proceeds," when used with respect to any insurance recovery or condemnation
award with respect to the Project, shall mean the gross proceeds from such
insurance recovery or condemnation award less payment of attorneys' fees, fees
and expenses of the Credit Provider and all other expenses properly incurred in
the collection of such gross proceeds.
"Note" means the Company's promissory note in the principal amount of
$4,500,000, dated April 28, 1998, in the form attached hereto as Exhibit B
hereto, issued pursuant hereto and delivered to the Issuer as consideration for
the loan of the proceeds of the Bonds for the undertaking of the Project, and
any amendment or supplement thereto or substitution therefor.
"Project" means the acquisition, rehabilitation, installation and equipping of
the facility by the Company in Smithfield, Johnston County, North Carolina, as
more particularly described in Exhibit A hereto.
"Requisition" means a written request for a disbursement from the Project Fund,
signed by a Company Representative, in the form attached hereto as Exhibit C and
satisfactorily completed as contemplated by said form.
"Reserved Rights" means amounts payable to the Issuer under Sections 3.8,
4.2(b), 7.2 and 8.4 hereof and the rights of the Issuer to receive notices and
reports and to give consents and approvals as provided herein and in the
Indenture.
"State" means the State of North Carolina.
"Term of Agreement" means the term of this Agreement as specified in Section 9.1
hereof.
Section 1.2. Uses of Words and Phrases. "Herein," "hereby," "hereunder,"
"hereof," "hereinabove," "hereinafter," and other equivalent words and phrases
refer to this Agreement and not solely to the particular portion thereof in
which any such word is used. The definitions set forth in Section 1.1 hereof
include both singular and plural. Whenever used herein, any pronoun shall be
deemed to include both singular and plural and to cover all genders.
- 4 -
<PAGE>
ARTICLE II
REPRESENTATIONS, CERTAIN COVENANTS AND WARRANTIES
Section 2.1. Representations and Warranties of the Issuer. The Issuer
represents, covenants and warrants that:
(a) Organization and Authority. The Issuer is a political subdivision within the
meaning of the Act, created and validly existing pursuant to the provisions of
the Act. The Issuer has all requisite power and authority under the Act to (i)
issue the Bonds, (ii) lend the proceeds thereof to the Company to assist the
Company in financing the cost of acquiring, constructing and equipping the
Project, and (iii) enter into, and perform its obligations under the Bond
Documents. The members of the Board of Commissioners of the Issuer are appointed
by the Board of County Commissioners of Johnston County.
(b) Pending Litigation. There are no actions, suits, proceedings, inquiries or
investigations pending, or to the knowledge of the Issuer threatened, against or
affecting the Issuer in any court or before any governmental authority or
arbitration board or tribunal, which involve the possibility of materially and
adversely affecting the transactions contemplated by the Bond Documents or
which, in any way, would materially and adversely affect the validity or
enforceability of the Bond Documents or any agreement or instrument to which the
Issuer is a party and which is used or contemplated for use in the consummation
of the transactions contemplated hereby or thereby.
(c) Issue, Sale and Other Transactions Are Legal and Authorized. The issuance
and sale of the Bonds and the execution and delivery by the Issuer of the Bond
Documents and the compliance by the Issuer with all of the provisions of each
thereof and of the Bonds (i) are within the purposes, powers and authority of
the Issuer, (ii) have been done in full compliance with the provisions of the
Act, (iii) are legal and will not conflict with or constitute on the part of the
Issuer a violation of or a breach of or default under, or result in the creation
of any lien, charge or encumbrance upon any property of the Issuer (other than
as contemplated in the Indenture) under the provisions of, any activating
resolution, by-law, indenture, mortgage, deed of trust, note agreement or other
agreement or instrument to which the Issuer is a party or by which the Issuer is
bound, or to the best of Issuer's knowledge any license, judgment, decree, law,
statute, order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Issuer or any of its activities or properties, and
(iv) have been duly authorized by all necessary action on the part of the
Issuer.
(d) Governmental Consents. Neither the nature of the Issuer nor any of its
activities or properties, nor any relationship between the Issuer and any other
person, nor any circumstance in connection with the issue, sale or delivery of
any of the Bonds is such as to require the consent, approval or authorization
of, or the filing, registration or qualification with, any governmental
authority on the part of the Issuer in connection with
- 5 -
<PAGE>
the execution, delivery and performance of the Bond Documents or the issue, sale
or delivery of the Bonds, other than those already obtained; provided, however,
no representation is made as to compliance with any federal or state securities
or "blue sky" law.
(e) No Defaults. To the best of Issuer's knowledge, no event has occurred and no
condition exists with respect to the Issuer which would constitute an "event of
default" as defined in the Bond Documents or which, with the lapse of time or
with the giving of notice or both, would become such an "event of default." The
Issuer is not in default under the Act or under any charter instrument, by-law
or other agreement or instrument to which it is a party or by which it is bound
which default would adversely affect the enforceability or taxability of the
Bonds.
(f) No Prior Pledge. Neither this Agreement nor any of the Pledged Revenues have
been pledged or hypothecated in any manner or for any purpose other than as
provided in the Indenture as security for the payment of the Bonds.
(g) Nature and Location of Project. The financing of the costs of the Project,
together with related expenses, is authorized under the Act and is in
furtherance of the public purpose for which the Issuer was created. The Project
is located in Johnston County, North Carolina.
(h) Limited Obligations. Notwithstanding anything herein contained to the
contrary, any obligation the Issuer may hereby incur for the payment of money
shall not constitute an indebtedness of the County or of the State or of any
political subdivision thereof within the meaning of any state constitutional
provision or statutory limitation and shall not give rise to a pecuniary
liability of the State or County or any political subdivision thereof, or
constitute a charge against the general credit or taxing power of said State or
County or any political subdivision thereof, but shall be limited obligations of
the Issuer payable solely from (i) the Pledged Revenues, (ii) revenues derived
from the sale of the Bonds, and (iii) amounts on deposit from time to time in
the Bond Fund, subject to the provisions of this Agreement and the Indenture
permitting the application thereof for the purposes and on the terms and
conditions set forth herein and therein.
(i) Approval of Issuance of Bonds. The Issuer has obtained approval of the
issuance of the Bonds by the Board of County Commissioners of Johnston County as
required by Section 159C-4(d) of the Act, by the Secretary of the Department of
Commerce of the State required by Section 159C-7 of the Act and by the LGC
required by Sections 159C-6, -8 and -9 of the Act.
Section 2.2. No Representation or Warranty by Issuer as to Project. THE ISSUER
MAKES NO REPRESENTATION OR WARRANTY WHATSOEVER CONCERNING THE USE OF THE
PROCEEDS OF THE SALE OF THE BONDS OR THE SUITABILITY OF THE PROJECT FOR THE
PURPOSE FOR WHICH IT IS BEING UNDERTAKEN BY THE COMPANY. The Issuer has not made
any independent investigation as to the feasibility or creditworthiness of the
Company. Any bond purchaser, assignee of the Agreement or any other
- 6 -
<PAGE>
party with any interest in this transaction, shall make its own independent
investigation as to the creditworthiness and feasibility of the Project,
independent of any representation or warranties of the Issuer.
Section 2.3. Representations and Warranties of the Company. The Company
represents, covenants and warrants that:
(a) Organization and Power. The Company (i) is a corporation duly incorporated,
validly existing and in good standing under the laws of the State, and (ii) has
all requisite power and authority and all necessary licenses and permits to own
and operate its properties and to carry on its business as now being conducted
and as presently proposed to be conducted.
(b) Pending Litigation. There are no proceedings pending, or to the knowledge of
the Company threatened, against or affecting the Company in any court or before
any governmental authority, arbitration board or tribunal which if adversely
determined, would materially and adversely affect the transactions contemplated
by the Bond Documents or which, in any way, would materially and adversely
affect the properties, business, prospects, profits or condition (financial or
otherwise) of the Company, or the ability of the Company to perform its
obligations under the Company Documents. The Company is not in default with
respect to an order of any court, governmental authority, arbitration board or
tribunal.
(c) Agreements Are Legal and Authorized. The execution and delivery by the
Company of each of the Company Documents and the compliance by the Company with
all of the provisions hereof and thereof (i) are within the corporate power of
the Company, (ii) will not conflict with or result in any breach of any of the
provisions of, or constitute a default under, or result in the creation of any
lien, charge or encumbrance upon any property of the Company under the
provisions of, any agreement, articles of incorporation, by-laws or other
instrument to which the Company is a party or by which it may be bound, or any
license, judgment, decree, law, statute, order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Company or any of
its activities or properties, and (iii) have been duly authorized by all
necessary corporate action on the part of the Company; and
(d) Enforceability of Documents. The Company Documents are valid and binding
agreements of the Company, enforceable in accordance with their respective
terms, except as the enforceability thereof may be subject to judicial decision
or limited by applicable bankruptcy, insolvency, moratorium or other similar
laws affecting the enforcement of creditors' rights generally.
(e) Compliance with Indenture. The Company has received and reviewed the
Indenture. By its execution of this Agreement, the Company acknowledges that it
has approved, has agreed to and is bound by the provisions of the Indenture. The
Company will fully and faithfully perform all the duties and obligations which
the Issuer has covenanted and agreed in the Indenture to cause the Company to
perform and any duties
- 7 -
<PAGE>
and obligations which the Company is required in the Indenture to perform. The
Company agrees that the Trustee shall be entitled to enforce and to benefit from
the terms and conditions of this Agreement that relate to it notwithstanding the
fact that it is not a signatory hereto. The foregoing shall not apply to any
duty or undertaking of the Issuer which by its nature cannot be delegated or
assigned.
(f) Governmental Consents. Neither the Company nor any of its business or
properties, nor any relationship between the Company and any other person, nor
any circumstances in connection with the execution, delivery and performance by
the Company of the Company Documents or the offer, issue, sale or delivery by
the Issuer of the Bonds for the benefit of the Company, is such as to require
the consent, approval or authorization of, or the filing, registration or
qualification with, any governmental authority on the part of the Company other
than those already obtained; provided, however, that no representation is made
as to any consents, approvals or authorizations required in connection with the
construction or occupancy of the Project, or with respect to such consents,
approvals or authorizations as may be required on the part of the Issuer.
(g) No Defaults. No event has occurred and no condition exists with respect to
the Company that would constitute an "event of default" under any of the Company
Documents or which, with the lapse of time or with the giving of notice or both,
would become such an "event of default." The Company is not in violation in any
material respect of any agreement, articles of incorporation, by-laws or other
instrument to which it is a party or by which it may be bound, which violation
might materially and adversely affect the properties, business, prospects,
profits or conditions (financial or otherwise) of the Company.
(h) Compliance with Law. The Company is not in violation in any material way of
any laws, ordinances, governmental rules or regulations to which it is subject
and has not failed to obtain any licenses, permits, franchises or other
governmental authorizations necessary to the ownership of its properties or to
the conduct of its business, which violation or failure to obtain might
materially and adversely affect the properties, business, prospects, profits or
conditions (financial or otherwise) of the Company.
(i) Restrictions on the Company. The Company is not a party to any contract or
agreement that materially and adversely affects the business of the Company.
Except for the Credit Agreement, the Company is not a party to, or bound by any
contract or agreement that restricts the right or ability of the Company to
incur or guarantee indebtedness for borrowed money to such extent as to preclude
the Company from entering into the transactions contemplated hereby, under the
Bond Documents or any other documents executed in connection herewith and
therewith.
(j) Inducement. The issuance of the Bonds by the Issuer and the lending of the
proceeds thereof to the Company to enable the Acquisition of the Project have
induced the Company to locate the Project in the County. The issuance of the
Bonds by the Issuer and the lending of the proceeds thereof to the Company to
enable the Company to
- 8 -
<PAGE>
acquire, construct and equip the Project shall assist the Company in continuing
to provide continued employment and industry in the County.
(k) Industrial Project. The Company anticipates that upon completion of the
Project, the Company will operate the Project as a "project" within the meaning
of the Act until the Bonds have been paid in full.
(l) Notice. The Project is of the type authorized and permitted by the Act, and
the Project is substantially the same in all material respects to that described
in the notice of public hearing published on December 19, 1997.
(m) Compliance With Land Use Regulations. The Project will be acquired,
constructed and installed and will be operated by the Company in such manner as
to conform in all material respects with all applicable zoning, planning,
building, environmental and other regulations of the governmental authorities
having jurisdiction over the Project.
(n) Application of Proceeds. The Company will cause all of the proceeds of the
Bonds to be applied solely to the payment of Costs of the Project.
(o) Location of Project. The Project is located entirely within the geographical
boundaries of Johnston County, North Carolina.
Section 2.4. Notice of Determination of Taxability. Promptly after the Company
first becomes aware of any Determination of Taxability, the Company shall give
written notice thereof to the Issuer and the Trustee.
ARTICLE III
ACQUISITION AND CONSTRUCTION OF THE PROJECT;
ISSUANCE OF THE BONDS; SPECIAL COVENANTS
Section 3.1. Agreement to Acquire the Project.
(a) The Company agrees to make all contracts and do all things necessary for the
Acquisition of the Project. The Company further agrees that it will acquire,
rehabilitate and equip the Project with all reasonable dispatch and use its best
efforts to cause the Acquisition of the Project to be completed by October 1,
1998, or as soon thereafter as may be practicable, delays caused by force
majeure as defined in Section 8.1 hereof only excepted; but if for any reason
such Acquisition of the Project is not completed by said date there shall be no
resulting liability on the part of the Company and no diminution in or
postponement of the payments required in Section 4.2 hereof to be paid by the
Company.
- 9 -
<PAGE>
(b) The Company shall obtain or cause to be obtained all necessary permits and
approvals for the Acquisition, operation and maintenance of the Project and
shall comply with all lawful requirements of any governmental body regarding the
use or condition of the Project or any of its component parts. The Company may,
however, contest any such requirement by an appropriate proceeding diligently
prosecuted.
(c) The Company shall maintain a set of plans and specifications at the Project
site which shall be available to the Issuer, the Trustee, the Credit Facility
Provider and the Paying Agent for inspection and examination during the
Company's regular business hours, and the Issuer and the Company agree that the
Company may supplement, amend and add to such plans and specifications, and that
the Company shall be authorized to omit or make substitutions for components of
the Project, without approval of the Issuer, provided that no such change shall
be made which shall be contrary to subsections (k), (l), (m), (n) and (o) of
Section 2.3 hereof or the provisions of Article IX hereof, and provided further
that if any such change would render materially incorrect or incomplete the
description of the initial components of the Project or the description of the
Project as set forth in Exhibit A to this Agreement, the Company and the Issuer
shall amend such Exhibit A to reflect such change, upon receipt by the Issuer,
the Trustee, as the Credit Facility Provider, of an opinion of Bond Counsel that
such change will not result in an Event of Taxability. No approval of the Issuer
or the Trustee shall be required for the Acquisition of the Project or for the
solicitation, negotiation, award or execution of contracts relating thereto.
Section 3.2. Agreement to Issue the Bonds; Application of Bond Proceeds. In
order to provide funds to pay the Costs of the Project, the Issuer, concurrently
with the execution of this Agreement, will issue, sell, and deliver the Bonds
and deposit the net proceeds thereof with the Trustee in the Project Fund, as
provided in the Indenture.
Section 3.3. Disbursements from the Project Fund. The Issuer has, in the
Indenture, authorized and directed the Trustee to make disbursements from the
Project Fund to pay the Costs of the Project, or to reimburse the Company for
any Cost paid by the Company. The Company agrees to cause Requisitions to be
directed to the Trustee as may be necessary to effect payments out of the
Project Fund in accordance with this Section. The receipt by the Trustee of a
Requisition signed by a Company Representative which appears to be properly
complete on its face shall be sufficient authorization for the Trustee to
disburse such amounts as requested.
Section 3.4. Furnishing Documents to the Trustee. The Company agrees to cause
such Requisitions to be directed to the Trustee as may be necessary to effect
payments out of the Project Fund in accordance with Section 3.3 hereof.
Section 3.5. Establishment of Completion Date. The Completion Date shall be
evidenced to the Trustee by a certificate signed by a Company Representative in
the form attached hereto as Exhibit D. Forthwith upon completion of the
acquisition, construction and installation of the Project, the Company agrees to
cause such certificate to be furnished to the Issuer and the Trustee. Upon
receipt of such certificate, the Trustee shall retain in the Project Fund a sum
equal to the amounts necessary for payment of the Costs not then due and payable
- 10 -
<PAGE>
according to such certificate, and any amount remaining in the Project Fund
shall be transferred by the Trustee into the General Account of the Bond Fund
and used by the Trustee (a) to redeem Bonds on the earliest redemption date
permitted by the Indenture without a premium, (b) to purchase Bonds on the open
market prior to such redemption date at prices not in excess of one hundred
percent (100%) of the principal amount of such Bonds, or (c) for any other
purpose provided that the Trustee is furnished with a Favorable Opinion of Bond
Counsel, all in accordance with Article VI of the Indenture. Until used for one
or more of the foregoing purposes, such segregated amount may be invested as
permitted by the Indenture provided that prior to any such investment the
Trustee is provided with a Favorable Opinion of Bond Counsel.
Section 3.6. Company Required to Pay in Event Project Fund Insufficient. In the
event the moneys in the Project Fund available for payment of the Costs should
not be sufficient to pay the Costs in full, the Company agrees to complete the
Project and to pay, or to provide for payment of, that portion of the Costs in
excess of the moneys available therefor in the Project Fund, The Issuer does not
make any warranty, either express or implied, that the moneys paid into the
Project Fund and available for payment of the Costs will be sufficient to pay
all of the Costs. The Company agrees that if after exhaustion of the moneys in
the Project Fund, the Company should pay any portion of the Costs pursuant to
the provisions of this Section, the Company shall not be entitled to any
reimbursement therefor from the Issuer, the Trustee or the Owners of any of the
Bonds, nor shall the Company be entitled to any diminution of the amounts
payable under Section 4.2 hereof or under the Note.
Section 3.7. Special Arbitrage Certifications. The Company and the Issuer
covenant not to cause or direct any moneys on deposit in any fund or account to
be used in a manner which would cause the Bonds to be classified as "arbitrage
bonds" within the meaning of Section 148 of the Code, and the Company certifies
and covenants to and for the benefit of the Issuer and the Owners of the Bonds
that so long as there are any Bonds Outstanding, moneys on deposit in any fund
or account in connection with the Bonds, whether such moneys were derived from
the proceeds of the sale of the Bonds or from any other sources, will not be
used in a manner which will cause the Bonds to be classified as "arbitrage
bonds" within the meaning of Section 148 of the Code.
Section 3.8. Use of Proceeds; Special Tax Covenants.
(a) Qualifying Costs. Neither the Issuer nor the Company shall cause any
proceeds of the Bonds to be expended, except pursuant to the Indenture and this
Agreement. The Company shall not (i) requisition or otherwise allow payment out
of proceeds of the Bonds (A) if such payment is to be used for the acquisition
(including reimbursement therefor in compliance with the Code) of any property
(or an interest therein) unless the first use of such property is pursuant to
such acquisition, provided that this clause (A) shall not apply (1) to any
building (and the equipment purchased as a part thereof, if any,) if the
"rehabilitation expenditures", as defined in Section 147(d) of the Code, with
respect to the building equal or exceed 15% of the portion of the cost of
acquiring the building (including such equipment) financed with the proceeds of
the Bonds, or (2) to any other property if the rehabilitation expenditures with
respect thereto
- 11 -
<PAGE>
equal 100% of the cost of acquiring such property financed with the proceeds of
the Bonds; (B) if as a result of such payment, 25% or more of the proceeds of
the Bonds would be considered as having been used directly or indirectly for the
acquisition of land (or an interest therein); (C) if, as a result of such
payment, less than 95% of the net proceeds of the Bonds, expended at the time of
such acquisition would be considered as having been used for costs of the
acquisition, construction, or reconstruction or improvement of land or property
of a character subject to the allowance for depreciation, within the meaning of
Section 144(a)(1)(A) of the Code ("Qualifying Costs"), or (D) if such payment is
used to pay issuance costs (including counsel fees and placement fees) of the
Bonds in excess of an amount equal to 2% of the principal amount of the Bonds;
(ii) take or omit, or permit to be taken or omitted, any other action with
respect to the use of such proceeds the taking or omission of which has or would
result in the loss of the exclusion of interest on the Bonds from gross income
of the owners thereof for federal income tax purposes; or (iii) take or omit, or
permit to be taken or omitted, any other action the taking or omission of which
has or would cause the loss of such exclusion.
(b) Prohibited Uses. Without limiting the generality of the foregoing, the
Issuer and the Company will not use the proceeds of the Bonds, or permit such
proceeds to be used directly or indirectly, for the acquisition of land (or an
interest therein) to be used for farming purposes, or to provide any facility
the primary purpose of which is retail food and beverage services, automobile
sales or service or the provision of recreation or entertainment, any airplane,
skybox or other private luxury box, any health club facility, any facility
primarily used for gambling, any store the principal business of which is the
sale of alcoholic beverages for consumption off premises, any private or
commercial golf course, country club, massage parlor, tennis club, skating
facility (including roller skating, skateboard and ice skating), racquet spots
facility (including any hand ball or racquetball court), hot tub facility,
suntan facility, or race track, or single or multi-family residences.
(c) Manufacturing. Not less than 95% of the net proceeds of the Bonds
(consisting of the face amount of the Bonds less any original issue discount
plus any original issue premium, but including issuance costs) shall be used to
provide facilities to be used in the manufacturing or production of tangible
personal property, including facilities that are directly related and ancillary
to such manufacturing facilities and located on the same site as the
manufacturing facilities; provided, however, that not more than twenty-five
percent (25%) of the net proceeds shall be used to provide such ancillary
facilities.
(d) No Other Issues. The Bonds are not being issued as part of an issue the
interest of which is exempt from federal income taxation under any other
provision of law other than Section 144(a) of the Code.
(e) Existing Capital Expenditures. The aggregate amount of capital expenditures
(as defined by Section 1.103-10(b)(2) of the Tax Regulations to include any
expenditure which was or could have been treated as a capital expenditure under
any rule or election under the Code) with respect to facilities located in the
same incorporated municipality as
- 12 -
<PAGE>
the Project, or which are contiguous or integrated facilities, the principal
user of which was or is the Company or any Related Person, paid or incurred
during the period beginning three years before the date of issuance of the
Bonds, and financed otherwise than out of the Bond proceeds (not including
investment earnings thereon) and otherwise than out of the proceeds of other
outstanding issues to which Section 144(a)(2) of the Code applies, is $ 0.
(f) Bonds Outstanding. The aggregate face amount of all prior issues outstanding
as of the date of issuance of the Bonds (whether or not the issuer of each issue
is the same) to which Section 144(a) of the Code or Section 103(b)(6) of the
Internal Revenue Code of 1954, as amended applies, the proceeds of which were or
will be used to any extent with respect to facilities located in the same
incorporated municipality as the incorporated municipality in which the Project
is located and the principal user of which is the Company or a Related Person,
is $_____________. The Company and, at the direction of the Company, the Issuer,
shall file any reports or statements and take any other action as may be
required from time to time with respect to the qualification of the Bonds as an
exempt small issue within the meaning of Section 144(a) of the Code.
(g) No Other Bonds for Common Facilities. There are no other bonds to which
Section 144(a) of the Code applies which, together with the Bonds, are to be
used with respect to (a) a single building, (b) an enclosed shopping mall, or
(c) a strip of offices, stores or warehouses, using substantial common
facilities with the Project or a portion thereof.
(h) Land. No portion of the Bond proceeds will be used directly or indirectly
for the acquisition of land or any interest therein to be used for the purpose
of farming and less than 25% of the Bond proceeds are or will be used directly
or indirectly for the acquisition of land to be used for purposes other than
farming.
(i) Commencement of Construction; First Users. The Borrower hereby represents
that the Borrower will not requisition any amounts from the proceeds of the
Bonds to pay costs incurred before the date of issuance of the Bonds and paid
more than 60 days prior to the date of "official action" of the Issuer within
the meaning of Section 142 of the Code, which took place on May 13, 1997. No
person, firm or corporation who was a "substantial user" of the Project (within
the meaning described in such term under Section 144(a) of the Code) before the
date of issuance of the Bonds and who was or will be a "substantial user" of the
Project following its being placed in service, has received or will receive,
directly or indirectly, any proceeds from the issuance and sale of the Bonds.
(j) Economic Life of Project. The Company hereby represents that the weighted
average maturity of the Bonds does not exceed 120% of the "average reasonably
expected economic life" of the components comprising the Project, determined
pursuant to Section 147(b) of the Code. The Company agrees that it will not make
any changes in the Project which would, at the time made, cause 120% of the
"average reasonably expected
- 13 -
<PAGE>
economic life" of the components of the Project, determined pursuant to Section
147(b) of the Code, to be less than the "weighted average maturity" of the
Bonds.
(k) Certificate of Information; Internal Revenue Service Form 8038. The Company
hereby represents that the information contained herein and in the Company's Tax
Certificate attached to the Issuer's Non-Arbitrage Certificate) delivered in
connection with the issuance of the Bonds with respect to the compliance with
the requirements of Section 103 and Sections 141 through 150 of the Code,
including the information in Internal Revenue Service Form 8038 (excluding the
issue number and the employer identification number of the Issuer) filed by the
Issuer with respect to the Bonds and the Project, is true and correct in all
material respects.
(l) Use by United States of America or Its Agencies. The Company has not
permitted and shall not permit the Project to be used or occupied other than as
a member of the general public in any manner for compensation by the United
States of America or an agency or instrumentality thereof, including any entity
with statutory authority to borrow from the United States of America (in any
case within the meaning of Section 149(b) of the Code) unless, with respect to
any future use of the Project, the Company shall deliver to the Trustee a
Favorable Opinion of Bond Counsel.
(m) Other Bonds. The Company agrees that during the period commencing on the
date of the issuance of the Bonds and ending 15 days thereafter, there shall be
issued no "private activity bonds," as defined in Section 141 of the Code, which
are guaranteed or otherwise secured by payments to be made by the Company or any
"related person" (or group of "related persons") unless the Company shall
deliver to the Trustee a Favorable Opinion of Bond Counsel in connection with
the issuance of such "private activity bonds". The Company represents that
except for the Company or any "related person" (or group of "related persons"),
no person has (i) guaranteed, arranged, participated in, assisted with or paid
any portion of the cost of the issuance of, the Bonds, and (ii) provided any
property or any franchise, trademark or trade name (within the meaning of
Section 1253 of the Code) which is to be used in connection with the Project.
(n) Limit on Amount of Bonds, Reports. The Company represents that on the date
of the issuance of the Bonds (i) obligations were not assumed, expenditures were
not made and outstanding obligations did not exist that will cause the
"aggregate face amount" of the Bonds as computed under the provisions of Section
144(a) and related sections of the Code to exceed $10,000,000, and (ii)
outstanding obligations did not exist that would cause the "aggregate face
amount" of the Bonds allocated to any "test-period beneficiary," as defined in
Section 144(a)(10) of the Code, when increased by such obligations as provided
in Section 144(a)(10) of the Code, to exceed $40,000,000. During the three- year
period beginning on the date of the issuance of the Bonds (or, in the case of
clause (ii) below, the date the Project is placed in service, unless the Company
provides to the Trustee an Opinion of Bond Counsel that such restriction is no
longer applicable), the Company shall not make any expenditure, assume any
obligation, permit the use of the Project by any person or take or permit other
action that would cause the "aggregate face amount" of the Bonds as computed
under the provisions of Section 144(a) and related
- 15 -
<PAGE>
sections of the Code (i) to exceed $10,000,000 or such other maximum dollar
amount then permitted by the Code, or (ii) allocated to any "test-period
beneficiary", when increased by such obligations as provided in Section
144(a)(10) of the Code, to exceed $40,000,000, and shall on the anniversary date
of the issuance of the Bonds until the third anniversary date of the issuance of
the Bonds or the date on which the Project is placed into service, whichever is
later, file a report with the Trustee setting forth all capital expenditures and
bond issues used in calculating such limits under Section 144(a) of the Code
since the last report received by the Trustee.
The Company and the Issuer shall file any reports or statements and take any
other action as may be required from time to time with respect to the
qualification of the Bonds as qualified small issue bonds within the meaning of
Section 144(a) of the Code.
(o) Election. The Issuer hereby elects to have the provisions of Section
144(a)(4) of the Code apply to the Bonds.
(p) Covenant to Maintain Tax Exemption. The Issuer and the Company hereby
covenant and agree on their own behalf that they shall not take any action,
cause any action to be taken, omit to taken any action or cause any omission to
occur which would cause the interest on the Bonds to become includable in the
gross income of the recipients thereof for purposes of federal income taxation.
Section 3.9. Modification and Termination of Special Tax Covenants. Subsequent
to the issuance of the Bonds and prior to their payment in full (or provision
for the payment thereof having been made in accordance with the provisions of
the Indenture), neither this Agreement nor the Note may be amended, changed,
modified, altered or terminated except as permitted herein and by the Indenture
and with the written consent of the Company, the Trustee and the Credit
Provider. Subject to Article XI of the Indenture, the Issuer, the Trustee, and
the Company hereby agree to amend this Agreement to the extent required or
permitted, in the opinion of Bond Counsel, in order for interest on the Bonds to
be excluded from gross income for federal income tax purposes under Section
103(a) of the Code. The party requesting such amendment shall notify the other
party to this Agreement and the Trustee of the proposed amendment, with a copy
of such requested amendment to Bond Counsel. To effect any such proposed
amendments, after review of such proposed amendment, Bond Counsel shall render
to the Trustee a Favorable Opinion of Bond Counsel.
Section 3.10. Arbitrage and Rebate.
(a) The Company acknowledges having read Section 5.09 of the Indenture and
agrees to perform all duties imposed upon it by such Sections. Insofar as said
Sections or any other sections of the Indenture expressly or implicitly impose
duties and responsibilities on the Company, they are specifically incorporated
herein by reference.
(b) Neither the Company nor the Issuer shall (i) take or omit to take any
action, or approve, the making by the Company of any investment or use of any
proceeds of the
- 15 -
<PAGE>
Bonds or any other moneys within their respective control (including without
limitation the proceeds of any insurance or any condemnation award with respect
to the Project), or the taking or omission of any other action, which would
cause the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the
Code, or (ii) approve the use of any proceeds from the sale of the Bonds
otherwise than in accordance with this Agreement or the Non-Arbitrage
Certificate, barring any unforeseen circumstances, in which event, the Company
and the Issuer shall use such proceeds with due diligence and shall otherwise
comply with this Agreement. Without limiting the generality of the foregoing,
the Company shall at its sole expense take all action required under Section 148
of the Code and Treasury Regulations thereunder to prevent loss of the exclusion
of the interest on the Bonds from gross income of the owners thereof for Federal
income tax purposes under such Section, including but not limited to paying on
behalf of the Issuer the "rebatable arbitrage amount" to the United States of
America in accordance with the requirements set forth in the related Treasury
Regulations and complying with the requirements of Section 5.09 of the Indenture
and this Section, including making the calculations and deposits required
therein (with all such calculations to be supplied to the Issuer). The Company
shall also comply with any similar requirements contained in any Treasury
Regulations adopted in place of the existing Treasury Regulations and all other
requirements of any such Treasury Regulations, to the extent applicable to the
Bonds. The Company shall maintain or cause to be maintained records of any such
rebate calculations for six (6) years after retirement of the Bonds.
(c) Nothing contained in this Agreement or in the Indenture shall be interpreted
or construed to require the Issuer to pay the Rebate Amount, such obligations
being the sole responsibility of the Company.
ARTICLE IV
LOAN PROVISIONS;
SUBSTITUTE CREDIT FACILITY
Section 4.1. Loan of Proceeds. The Issuer agrees, upon the terms and conditions
contained in this Agreement and the Indenture, to lend to the Company the
proceeds received by the Issuer from the sale of the Bonds, and the Company
hereby borrows the same from the Issuer as evidenced by this Agreement and the
execution and delivery of the Note to the Issuer. Such proceeds shall be
disbursed as provided in Sections 3.2 and 3.4 hereof.
Section 4.2. Amounts Payable.
(a) The Company hereby covenants and agrees to repay the loan, as follows: on or
before any Interest Payment Date for the Bonds or any other date that any
payment of interest, premium, if any, or principal or Purchase Price is required
to be made in respect of the Bonds pursuant to the Indenture, until the
principal of, premium, if any, and interest on the Bonds shall have been fully
paid or provision for the payment thereof shall have been made in accordance
with the Indenture, in immediately available funds, a sum which, together with
any other moneys available for such payment in any
- 16 -
<PAGE>
account of the Bond Fund, will enable the Trustee to pay the amount payable on
such date as Purchase Price or principal of (whether at maturity or upon
redemption or acceleration or otherwise), premium, if any, and interest on the
Bonds as provided in the Indenture; provided, however, that the obligation of
the Company to make any payment hereunder shall be deemed satisfied and
discharged to the extent of the corresponding payment made by the Credit
Provider to the Trustee under the Credit Facility. The Company covenants to make
all payments on the Note, as and when the same become due.
It is understood and agreed that all payments payable by the Company under
subsection (a) of this Section and under the Note are assigned by the Issuer to
the Trustee for the benefit of the Owners of the Bonds. The Company assents to
such assignment. The Issuer hereby directs the Company and the Company hereby
agrees to pay to the Trustee at the Principal Office of the Trustee all payments
payable by the Company pursuant to this subsection.
(b) The Company will also pay the reasonable expenses of the Issuer related to
the issuance of the Bonds.
(c) The Company will also pay the reasonable fees and expenses of the Trustee
under the Indenture and all other amounts which may be payable to the Trustee
under Section 10.02 of the Indenture, such amounts to be paid directly to the
Trustee for the Trustee's own account as and when such amounts become due and
payable.
(d) The Company covenants, for the benefit of the Owners of the Bonds, to pay or
cause to be paid, to the Trustee, such amounts as shall be necessary to enable
the Trustee to pay the Purchase Price of Bonds delivered to it for purchase, all
as more particularly described in Sections 4.01 and 4.02 of the Indenture;
provided, however, that the obligation of the Company to make any such payment
under this subsection (d) shall be reduced by the amount of moneys available for
such payment described in subsection (a) of Section 4.03 of the Indenture; and
provided, further, that the obligation of the Company to make any payment under
this subsection (d) shall be deemed to be satisfied and discharged to the extent
of the corresponding payment made by the Credit Provider under the Credit
Facility.
(e) In the event the Company should fail to make any of the payments required in
this Section, the item or installment so in default shall continue as an
obligation of the Company until the amount in default shall have been fully
paid, and the Company agrees to pay the same with interest thereon, to the
extent permitted by law, from the date when such payment was due, at the rate of
interest borne by the Bonds.
Section 4.3. Obligations of Company Unconditional. The obligations of the
Company to make the payments required in Section 4.2 and under the Note and to
perform and observe the other agreements contained herein shall be absolute and
unconditional and shall not be subject to any defense or any right of setoff,
counterclaim or recoupment arising out of any breach by the Issuer or the
Trustee, of any obligation to the Company, whether hereunder or
- 17 -
<PAGE>
otherwise, or out of any indebtedness or liability at any time owing to the
Company by the Issuer or the Trustee, and, until such time as the principal of,
premium, if any, and interest on the Bonds shall have been fully paid or
provision for the payment thereof shall have been made in accordance with the
Indenture, the Company (i) will not suspend or discontinue any payments provided
for in Section 4.2 hereof, (ii) will perform and observe all other agreements
contained in this Agreement and (iii) except as otherwise provided herein, will
not terminate the Term of Agreement for any cause, including, without limiting
the generality of the foregoing, the occurrence of any acts or circumstances
that may constitute failure of consideration, eviction or constructive eviction,
destruction of or damage to the Project, the taking by eminent domain of title
to or temporary use of any or all of the Project, commercial frustration of
purpose, any change in the tax or other laws of the United States of America or
of the State or any political subdivision of either thereof or any failure of
the Issuer or the Trustee to perform and observe any agreement, whether express
or implied, or any duty, liability or obligation arising out of or connected
with this Agreement. Nothing contained in this Section shall be construed to
release the Issuer from the performance of any of the agreements on its part
herein contained, and in the event the Issuer or the Trustee should fail to
perform any such agreement on its part, the Company may institute such action
against the Issuer or the Trustee as the Company may deem necessary to compel
performance so long as such action does not abrogate the obligations of the
Company contained in the first sentence of this Section.
Section 4.4. Substitute Credit Facility. Subject to the conditions set forth in
this Section 4.4, the Company may provide for the delivery to the Trustee of a
Substitute Credit Facility. The Company shall furnish written notice to the
Trustee, not less than fifteen days prior to the Mandatory Purchase Date, (a)
notifying the Trustee that the Company is exercising its option to provide for
the delivery of a Substitute Credit Facility to the Trustee, (b) setting forth
the Mandatory Purchase Date (which shall in any event be an Interest Payment
Date) in connection with the delivery of such Substitute Credit Facility, which
shall in any event be not less than two Business Days prior to the expiration
date of the Credit Facility then in effect with respect to the Bonds, and (c)
instructing the Trustee to furnish notice to the Bondholders regarding the
Mandatory Purchase Date at least five days prior to the Mandatory Purchase Date,
as more fully described in Section 4.01(b) of the Indenture and Exhibit B
thereto. Any Substitute Credit Facility shall be delivered to the Trustee prior
to any such Mandatory Purchase Date, and shall be effective on and after such
Mandatory Purchase Date, and shall expire on a date which is fifteen days after
an Interest Payment Date for the Bonds. On or before the date of such delivery
of a Substitute Credit Facility to the Trustee, the Company shall furnish to the
Trustee (a) a Favorable Opinion of Bond Counsel with respect to such Substitute
Credit Facility; (b) a written opinion of counsel to the Substitute Credit
Provider to the effect that the Substitute Credit Facility is a legal, valid,
binding and enforceable obligation of the Substitute Credit Provider in
accordance with its terms; and (c) the written consent of the Secretary of the
LGC as to the acceptance by the Trustee of the Substitute Credit Facility.
Notwithstanding the prior sentence, the consent of the Secretary of the LGC
shall not be necessary if the Trustee has received (i) if the Bonds are rated by
a Rating Agency, written evidence from such Rating Agency to the effect that
such Rating Agency has reviewed the proposed Substitute Credit Facility and that
the substitution of the proposed Substitute Credit Facility for the then current
Credit Facility will not, by itself, result in a permanent withdrawal
- 18 -
<PAGE>
of its rating of the Bonds or a reduction of the then current rating of the
Bonds, or (ii) if the Bonds are not rated by a Rating Agency, written evidence
that the bank deposit obligations or other long-term debt of the bank or
institution issuing the proposed Substitute Credit Facility are rated by a
Rating Agency at least as high as the bank deposit obligations or other
long-term debt of the Credit Issuer as of the delivery date of the Substitute
Credit Facility unless the rating of the Credit Issuer's bank deposit
obligations or other long term debt is higher than such rating on the original
delivery date in which case such lower rating shall be the highest rating
required of the Substitute Credit Facility unless otherwise directed in writing
by a Company Representative.
The Company shall require the Credit Facility Provider to provide to the Trustee
notice of and all necessary documents related to any extension of the term of
the Credit Facility at least thirty (30) days prior to the Credit Facility
Termination Date.
ARTICLE V
PREPAYMENT, PURCHASE AND REDEMPTION
Section 5.1. Prepayment, Purchase and Redemption. The Company shall have the
option to prepay its obligations hereunder at the times and in the amounts as
necessary to exercise its option to cause the Bonds to be redeemed or defeased
as set forth in the Indenture and in the Bonds. The Company hereby agrees that
it shall prepay its obligations hereunder at the times and in the amounts as
necessary to accomplish the purchase and the mandatory redemption of the Bonds
as set forth in the Indenture and in the Bonds. The Issuer, at the request of
the Company, shall forthwith take all steps (other than the payment of the money
required for such redemption) necessary under the applicable redemption
provisions of the Indenture to effect redemption of all or part of the
Outstanding Bonds, as may be specified by the Company, on the date established
for such redemption.
ARTICLE VI
SPECIAL COVENANTS
Section 6.1. No Warranty of Condition or Suitability by Issuer. THE ISSUER MAKES
NO WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE PROJECT OR THE CONDITION
THEREOF, OR THAT THE PROJECT IS SUITABLE FOR THE PURPOSES OR NEEDS OF THE
COMPANY. THE ISSUER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
THAT THE COMPANY WILL HAVE QUIET AND PEACEFUL POSSESSION OF THE PROJECT. THE
ISSUER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO
THE MERCHANTABILITY, CONDITION OR WORKMANSHIP OF ANY PART OF THE PROJECT OR ITS
SUITABILITY FOR THE COMPANY'S PURPOSES.
- 19 -
<PAGE>
Section 6.2. Access to the Project. The Company agrees that the Issuer, the
Credit Provider, the Trustee and their duly authorized agents, attorneys,
experts, engineers, accountants and representatives shall have the right to
inspect the Project at all reasonable times and on reasonable notice. The
Issuer, the Credit Provider, the Trustee and their duly authorized agents shall
also be permitted, at all reasonable times and upon reasonable notice, to
examine the books and records of the Company with respect to the Project.
Section 6.3. Further Assurances and Corrective Instruments. The Issuer and the
Company agree that they will, from time to time, execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, such supplements
hereto and such further instruments as may reasonably be required for carrying
out the expressed intention of this Agreement.
Section 6.4. Issuer and Company Representatives. Whenever under the provisions
of this Agreement the approval of the Issuer or the Company is required or the
Issuer or the Company is required to take some action at the request of the
other, such approval or such request shall be given for the Issuer by an Issuer
Representative and for the Company by a Company Representative. The Trustee
shall be authorized to act on any such approval or request.
Section 6.5. Financing Statements. The Company agrees to execute and file or
cause to be executed and filed any and all financing statements or amendments
thereof or continuation statements necessary to perfect and continue the
perfection of the security interests granted in the Indenture. The Company shall
pay all costs of filing such instruments.
Section 6.6. Covenant to Provide Continuing Disclosure. The Company hereby
covenants and agrees that, upon the exercise by the Company of the Conversion
Option to elect a Long Term Period or a Commercial Paper Period, the Company
shall enter into a written undertaking for the benefit of the holders of the
Bonds, as required by Section (b)(5)(i) of Securities and Exchange Commission
Rule 15c2-12 under the Securities Exchange Act of 1934, as amended (17 CFR Part
240, 240.15c2-12) (the "Rule"); provided, however, that the Company shall not
be obligated to enter into such written undertaking if the Company shall furnish
to the Trustee, prior to the exercise of the Conversion Option, an opinion of
Bond Counsel that, notwithstanding such election by the Company, the Rule is not
applicable to the Bonds.
Section 6.7. Annual Report of Outstanding Bonds. Promptly after each June 30
during the Term of the Agreement, the Company shall notify the LGC and the
Issuer, by first-class mail, of the aggregate principal amount of the Bonds
Outstanding at the close of business on such June 30.
- 20 -
<PAGE>
ARTICLE VII
ASSIGNMENT, SELLING, LEASING; INDEMNIFICATION
MERGER OR ASSET SALE, MAINTENANCE AND REPAIR, TAXES
Section 7.1. Assignment, Selling and Leasing. This Agreement may be assigned and
the Project may be sold or leased, as a whole or in part, with the prior written
consent of the Trustee, the Credit Provider and the LGC, but without the
necessity of obtaining the consent of the Issuer; provided, however, that no
such assignment, sale or lease shall, in the opinion of Bond Counsel, result in
interest on any of the Bonds becoming includable in gross income for federal
income tax purposes, or shall otherwise violate any provisions of the Act;
provided further, however, that no such assignment, sale or lease shall relieve
the Company of any of its obligations under this Agreement.
Section 7.2. Release and Indemnification . The Company shall at all times
protect, indemnify and hold harmless the Trustee, the Issuer, the Governing
Body, the LGC and their respective directors, members, officers, attorneys,
agents and employees against any and all liability, losses, damages, costs,
expenses, taxes, causes of action, suits, claims, demands and judgments of any
nature arising from or in connection with the Project or the financing of the
Project, including, without limitation, all claims or liability resulting from,
arising out of or in connection with the acceptance or administration of the
Bond Documents or the trusts thereunder or the performance of duties under the
Bond Documents or any loss or damage to property or any injury to or death of
any person that may be occasioned by any cause whatsoever pertaining to the
Project or the use thereof, including without limitation any lease thereof or
assignment of its interest in this Agreement, such indemnification to include
the reasonable costs and expenses of defending itself or investigating any claim
of liability and other reasonable expenses and attorneys' fees incurred by the
Issuer, The Trustee, the Governing Body, the LGC and their respective directors,
members, officers, attorneys, agents and employees in connection therewith,
provided that the benefits of this Section shall not inure to any person other
than the Issuer, the Governing Body, the LGC, the Trustee and their respective
directors, members, officers, attorneys, agents and employees, and provided
further that such loss, damage, death, injury, claims, demands or causes shall
not have resulted from the gross negligence or willful misconduct of, the
Issuer, the Trustee or such director, member, officer, attorneys, agent or
employee. The obligations of the Company under this Section shall survive the
termination of this Agreement and the Indenture. Notwithstanding any other
provision of this Agreement or the Indenture to the contrary, the Company agrees
(i) not to assert any claim or institute any action or suit against the Trustee
or its employees arising from or in connection with any investment of funds made
by the Trustee in good faith as directed by a Company Representative, and (ii)
to indemnify and hold harmless the Trustee and its employees against any
liability, losses, damages, costs, expenses, causes of action, suits, claims,
demands and judgments of any nature arising from or in connection with any such
investment. In addition, the Issuer shall have the right, in the event of a suit
against the Issuer, to hire its own counsel, and the Company shall indemnify the
Issuer for the costs thereof.
- 21 -
<PAGE>
Section 7.3. Indemnity Against Claims. The Company will pay and discharge and
will indemnify and hold harmless the Issuer, the Governing Body, the LGC and the
Trustee, and their respective officers, employees and agents, from any taxes,
assessments, impositions and other charges in respect of the Project. If any
such claim is asserted, or any such lien or charge upon payments, or any such
taxes, assessments, impositions or other charges, are sought to be imposed, the
Issuer, the Governing Body or the LGC, as the case may be, will give prompt
written notice to the Company and the Trustee; provided, however, that the
failure to provide such notice will not relieve the Company of the Company's
obligations and liability under this Section and will not give rise to any claim
against or liability of the Issuer or the Trustee. The Company shall have the
sole right and duty to assume, and shall assume, the defense thereof, with
counsel selected by the Company and reasonably acceptable to the person on
behalf of which the Company undertakes a defense, with full power to litigate,
compromise or settle the same in its sole discretion.
Section 7.4. Issuer to Grant Security Interest to Trustee. The parties hereto
agree that pursuant to the Indenture, the Issuer shall assign to the Trustee, in
order to secure payment of the Bonds, all of the Issuer's right, title and
interest in and to this Agreement and the Note, except for the Reserved Rights.
Section 7.5. Maintenance of Existence; Merger; Asset Transfer. So long as a
Credit Facility is in effect the Company agrees that it will maintain its
existence, will not dissolve or otherwise dispose of all or substantially all of
its assets and will not consolidate with or merge into another corporation or
permit one or more other corporations to consolidate with or merge into it,
except either with the consent of the Credit Issuer or as provided in the Credit
Agreement; if a Credit Facility is not in effect, the Company agrees that it
will continue to be a corporation organized under the laws of the State of North
Carolina, will maintain its corporate existence, will not dissolve or otherwise
dispose of all or substantially all of its assets and will not consolidate with
or merge into another corporation or permit one or more corporations to
consolidate with or merge into it; provided, that the Company may, without
violating the foregoing, consolidate with or merge into another corporation, or
permit one or more corporations to consolidate with or merge into it, or
transfer all or substantially all of its assets to another such corporation (and
thereafter dissolve or not dissolve, as the Company may elect) if the
corporation surviving such merger or resulting from such consolidation, or the
corporation to which all or substantially all of the assets of the Company are
transferred, as the case may be: (i) is a corporation organized under the laws
of the United States of America, or any state, district or territory thereof,
and qualified to do business in the State; (ii) shall expressly in writing
assume all of the obligations of the Company contained in this Agreement; (iii)
has a consolidated tangible net worth (after giving effect to such
consolidation, merger or transfer) of not less than the consolidated tangible
net worth of the Company and its consolidated subsidiaries immediately prior to
such consolidation, merger or transfer; (iv) shall notify each person identified
in Section 9.2 hereof of the name and address of such corporation surviving such
merger or resulting from such consolidation, or the corporation to which all or
substantially all of the assets of the Company are transferred; and (v) provided
that no Default has occurred and is continuing hereunder.
- 22 -
<PAGE>
The term "consolidated tangible net worth," as used in this Section, shall mean
the difference obtained by subtracting total consolidated liabilities (not
including as a liability any capital or surplus item) from total consolidated
tangible assets of the Company and all of its consolidated subsidiaries,
computed in accordance with generally accepted accounting principles. Prior to
any such consolidation, merger or transfer the Trustee shall be furnished a
certificate from the chief financial officer of the Company or his/her deputy
stating that in the opinion of such officer none of the covenants in this
Agreement will be violated as a result of said consolidation, merger or
transfer.
Section 7.5. Company's Obligations to Maintain and Repair. The Company agrees
that during the term of this Agreement it will keep and maintain the Project in
good condition, repair and working order, ordinary wear and tear excepted, at
its own cost, and will make or cause to be made from time to time all necessary
repairs thereto (including external and structural repairs) and renewals and
replacements thereto.
Section 7.6. Taxes and Other Charges. (a) The Company will promptly pay and
discharge or cause to be promptly paid and discharged, as the same become due,
all taxes, assessments, governmental charges or levies and all utility and other
charges incurred in the operation, maintenance, use, occupancy and upkeep of the
Project imposed upon it or in respect of the Project before the same shall
become in default, as well as all lawful claims which, if unpaid, might become a
lien or charge upon such property and assets or any part thereof, except such
that are contested in good faith by the Company for which the Company has
maintained adequate reserves satisfactory to the Credit Provider, or in the
absence of any Credit Provider, satisfactory to the Issuer and the Trustee.
(b) The Company shall furnish the Issuer and the Trustee, upon request, with
proof of payment of any taxes, governmental charges, utility charges, insurance
premiums or other charges required to be paid by the Company under this
Agreement.
Section 7.7. Damage, Destruction or Loss of Property; Obligation to Rebuild; Use
of Insurance Proceeds and Condemnation Awards. If prior to full payment of all
Bonds (or provision for payment thereof having been made in accordance with the
provisions of the Indenture), the Project, or any part or component of the
Project shall be damaged or destroyed, by whatever cause, or shall be taken by
any public authority or entity in the exercise of or acquired under the threat
of the exercise of its power of eminent domain, there shall be no abatement or
reduction in the loan repayment obligations payable under this Agreement, and
the Company will apply any insurance proceeds or condemnation awards resulting
from claims for such losses or takings as provided in this Section.
If prior to full payment of all Bonds (or provision for payment thereof having
been made in accordance with the provisions of the Indenture), the Project, or
any part or component of the Project shall be damaged, destroyed, or the Project
or any part or component of the Project, the Project Site shall be taken by
eminent domain or the threat of exercise of eminent domain, the Company shall
promptly give, or cause to be given, written notice thereof to the Issuer, the
Bank and the Trustee. All proceeds received from such property insurance with
respect to the Project and all condemnation awards with respect to the Project
shall be deposited with the Trustee to the
- 23 -
<PAGE>
credit of the Project Fund. Following the occurrence of such an event with
respect to the Project, the Company shall have the option of (1) continuing to
pay all amounts payable hereunder and to the extent permitted below proceeding
promptly to repair, rebuild, restore or replace the property damaged, destroyed
or taken, with such changes, alterations and modifications (including the
substitution and addition of other property) as may be desired by the Company
and, with respect to the Project, and as will comply with the limitations
contained in this Agreement, and the Trustee will deposit such proceeds to the
credit of the Project Fund and make such disbursements therefrom, in accordance
with Section 3.3 hereof, as may be necessary to pay the cost of such repair,
rebuilding or restoration, either on completion thereof or as the work
progresses or (2) requesting the Issuer to cause the Bonds to be redeemed in
accordance with the terms of the Indenture.
ARTICLE VIII
DEFAULTS AND REMEDIES
Section 8.1. Defaults Defined. The following shall be "Defaults" under this
Agreement and the term "Default" shall mean, whenever it is used in this
Agreement, any one or more of the following events:
(a) Failure by the Company to pay any amount required to be paid under
subsection (a) or (d) of Section 4.2 hereof.
(b) Failure by the Company to observe and perform any covenant, condition or
agreement on its part to be observed or performed, other than as referred to in
Section 8.1(a), for a period of thirty (30) days after written notice specifying
such failure and requesting that it be remedied shall have been given to the
Company by the Issuer or the Trustee, unless the Issuer and the Trustee shall
agree in writing to an extension of such time prior to its expiration; provided,
however, if the failure stated in the notice cannot be corrected within the
applicable period, the Issuer and the Trustee will not unreasonably withhold
their consent to an extension of such time if corrective action is instituted by
the Company within the applicable period and diligently pursued until such
failure is corrected.
(c) The dissolution or liquidation of the Company, except as authorized by
Section 7.5 hereof, or the voluntary initiation by the Company of any proceeding
under any federal or state law relating to bankruptcy, insolvency, arrangement,
reorganization, readjustment of debt or any other form of debtor relief, or the
initiation against the Company of any such proceeding which shall remain
undismissed for sixty (60) days, or failure by the Company to promptly have
discharged any execution, garnishment or attachment of such consequence as would
impair the ability of the Company to carry on its operations at the Project, or
assignment by the Company for the benefit of creditors, or the entry by the
Company into an agreement of composition with its creditors or the failure
generally by the Company to pay its debts as they become due.
(d) The occurrence of a Default under the Indenture.
- 24 -
<PAGE>
The provisions of subsection (b) of this Section are subject to the following
limitation: if by reason of force majeure the Company is unable in whole or in
part to carry out any of its agreements contained herein (other than its
obligations contained in Article IV hereof), the Company shall not be deemed in
Default during the continuance of such inability. The term "force majeure" as
used herein shall mean, without limitation, the following: acts of God; strikes
or other industrial disturbances; acts of public enemies; orders or restraints
of any kind of the government of the United States of America or of the State or
of any of their departments, agencies or officials, or of any civil or military
authority; insurrections; riots; landslides; earthquakes; fires; storms;
droughts; floods; explosions; breakage or accident to machinery, transmission
pipes or canals; and any other cause or event not reasonably within the control
of the Company. The Company agrees, however, to remedy with all reasonable
dispatch the cause or causes preventing the Company from carrying out its
agreement, provided that the settlement of strikes and other industrial
disturbances shall be entirely within the discretion of the Company and the
Company shall not be required to settle strikes, lockouts and other industrial
disturbances by acceding to the demands of the opposing party or parties when
such course is in the judgment of the Company unfavorable to the Company.
Section 8.2. Remedies on Default. Whenever any Default shall have happened and
be continuing, the Trustee, or the Issuer with the written consent of the
Trustee, may take one or any combination of the following remedial steps:
(a) If the Trustee has declared the Bonds immediately due and payable pursuant
to Section 9.02 of the Indenture, by written notice to the Company, declare an
amount equal to all amounts then due and payable on the Bonds, whether by
acceleration of maturity (as provided in the Indenture) or otherwise, to be
immediately due and payable as liquidated damages under this Agreement and not
as a penalty, whereupon the same shall become immediately due and payable;
(b) Have reasonable access to and inspect, examine and make copies of the books
and records and any and all accounts, data and income tax and other tax returns
of the Company during regular business hours of the Company if reasonably
necessary in the opinion of the Trustee; or
(c) Take whatever action at law or in equity may appear necessary or desirable
to collect the amounts then due and thereafter to become due, or to enforce
performance and observance of any obligation, agreement or covenant of the
Company under this Agreement.
Any amounts collected pursuant to action taken under this Section shall be paid
into the Bond Fund and applied in accordance with the provisions of the
Indenture.
Section 8.3. No Remedy Exclusive. Subject to Section 9.02 of the Indenture, no
remedy herein conferred upon or reserved to the Issuer or the Trustee is
intended to be exclusive of any other available remedy or remedies, but each and
every such remedy shall be cumulative and shall be in addition to every other
remedy given under this Agreement or now or hereafter existing at law or in
equity. No delay or omission to exercise any right or power accruing upon any
Default shall impair any such right or power or shall be construed to be a
- 25 -
<PAGE>
waiver thereof, but any such right or power may be exercised from time to time
and as often as may be deemed expedient. In order to entitle the Issuer or the
Trustee to exercise any remedy reserved to it in this Article, it shall not be
necessary to give any notice, other than such notice as may be required in this
Article. Such rights and remedies as are given the Issuer hereunder shall also
extend to the Trustee, and the Trustee and the Owners of the Bonds, subject to
the provisions of the Indenture, shall be entitled to the benefit of all
covenants and agreements herein contained.
Section 8.4. Agreement to Pay Attorneys' Fees and Expenses. In the event the
Company should default under any of the provisions of this Agreement and the
Issuer should employ attorneys or incur other expenses for the collection of
payments required hereunder or the enforcement of performance or observance of
any obligation or agreement on the part of the Company herein contained, the
Company agrees that it will on demand therefor pay to the Issuer the reasonable
fees of such attorneys and such other expenses so incurred by the Issuer.
Section 8.5. No Additional Waiver Implied by One Waiver. In the event any
agreement contained in this Agreement should be breached by either party and
thereafter waived by the other party, such waiver shall be limited to the
particular breach so waived and shall not be deemed to waive any other breach
hereunder.
ARTICLE IX
MISCELLANEOUS
Section 9.1. Term of Agreement. This Agreement shall remain in full force and
effect from the date here of to and including April 1, 2013 or until such time
as all of the Bonds and the fees and expenses of the Issuer and the Trustee and
all amounts payable to the Credit Provider under the Credit Agreement shall have
been fully paid or provision made for such payments, whichever is later;
provided, however, that this Agreement may be terminated prior to such date
pursuant to Article V of this Agreement, but in no event before all of the
obligations and duties of the Company hereunder have been fully performed,
including, without limitation, the payments of all costs and fees mandated
hereunder.
Section 9.2. Notices. All notices, certificates or other communications
hereunder shall be sufficiently given and shall be deemed given when delivered
or mailed by registered mail, postage prepaid, addressed as follows:
If to the Issuer: The Johnston County Industrial Facilities
and Pollution Control Financing Authority
212 Market Street, Room 117
Smithfield, North Carolina 27577
Attn: Michael E. de Sherbinin
- 26 -
<PAGE>
If to the Trustee: First-Citizens Bank & Trust Company
2917 Highwoods Boulevard
Raleigh, North Carolina 27604
Attn.: Corporate Trust Department
If to the Company: Flanders Corporation
c/o Precisionaire, Inc.
2399 26th Avenue North
St. Petersburg, Florida 33713
Attn.: Steven K. Clark
If to the Credit Provider: SunTrust Bank, Tampa Bay
300 First Avenue South
St. Petersburg, Florida 33701
Attn.: Frank A. Coe
If to the Remarketing Agent: SunTrust Equitable Securities Corporation.
303 Peachtree Street, 24th Floor
Atlanta, Georgia 30303
Attention: Municipal Desk
If to the LGC: Local Government Commission
325 N. Salisbury Street
Raleigh, North Carolina 27603
Attn: Lori Johnson
If to Moody's: Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Attention: Corporate Department,
Structured Finance Group
If to S&P: Standard & Poor's Corporation
25 Broadway
New York, New York 10004
Attention: Corporate Finance Department
A duplicate copy of each notice, certificate or other communication given
hereunder by the Issuer or the Company shall also be given to the Trustee and
the Credit Provider. The Issuer, the Company, the Trustee, and the Credit
Provider may, by written notice given hereunder, designate any further or
different addresses to which subsequent notices, certificates or other
communications shall be sent.
Section 9.3. Binding Effect. This Agreement shall inure to the benefit of and
shall be binding upon the Issuer, the Company, the Credit Provider, the Trustee,
the Owners of Bonds and their respective successors and assigns.
- 27 -
<PAGE>
Section 9.4. Severability. In the event any provision of this Agreement shall be
held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision hereof.
Section 9.5. Amounts Remaining in Funds. Subject to the provisions of Section
6.11 of the Indenture, it is agreed by the parties hereto that any amounts
remaining in any account of the Bond Fund, or any other fund (other than the
Rebate Fund) created under the Indenture upon expiration or earlier termination
of this Agreement, as provided in this Agreement, after payment in full of the
Bonds (or provision for payment thereof having been made in accordance with the
provisions of the Indenture) and the fees and expenses of the Trustee in
accordance with the Indenture, shall belong to and be paid to the Company by the
Trustee.
Section 9.6. No Liability of Issuer; No Charge Against Issuer's Credit. Any
obligation of the Issuer created by, arising out of, or entered into in
contemplation of this Agreement, including the Bonds, shall not impose a debt or
pecuniary liability upon the Issuer, the State or any political subdivision
thereof or constitute a charge upon the general credit or taxing powers of any
of the foregoing. Any such obligation shall be payable solely out of the
revenues and any other moneys derived hereunder and under the Indenture and the
Credit Facility, except (as provided in the Indenture and in this Agreement) to
the extent it shall be paid out of moneys attributable to the proceeds of the
Bonds or the income from the temporary investment thereof.
The principal of, premium, if any, and interest on the Bonds shall be payable
solely from the funds pledged for their payment in accordance with the Indenture
and from payments made pursuant to the Credit Facility.
THE BONDS AND THE INTEREST THEREON AND REDEMPTION PREMIUM, IF ANY, SHALL NOT BE
DEEMED TO CONSTITUTE A DEBT OR A PLEDGE OF THE FAITH AND CREDIT OF THE STATE OF
NORTH CAROLINA OR ANY POLITICAL SUBDIVISION THEREOF, INCLUDING, WITHOUT
LIMITATION, THE ISSUER AND JOHNSTON COUNTY, NORTH CAROLINA. NEITHER THE STATE OF
NORTH CAROLINA NOR ANY POLITICAL SUBDIVISION THEREOF, INCLUDING, WITHOUT
LIMITATION, THE ISSUER AND JOHNSTON COUNTY, NORTH CAROLINA, SHALL BE OBLIGATED
TO PAY THE PRINCIPAL OF OR PREMIUM, IF ANY, OR INTEREST ON THE BONDS OR OTHER
COSTS INCIDENT THERETO EXCEPT FROM THE REVENUES ASSIGNED AND PLEDGED THEREFOR,
AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF NORTH
CAROLINA OR ANY POLITICAL SUBDIVISION THEREOF, INCLUDING, WITHOUT LIMITATION,
THE ISSUER AND JOHNSTON COUNTY, IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR
PREMIUM, IF ANY, OR INTEREST ON THE BONDS OR OTHER COSTS INCIDENT THERETO. THE
ISSUER HAS NO TAXING POWER.
- 28 -
<PAGE>
Section 9.7. If Performance Date Not a Business Day. If the last date for
performance of any act or the exercising of any right, as provided in this
Agreement, shall not be a Business Day, such payment may be made or act
performed or right exercised on the next succeeding Business Day.
Section 9.8. Amendments, Changes and Modifications. Subsequent to the issuance
of Bonds and prior to their payment in full (or provision for the payment
thereof having been made in accordance with the provisions of the Indenture),
and except as otherwise herein expressly provided, this Agreement may not be
effectively amended, changed, modified, altered or terminated without the
written consent of the Trustee and, prior to the Credit Facility Termination
Date and payment of all amounts payable to the Credit Provider under the Credit
Agreement, the consent of the Credit Provider, and otherwise in accordance with
the provisions of the Indenture.
Section 9.9. Execution in Counterparts. This Agreement may be simultaneously
executed in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.
Section 9.10. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State.
Section 9.11. Captions. The captions and headings in this Agreement are for
convenience only and in no way define, limit or describe the scope or intent of
any provisions or Sections of this Agreement.
Section 9.12. No Third Party Beneficiary. It is specifically agreed between the
parties executing this Agreement that it is not intended by any of the
provisions of any part of this Agreement to establish in favor of the public or
any member thereof, other than as expressly provided herein or as contemplated
in the Indenture, the rights of a third-party beneficiary hereunder, or to
authorize anyone not a party to this Agreement to maintain a suit for personal
injuries or property damage pursuant to the terms or provisions of this
Agreement. The duties, obligations and responsibilities of the parties to this
Agreement with respect to third parties shall remain as imposed by law.
- 29 -
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Agreement to be executed in its
name and attested by its duly authorized officers, and the Company has caused
this Agreement to be executed in its name and attested by its duly authorized
officers, all as of the date first above written.
(SEAL) THE JOHNSTON COUNTY INDUSTRIAL
FACILITIES AND POLLUTION CONTROL
FINANCING AUTHORITY
Attest: By:______________________________
Chairman
By:________________________
Secretary
(SEAL) FLANDERS CORPORATION
Attest: By:______________________________
Vice President
By: _____________________
Assistant Secretary
- 30 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF
FLANDERS CORPORATION FOR THE THREE MONTHS ENDED MARCH 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-01-1998
<CASH> 27,982,899
<SECURITIES> 293,982
<RECEIVABLES> 30,370,596
<ALLOWANCES> 380,566
<INVENTORY> 23,147,688
<CURRENT-ASSETS> 87,653,474
<PP&E> 61,826,114
<DEPRECIATION> 10,447,912
<TOTAL-ASSETS> 159,286,489
<CURRENT-LIABILITIES> 32,413,165
<BONDS> 0
0
0
<COMMON> 92,336,569
<OTHER-SE> 15,570,366
<TOTAL-LIABILITY-AND-EQUITY> 159,286,489
<SALES> 30,685,093
<TOTAL-REVENUES> 30,685,093
<CGS> 23,136,827
<TOTAL-COSTS> 5,587,443
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,223,532
<INCOME-TAX> 864,531
<INCOME-CONTINUING> 1,359,001
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,359,001
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
