SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1999
or
[ ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to ______________
Commission File Number 0-27958
FLANDERS CORPORATION
(Exact name of registrant as specified in its charter)
North Carolina 13-3368271
(State or other jurisdiction of ----------
incorporation or organization) (IRS Employer ID Number)
2399 26th Avenue North, St. Petersburg, FL 33734
------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (727) 822-4411
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, $.001 per share par value
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of April 13, 2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $57,985,947.
As of April 13, 2000, the number of shares outstanding of the registrant's
common stock was 25,435,583 shares.
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FLANDERS CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
PART I........................................................................3
Item 1. Business.........................................................3
Item 2. Properties......................................................11
Item 3. Legal Proceedings...............................................12
Item 4. Submission of Matters to a Vote of Security Holders.............12
PART II......................................................................13
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.............................................13
Item 6. Selected Financial Data.........................................14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................15
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk.....................................................24
Item 8. Financial Statements and Supplementary Data.....................24
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..........................24
PART III.....................................................................25
Item 10. Directors and Executive Officers of the Registrant..............25
Item 11. Executive Compensation..........................................26
Item 12. Security Ownership of Certain Beneficial Owners and
Management......................................................32
Item 13. Certain Relationships and Related Transactions..................34
PART IV......................................................................35
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.............................................35
SIGNATURES...................................................................38
FINANCIAL STATEMENTS
Report of Grant Thornton LLP Independent Certified Public Accountants...F-2
Independent Auditor's Report of McGladrey & Pullen, LLP.................F-3
Consolidated Balance Sheets.............................................F-4
Consolidated Statements of Earnings.....................................F-5
Consolidated Statements of Stockholders' Equity.........................F-6
Consolidated Statements of Cash Flows...................................F-7
Notes to Consolidated Financial Statements.............................F-10
Financial Statement Schedules..........................................F-27
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PART I
Item 1. Business
OVERVIEW
We design, manufacture and sell air filters and related products. Historically,
we have been a leading manufacturer of High Efficiency Particulate Air (HEPA)
filters, specializing in high-end cleanroom and containment filters for end
users in semiconductor manufacturing, nuclear processing, biotechnology, and
other high technology applications. In 1995, we began a strategy of growth
through acquisition, and acquired manufacturers of a broad range of additional
air filtration products, growing from $39 million in sales in 1995 to
approximately $171 million in sales in 1999. We now offer air filters ranging
from spun-glass furnace filters through high-volume electrostatic precipitators
and cleanroom laminar-flow HEPA filters.
Our air filters are utilized by many industries, including those associated with
commercial and residential heating, ventilation and air conditioning systems
(commonly known as "HVAC" systems), semiconductor manufacturing, ultra-pure
materials, biotechnology, pharmaceuticals, synthetics, nuclear power and nuclear
materials processing. We also design and manufacture much of our own production
equipment to automate our processes in order to decrease labor costs associated
with our standard products. We also produce glass-based air filter media for
many of our products. Our customers include Abbott Laboratories, The Home Depot,
Inc., Motorola, Inc., Merck & Co., Inc., Upjohn Co., Wal-Mart Stores, Inc.,
Westinghouse Electric Corp., and several large computer chip manufacturers.
The vast majority of our revenues come from the sale of after-market replacement
filters, since air filters are typically placed in equipment designed to last
much longer than the filters.
GENERAL DEVELOPMENT OF BUSINESS
Flanders Corporation was incorporated on July 2, 1986 in the State of Nevada,
and is currently domiciled in North Carolina. Beginning in December 1995, we
began to implement a strategy of growth through acquisition, acquiring several
companies specializing in air filters and related products, including Flanders
Filters, Inc., Charcoal Service Corporation, Air Seal Filter Housings, Inc.,
Precisionaire, Inc., and Eco-Air Products, Inc.
Effective April 1, 1999, we purchased the Tidewater group of companies for
$1,750,000, and spent approximately $177,000 in legal, accounting and other
expenses which were counted as part of the acquisition cost, for a total cost of
acquisition of approximately $1,927,000. Tidewater is an air filter distributor
and service organization, with some limited manufacturing capacity for specialty
products. Prior to the acquisition, Tidewater was an exclusive distributor of a
competitor's products.
Effective June 30, 1998, pursuant to a stock purchase agreement, we acquired
substantially all the outstanding stock of Eco-Air Products, Inc. The purchase
price, including expenses and net of cash received, was approximately
$15,455,160, plus up to $5,000,000 payable in cash or common stock (at sellers'
option) if certain performance criteria are met.
RECENT DEVELOPMENTS
On March 21, 2000, we announced that we had engaged the investment banking firm
PaineWebber Incorporated to help us explore strategic alternatives, including
the possible sale of the Company.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This annual report, including all documents incorporated herein by reference,
includes certain "forward-looking statements" within the meaning of that term in
Section 27A of the Securities Act of 1933, and Section 21E of the Exchange Act,
including, among others, those statements preceded by, following or including
the words "believes," "expects," "anticipates" or similar expressions.
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These forward-looking statements are based largely on the current expectations
of management and are subject to a number of risks and uncertainties. Actual
results could differ materially from these forward-looking statements. In
addition to the other risks described in the "Factors That May Affect Future
Results" discussion under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Part II of this annual report, important
factors to consider in evaluating such forward-looking statements include risk
of product demand, market acceptance, economic conditions, competitive products
and pricing, difficulties in product development, commercialization and
technology. In light of these risks and uncertainties, there can be no assurance
that the events contemplated by the forward-looking statements contained in this
annual report will, in fact, occur.
INDUSTRY BACKGROUND
The McIlvaine Company, a leading industry analyst, estimated that the worldwide
air filtration market would be approximately $3.2 billion in 1999, with the
United States being the largest market for air filters because of the prevalence
of forced air heating and cooling. McIlvaine also estimated the air filtration
market would grow at an annual rate of 8% per year through 2003. They indicated
that the driving forces behind growth in the air filtration market would be
using higher-performance filters in commercial and residential spaces instead of
current low-efficiency models, and the use of air filters in new applications.
Management believes the forces driving the air filtration market are evolving,
beginning in the past decade and continuing for the next several years, from
preserving machinery and equipment to maintaining indoor air quality. In
addition, we expect many high-growth technology industries to increase their
reliance on air filters to remove microscopic and gaseous contaminants from
sensitive manufacturing processes associated with semiconductor manufacturing,
pharmaceutical production, ultra-pure materials manufacturing and biotechnology.
Companies are devoting resources to air filtration products to enhance process
efficiency and employee productivity.
Air filters are used in many different applications, including the following:
o Commercial and Residential HVAC Systems. Replacement filters are an
essential requirement for the efficient operation of commercial and
residential HVAC systems.
o General Industrial. Air filters are used in standard industrial settings
to provide cleaner work environments; for example, auto makers use air
filtration systems to remove "oil mist" contaminants from the air in
their plants, and industrial paint booth users utilize air filtration to
remove paint particles from the air.
o Semiconductors. HEPA and carbon filters are necessary to meet the
increasingly stringent manufacturing environment requirements of
semiconductor manufacturers, where microscopic airborne contaminants can
ruin microchips during production, having a large impact on
manufacturing yield and profitability. Carbon filters are also being
increasingly used to filter gaseous contaminants from semiconductor
manufacturing areas.
o Pharmaceuticals. Pharmaceutical companies are increasingly using
cleanrooms to prevent cross-contamination between different products and
different lots of the same products being manufactured at the same
facility. The increasing use of cultured microbes for drug production is
also expected to increase demand for high-end containment environments.
o Biotechnology. Containment systems for the manipulation of viruses and
bacteria using genetic engineering techniques are critical to the
biotechnology industry.
o Nuclear Power and Materials Processing. Filtration systems are necessary
to radioactive containment procedures for all nuclear facilities.
RECENT TRENDS
Recent trends in the air filter industry, as well as changes in laws and
governmental regulations, all encourage an increased awareness of the benefits
of the use of air filtration products. Some of these trends and changes are:
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Indoor Air Quality and Health. We believe there is an increase in public
concern regarding the effects of Indoor Air Quality on employee productivity
and health, as well as an increase in interest in standards for detecting
and solving IAQ problems. For example, the American Society of Heating
Refrigeration and Air-Conditioning Engineers (ASHRAE) has recently
established certain minimum standards for ventilation and indoor air quality
for commercial and industrial settings. The World Health Organization has
recently been studying the effects of air quality on human health, including
widely publicized epidemiological studies indicating that airborne
contaminants kill more people than automobile accidents.
Hazardous Working Environments. Several studies recognize that air quality
in working facilities has an impact upon human health. OSHA regulations, in
particular, have made IAQ a consideration in a wide variety of industries,
ranging from those industries using spray-paint booths to those using
automobile assembly lines.
Sick Building Syndrome. Sick Building Syndrome, which is characterized by
lethargy, frequent headaches, eye irritation and fatigue, has recently been
shown to be a valid concern, and is a major design consideration in new and
renovated commercial and industrial buildings. The identification of "sick"
buildings, and solutions for mitigation, involve complex issues which need
to be examined on a case-by-case basis by qualified engineers; solutions
typically include improving the HVAC and filtration systems of the "sick"
buildings.
Hazardous Emission Regulation and Resultant Liability. Electrical utilities
became subject to emissions regulations under Title 4 of the Clean Air Act.
In addition, OSHA's Hazardous Communication Standard, the Toxic Release
Inventory and community "right to know" regulations regarding liability for
claims made by employees or neighboring communities have made many
industries, in particular the chemical and semiconductor industries, more
aware of clean air regulations. As a result, these industries have taken
voluntary steps, including the utilization of air filtration systems, to
bring emissions of potentially hazardous substances into line with
regulatory standards.
STRATEGY
Our current business strategy seeks to increase earnings, and hence shareholder
value, by improving operating efficiency and increasing our market share.
IMPROVE OPERATING EFFICIENCY
Eliminate Unprofitable Operations. During 1997, we established a new
subsidiary, Airseal West, Inc., to serve as a manufacturer of industrial air
handlers, custom housings, and related products for the western U.S. The
market opportunities envisioned by this venture failed to materialize, and
Airseal West focused its primary efforts on perceived opportunities in
businesses and products unrelated to air filtration, including sporting
goods, vending equipment and other general manufacturing. In December 1999,
the Board of Directors adopted a formal plan to close Airseal West and sell
its non air filter related assets. We estimate this will save approximately
$2 million per year (see "Management's Discussions and Analysis of Financial
Condition and Results of Operations - Discontinued Operations").
Vertical Integration. In December 1997, we acquired a small glass media
manufacturing plant in Salt Lake City, Utah, which produced spun-glass media
for our highest-volume products, flat panel filters, using traditional
processes, supplying perhaps 5% of our demand for this material. This plant
was also in the process of building a more efficient plant for producing the
spun-glass media used in these filters. In 1998, we began to build the
second generation of equipment for this purpose. By September 1999, we had
completed, evaluated and replicated the second generation of equipment and
begun building enough of this equipment to increase our production to the
level required to supply our three plants in the western U.S. with media.
This project should be completed in the second quarter of 2000. We plan to
establish a duplicate plant in North Carolina to supply our plants in the
rest of the U.S. With both plants in production, we estimate this process
will decrease our costs associated with spun-glass materials by at least
forty percent, representing approximately $2.5 million in annual cost
savings at current rates of usage.
Strategic Acquisitions. We continue to search for opportunities to acquire
new businesses, although our criteria for evaluating these businesses has
moved toward acquiring regional distributors and resellers, and away from
acquiring competing air filter manufacturers. We are looking for potential
acquisitions with the
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following characteristics: (i) dominant positions in local or regional
markets, (ii) a stable customer base distinct from our existing customers,
and (iii) a history of consistent and healthy earnings. Acquiring resellers
and distributors with these characteristics allows us to increase operating
margins by removing at least one layer of "middlemen," and their compounding
mark-ups and commissions from the sales and distribution process, allowing
us to charge higher prices while maintaining competitive pricing with end
users. At the present time, we do not have any binding agreements with
respect to future acquisitions.
Centralize Overhead Functions. During the fourth quarter of 1999, we
consolidated all of the sales forces of our various subsidiaries into a
single, consistent national sales team, eliminating overlapping territories,
duplication of literature, centralizing travel coordination and adding focus
to our sales efforts. We are continuing to centralize and eliminate
duplication efforts between subsidiaries in the following areas: purchasing,
production planning, shipping coordination, accounting, personnel
management, risk management and benefit plan administration.
Expand Mexican Manufacturing. We expect to have completed an expansion of
our Tijuana, Mexico, plant, which will produce our standard spun-glass and
pleated filters, in all grades, for sale in the western U.S. We will be
moving some of the production equipment from our plants in San Diego and
Nevada to this expansion.
Electronic Commerce. We believe there are significant cost savings and error
reduction opportunities in allowing our customers to enter orders, examine
specifications, receive confirmations, and check on the status of their
orders, via the Internet. In September 1999, we began an initiative to
analyze all other areas of our business for plans to implement savings by
using the Internet to automate communications with current customers,
potential customers, end users and investors. We believe there are
opportunities for significant cost reductions in customer service, shipping
errors, orders administration, customer pre-qualification, lead generation
and documentation storage. We anticipate completion of the first iteration
and implementation of this process in the year 2000, and plan to make the
Internet a central part of our future strategy for growth and cost
minimization. We do not anticipate significant direct retail sales from
electronic commerce in the foreseeable future, because shipping bulky
packages of inexpensive filters in less than truckload quantities is
prohibitively expensive.
Increase Market Share
Increase Sales to Existing and New Customers. We sell our products through a
direct sales force and manufacturers' representatives. Historically, any
given manufacturers' representative has only sold a small sub-set of our
current complete product line. However, we now offer a much larger range of
air filtration products, allowing these representatives to purchase their
full line of air filtration products from us instead of buying a mix of air
filtration products from a range of manufacturers.
Use Facilities Located Throughout the United States to Increase Market
Share. Through acquisition and the establishment of new plants, we have
placed facilities within one day's over-the-road shipping of most major
population centers in the United States. We believe this ability to
regionalize production and distribution will improve our business in several
ways: (i) Decrease cost of sales by reducing the average distance between
our plants and our customers, and hence decrease the cost of outbound
freight; (ii) increase responsiveness by decreasing the average time
required to ship products to customers; and (iii) increase our share of
national accounts' total business by having manufacturing facilities in
closer proximity to customers' regional distribution centers. The ability to
service all major population centers with regional manufacturing centers is
critical for our business, allowing us to compete on price against less
broadly based competitors without sacrificing margins, as well as the
ability to respond more rapidly than most of our competition.
Adapt Processes to New End User Requirements. During 1999, we established a
complete line of air filtration products for the removal of airborne paint
and associated solvents from the air. We were able to adapt our bulk
manufacturing processes to the high-volume synthetic media required for this
end use, and anticipate that revenues in this area will exceed $10 million
in 2000. We continue to watch for applications where our competitive
strengths can be readily adapted to new end users.
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Offer Indoor Air Quality Diagnosis and Remediation Services. During 1999, as
part of the acquisition of the Tidewater group of companies, we acquired a
small engineering firm specializing in monitoring air quality using
automated real-time data collection techniques over a period of months,
diagnosing any potential indoor air quality problems and suggesting
remediation programs. We believe we will be able to leverage this expertise
into value-added sales to our existing industrial and commercial customers,
and the filter sales and service companies which supply them, increasing our
revenues by adding value-added consulting and monitoring services.
Continued Emphasis on Quality and Performance. A continued emphasis on
product quality has allowed us to capture market share serving several
industries in recent years.
MARKETING
During 1999, we restructured and centralized our sales and marketing structure,
which we believe allows us to focus our marketing efforts more precisely, and
ensures consistency of presentation and pricing across all customers.
Previously, each subsidiary had its own sales and marketing infrastructure,
which contributed to waste and inefficiency, and more importantly, market
confusion. Our marketing efforts are targeted to the needs of individual
customers and groups of customers, and may consist of mass marketing allowances
and incentive programs for retailers, educational point of purchase materials
and enhanced signage for consumers and industry-specific technical seminars for
filter sales and service organizations.
Much of our marketing effort consists of personal visits to customers and
distributors through an extensive tiered network of contract salespeople.
Periodic visits are enhanced by mass mailings announcing new products,
participation in trade shows for exposure and lead generation, technical
articles and advertisements in trade periodicals, and a newly redesigned catalog
containing all Flanders products. During 1999, we restructured and unified all
of our product offerings, so that each subsidiary no longer generates its own
marketing literature. We also re-wrote the bulk of our catalog and promotional
materials to include all product lines in a consistent and easy-to-access
format, which can be used by all of our customers.
Besides developing new sales leads and contacts, we are also focused on
increasing the effectiveness of our existing distributors and contract salesmen,
by allowing them to offer our products as a complete "single-source" for air
filtration products. We believe this will allow them to increase their sales for
the following reasons:
Dependability and Responsiveness. Our ability to express-ship via standard
ground freight to any major population center within one day is a key
competitive advantage. We also believe that our expansion program and
general production capacity also allow us to handle relatively large orders
with shorter lead times than any of our competitors.
Product Quality. We are known as a manufacturer of high performance air
filtration products. We currently offer filters of 99.999997% on particles
0.1 microns or larger, which we believe is the highest efficiency rating
available anywhere. We have also been recognized for consistency and quality
of our products by several third-party rating organizations.
Name Recognition. We believe that each of our product lines has high name
recognition in its target markets. Our representatives and distributors have
indicated that they believe their sales will increase with additional
products associated with Flanders.
Single-Source Supplier. We provide a broad spectrum of air filtration
products. The ability to work with a single source for filters will enable
representatives to operate more efficiently, only needing to be trained on
one filtration system, maintain contacts with a single organization and
order from a central source.
Product Promotion and Innovation. We plan to continue to introduce new
applications we are developing for filtration products. Representatives and
distributors will be able to take advantage of the additional name
recognition and public knowledge associated with the marketing of the new
products. We believe these representatives will see this as a competitive
advantage to selling our products.
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PRODUCTS
We design, manufacture and market a broad range of air filters and related
products, including:
o High Efficiency Particulate Air (HEPA) filters (at least 99.97%
efficient) in various grades, for use in semiconductor facilities,
nuclear containment vessels, disease containment facilities, and other
critical applications
o Absolute Isolation Barriers which are customized stand-alone units,
typically manufactured of stainless steel, used in various industries
which require absolute control over contaminants, atmospheric
composition and containment
o Industrial mid-range specialty filters which fall under specifications
which are categorized by efficiency ratings established by the American
Society of Heating, Refrigeration and Air Conditioning Engineers
(ASHRAE), used in a wide variety of industries, including paint
facilities, automobile factories, chemical treatment plants, mushroom
farms, coal mines, oil refineries and power plants
o Carbon filters, both in bonded panels and activated charcoal beds, used
to remove gaseous contaminants, odors and toxic chemical vapors in
various commercial and industrial applications
o Commercial and industrial filters for use in office and general
manufacturing environments, typically sold through wholesalers and
distributors
o Residential heating and air conditioning filters, typically sold through
retailers
o Specialized air filter housings, for use in multi-stage filtration
applications
o Other related products, including tubing insulation, ductwork and
equipment cleaning chemicals, custom air handlers and specialized filter
housings.
MANUFACTURING
We manufacture air filters, housings, Absolute Isolation Barriers and related
equipment at several facilities in the United States, which range in size from
18,000 square feet to approximately 400,000 square feet.
o Precisionaire has seven separate manufacturing facilities located in
Bartow, Florida, Terrell, Texas, Salt Lake City, Utah, Henderson,
Nevada, Momence, Illinois, Smithfield, North Carolina and Auburn,
Pennsylvania, which produce a broad range of commercial, residential and
industrial filters.
o FFI's facility in Washington, North Carolina, produces high-end HEPA
products for cleanrooms. Management believes that FFI's ability to
manufacture its own HEPA filter media provides it with a significant
competitive advantage, allowing more direct control over quality and
composition than is generally available with outside suppliers.
o Flanders/CSC's facility, located in Bath, North Carolina, manufactures
HEGA filters, high-end containment environments, housings, custom filter
assemblies and other custom filtration products and systems which
require extensive custom design, production and lot tracking. For
example, CSC's products are used in the production and containment of
potentially dangerous biologically engineered microorganisms.
o Air Seal's facility, located in Stafford, Texas, produces mid-range
custom filter housings. o Eco-Air's facilities in San Diego, California,
and Tijuana, Mexico, manufacture air filtration products ranging from
standard-grade disposable filters through industrial HEPA filters.
In addition, we design, manufacture and assemble the majority of our automated
production equipment.
Our manufacturing operations are subject to periodic inspection by regulatory
authorities. Because of the nature of some of our products, these agencies
include, in some cases, the Department of Energy, the Food and Drug
Administration and other agencies responsible for overseeing sensitive
technologies. One of the considerations in deciding which types of products each
facility will manufacture is the segregation of highly-regulated products to a
minimal number of facilities to reduce the overhead associated with regulatory
monitoring and compliance.
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Each of our manufacturing facilities utilizes testing and design strategies
appropriate to the products manufactured. These range from standard statistical
process quality controls for residential replacement filters to individual
testing and certification with patented proprietary particle scanning
technologies for each laminar-grade HEPA filter. We believe that our ability to
comprehensively test and certify HEPA filters is a competitive advantage.
SOURCE AND AVAILABILITY OF RAW MATERIALS
Our principal raw materials are cardboard, fiberglass fibers, extruded glass,
sheet metal, extruded aluminum, adhesives, resins and wood. These raw materials
are readily available in sufficient quantities from many suppliers.
COMPETITION
The air-filtration market is fragmented and highly competitive. There are many
companies which compete in our market areas. We believe that the principal
competitive factors in the air filtration business include product performance,
name recognition, price, product knowledge, reputation, customized design,
timely delivery and product maintenance. We believe that we compete favorably in
all of these categories. Competitors include successful companies with
resources, assets, financial strength and market share which may be greater than
ours. Major competitors include American Air Filter International, Farr Company,
HEPA Corporation, Purolator Products Air Filtration Company, Donaldson Company,
Inc. and Clark Corporation.
PATENTS, TRADEMARKS AND LICENSES
We currently hold 17 patents relating to filtration technology, including
patents relating to HEPA filters and fabrication methods, filter leak testing
methods and laminar flow cleanrooms. We also have patents pending for one of the
components related to Absolute Isolation Barriers, and the impregnation method
used in the manufacture of Arm & Hammer Pleated Filters.
We have obtained and own the following federal trademark registrations:
PRECISIONAIRE(R), EZ FLOW(R), SMILIE(R), AIRVELOPE(R), CHANNEL-CEIL(R),
CHANNEL-HOOD(R), PUREFORM(R), ECONO-CELL(R), GAS-PAK(R), PUREFRAME(R), DIMPLE
PLEAT(R), BLU-JEL(R), VLSI(R), CHANNEL-SEAL-ADAPTER(R), SUPERFLOW(R),
FLANDERS(R), CHANNEL-WALL(R), SUPERSEAL(R), AIRPURE(R) and PURESEAL(R). The
Company also has applied for federal trademark protection for the following
marks: FLANDERS ABSOLUTE ISOLATIONTM, FLANDERS/CSCTM, TECH-SORBTM and
FUTUREFLOTM. Although management believes that the patents and trademarks
associated with our various product lines and subsidiaries are valuable, we do
not consider any of them to be essential to our business.
We currently license some of our products to specialty HVAC and ASHRAE filter
manufacturers who produce products under their own name and with their own
identifying labels.
CUSTOMERS
We are not dependent upon any single customer. One customer, Wal-Mart Stores,
Inc., accounted for 10%, 10% and 11% of net sales during 1999, 1998 and 1997,
respectively. Home Depot, Inc., accounted for 12%, 10% and 8% of net sales
during 1999, 1998 and 1997, respectively. No other single customer accounted for
10% or more of net sales. Other significant customers include Abbott
Laboratories, Motorola, Inc., Merck & Co., Inc., Upjohn Co., Westinghouse
Electric Corp., and several large computer chip manufacturers.
BACKLOG
We had approximately $12,700,000 in firm backlog on December 31, 1999, compared
to $11,084,000 on December 31, 1998. Firm backlog includes orders received and
not begun and the unfinished and unbilled portion of contracts in progress.
Orders are typically not cancelable without penalty, except for certain stable
filter supply contracts to nuclear facilities operated by the United States
government. Backlog varies from week to week, based on the timing and mix of
orders received. All backlog at December 31, 1999, is expected to be shipped by
the end of the second quarter of 2000.
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EMPLOYEES
The Company employed 2,391 full-time employees on December 31, 1999; 1,986 in
manufacturing, 29 in development and technical staff, 48 in sales and marketing,
and the remaining 328 in support staff and administration. The Company believes
that its relationship with its employees is satisfactory. Manufacturers'
representatives are not employees of the Company.
RESEARCH AND DEVELOPMENT
Our research and development is focused in the following areas:
Automated equipment design, to increase the efficiency and profitability of
production lines used for mass production of off-the-shelf filters.
Alternative filtration media types, including evaluation of new synthetic
media products, which might either increase efficiency or decrease media
costs; the Company's Arm & Hammer Pleated Filters are an application of this
type of research.
Improved media production techniques, particularly at Precisionaire's spun
fiberglass production facility in Salt Lake City, Utah, and FFI's HEPA paper
mill in Washington, North Carolina; during the past ten years, the Company
has increased the efficiency of its filters through advances in media
formulation and production techniques from 99.97% to 99.999997%.
Application development, where new methods and products are developed from
existing technologies.
Research and development costs for 1999, 1998 and 1997 were approximately
$763,000, $2,250,000 and $373,000, respectively. Research and development costs
were expensed and included in general and administration expenses during the
period incurred. The large increase in research and development expense between
1998 and 1997 was primarily due to the development of three product lines: Arm &
Hammer Pleated Filters, Environmental Tobacco Smoke Systems, and Retrofit Air
Handlers.
GOVERNMENT REGULATION
Our operations are subject to certain federal, state and local requirements
relating to environmental, waste management, health and safety regulations. We
attempt to operate our business in compliance with all applicable government,
environmental, waste management, health and safety regulations and we believe
that our products meet standards from applicable government agencies. There can
be no assurance that future regulations will not require us to modify our
products to meet revised safety or other requirements.
SEASONALITY
Historically, our business has been seasonal, with a substantial percentage of
sales occurring during the second and third quarters of each year. In addition,
demand for our general commercial and industrial products appears to be highly
influenced by the weather, with higher sales generally associated with extremes
of either hot or cold weather, and lower sales generally associated with
temperate weather. Because of these seasonal and weather-related demand
fluctuations, quarter-to-quarter performance may not be a good predictor of
future results.
EXPORT SALES
We sell products for and to end users outside of the United States through
domestic specialty cleanroom contractors. These sales are counted as domestic
sales. We also sell products through foreign distributors, primarily in Europe,
and through Flanders International, Ltd., a wholly-owned subsidiary located in
Singapore which sells to customers in the Far East. Sales through foreign
distributors and Flanders International amounted to less than 5% of net sales
for each of the last three fiscal years. Assets held outside the United States
are negligible.
10
<PAGE>
Item 2. Properties
The following table lists our principal facilities. Management believes that
these properties are adequate for its current operational needs, but we may at
some point relocate, reorganize or consolidate various facilities for reasons of
operating efficiencies, or may open new plants to take advantage of perceived
new economic opportunities.
<TABLE>
<CAPTION>
Approximate Floor Monthly
Principal Facility Location Space (sq. ft.) Expense Lease/Type
------------------ -------- ----------------- --------- ----------
<S> <C> <C> <C> <C>
Manufacturing and office Washington, North
facility Carolina 220,000 $13,775 Owned<F1>
Manufacturing, service and
office facility Bath, North Carolina 44,282 N/A Owned
Manufacturing plant Bartow, Florida 175,000 29,121 Owned<F1>
R&D & Warehouse Lakeland, Florida 40,000 6,559 Leased
Manufacturing plant Terrell, Texas 146,256 29,858 Owned<F1>
Manufacturing plant Auburn, Pennsylvania 91,000 7,097 Owned<F1>
Office space and St. Petersburg,
headquarters Florida 18,000 N/A Owned
Office space and Warehouse Richmond, VA 10,000 2,200 Leased
Office space and Warehouse Virginia Beach, VA 25,000 6,850 Leased
Manufacturing plant Henderson, Nevada 100,000 26,000 Leased
Manufacturing plant Momence, Illinois 210,000 44,062 Owned<F1><F2>
Sales office and warehouse Singapore 10,000 3,350 Leased
Manufacturing and office
facility Stafford, Texas 18,000 N/A Owned
Manufacturing plant Salt Lake City, Utah 70,805 21,963 Leased<F4>
Smithfield, North
Manufacturing plant Carolina 399,090 N/A<F3> Owned
Plant and office facility San Diego, California 96,660 37,697 Leased
Manufacturing plant Tijuana, Mexico 49,000 13,500 Leased
<FN>
<F1> This property is encumbered by a mortgage.
<F2> This mortgage is paid quarterly rather than monthly; the quarterly
payments are $132,187.
<F3> This property is used as security for an Industrial Revenue Bond with
face value of $4,500,000. Monthly payments are for interest only on the
bond, and vary from month to month based on the interest rate during the
period. At December 31, 1999, the interest rate on the bond was 3.2%.
<F4> We are purchasing this building, along with an additional 100,000 square
feet of space under construction for approximately $3,994,000 pending
completion of the additional space, expected to be completed in May
2000. See "Managements Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources" and "Notes
to Consolidated Financial Statements - Note M."
</FN>
</TABLE>
11
<PAGE>
Item 3. Legal Proceedings
The Company is involved in a dispute with a customer involving a purchase of
approximately $5 million in air filters, with approximately $2.6 million of
related accounts receivable currently uncollected, filed as Case No. CV 98-19817
on October 10, 1998 in the Superior Court of the State of Arizona in and for the
County of Maricopa, Intel Corporation v. Flanders Filters, Inc. The customer
contends that certain filters manufactured by the Company did not conform to
specifications, and has asked for unspecified relief and damages. The Company
has filed a counter-claim asking for the amount of its receivable and
unspecified relief and damages. Independent testing and other information
available to management indicate the filters did conform to specifications;
therefore, management believes the receivable is fully collectible. However, it
is reasonably possible the estimate of collection may change in the near term.
Additionally, from time to time, we are a party to various legal proceedings
incidental to our business. None of these proceedings are material to our
business, operations or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
We held our annual meeting of shareholders on December 21, 1999. During the
meeting, holders of 17,496,387 shares, representing approximately 68.8% of
25,435,583 shares outstanding on the record date, attended either in person or
by proxy. Holders of 13,846,481 shares (approximately 79.1% of shares present)
voted to elect as members of the Board of Directors Robert R. Amerson, Steven K.
Clark, J. Russell Fleming and Linwood Allen Hahn, holders of 1,968 voted
against; and holders of 3,647,938 shares abstained. As a result, Messrs.
Amerson, Clark, Fleming and Hahn were elected for one-year terms as directors.
Holders of 13,858,772 shares (approximately 79.2% of shares present) voted to
ratify the firm of Grant Thornton LLP as the Company's independent auditors for
the fiscal year ended December 31, 1999, holders of 14,168 shares voted against
the ratification and holders of 3,623,446 shares abstained. As a result, Grant
Thornton's appointment was ratified.
12
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Price Range of Common Stock
The Company's common stock is listed on the Nasdaq National Market System under
the symbol "FLDR." The following table sets forth, for the periods indicated,
the high and low closing prices of the Company's common stock as reported by the
Nasdaq National Market System. Such quotations do not include retail mark-ups,
mark-downs, or other fees or commissions.
<TABLE>
<CAPTION>
High Low
----------- -----------
<S> <C> <C>
Fiscal 1999
Fourth Quarter ended December 31, 1999 $ 3 5/16 $ 2 1/4
Third Quarter ended September 30, 1999 3 3/8 2 3/8
Second Quarter ended June 30, 1999 3 13/16 2 1/2
First Quarter ended March 31, 1999 5 1/8 2 9/16
Fiscal 1998
Fourth Quarter ended December 31, 1998 4 3/16 2 15/16
Third Quarter ended September 30, 1998 5 1/2 3 1/2
Second Quarter ended June 30, 1998 6 4 1/2
First Quarter ended March 31, 1998 8 1/2 5 9/16
</TABLE>
Approximate Number of Equity Securityholders
On April 13, 2000, Flanders' common stock closed at $3 1/8. As of April 13,
2000, there were approximately 296 holders of record of the Company's common
stock. The Company estimates there are approximately 2,400 beneficial owners of
the Company's common stock.
Dividends
We have not declared or paid cash dividends on our common stock. Currently, we
intend to retain any future earnings to finance the growth and development of
the business, therefore we do not anticipate paying cash dividends in the
foreseeable future. In the future, the Board of Directors may decide to change
this policy, based upon its evaluation of our earnings, financial position,
capital requirements and any factors the Board of Directors may consider to be
relevant. Under the terms of our revolving credit line we cannot pay dividends
without the prior written consent of the bank. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and "Notes to Consolidated Financial Statements - Note H."
SALES OF UNREGISTERED SECURITIES
The Company did not sell any unregistered common shares or other unregistered
securities during 1997, 1998 and 1999.
13
<PAGE>
Item 6. Selected Financial Data
The following financial data is an integral part of, and should be read in
conjunction with, the "Consolidated Financial Statements" and notes thereto.
Information concerning significant trends in the financial condition and results
of operations is contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Selected Historical Operations Data (In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $ 171,392 $ 154,765 $ 131,899 $ 73,056 $ 38,636
Gross profit 43,975 37,660 32,880 19,459 9,682
Operating expenses 33,802 28,108 23,510 13,460 7,263
Operating income from continuing operations 10,172 9,551 9,370 5,999 2,419
Earnings from continuing operations before
income taxes 10,174 10,991 9,850 5,771 1,830
Provision for income taxes 4,671 4,450 3,751 2,178 685
Earnings from continuing operations 5,503 6,541 6,098 3,594 1,146
Loss from discontinued operations (2,686) (1,253) (259) -- --
Net Earnings $ 2,817 $ 5,288 $ 5,839 $ 3,594 $ 1,146
========== ========== ========== ========= =========
Earnings per share from continuing operations
Basic $ 0.22 $ 0.26 $ 0.33 $ 0.27 $ 0.12
========== ========== ========== ========= =========
Diluted $ 0.21 $ 0.24 $ 0.28 $ 0.23 $ 0.12
========== ========== ========== ========= =========
Earnings per share
Basic $ 0.11 $ 0.21 $ 0.32 $ 0.27 $ 0.12
========== ========== ========== ========= =========
Diluted $ 0.11 $ 0.20 $ 0.27 $ 0.23 $ 0.12
========== ========== ========== ========= =========
Weighted average common shares outstanding
Basic 25,344 25,134 18,509 13,171 9,832
========== ========== ========== ========= =========
Diluted 26,525 27,107 22,477 16,384 9,832
========== ========== ========== ========= =========
</TABLE>
Selected Historical Balance Sheet Data (In thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Working capital $ 45,889 $ 47,972 $ 55,179 $ 22,570 $ 4,108
Total assets 170,429 167,780 145,881 86,518 18,529
Long-term obligations1 32,328 31,371 14,771 42,156 1,761
Total shareholders' equity 112,127 109,603 106,207 25,353 8,208
- --------------------
</TABLE>
1 Long-term obligations include long-term notes payable, long-term debt,
including current maturities, convertible debt, and committed capital.
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with "Item 6 - Selected
Consolidated Financial Data" and "Consolidated Financial Statements," all
included elsewhere herein. 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, including but not limited to those discussed below under "Factors That
May Affect Future Results" could cause actual results to differ materially from
those contained in the forward-looking statements below.
Overview
Flanders 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. We focus on those
products with high replacement potential. We also design and manufacture much of
our own production equipment and also produce glass-based media for many of our
air filtration products. From 1996 to 1999, we experienced significant growth
from the acquisition of other air filtration related companies. As of March 30,
1999, we acquired the Taffco group, a regional air filter sales and service
distributor headquartered in Virginia. As of June 30, 1998, we acquired Eco-Air.
Eco-Air specializes in the manufacture and sale of air filtration products to
markets on the West Coast ranging from high-end HEPA filters through
standard-grade filters. The results of operations for the acquired businesses
are included in our financial statements only from the applicable date of
acquisition. As a result, historical results of operations for the periods
presented should be evaluated specifically in the context of these acquisitions.
Additionally, the historical results of operations do not reflect any future
operating efficiencies and improvements from integrating and consolidating the
acquired businesses into our operations. There can be no guarantee that we will
be able to achieve these objectives and gains in efficiency. We believe the
Acquisitions will have a positive impact on its future results of operations.
Also in 1998, we established Sierra Ridge Filtration, Inc., a direct distributor
of air filtration products with sales offices located in the western United
States.
Results of Operations
1999 Compared to 1998
The following table summarizes the Company's results of operations as a
percentage of net sales for 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
<S> <C> <C> <C> <C>
Net sales ............................................. $ 171,392 100.0% $ 154,765 100.0%
Gross profit .......................................... 43,975 25.7 37,660 24.3
Operating expenses .................................... 33,802 19.7 28,108 18.2
Operating income from continuing operations ........... 10,172 5.9 9,551 6.2
Earnings from continuing operations before income taxes 10,174 5.9 10,991 7.1
Provision for income taxes ............................ 4,671 2.7 4,450 2.9
Earnings from continuing operations ................... 5,503 3.2 6,541 4.2
Loss from discontinued operations ..................... (2,686) (1.6) (1,253) (0.8)
Net earnings .......................................... $ 2,817 1.6 $ 5,289 3.4
</TABLE>
Net Sales: Net sales for 1999 increased by $16,627,000 or 10.7%, to
$171,392,000 for 1999, from $154,765,000 for 1998. The increase in net sales
was due to: (i) the acquisitions of Eco-Air and the Tidewater group, which
contributed approximately $15,334,000 of net sales; and (ii) the Company's
success in attracting work and expanding its original core business, which
grew by approximately 1% between 1999 and 1998 and contributed an additional
$1,293,000 to net sales.
15
<PAGE>
Gross Profit: Gross profit for 1999 increased $6,315,000, or 16.8%, to
$43,975,000, which represented 25.7% of net sales, compared to $37,660,000,
which represented 24.3% for 1998. This increase in gross margin percentage
was primarily due to:
o Higher margins on sales made through our direct sales offices, which
made significant contributions to sales of our products for the
first time during the last half of 1999;
o Margin improvement from our ongoing automation projects;
o Operational efficiencies at our newest facilities in Nevada,
Illinois and North Carolina, which are gradually increasing over
time and should increase to the levels experienced historically at
other plants during the next twelve to eighteen months; and
o Internally produced spun-glass media for our residential and
commercial flat-panel furnace and air conditioning filters began in
significant quantities during the fourth quarter of 1999, providing
an estimated savings of approximately $100,000.
o Hurricane Floyd which caused us to close four of our plants in the
eastern United States for periods ranging from 0.5 days to 5.5 days.
There is an associated insurance claim whose amount has not yet been
determined, which will be booked as "other income" during the period
in which the amount becomes fully determined.
Operating Expenses: Operating expenses during 1999 increased $5,694,000, or
20.3% to $33,802,000, representing 19.7% of net sales, compared to
$28,108,000 for 1998, which represented 18.2% of net sales. The increase in
operating expenses was primarily due to the acquisitions of Eco-Air and the
Tidewater group, which added approximately $5,031,000 in operating expenses.
Excluding these acquisitions, operating expenses increased $663,000 from
1999 compared to 1998. This increase is primarily due to the establishment
of direct sales offices during the last part of 1998 and all of 1999, which
offset the increase in gross profit margin attributable to direct office
operations. Other factors affecting operating expenses included decreased
expenditures for new product development expenditures between 1999 and 1998,
the consolidation and centralization of overhead functions, increased in
outbound freight expenses related to increased sales and higher fuel costs,
and increased sales commission expenses associated with increased sales.
Discontinued Operations: In December 1999, we adopted a formal plan to close
Airseal West, a wholly-owned subsidiary, and sell its various assets and
product lines to unrelated third parties. The anticipated date of closure is
approximately April 30, 2000. All dispositions of assets are expected to be
completed before December 31, 2000. The assets to be sold consist primarily
of accounts receivable, inventories, manufacturing equipment, designs and
other intellectual properties. The estimated net loss of the discontinued
operations of approximately $2,686,000 represents approximately $1,793,000
of losses incurred during 1999 and $893,000 of estimated loss on the
disposal of the assets of Airseal West (both figures net of income tax
benefit). During 1998, operating losses from Airseal West were approximately
$1,253,000, net of income tax benefit.
Provision for Taxes: Our income tax provision for 1999 increased $221,000,
or 5.0%, to $4,671,000, from $4,450,000 for 1998, which represented 45.9%
and 40.5% of earnings from continuing operations before income taxes,
respectively. Our tax provision increased because of larger amounts of
nondeductible expenses, primarily amortization of goodwill, and certain
one-time adjustments related to estimated accrued income taxes. Our blended
rate state and federal tax rate, excluding the effect of nondeductible
expenses consisting primarily of amortization of goodwill of approximately
$900,000 per year and one-time adjustments, is approximately 40.0%.
Earnings from Continuing Operations: Earnings from continuing operations for
1999 decreased $1,038,000, or 15.9%, to $5,503,000, or $0.22 per share basic
($0.21 diluted), compared to $6,541,000, or $0.26 per share basic ($0.24
diluted), for 1998. The decrease in earnings is primarily attributable to
decreases in net nonoperating income (expense), consisting primarily of
additional interest expense and reduced interest income, and an increase in
our effective income tax rate.
16
<PAGE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
The following table summarizes the Company's results of operations as a
percentage of net sales for the years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
----------------- ------------------
<S> <C> <C> <C> <C>
Net sales ............................................. $ 154,765 100.0% $ 131,899 100.0%
Gross profit .......................................... 37,660 24.3 32,880 24.9
Operating expenses .................................... 28,108 18.2 23,509 17.8
Operating income from continuing operations ........... 9,551 6.2 9,370 7.1
Earnings from continuing operations before income taxes 10,991 7.1 9,850 7.5
Provision for income taxes ............................ 4,450 2.9 3,751 2.8
Earnings from continuing operations ................... 6,541 4.2 6,098 4.6
Loss from discontinued operations ..................... (1,253) (0.8) (259) (0.2)
Net earnings .......................................... $ 5,289 3.4 $ 5,839 4.4
</TABLE>
Net Sales: Net sales for 1998 increased by $22,866,000, or 17.3%, to
$154,765,000, from $131,899,000 for 1997. The increase in net sales was due
to: (i) the acquisition of Eco-Air, which contributed approximately
$12,718,000 of net sales; and (ii) the Company's success in attracting work
and expanding its original core business, which grew by approximately 7.7%
between 1998 and 1997 and contributed an additional $10,148,000 to net
sales. The Company experienced reductions in sales of its laminar-flow HEPA
products for cleanroom applications, which were balanced by increased sales
of its ASHRAE-rated mid-range products for industrial and commercial
applications.
Gross Profit: Gross profit for 1998 increased $4,780,000, or 14.5%, to
$37,660,000, which represented 24.3% of net sales, compared to $32,880,000,
which represented 24.9% for 1997. The primary reasons for the decrease in
gross profit margin percentage were: (i) The consolidation of the Company's
Airpure facility, located in Selma, North Carolina, into the Company's new
facility in nearby Smithfield, North Carolina, which took place during the
fourth quarter of 1998 and resulted in extended periods of downtime due to
equipment movement, calibration and production flow refinement, as well as
other direct costs associated with moving equipment and inventory from the
old facility to the new plant; (ii) higher than normal costs, mostly during
the first three quarters of 1998, associated with new facilities in
Henderson, Nevada and Smithfield, North Carolina, consisting primarily of
labor inefficiencies associated with training new production employees and
installation of new equipment; (iii) higher than normal freight costs
associated with shipping products from "established" facilities to meet
demand from new geographical areas while additional equipment was installed
in various plants; and (iv) inefficiencies associated with irregular orders
and slowdowns at FFI's facility in Washington, North Carolina. These
decreases in gross profit were partially balanced by efficiencies associated
with the Company's ongoing automation project for stock product lines, which
is substantially complete for the Company's highest volume products.
Operating Expenses: Operating expenses during 1998 increased $4,599,000, or
19.6% to $28,108,000, representing 18.2% of net sales, compared to
$23,509,000 for 1997, which represented 17.8% of net sales. The increase in
operating expenses was primarily due to the acquisition of Eco-Air, which
added approximately $3,720,000 in operating expenses. Excluding Eco-Air,
operating expenses increased $879,000 from the year ended December 31, 1998
compared to the year ended December 31, 1997. Major factors affecting
operating expenses included approximately $2,250,000 in research and
development expenditures for the development of new product lines, compared
to approximately $373,000 in 1997, the consolidation and centralization of
overhead functions, and increased sales commission expense associated with
increase sales.
Net Income: Net income for 1998 decreased $550,000, or 9.4%, to $5,289,000,
or $0.21 per share basic ($0.20 diluted), compared to $5,839,000, or $0.32
per share basic ($0.27 diluted), for 1997. The decrease in net income is
primarily attributable to the Company's decrease in profit margin as a
percentage of sales.
17
<PAGE>
Effects of Inflation
The Company's business and operations have not been materially affected by
inflation during the periods for which financial information is presented.
Liquidity and Capital Resources
Working capital was $45,889,000 at December 31, 1999, compared to $47,972,000 at
December 31, 1998. This includes cash and cash equivalents of $824,000 and
$13,763,000 at December 31, 1999 and 1998, respectively.
Trade receivables increased $2,352,000, or 8.8%, to $29,023,000 at December 31,
1999 from $26,671,000 at December 31, 1998. The increase in receivables is
primarily due to increases associated with the increased volume of net sales
(approximately $2,659,000) and timing differences in shipments and payments
received.
Continuing operations generated $5,242,000 of cash during 1999, compared to
generating $849,000 during 1998. The difference in cash flows was associated
with smaller increases in inventories during 1999 compared to 1998, and an
increase in accounts payable of $173,000 in 1999 compared to a decrease of
$2,629,000 in 1998. Financing activities for continuing operations consumed
$5,262,000 during 1999 of cash, primarily from payments on debt financing.
Investing activities for continuing operations consumed $11,881,000 of cash
during 1999, consisting primarily of the purchase of property, plant and
equipment, and cash paid for the acquisition of the Tidewater group. The
purchase price, including expenses and net of cash received, was approximately
$1,787,000. The acquisition of Tidewater was funded from operating cash flow and
the Company's revolving credit facility. The effective date of the acquisition
for financial statement purposes was April 1, 1999, and financial statements
include the operating activities and assets of the Tidewater group from that
date.
On February 9, 2000, we completed the extension of our $45,000,000 revolving
line of credit facility with SunTrust. 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, which was 8.5% at December 31,
1999, or (b) the "LIBOR" rate as reported by the Wall Street Journal, which was
5.3% at December 31, 1999, 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
December 31, 1999, the Company had used $11,370,000 of the revolving credit
facility. Unless this line of credit is renewed, it will expire in June 2002.
As of April 1, 1998, we 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 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 December 31, 1999, was 3.2% per annum. The Bonds are
collateralized by a $4,500,000 letter of credit which expires in June 2002.
Continuing expansion may require substantial capital investment for the
manufacture of filtration products. Although we have 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 acceptable terms. Failure to obtain sufficient
capital could materially adversely impact our growth strategy.
In 1998, the Board of Directors authorized the repurchase of up to two million
shares of the Company's common stock. As of March 24, 2000, the Company had
repurchased 1,014,650 shares of its common stock under this authorization; thus,
as of this date, up to an additional 985,350 shares are available for
repurchase. These shares may be acquired in the open market or through
negotiated transactions. These repurchases may be made from time to time,
depending on market conditions, share price and other factors. These repurchases
are to be used primarily to satisfy the Company's obligations under its stock
option and purchase plans or any other authorized incentive plans, or for
issuance pursuant to future equity financing by the Company. Effective with the
engagement of PaineWebber in March 2000, repurchases under the plan were
suspended.
18
<PAGE>
Outlook
During 1999, we saw the first signs that our newly established manufacturing
facilities are beginning to complete their start-up phases. Efficiency at these
new facilities is beginning to increase. We expect this process to continue for
the next eighteen months, until the new plants reach our goals for material
utilization, labor productivity and throughput. Critical to this process,
however, will be our success in obtaining additional sales to more fully utilize
the production capacity we have put into place.
In July 1999, we established a national contracts sales group. This group is
focused on obtaining national supply agreements with major industrial end users,
typically with purchases from us by each such customer expected to exceed $1
million per year. These types of customers are not typically accessible to our
predominantly regional representative and distributor organizations, and so
remain a largely untapped market for us. While it is difficult to predict the
precise magnitude of sales that will actually result from this endeavor, we have
targeted customers with aggregate annual air filtration requirements in excess
of $100 million. To date, we have received our first major contract for this
market segment, a three-year exclusive arrangement to provide filters to a major
HVAC system manufacturer which is expected to contribute at least $5 million to
annual sales, which began in the fourth quarter of 1999.
During the year, we negotiated joint venture agreements with major air filter
distributors or manufacturers in several different areas in the Pacific Rim,
including Australia, Korea, Malaysia, Singapore, Taiwan, Hong Kong and China.
These arrangements are structured so that we sell the ventures proprietary
materials and provide certain proprietary equipment. These agreements are not
expected to have a material effect on our financial position or results of
operations during the year 2000. However, we hope that the ventures will become
a significant source of revenue and income in the future.
During 1999, we finished our internal verification of a new Indoor Air Quality
system targeted toward commercial office buildings. This product, part of our
engineered services group, uses air quality monitoring, computer models and
automated data collection to develop a complete analysis of a building's air
quality over time, which is then used to generate and verify solutions to air
quality problems. While the installations of this technology currently in place
are not material to our results, and sales from this product are not expected to
be a material contributor in the year 2000, we believe this combination of
filtration products and engineering services is the best way to address Indoor
Air Quality problems, including Sick Building Syndrome, and believe the
potential market for this application exceeds $5 million.
We believe the semiconductor industry has been experiencing a cyclical slowdown
in capital spending for new facilities, and thus on spending for cleanroom
filtration products, since the first quarter of 1997. While we expect capital
spending for new semiconductor facilities to increase in the future, this was
not a significant factor in our overall business during 1999 (less than 7% of
our sales in 1999 and 1998 were from high-end products sold for use in the
semiconductor industry). During the first quarter of 2000, we have seen definite
signs that the semiconductor industry will require additional capacity in the
near future, including price increases in commodity DRAM markets and several new
facility announcements. Therefore, we expect sales for products used in
semiconductor plants to increase through the rest of 2000.
We have collected data that indicates that residential filter users replace
their filters, on average, approximately once per year. Manufacturers of
residential furnace and air conditioning 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 our
business.
We believe there is currently a gradually increasing public awareness of the
issues surrounding indoor air quality and that this trend will continue for the
next several years. We also believe there is an increase in public concern
regarding the effects of indoor air quality on employee productivity, as well as
an increase in interest by standards-making bodies in creating specifications
and techniques for detecting, defining and solving indoor air quality problems.
We further believe there will be an increase in interest in our Absolute
Isolation Barriers in the future because these products may be used in both
semiconductor and pharmaceutical manufacturing plants to prevent
cross-contamination between different lots and different processes being
performed at the same facility. These products also increase production yields
in many applications.
19
<PAGE>
Our most common products, in terms of both unit and dollar volume, are
residential throw-away spun glass 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 products with higher value products. Our higher
value products include our NaturalAire higher-efficiency filters for residential
use, with associated sales prices typically over $5.00 each. Any such trend
would have a beneficial effect on our 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, our penetration of this market has been
relatively small. We believe our ability to offer a "one stop" supply of air
filtration products to HVAC distributors and wholesalers may increase our share
of this market. We also believe that our recently developed modular air handlers
and environmental tobacco smoke systems will enable us to expand sales to these
customers. We intend our new products to serve as high profile entrants with
distributors and manufacturers' representatives, who can then be motivated to
carry our complete product line.
This Outlook section, and other portions of this document, include certain
"forward-looking statements" within the meaning of that term in Section 27A of
the Securities Act of 1933, and Section 21E of the Securities Exchange Act of
1934, including, among others, those statements preceded by, following or
including the words "believe," "expect," "intend," "anticipate" or similar
expressions. These forward-looking statements are based largely on the current
expectations of management and are subject to a number of assumptions, risks and
uncertainties. Our actual results could differ materially from these
forward-looking statements. Important factors to consider in evaluating such
forward-looking statements include those discussed below under the heading
"Factors That May Affect Future Results" as well as:
o the shortage of reliable market data regarding the air filtration
market,
o changes in external competitive market factors or in our internal
budgeting process which might impact trends in our results of
operations,
o anticipated working capital or other cash requirements,
o changes in our business strategy or an inability to execute our strategy
due to unanticipated changes in the market,
o product obsolescence due to the development of new technologies, and
o various competitive factors that may prevent us from competing
successfully in the marketplace.
In light of these risks and uncertainties, there can be no assurance that the
events contemplated by the forward-looking statements contained in this Form
10-K will in fact occur.
Factors That May Affect Future Results
Our Failure to Manage Future Growth Could Adversely Impact Our Business Due to
the Strain on Our Management, Financial and Other Resources
If our business continues to grow, the additional growth will place burdens on
management to manage such growth while maintaining profitability. We have no
guarantee that we will be able to do so. Due to our recent acquisitions and
expansions, our net sales increased by approximately 344% from 1995 through
1999, (a compound annual growth rate of 45%). We may not continue to expand at
this rate. Our ability to compete effectively and manage future growth depends
on our ability to:
o recruit, train and manage our work force, particularly in the areas of
corporate management, accounting, research and development and
operations,
o manage production and inventory levels to meet product demand,
o manage and improve production quality,
o expand both the range of customers and the geographic scope of our
customer base, and
o improve financial and management controls, reporting systems and
procedures.
Any failure to manage growth effectively could have a material adverse effect on
our business, financial condition and results of operations.
20
<PAGE>
We Must Develop, Produce and Sell New Products That Keep Up With Rapid
Technological Change to Maintain Approximately 20% of Our Revenues and Maintain
Value of Our Inventory and Other Assets
As of December 31, 1999, approximately 20% of our revenues resulted from sales
of high-end filtration products that are especially vulnerable to new technology
development. Our ability to remain competitive in this area will depend in part
upon our ability to:
o anticipate technological changes,
o develop new and enhanced filtration systems that meet our customers'
needs, and
o introduce these systems at competitive prices in a timely and
cost-efficient manner.
We have no assurance that we will successfully anticipate future technological
changes or that technologies or systems developed by others will not render our
technology obsolete. Additionally, we have no assurance that the products we
develop will be commercially viable. A failure to successfully anticipate future
technological changes could also require us to write down inventories, equipment
or other assets associated with obsolete products or dispose of these assets at
a price lower than book value, which could have a material adverse effect on our
financial condition and results of operations.
Our Business May Suffer if Our Competitive Strategy is Not Successful
Our continued success depends on our ability to compete in an industry that is
highly competitive. 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 we do. Additionally, our
competitors may introduce new products or enhancements to products that could
cause a decline in sales or loss of market acceptance of our existing products.
Under our current competitive strategy, we endeavor to remain competitive by:
o increasing our market share,
o expanding our market through the introduction of new products which
require periodic replacement, and
o improving operating efficiencies.
Although our executive management team continues to review and monitor our
strategic plans, we have no assurance that we will be able to follow our current
strategy or that this strategy will be successful.
Our Market Share May Not Continue to Increase if we are Unable to Acquire
Additional Synergistic Businesses
In the past several years we have significantly increased our market share by
acquiring synergistic businesses. Although we intend to continue to increase our
market share in this manner, we have no assurance that future acquisition
opportunities will be available. Additionally, in the future we may not have
access to the substantial debt or equity financing to finance potential
acquisitions. Moreover, these types of transactions may result in potentially
dilutive issuances of equity securities, the incurrence of additional debt and
amortization of expenses related to goodwill and intangible assets, all of which
could adversely affect our profitability. Our strategy of growth through
acquisition also exposes us to the potential risks inherent in assessing the
value, strengths, weaknesses, and potential profitability of acquisition
candidates and in integrating the operations of acquired companies. We do not
currently have any binding agreements with respect to future acquisitions.
Our Business May Suffer if Our Strategy to Increase the Size and Customer Base
of the Air Filtration Market is Unsuccessful
We are developing new products as part of our strategy to increase the size and
customer base of the air filtration market. We have no assurance that this
strategy will be successful. We have no guarantee that any new products we
develop will gain acceptance in the marketplace, or that these products will be
successful. Additionally, we have no assurance we will be able to recoup the
expenditures associated with the development of these products. To succeed in
this area we must:
o increase public awareness of the issues surrounding indoor air quality,
o adequately address the unknown requirements of the potential customer
base,
21
<PAGE>
o develop new products that are competitive in terms of price, performance
and quality, and
o avoid significant increases in current expenditure levels in
development, marketing and consumer education.
We May Experience Critical Equipment Failure Which Could Have a Material Adverse
Effect on Our Business
If we experience extended periods of downtime due to the malfunction or failure
of our automated production equipment, our business, financial condition and
operations may suffer. We design, manufacture and assemble the majority of the
automated production equipment used in our facilities. We also use other
technologically advanced equipment for which manufacturers may have limited
production capability or service experience. If we are unable to quickly repair
our equipment or quickly obtain new equipment or parts from outside
manufacturers, we could experience extended periods of downtime in the event of
malfunction or equipment failure.
If Automation of Our Production Lines Fails to Produce the Projected Results,
Our Business Will Suffer
We have only recently substantially completed a program to increase our gross
margins by automating portions of our production lines. Although the designs
have been extensively tested in the field, we have no assurance that the new
equipment will produce the expected beneficial results on our gross margins.
Additionally, we are not certain that any increases in efficiencies will not be
offset in the marketplace by competitors making similar improvements to their
facilities.
Our Plan to Centralize Overhead Functions May Not Produce the Anticipated
Benefits to Our Operating Results
We are currently implementing plans to centralize and eliminate duplication of
efforts between our subsidiaries in the following areas:
o purchasing,
o production planning,
o shipping coordination,
o marketing,
o accounting,
o personnel management,
o risk management, and
o benefit plan administration.
We have no assurance that cutting overhead in this fashion will have the
anticipated benefits to our operating results. Additionally, we have no
assurance that these reorganizations will not significantly disrupt the
operations of the affected subsidiaries.
Our Success Depends on Our Ability to Retain and Attract Key Personnel
Our success and future operating results depend in part upon our ability to
retain our executives and key personnel, many of whom would be difficult to
replace. Our success also depends on our ability to attract highly qualified
engineering, manufacturing, technical, sales and support personnel for our
operations. Competition for such personnel, particularly qualified engineers, is
intense, and there can be no assurance that we will be successful in attracting
or retaining such personnel. Our failure to attract or retain such persons could
have a material adverse effect on our business, financial condition and results
of operations.
Our Current Distribution Channels May be Unavailable if Our Manufacturers'
Representatives Decide to Work Primarily With One of Our Competitors
We provide our manufacturers' representatives with the ability to offer a full
product line of air filtration products to existing and new customers. Some of
our competitors offer similar arrangements. We do not have exclusive
relationships with most of our representatives. Consequently, if our
representatives decide to work primarily with one of our competitors, our
current distribution channels, and hence, our sales, could be significantly
reduced.
22
<PAGE>
Management Controls a Significant Percentage of Our Stock
As of December 31, 1999, our directors and executive officers beneficially held
approximately 41.9% of our outstanding common stock. As a result, such
shareholders effectively control or significantly influence all matters
requiring shareholder approval. These matters include the election of directors
and approval of significant corporate transactions. Such concentration of
ownership may also have the effect of delaying or preventing a change in
control.
We May be Required to Issue Stock in the Future That Will Dilute the Value of
Our Existing Stock
If we issue the following securities, such securities may dilute the value of
the securities that our existing stockholders now hold.
We have granted warrants to purchase of total of 612,239 of our shares of common
stock to various parties with exercise prices ranging from $5.54 to $14.73 per
share. All of the warrants are currently exercisable. As a result, if the
warrant holders exercise these warrants, we will issue shares of stock that will
generally be available for sale in the public market.
We have granted options to purchase a total of 7,005,700 shares of common stock
to various parties with exercise prices ranging from $1.00 to $9.50 per share.
The majority of these options are currently exercisable. Additionally, most of
the common stock issuable upon the exercise of these options is registered on a
Form S-8. As a result, if the option holders exercise these options, we will
issue shares of stock that will generally be available for sale in the public
market.
Our Shareholders May Not Realize Certain Opportunities Because of Our Charter
Provisions and North Carolina Law
Our Articles of Incorporation and Bylaws contain provisions that are designed to
provide our board of directors with time to consider whether a hostile takeover
offer is in our best interest and the best interests of our shareholders. These
provisions may discourage potential acquisition proposals and could delay or
prevent a change of control in our business. Additionally, we are subject to the
Control Shares Acquisition Act of the State of North Carolina. This act provides
that any person who acquires "control shares" of a publicly held North Carolina
corporation will not have voting rights with respect to the acquired shares
unless a majority of the disinterested shareholders of the corporation vote to
grant such rights. This could deprive shareholders of opportunities to realize
takeover premiums for their shares or other advantages that large accumulations
of stock would typically provide.
Our Business Can be Significantly Affected by Environmental Laws
The constantly changing body of environmental laws and regulations may
significantly influence our business and products. These laws and regulations
require that certain environmental standards be met and impose liability for the
failure to comply with such standards. While we endeavor at each of our
facilities to assure compliance with environmental laws and regulations, we
cannot be certain that our operations or activities, or historical operations by
others at our locations, will not result in civil or criminal enforcement
actions or private actions that could have a materially adverse effect on our
business. We have, in the past, and may, in the future, purchase or lease
properties with unresolved potential violations of federal or state
environmental regulations. In these transactions, we have been successful in
obtaining sufficient indemnification and mitigating the impact of the issues
without recognizing significant expenses associated with litigation and cleanup.
However, purchasing or leasing these properties requires us to weigh the cost of
resolving these issues and the likelihood of litigation against the potential
economic and business benefits of the transaction. If we fail to correctly
identify, resolve and obtain indemnification against these risks, they could
have a material adverse impact on our financial position.
Because of the foregoing factors, as well as other variables affecting our
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.
23
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to various market risks, including changes in foreign
currency exchange rates and interest rate risks. Market risk is the potential
loss arising from adverse change in market rates and prices, such as foreign
currency exchange and interest rates. For the Company, these exposures are
primarily related to the sale of product to foreign customers and changes in
interest rates. The Company does not have any derivatives or other financial
instruments for trading or speculative purposes.
The fair value of the Company's total debt at December 31, 1999 was
approximately $32,328,000. Market risk was estimated as the potential decrease
(increase) in future earnings and cash flows resulting from a hypothetical 10%
increase (decrease) in the Company's estimated weighted average borrowing rate
at December 31, 1999. Although most of the interest on the Company's debt is
indexed to a market rate, there would be no material effect on the future
earnings or cash flows related to the Company's total debt for such a
hypothetical change.
The Company's financial position is not materially affected by fluctuations in
currencies against the U.S. dollar, since assets held outside the United States
are negligible. The Company's sensitivity analysis of the effects of changes in
foreign currency exchange rates does not factor in a potential change in sales
levels of local currency prices, as the preponderance of its foreign sales occur
over short periods of time or are demarcated in U.S. dollars.
Item 8. Financial Statements and Supplementary Data
Attached, beginning at page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On November 23, 1999, the Board of Directors approved (i) the engagement of
Grant Thornton LLP as the independent auditors for Flanders Corporation and (ii)
the dismissal of McGladrey & Pullen LLP as such independent auditors. The
shareholders ratified this selection in our annual meeting. See "Item 4 -
Submission of Matters to a Vote of Security Holders."
During the three years ended December 31, 1998 and the subsequent interim period
through November 23, 1999, (i) there were no disagreements with McGladrey &
Pullen, LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements if
not resolved to its satisfaction would have caused it to make reference in
connection with its report to the subject matter of the disagreement, and (ii)
McGladrey & Pullen, LLP did not advise the registrant regarding any "reportable
events" as defined in Item 304 (a)(1)(v) of Regulation S-K.
The accountants' report of McGladrey & Pullen, LLP on the consolidated financial
statements of Flanders Corporation and subsidiaries as of and for the years
ended December 31, 1998, 1997 and 1996 did not contain any adverse opinion or
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope, or accounting principles.
Neither Grant Thornton LLP or its members has any financial interest, direct or
indirect in the Company nor does Grant Thornton LLP or any of its members ever
been connected with the Company as a promoter, underwriter, trustee, director,
officer or employee.
24
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Identification of Directors and Executive Officers
Set forth below is information regarding (i) the current directors of the
Company, who will serve until the next annual meeting of shareholders or until
their successors are elected or appointed and qualified, and (ii) the current
executive officers of the Company, who are elected to serve at the discretion of
the Board of Directors.
Name Age Title
------------------- --- --------------------------------
Robert R. Amerson 49 President, Chief Executive Officer
and Director
C. W. "Andy" Wood 60 Vice President Sales
Steven K. Clark 47 Chief Operating Officer, Vice President
Finance/Chief Financial Officer
and Director
Leonard J. Fetcho 59 Vice President Operations
John L. Cherry 56 Vice President Engineered Products
John Houmis 52 Vice President Engineering
Linwood Allen Hahn 51 Director
J. Russell Fleming 50 Director
Robert R. Amerson. Mr. Amerson has been President and Chief Executive Officer
since 1988. Mr. Amerson is also a Director, a position he has held since 1988.
He joined us in 1987 as Chief Financial Officer. Mr. Amerson has a Bachelor of
Science degree in Business Administration from Atlantic Christian College.
C.W. "Andy" Wood. Mr. Wood has been Vice President of Sales since 1998 and Vice
President of Sales for Precisionaire, a wholly owned subsidiary, since 1982. Mr.
Wood oversees all marketing and sales efforts of the Company. Mr. Wood has more
than thirty years of experience in the air filtration industry. Mr. Wood has an
Associates Degree in Industrial Management from the Georgia Institute.
Steven K. Clark. Mr. Clark was named as Vice President Finance, Chief Financial
Officer and Director in December 1995 and Chief Operating Officer in November
1999. Mr. Clark acted as a consultant from November, 1995 through December,
1995. From July 1992 through October 1995, he was the Chief Financial Officer of
Daw Technologies, Inc., a specialty cleanroom contractor and major customer of
the Company. While Chief Financial Officer of Daw Technologies, Mr. Clark was
late in filing a Form 3 amendment and certain Form 4s and Form 5s. He agreed to
a cease and desist order with respect to these violations. No violations other
than the timeliness of filing those reports were alleged by the Securities and
Exchange Commission ("SEC"). Prior to this he was a senior partner of Miller and
Clark, an accounting and management services firm. Mr. Clark spent four years
with Price Waterhouse, and an additional four years with Arthur Andersen, both
accounting firms. He is a Certified Public Accountant, has Bachelor of Arts
degrees in Accounting and Political Science and a Master of Business
Administration Degree, all from the University of Utah.
Leonard J. Fetcho. Mr. Fetcho has been Vice President Operations since December
1999. He is also President of Eco-Air Products, Inc., which was acquired by the
Company in June 1998. Mr. Fetcho has held the position of President of Eco-Air
Products Inc. since 1993. Mr. Fetcho has extensive experience in the air
filtration industry,
25
<PAGE>
including being manager of national accounts for Farr Corporation, and director
of sales and marketing for Cambridge Filter Corporation, both competitors. Mr.
Fetcho has a bachelor's degree in accounting from Morrisville College.
John L. Cherry. Mr. Cherry has been Vice President Engineered Products since
December 1999. At that time, he was appointed General Manager of Flanders
Filters, Inc., and Flanders/CSC, both wholly owned subsidiaries. Mr. Cherry
served as President of Flanders/CSC from March 1997 through December 1999 and as
Vice President/General Manager before that, beginning in 1980. Mr. Cherry has an
Associates Degree in design technology from Thomas Nelson Community College.
John Houmis. Mr. Houmis has been Vice President Engineering since December 1998.
He has direct responsibility for manufacturing engineering, quality control and
production control systems. From May 1998 to December 1998, he was Director of
Special Project - Plants for Precisionaire, a wholly owned subsidiary. From 1993
to October 1997, Mr. Houmis was the general manager of Precisionaire's main
manufacturing facility in Florida. Mr. Houmis has Bachelor of Science and Master
of Science degrees in engineering from the University of South Florida.
Linwood Allen Hahn. Mr. Hahn was elected as a Director in December 1999. Mr.
Hahn practices Real Property Law, Estates, Municipal Law and Corporate Law in
Greenville, North Carolina. Mr. Hahn graduated from he University of North
Carolina at Chapel Hill with a BA degree in 1970, the University of Tennessee
College of Law, JD degree in 1973. He is currently a member of the North
Carolina State Bar Association and the North Carolina Trial Lawyer's Association
as well as serving on the advisory boards of several private charitable
organizations.
J. Russell Fleming. Mr. Fleming was elected as a Director in December 1999. Mr.
Fleming is Owner/President of Cape Point Development Co., Inc., located in
Greenville, North Carolina, specializing in land development and
commercial/multi-family construction. Mr. Fleming Is also Owner/President of New
East Management & Realty, Inc., also located in Greenville, NC, which manages
residential and commercial rental properties. Mr. Fleming attended East Carolina
University prior to obtaining his General Contractor and Real Estate Broker
licenses.
Item 11. Executive Compensation
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Company's Board of Directors consists of
Messrs. Hahn and Fleming, both non-employee directors, and Messr. Amerson, the
Chief Executive Officer.
Summary Compensation Table
The following table sets forth the aggregate cash compensation paid by the
Company for services rendered during the last three years to the Company's Chief
Executive Officer and to each of the Company's other executive officers whose
annual salary, bonus and other compensation exceeded $100,000 in 1999.
26
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------- -----------------------------------
Awards Payouts
------------------------- --------
Securities
Other Restricted Underlying
Annual Stock Options/ LTIP
Compen- Award(s) SARs Payouts
Name and Principal Position Year Salary ($) Bonus ($) sation ($) ($) (#) ($)
- ------------------------------------------ ----------- ---------- ------------ ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Robert R. Amerson 1999 254,808 - - - 1,000,0002 -
President and CEO 1998<F1> 250,000 - - - -
1997 250,000 - 5,500 - - -
C.W. "Andy" Wood 1999 304,519 - - - - -
Vice President Sales 1998 183,558 - - - - -
1997 169,856 - 4,965 - - -
Steven K. Clark 1999 250,000 - - - 1,000,0002 -
Vice President Finance/CFO 1998<F2> 250,000 - - - - -
1997 250,000 - - - - -
Leonard J. Fetcho 1999 164,827 - 11,787 - - -
Vice President Operations 1998<F3> 206,008 2,000,000 - - 40,000 -
1997 265,927 - - - - -
John L. Cherry 1999 150,408 - 12,452 - 10,000 -
Vice President Engineered
Products 1998 149,600 - 10,771 - 10,000 -
1997 145,006 - 12,089 - 10,000 -
John Houmis 1999 106,164 - - - - -
Vice President Engineering 1998<F4> 59,828. - - - - -
1997<F4> 68,009 - - - - -
<FN>
<F1> Mr. Amerson's and Mr. Clark each have an annual salary of $250,000, plus
a possible bonus each year, under their respective Employment
Agreements, as amended. See "Employment Agreements."
<F2> Messrs. Amerson and Clark each had options to purchase 1,000,000 shares
at $2.50 per share whose expiration date was extended, on December 22,
1999, from February 22, 2001 to February 22, 2006. This extension
resulted in the establishment of a new measurement date for the value of
the options for financial statement reporting purposes. On the date of
grant, the closing market price for the Company's stock was equal to or
above the options' strike price.
<F3> Mr. Fetcho joined the Company as of June 30, 1998, when the Company
acquired Eco-Air. Mr. Fetcho's total compensation for 1998 since the
date of acquisition was $93,149. Mr. Fetcho's annual salary is $165,000,
plus a possible bonus each year, under his Employment Agreement. See
"Employment Agreements". Prior to acquisition, Eco-Air paid Mr. Fetcho
$112,859 in salary during 1998 and a $2,000,000 bonus for his role in
negotiating the sale of Eco-Air. During 1997 and 1996, Eco-Air paid Mr.
Fetcho $265,927 and $201,034, respectively.
<F4> Mr. Houmis' compensation for 1997 reflected ten months of salary. Mr.
Houmis' compensation for 1998 reflects seven months' salary.
</FN>
</TABLE>
27
<PAGE>
OPTIONS/SARs GRANTED IN LAST FISCAL YEAR
The following table sets forth information regarding all individual grants of
options made during the last completed year to the named executive officers.
<TABLE>
<CAPTION>
Individual Grants
- --------------------------------------------------------------------------------------------------------------------
Potential Realizable
Value at
Assumed Annual
Number of % of Total Rates of Stock
Securities Options/SARs Price Appreciation
Underlying Granted to Exercise or for Option Term
Options/SARs Employees in Base Price Expiration -----------------------------
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($)<F1> 10% ($)<F1>
- ------------------- --------------- --------------- -------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert R. Amerson 1,000,000<F2> 46.3% $ 2.50 2/22/2006 $ 918,382 $2,174,135
C.W. "Andy" Wood - - - - - -
Steven K. Clark 1,000,0002 46.3% 2.50 2/22/2006 918,382 2,174,135
Leonard J. Fetcho - - - - - -
John L. Cherry 10,000 0.5% 4.75 7/23/2004 - 6,113
John Houmis - - - - - -
<FN>
<F1> The potential realizable value portion of the foregoing table
illustrates value that might be realized upon exercise of the options
immediately prior to the expiration of their term, assuming the
specified compounded rates of appreciation on the common stock over the
term of the options. These numbers do not take into account plan
provisions providing for termination of the option following termination
of employment or non-transferability.
<F2> Messrs. Amerson and Clark each had options to purchase 1,000,000 shares
at $2.50 whose expiration date was extended from February 22, 2001 to
February 22, 2006 effective December 22, 1999.
</FN>
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
The following table sets forth the aggregate number and value of stock options
and SAR's exercised during the last year by the Company's Chief Executive
Officer and by each of the Company's other executive officers whose annual
salary, bonus and other compensation exceed $100,000.
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired Options/SARs at Fiscal In-the-Money Options/
On Value Year-End (#) SARs at Fiscal Year-End
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- --------------------- ------------ ------------ ------------------------- -------------------------
<S> <C> <C> <C>
Robert R. Amerson - $ - 3,150,000 / - $ 1,725,000 / -
C.W. "Andy" Wood - - - / - - / -
Steven K. Clark - - 3,150,000 / - 1,725,000 / -
Leonard J. Fetcho - - 40,000 / - - / -
John L. Cherry - - 40,000 / - - / -
John Houmis - - - / - - / -
</TABLE>
28
<PAGE>
Compensation of Directors
Directors who are Company employees receive no additional or special
remuneration for serving as directors. The Company's non-employee Directors are
paid $500 plus out-of-pocket expenses for each meeting of the Board of Directors
and upon meeting certain qualifications receive an option to purchase 5,000
shares of the Company's common stock at or above the market price of the common
stock on the date of grant for every year they remain a director. During 1999,
each of the non-employee directors received an option to purchase 50,000 shares
of the Company's common stock at an exercise price of $2.50 per share.
Employment Agreements
Messrs. Amerson and Clark have employment agreements effective as of December
15, 1995 ("Employment Agreements"). The Employment Agreements, as amended,
provide for an annual base salary of $250,000 for both Mr. Amerson and Mr. Clark
and terminate in 2010. The Employment Agreements also provide that the executive
shall be entitled to the following termination payments: (i) 100% of his current
base salary if the employment is terminated as a result of his death or
disability; (ii) up to 200% of his current base salary if the employment is
terminated by the Company for any reason other than death, disability or for
cause, or (iii) up to 250% of the executive's gross income during the year
preceding his termination if the Employment Agreement is terminated by the
executive for good reason or by the Company for any reason other than death,
disability or cause and the termination occurs within two years after a change
of control of the Company has occurred.
Messr. Fetcho has an employment agreement effective as of June 30, 1998, which
provides for an annual base salary of $165,000 and terminates in 2003. Mr.
Fetcho's employment agreement also provides that the executive shall be entitled
to the following termination payments: (i) 100% of his current base salary if
the employment is terminated as a result of his death or disability; (ii) up to
200% of his current base salary if the employment is terminated for any reason
other than death, disability or for cause, or (iii) up to 250% of the
executive's gross income during the year preceding his termination if the
Employment Agreement is terminated by the executive for good reason or by the
Company for any reason other than death, disability or cause and the termination
occurs within two years after a change of control of the Company has occurred.
OTHER INFORMATION REGARDING THE BOARD OF DIRECTORS
Board Meetings and Committees
During 1999, the Board of Directors met two (2) times and also executed various
resolutions and written actions in lieu of meetings. All directors were in
attendance at each of these meetings. The Board of Directors has an Audit
Committee and a Compensation Committee. The Audit Committee reviews the results
and scope of the audit and other services provided by the Company's independent
auditors, reviews and evaluates the Company's internal audit and control
functions, and monitors transactions between the Company and its employees,
officers and directors. The Compensation Committee administers the Company's
equity incentive plans and designates compensation levels for officers and
directors of the Company. The Audit Committee met two (2) times during 1999. The
Compensation Committee met two (2) times during 1999.
Currently, the Audit Committee consists of Messrs. Hahn, Fleming and Clark. The
Compensation Committee consists of Messrs. Hahn, Fleming and Amerson.
Long-Term Incentive Plan
During 1996, the Company adopted the Long Term Incentive Plan to assist the
Company in securing and retaining key employees and consultants. The LTI Plan
authorizes grants of incentive stock options, nonqualified stock options, stock
appreciation rights ("SARs"), restricted stock performance shares and dividend
equivalents to officers and key employees of the Company and outside consultants
to the Company. There are 1,986,800 shares of Common Stock reserved for award
under the LTI Plan. During 1999, 1998 and 1997, the Company awarded options to
purchase 52,850, 316,850 and 95,600 shares of Common Stock under the LTI Plan,
respectively.
The Plan is administered by the Compensation Committee. The Compensation
Committee determines the total number and type of awards granted in any year,
the number and selection of employees or consultants to receive awards, the
29
<PAGE>
number and type of awards granted to each grantee and the other terms and
provisions of the awards, subject to the limitations set forth in the LTI Plan.
Stock Option Grants. The Compensation Committee has the authority to select
individuals who are to receive options under the LTI Plan and to specify the
terms and conditions of each option so granted (incentive or nonqualified), the
exercise price (which must be at least equal to the fair market value of the
common stock on the date of grant with respect to incentive stock options), the
vesting provisions and the option term. Unless otherwise provided by the
Compensation Committee, any option granted under the LTI Plan expires the
earlier of ten years from the date of grant or, three months after the
optionee's termination of service with the Company if the termination of
employment is attributable to (i) disability, (ii) retirement, or (iii) any
other reason, or 15 months after the optionee's death. As of April 13, 2000,
there are 503,870 options outstanding under the LTI Plan.
Stock Appreciation Rights. The Compensation Committee may grant SARs separately
or in tandem with a stock option award. A SAR is an incentive award that permits
the holder to receive (per share covered thereby) an equal amount by which the
fair market value of a share of common stock on the date of exercise exceeds the
fair market value of such share on the date the SAR was granted. Under the LTI
Plan, the Company may pay such amount in cash, in common stock or a combination
of both. Unless otherwise provided by the Compensation Committee at the time of
grant, the provisions of the LTI Plan relating to the termination of employment
of a holder of a stock option will apply equally, to the extent applicable, to
the holder of a SAR. A SAR granted in tandem with a related option will
generally have the same terms and provisions as the related option with respect
to exercisability. A SAR granted separately will have such terms as the
Compensation Committee may determine, subject to the provisions of the LTI Plan.
As of April 13, 2000, no SARs are outstanding under the LTI Plan.
Performance Shares. The Compensation Committee is authorized under the LTI Plan
to grant performance shares to selected employees. Performance shares are rights
granted to employees to receive cash, stock, or other property, the payment of
which is contingent upon achieving certain performance goals established by the
Compensation Committee. As of April 13, 2000, no performance shares are
outstanding under the LTI Plan.
Restricted Stock Awards. The Compensation Committee is authorized under the LTI
Plan to issue shares of restricted common stock eligible participants on such
terms and conditions and subject to such restrictions, if any, outstanding under
the LTI Plan. As of April 13, 2000, no restricted shares have been awarded under
the LTI Plan.
Dividend Equivalents. The Compensation Committee may also grant dividend
equivalent rights to participants subject to such terms and conditions as may be
selected by the Compensation Committee. Dividend equivalent rights entitle the
holder to receive payments equal to dividends with respect to all or a portion
of the number of shares of stock subject to an option award or SARs, as
determined by the Committee. As of April 13, 2000, no dividend equivalents are
outstanding under the LTI Plan.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
General
The Compensation Committee of the Board of Directors is composed of two
independent directors who have no "interlocking relationships" (as defined by
the SEC) and the Chief Executive Officer, who recuses himself from votes and
discussions on his own compensation.
We are engaged in highly competitive businesses and compete nationally for
personnel at the executive and technical staff level. Outstanding candidates are
aggressively recruited, often at premium salaries. Highly qualified employees
are essential to our success. We are committed to providing competitive
compensation that helps attract, retain, and motivate the highly skilled people
we require. We strongly believe that a considerable portion of the compensation
for the Chief Executive Officer and other top executives must be tied to the
achievement of business objectives, completing acquisitions, and to business
unit and overall financial performance, both current and long-term.
30
<PAGE>
Executive Compensation
Our executive compensation program is administered by the Compensation
Committee. The role of the Compensation Committee is to review and approve
salaries and other compensation of the executive officers of the Company, to
administer the executive officer bonus plan and stock option plans, and to
review and approve stock option grants to all employees including the executive
officers of the Company.
General Compensation Philosophy
Our compensation philosophy is that total cash compensation should vary with the
performance of the Company and any long-term incentive should be closely aligned
with the interest of the stockholders. Total cash compensation for the executive
officers consists of the following components:
o Base salary
o An executive officer bonus that is related to growth in sales and
operating earnings of the Company.
Long-term incentives are realized through the granting of stock options to
executives and key employees through the LTI Plan. We have also granted certain
non-qualified options to our executive officers. We have no other long-term
incentive plans for our officers and employees.
Base Salary and Executive Officer Bonus Target
Current base salaries for the executive officers were determined by arms' length
negotiations with the Board of Directors. Certain executive officers have
employment contracts with the Company. During 1998 and 1999, none of the
executive officers, including the Chief Executive Officer, reached their bonus
target, and hence no bonuses were awarded to executive officers in 1999, nor
will bonuses be awarded in 2000 for performance in 1999.
Stock Options
Stock options are granted to aid in the retention of executive and key employees
and to align the interests of executive and key employees with those of the
stockholders. The level of stock options granted (i.e., the number of shares
subject to each stock option grant) is based on the employee's ability to impact
future corporate results. An employee's ability to impact future corporate
results depends on the level and amount of job responsibility of the individual.
Therefore, the level of stock options granted is proportional to the
Compensation Committee's evaluation of each employee's job responsibility. For
example, Robert R. Amerson, as the Chief Executive Officer, has the highest
level of responsibility and would typically be awarded the highest level of
stock options. Stock options are granted at a price not less than the fair
market value on the date granted.
31
<PAGE>
Comparative Stock Performance Graph
The following graph1 shows a comparison of cumulative total returns for the
Company, the NASDAQ Stock Market -- U.S. Index and the NASDAQ Non-Financial
Index during the period commencing February 26, 1996 and ending December 31,
1999. The comparison assumes $100 was invested on February 26, 1996 in the
Company's common stock with the reinvestment of all dividends, if any. Total
shareholder returns for prior periods are not an indication of future returns.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
2/96 12/96 12/97 12/98 12/99
---- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Flanders Corporation 100 380 370 163 100
Nasdaq Stock Market (U.S.) 100 122 150 223 414
Nasdaq Industrial 100 121 142 193 331
</TABLE>
- ------------------------------------
1 Flanders did not have a public market for its stock prior to its listing
on the OTC Bulletin Board in February 1996.
Respectfully submitted,
COMPENSATION COMMITTEE:
Linwood Allen Hahn J. Russell Fleming
Robert R. Amerson
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth all individuals known by the Company to
beneficially own 5% or more of the Company's common stock, and all officers and
directors of the registrant, with the amount and percentage of stock
beneficially owned, as of April 13, 2000. Except as indicated in the following
footnotes, each listed beneficial owner has sole voting and investment power
over the shares of common stock held in their names.
32
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Name and Address Shares of Common Stock Outstanding Shares of
of Beneficial Owner Beneficially Owned Common Stock<F1>
------------------- ---------------------- ---------------------
<S> <C> <C>
Robert R. Amerson<F2>
531 Flanders Filters Road
Washington, NC 27889 7,914,370 27.69%
Steven K. Clark<F2>
531 Flanders Filters Road
Washington, NC 27889 5,170,183 18.09%
Stephen D. Klocke<F3>
531 Flanders Filters Road
Washington, NC 27889 109,427 *
John L. Cherry<F4>
531 Flanders Filters Road
Washington, NC 27889 40,000 *
C.W. "Andy" Wood
2399 26th Avenue North
St. Petersburg, FL 33713 700 *
Linwood Allen Hahn<F5>
531 Flanders Filters Road
Washington, NC 27889 52,500 *
J. Russell Fleming<F5>
531 Flanders Filters Road
Washington, NC 27889 70,000 *
Leonard J. Fetcho<F6>
2399 26th Avenue North
St. Petersburg, FL 33713 40,000 *
Franklin Resources, Inc.
777 Marivers Island Blvd., 6th Fl.
San mateo, CA 94404 1,328,931 5.22%
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401 1,980,500 7.79%
Becker Capital Management, Inc.
1211 SW Fifth Avenue, Suite 2185
Portland, OR 97204 2,194,700 8.63%
Crabbe Huson Group, Inc.
121 SW Morrison, Suite 1400
Portland, OR 97204 2,641,200 10.38%
All Executive Officers and Directors
as a Group (8 persons)<F2>,<F3>,<F4>,
<F5>,<F6> 13,396,880 41.93%
</TABLE>
- -------------------------------------
* Represents less than 1% of the total issued and outstanding shares of
common stock.
33
<PAGE>
<F1> Applicable percentage of ownership is based on 25,435,583 shares of
common stock outstanding as of April 13, 2000, together with all
applicable options for unissued securities for such shareholders
exercisable within sixty days. Shares of common stock subject to options
exercisable within sixty days are deemed outstanding for computing the
percentage ownership of the person holding such options, but are not
deemed outstanding for computing the percentage of any other person.
<F2> Includes 1,150,000 shares which are subject to an option to purchase
such shares from the Company at $1.00 per share, 1,000,000 shares which
are subject to an option to purchase such shares from the Company at
$2.50 per share and 1,000,000 shares which are subject to an option to
purchase such shares from the Company at $7.50 per share.
<F3> Includes 16,800 shares which are subject to an option to purchase such
shares from the Company at $2.50 per share, 10,000 shares which are
subject to an option to purchase such shares from the Company at $7.50
per share, and 10,000 shares which are subject to an option to purchase
such shares from the Company at $7.125 per share.
<F4> Includes 10,000 shares which are subject to an option to purchase such
shares from the Company at $6.94 per share, 10,000 shares which are
subject to an option to purchase such shares from the Company at $7.13
per share, and 20,000 shares which are subject to an option to purchase
such shares from the Company at $4.75 per share.
<F5> Includes 50,000 shares which are subject to an option to purchase such
shares from the Company at $2.50 per share.
<F6> Includes 40,000 shares which are subject to an option to purchase such
shares from the Company at $5.38 per share.
Item 13. Certain Relationships and Related Transactions
At April 13, 2000, Steven K. Clark owed the Company $2,743,014 (including
accrued interest) which he previously borrowed to settle claims, to make certain
payments under an indemnity agreement he entered into with the Company and to
purchase certain shares from Thomas T. Allan, a former officer and director. To
evidence the amount owed, effective February 11, 1997, Mr. Clark issued a note
to the Company in the amount of $109,013 with interest at the variable rate of
LIBOR plus 1.25% per annum, payable in full on February 10, 1999. On April 25,
1997, Mr. Clark issued a note to the Company in the amount of $250,000 at the
above interest rate, payable in full on April 24, 1999. On September 5, 1997,
Mr. Clark assumed a note between Thomas T. Allan for a principal amount of
$409,750, at the above interest rate, payable in full on September 4, 1999. On
April 15, 1998, Mr. Clark issued a note to the Company in the amount of
$1,580,609 with interest at the rate of 7% per annum, payable in full on
December 31, 2003. On April 24, 1999, the Board of Directors agreed to
consolidate and refinance Mr. Clark's debts to the Company, whereby Mr. Clark
issued a note to the Company in the amount of $2,569,871 with interest accruing
at the rate of LIBOR plus 1%, payable in full on December 31, 2010 or upon
demand by the Company, and canceled all of the other above-described notes.
At December 31, 1999, Robert R. Amerson owed the Company $1,657,392 (including
accrued interest) which he previously borrowed to settle claims, to make certain
payments under an indemnity agreement he entered into with the Company and to
purchase certain shares from Thomas T. Allan, a former officer and director of
the Company. To evidence the amount owed, effective February 11, 1997, Mr.
Amerson issued a note to the Company in the amount of $109,013 with interest at
the rate of LIBOR plus 1.25% per annum, payable in full on February 10, 1999. On
April 25, 1997, Mr. Amerson issued a note to the Company in the amount of
$250,000 at the above-described interest rate, payable in full on April 24,
1999. On September 25, 1997, Mr. Amerson assumed a note between Thomas T. Allan
for a principal amount of $409,750, at the above interest rate, payable in full
on September 4, 1999. On April 15, 1998, Mr. Amerson issued a note to the
Company in the amount of $440,194 with interest at the rate of 7% per annum,
payable in full on December 31, 2003. On April 24, 1999, the Board of Directors
agreed to consolidate and refinance Mr. Amerson's debt to the Company, whereby
Mr. Amerson issued a note to the Company in the amount of $1,555,802 with
interest accruing at the rate of LIBOR plus 1%, payable in full on December 31,
2010 or upon demand by the Company, and canceled all of the other
above-described notes.
34
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The following constitutes a list of Financial Statements, Financial Statement
Schedules and Exhibits required to be used in this report.
(a)(1) Financial Statements: Financial Statements are included beginning at
page F-1 as follows:
Report of Grant Thornton LLP Independent Certified Public
Accountants......................................................F-2
Independent Auditor's Report of McGladrey & Pullen, LLP..........F-3
Consolidated Balance Sheets at December 31, 1999 and 1998........F-4
Consolidated Statements of Earnings for the years ended
December 31, 1999, 1998 and 1997.................................F-5
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997.....................F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.................................F-7
Notes to Consolidated Financial Statements......................F-10
(a)(2) Financial Statement Schedules
Report of Grant Thornton LLP Independent Certified Public
Accountants.....................................................F-28
Independent Auditor's Report of McGladrey & Pullen, LLP.........F-29
Schedule II. Valuation and Qualifying Accounts.................F-30
All schedules not listed have been omitted because they are not
applicable or the information has been otherwise supplied in the
Registrant's financial statements and schedules.
(a)(3) Exhibits:
3.1 Articles of Incorporation for 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 Indemnification Agreement between Flanders Corporation, Steven K.
Clark, Robert Amerson and Thomas Allan, 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 Eco-Air Products, Inc. dated May 7, 1998, filed with
the June 30, 1998 Form 8-K, incorporated herein by reference.
10.3 Amendment dated May 20, 1998 to Stock Purchase Agreement by and
between the Registrant and the Shareholders of Eco-Air Products,
Inc. dated May 7, 1998, filed with the June 30, 1998 Form 8-K,
incorporated herein by reference.
35
<PAGE>
10.4 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.
10.5 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.
10.6 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.
10.7 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.
10.8 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.
10.9 Letter of Credit Agreement between Flanders Corporation and SunTrust
Bank, Tampa Bay, dated April 1, 1998, filed with the Form 10-Q dated
March 31, 1998, and incorporated herein by reference.
10.10 Credit Agreement between Flanders Corporation, SunTrust Equitable
Securities Corporation and SunTrust Bank, dated February 9, 2000,
filed herewith.
10.11 Loan Agreement between Flanders Corporation and the Johnston County
Industrial Facilities and Pollution Control Financing Authority,
dated April 1, 1998, filed with the Form 10-Q dated March 31, 1998,
and incorporated herein by reference.
10.12 Loan Agreement between Flanders Corporation and the Johnston County
Industrial Facilities and Pollution Control Financing Authority,
dated March 1, 2000, filed herewith.
10.13 Flanders Corporation 1996 Director Option Plan, filed with the Form
10-K dated December 31, 1995, and incorporated herein by reference.
10.14 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.
10.15 Amendment to Employment Agreement between Elite Acquisitions, Inc.,
Flanders Filters, Inc., and Steven K. Clark, filed with Form S-1
dated October 21, 1996 (Reg. No. 333-14655) and incorporated herein
by reference.
10.16 Amendment to Employment Agreement between Elite Acquisitions, Inc.,
Flanders Filters, Inc., and Steven K. Clark, filed with the Form
10-K dated December 31, 1997 and incorporated herein by reference.
10.17 Amendment to Employment Agreement between Elite Acquisitions, Inc.,
Flanders Filters, Inc., and Steven K. Clark, filed herewith.
10.18 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.
10.19 Amendment to Employment Agreement between Elite Acquisitions, Inc.,
Flanders Filters, Inc., and Robert R. Amerson, filed with Form S-1
dated October 21, 1996 (Reg. No. 333-14655) and incorporated herein
by reference.
10.20 Amendment to Employment Agreement between Elite Acquisitions, Inc.,
Flanders Filters, Inc., and Robert R. Amerson, filed with the Form
10-K dated December 31, 1997 and incorporated herein by reference.
10.21 Amendment to Employment Agreement between Elite Acquisitions, Inc.,
Flanders Filters, Inc., and Robert R. Amerson, filed herewith.
10.22 Employment Agreement between Eco-Air Products, Inc., and Leonard J.
Fetcho.
36
<PAGE>
10.23 Stock Option Agreement between Elite Acquisitions, Inc. and Robert
R. Amerson, filed with the December 31, 1995 Form 10-K, incorporated
herein by reference.
10.24 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.
10.25 Amendment to Stock Option Agreement between Flanders Corporation and
Robert R. Amerson dated December 22, 1999, filed herewith.
10.26 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.
10.27 Stock Option Agreement between Elite Acquisitions, Inc., and Steven
K. Clark, filed with the December 31, 1995 Form 10-K, incorporated
herein by reference.
10.28 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.
10.29 Amendment to Stock Option Agreement between Flanders Corporation and
Steven K. Clark dated December 22, 1999, filed herewith.
10.30 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.
10.31 Note Agreement between Steven K. Clark and Flanders Corporation,
dated April 24, 1999, filed herewith.
10.32 Note Agreement between Robert R. Amerson and Flanders Corporation,
dated April 24, 1999, filed herewith.
21 Subsidiaries of the Registrant.
23.1 Consent of Grant Thornton LLP for incorporation by reference of
their report into Form S-8 filed on July 21, 1997, filed herewith.
23.2 Consent of McGladrey & Pullen, LLP for incorporation by reference of
their report into Form S-8 filed on July 21, 1997, filed herewith.
24 Power of Attorney (included on Signature page of this report).
27 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
(c) Financial Statement Schedules: See (a)(2) above.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated this 13th day of April, 2000.
FLANDERS CORPORATION
By /s/ Robert R. Amerson
-----------------------------------------------
Robert R. Amerson
President, Chief Executive Officer,
and Director
By /s/ Steven K. Clark
-----------------------------------------------
Steven K. Clark
Vice President/Chief Financial Officer,
Principal Accounting Officer, Chief Operating
Officer and Director
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Steven K. Clark, his attorney-in-fact, to sign
any amendments to this report, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Commission, hereby
ratifying and confirming all the said attorney-in-fact may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Robert R. Amerson President, Chief Executive Officer 4/13/00
- ------------------------- and Director ------------
Robert R. Amerson
Chief Operating Officer, Vice
President/Chief Financial Officer,
/s/ Steven K. Clark Principal Accounting Officer and 4/13/00
- ------------------------- Director ------------
Steven K. Clark
/s/ Linwood Allen Hahn
- ------------------------- 4/13/00
Linwood Allen Hahn Director ------------
/s/ J. Russell Fleming
- ------------------------- 4/13/00
J. Russell Fleming Director ------------
38
<PAGE>
FLANDERS CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1999, 1998 and 1997
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Flanders Corporation
We have audited the accompanying consolidated balance sheet of Flanders
Corporation and Subsidiaries as of December 31, 1999, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Flanders
Corporation and Subsidiaries as of December 31, 1999, and the consolidated
results of their operations and their consolidated cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Salt Lake City, Utah
March 8, 2000
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Flanders Corporation
We have audited the accompanying consolidated balance sheet of Flanders
Corporation and subsidiaries as of December 31, 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years ended December 31, 1998 and 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Flanders Corporation
and subsidiaries as of December 31, 1998, and the results of their operations
and their cash flows for the years ended December 31, 1998 and 1997 in
conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
New Bern, North Carolina
March 12, 1999, except for item (A) in Note H and the last paragraph of Note H,
as to which the date is March 31, 1999, and Note D, as to which the date is
December 31, 1999.
F-3
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
ASSETS 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 824,220 $ 13,672,685
Receivables:
Trade, less allowance for doubtful accounts:
1999 $487,321; 1998 $551,725 29,023,225 26,670,650
Other 1,415,794 2,177,301
Inventories (Note C) 25,901,700 25,518,804
Deferred taxes (Note L) 1,849,481 1,421,847
Other current assets 1,959,725 860,310
Net assets of discontinued operations (Note D) 5,217,737 --
------------- -------------
Total current assets 66,191,882 70,321,597
Related party receivables (Note O) 4,369,028 4,263,409
Other assets (Note E) 4,113,491 4,637,062
Intangible assets, net (Note F) 30,022,487 28,990,924
Property and equipment, net (Notes G and H) 65,253,828 59,567,202
------------- -------------
$ 169,950,716 $ 167,780,194
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------- ------------- -------------
Current liabilities
Notes payable, banks (Note H) $ -- $ 1,300,000
Current maturities of long-term debt (Note H) 1,115,184 1,265,014
Accounts payable (Note I) 15,760,022 15,851,087
Accrued expenses (Note J) 3,895,274 3,933,918
------------- -------------
Total current liabilities 20,770,480 22,350,019
Long-term debt, less current maturities (Note H) 31,212,985 30,105,714
Deferred taxes (Note L) 5,840,654 5,721,647
Commitments and contingencies (Notes G, M and N)
Stockholders' equity (Notes H, K and P)
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:
1999 25,435,583; 1998 25,624,339 25,436 25,624
Additional paid-in capital 91,798,188 91,837,257
Notes receivable (2,014,094) (1,760,000)
Retained earnings 22,317,067 19,499,933
------------- -------------
112,126,597 109,602,814
------------- -------------
$ 169,950,716 $ 167,780,194
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 171,392,281 $ 154,764,804 $ 131,898,603
Cost of goods sold (Notes M, N and O) 127,417,753 117,104,977 99,018,962
------------- ------------- -------------
Gross profit 43,974,528 37,659,827 32,879,641
Operating expenses (Notes M, N and O) 33,802,204 28,108,372 23,509,447
------------- ------------- -------------
Operating income from continuing operations 10,172,324 9,551,455 9,370,194
------------- ------------- -------------
Nonoperating income (expense) from continuing
operations:
Other income 1,258,440 2,014,881 1,230,991
Interest expense (1,257,157) (574,950) (751,499)
------------- ------------- -------------
1,283 1,439,931 479,492
------------- ------------- -------------
Earnings from continuing operations before
income taxes 10,173,607 10,991,386 9,849,686
Provision for income taxes (Note L) 4,670,682 4,450,079 3,751,399
------------- ------------- -------------
Earnings from continuing operations 5,502,925 6,541,307 6,098,287
Discontinued operations (Note D)
Loss from operations of discontinued
subsidiary (including tax benefit
of $1,134,799 in 1999, $852,244 in 1998
and $46,676 in 1997) (1,792,417) (1,252,739) (259,022)
Estimated loss on disposal of subsidiary
(including tax benefit of $565,604) (893,374) -- --
------------- ------------- -------------
Loss from discontinued operations (2,685,791) (1,252,739) (259,022)
------------- ------------- -------------
Net earnings $ 2,817,134 $ 5,288,568 $ 5,839,265
============= ============= =============
Earnings per share from continuing
operations (Note Q)
Basic $ 0.22 $ 0.26 $ 0.33
============= ============= =============
Diluted $ 0.21 $ 0.24 $ 0.28
============= ============= =============
Loss per share from discontinued operations
Basic $ (0.11) $ (0.05) $ (0.01)
============= ============= =============
Diluted $ (0.10) $ (0.04) $ (0.01)
============= ============= =============
Net earnings per share
Basic $ 0.11 $ 0.21 $ 0.32
============= ============= =============
Diluted $ 0.11 $ 0.20 $ 0.27
============= ============= =============
Weighted average common shares outstanding (Note Q)
Basic 25,344,433 25,133,820 18,508,763
============= ============= =============
Diluted 26,525,429 27,106,924 22,477,184
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Additional
Common Paid-In Notes Retained
Stock Capital Receivable Earnings
--------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 15,952 $ 17,205,413 $ (240,700) $ 8,372,100
Release of committed capital (Note K) -- 8,000,005 -- --
Issuance of 8,377,000 shares of common stock (Note K) 8,377 57,045,636 -- --
Issuance of 722,375 shares of common stock upon
conversion of convertible debt (Note K) 722 4,381,689 -- --
Issuance of 425,000 shares of common stock upon
exercise of options (Note P) 425 1,262,075 -- --
Valuation and release from escrow of 344,691 shares
of common stock related to acquisitions -- 2,984,635 -- --
Issuance of 187,502 shares of common stock related to
acquisitions (Note B) 187 1,394,452 -- --
Income tax benefit from stock options exercised -- 969,125 -- --
Issuance of receivables related to exercise of options -- -- (1,262,500) --
Payment on receivables related to exercised warrants
and options -- -- 230,000 --
Net earnings -- -- -- 5,839,265
-------- ------------ ----------- -----------
Balance, December 31, 1997 25,663 93,243,030 (1,273,200) 14,211,365
Issuance of 110,000 shares of common stock to acquire
remaining interest in a subsidiary from minority
stockholders 110 522,390 -- --
Issuance of 121,264 shares of common stock upon
non-cash exercise of stock options 121 (121) -- --
Purchase and retirement of 731,350 shares of common
stock (731) (3,284,827) -- --
Issuance of 461,000 shares of common stock upon
exercise of options 461 1,152,039 -- --
Issuance of receivables related to exercise of options -- -- (722,500) --
Payment on receivables related to exercised options -- -- 235,700 --
Income tax benefit of stock options exercised -- 253,795 -- --
Registration of Company common stock -- (77,487) -- --
Valuation and release from escrow of 7,000 shares of
common stock related to the acquisitions -- 28,438 -- --
Net earnings -- -- -- 5,288,568
-------- ------------ ----------- -----------
Balance, December 31, 1998 25,624 91,837,257 (1,760,000) 19,499,933
Issuance of 94,544 shares of common stock related to
certain acquisitions 95 (95) -- --
Interest on notes receivable secured by common shares -- -- (254,094) --
Issuance and release from escrow of 245,899 shares of
common stock related to certain acquisitions -- 988,028 -- --
Purchase and retirement of 283,300 shares of common
stock (283) (1,027,002) -- --
Net earnings -- -- -- 2,817,134
-------- ------------ ----------- -----------
Balance, December 31, 1999 $ 25,436 $ 91,798,188 $(2,014,094) $22,317,067
======== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equialents
CASH FLOWS FROM OPERATING ACTIVITIES
Earnings from continuing operations $ 5,502,925 $ 6,541,307 $ 6,098,287
Adjustments to reconcile earnings from continuing
operations to net cash provided by (used in)
operating activities:
Depreciation and amortization 6,122,134 4,854,043 3,695,445
Provision (credit) for doubtful accounts (64,404) 111,159 9,086
Allowance for obsolete inventory 93,586 32,414 17,000
(Gain) loss on sale of property and equipment 127,703 (41,221) 31,942
Gain on sale of real estate -- (48,767) --
Deferred income taxes (308,627) 185,814 (34,555)
Income tax benefit from exercise of stock options -- 253,795 969,125
Interest income on notes receivable (254,094) -- --
Change in working capital components, net of
effects from acquisitions:
Receivables (3,607,050) (2,898,821) (2,455,755)
Inventories (1,480,901) (6,245,876) (5,040,280)
Other current assets (365,743) (326,868) 325,027
Accounts payable 173,435 (2,628,592) 5,410,082
Accrued expenses (350,953) 135,699 (50,353)
Income tax payable (298,458) 925,243 (696,450)
------------ ------------ ------------
Net cash provided by continuing operations 5,289,553 849,229 8,278,601
Net cash used in discontinued operations (1,153,100) (1,646,011) (2,428,960)
------------ ------------ ------------
Net cash provided by (used in) operating
activities 4,136,453 (796,782) 5,849,641
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired (1,786,692) (15,455,160) --
Purchase of property and equipment (9,301,802) (15,050,371) (18,788,048)
Proceeds from sale of property and equipment 39,000 96,005 92,572
Proceeds from sale of real estate -- 259,253 --
Disbursements on notes receivables (960,709) (2,402,404) (955,075)
Disbursements for trademarks and trade names (6,216) (9,224) --
Disbursement on deferred expenses (318,855) (248,923) (461,824)
Proceeds from repayment of notes receivable related
to exercise of options and warrants -- 235,700 230,000
Decrease (increase) in cash designated for equipment
additions -- 856,441 (856,441)
Decrease (increase) in other assets 1,125,027 (347,856) (927,791)
------------ ------------ ------------
Net cash used in investing activities
of continuing operations (11,210,247) (32,066,539) (21,666,607)
Net cash used in investing activities
of discontinued operations (424,769) (2,218,183) (1,498,955)
------------ ------------ ------------
Net cash used in investing activities (11,635,016) (34,284,722) (23,165,562)
------------ ------------ ------------
</TABLE>
- Continued -
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Years Ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (payments) from revolving credit
agreement (1,630,250) 12,900,000 (15,942,145)
Proceeds from long-term borrowings -- 4,500,000 9,725,659
Principal payments on long-term borrowings (2,604,392) (1,096,416) (8,781,901)
Proceeds from issuance of common stock, net of
committed capital -- -- 57,054,013
Release of committed capital -- -- 8,000,005
Purchase and retirement of common stock (1,027,285) (3,285,558) --
Proceeds from exercise of options and warrants -- 430,000 --
Cost to register common stock -- (77,487) --
------------ ------------ ------------
Net cash provided by (used in) financing
activities of continuing operations (5,261,927) 13,370,539 50,055,631
Net cash provided by (used in) financing
activities of discontinued operations (87,975) (70,930) 324,459
------------ ------------ ------------
Net cash provided by (used in) financing
activities (5,349,902) 13,299,609 50,380,090
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents (12,848,465) (21,781,895) 33,064,169
CASH AND CASH EQUIVALENTS
Beginning 13,672,685 35,454,580 2,390,411
------------ ------------ ------------
Ending $ 824,220 $ 13,672,685 $ 35,454,580
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest, net of $395,074, $295,089 and $424,332
interest capitalized to property and equipment
for 1999, 1998 and 1997, respectively:
Continuing operations $ 1,365,866 $ 814,934 $ 1,222,352
============ ============ ============
Discontinued operations $ 20,492 $ 22,642 $ 106,028
============ ============ ============
Income taxes:
Continuing operations $ 3,257,773 $ 2,486,778 $ 4,435,728
============ ============ ============
Discontinued operations $ -- $ -- $ --
============ ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Valuation and release from escrow of 245,899,
7,000 and 344,691 shares of common stock related
to acquisitions for 1999, 1998 and 1997,
respectively $ 970,528 $ 28,438 $ 2,984,635
============ ============ ============
Issuance of 289,000 and 425,000 shares of common
stock upon exercise of options in exchange for
receivable in 1998 and 1997, respectively $ -- $ 722,500 $ 1,262,500
============ ============ ============
Issuance of 722,375 shares of common stock upon
conversion of $4,000,000 of convertible debt and
$382,411 of related accrued interest $ -- $ -- $ 4,382,411
============ ============ ============
Acquisition of property through assumption of debt $ -- $ -- $ 1,642,099
============ ============ ============
</TABLE>
- Continued -
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Years Ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES (Continued)
Cancellation of capital lease $ -- $ -- $ 2,764,634
============ ============ ============
Capital lease obligation incurred for use of
property and equipment $ -- $ 116,580 $ --
============ ============ ============
Issuance of stock in exchange for minority interest $ -- $ 522,500 $ --
============ ============ ============
Exchange of assets for minority interest $ 866,139 $ -- $ --
============ ============ ============
ACQUISITION OF COMPANIES (Note 11)
Working capital acquired, net of cash and cash
equivalents received $ 592,288 $ 2,635,781 $ 270,646
Fair value of other assets acquired, principally
property and equipment 698,647 1,742,794 930,000
Goodwill 647,369 11,106,585 547,393
Long-term debt assumed (151,612) (30,000) (353,400)
------------ ------------ ------------
$ 1,786,692 $ 15,455,160 $ 1,394,639
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Nature of Business and Significant Accounting Policies
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
1. Financial statement presentation
The accounting and reporting policies of Flanders Corporation and
Subsidiaries (the Company) conform with generally accepted accounting
principles and with general practices in the manufacturing industry.
2. Principles of consolidation
The consolidated financial statements include the accounts and operations of
the Company and its subsidiaries, all of which are wholly owned, except for
one subsidiary which was 80 percent owned for the year ended December 31,
1998. All material intercompany accounts and transactions have been
eliminated in consolidation. Amounts of minority interest are insignificant.
3. Nature of business
The Company designs, manufactures and markets a broad range of air
filtration products, including high-end High Efficiency Particulate Air
("HEPA") filters, with at least 99.97% efficiency, 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, mid-range
filters for individual and commercial use, custom air filter housings,
industrial air handlers and standard low cost residential and commercial
furnace and air conditioning filters. 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 much of 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.
The Company has only one segment, filtration products. The Company sells
some products for end users outside of the United States through domestic
specialty cleanroom contractors. These sales are accounted for as domestic
sales. The Company also sells products through foreign distributors,
primarily in Europe, and a wholly owned subsidiary, which sells to customers
in the Far East. Sales through foreign distributors and its wholly owned
foreign subsidiary total less than 5% of net sales. Assets held outside the
United States are negligible.
4. Significant customers
Net sales for the years ended December 31, 1999, 1998 and 1997 included
sales to the following major customers, together with the receivables due
from those customers:
<TABLE>
<CAPTION>
Trade Receivable Balance
Amount of Net Sales As of December 31,
---------------------------------------- ------------------------------------
1999 1998 1997 1999 1998 1997
------------ ------------ ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Customer A $ 16,441,644 $ 16,030,892 $ 14,962,349 $ 1,385,692 $1,112,788 $ 1,156,094
Customer B 21,148,340 16,197,490 10,466,677 2,937,626 2,286,944 1,157,019
</TABLE>
F-10
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Nature of Business and Significant Accounting Policies - Continued
5. Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
6. Cash and cash equivalents
The Company maintains its cash in bank deposit accounts, which at times
exceed federally insured limits. The Company has not experienced any losses
in such accounts. The Company believes it is not exposed to any significant
credit risk on cash and cash equivalents. For purposes of reporting cash
flows, the Company considers all cash accounts which are not subject to
withdrawal restrictions or designated for equipment acquisitions and
certificates of deposit which have an original maturity of three months or
less to be cash equivalents.
7. Fair value of financial instruments
The carrying amount of cash equivalents approximates fair value at December
31, 1999 and 1998 because of the short maturity of those instruments. Based
on the borrowing rates currently available to the Company for bank loans
with similar maturities and similar collateral requirements, the fair value
of notes payable and long-term debt approximates the carrying amounts at
December 31, 1999 and 1998.
8. Inventories
Inventories are valued at lower of cost (first-in, first-out method) or
market.
9. Goodwill
The Company has classified as goodwill the cost in excess of fair value of
the net assets (including tax attributes) of companies acquired in purchase
transactions. Goodwill is being amortized on a straight line basis over 40
years. At each balance sheet date, the Company evaluates goodwill for
impairment by comparing expectations of non-discounted future cash flows
excluding interest costs with the carrying value of goodwill for each
subsidiary having a material goodwill balance. Based upon its most recent
analysis, the Company believes that no impairment of goodwill exists at
December 31, 1999.
10. Trademarks and trade names
Trademarks and trade names are being amortized on a straight line basis over
17 years. At each balance sheet date, the Company evaluates the value of
trademarks and tradenames for impairment by comparing expectations of
non-discounted future cash flows excluding interest costs with the carrying
value of trademarks and tradenames for each trademark or tradename having a
material unamortized balance. Based upon its most recent analysis, the
Company believes that no impairment of trademarks and tradenames exists at
December 31, 1999.
F-11
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Nature of Business and Significant Accounting Policies - Continued
11. Property and equipment
Property and equipment are stated at cost. Depreciation is computed by the
straight-line method over estimated useful lives. Amortization of capital
leases is included in depreciation expense. The carrying amount of all
long-lived assets is evaluated periodically to determine if adjustment to
the depreciation and amortization period or to the unamortized balance is
warranted. Based upon its most recent analysis, the Company believes that no
impairment of property and equipment exists at December 31, 1999.
12. Revenue recognition
All sales are recognized when shipments are made to customers.
13. Income taxes
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their
tax bases. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
14. Research and development
Research and development expenses and ongoing costs associated with
improving existing products and manufacturing processes are expensed in the
period incurred. Costs associated with research and development amounted to
approximately $763,000, $2,250,000 and $373,000 for 1999, 1998 and 1997,
respectively.
15. Earnings (loss) per share
The Company follows the provisions of Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" (SFAS No. 128). SFAS No. 128 requires
the presentation of basic and diluted EPS. Basic EPS are calculated by
dividing earnings (loss) available to common shareholders by the weighted
average number of common shares outstanding during each period. Diluted EPS
are similarly calculated, except that the weighted average number of common
shares outstanding includes common shares that may be issued subject to
existing rights with dilutive potential.
16. Stock Options
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options rather than
adoptiong the alternative fair value accounting provided for under FASB
Statement 123, "Accounting for Stock-Based Compensation" (SFAS 123).
17. Advertising
The costs of advertising are expensed as incurred.
18. Warranty
The costs of warranties on the Company's products have not been historically
significant and are expensed as incurred.
F-12
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Nature of Business and Significant Accounting Policies - Continued
19. Reclassifications
Certain account balances for 1998 and 1997 have been reclassified with no
effect on net income or retained earnings to be consistent with the
classification adopted for the year ended December 31, 1999.
Note B. Mergers and Acquisitions
Effective April 1, 1999, the Company purchased the Tidewater group of
companies, consisting of Tidewater Air Filter Fabrication Company, Inc.,
Newport Manufacturing, Inc., and Bio-Tec Inc., for a total cost of
acquisition, net of cash received, of approximately $1,787,000 in a
transaction which has been recorded as a purchase. Goodwill of approximately
$647,000 has been recognized in this transaction. Tidewater is an air filter
distributor and service organization. Prior to the acquisition, Tidewater
was an exclusive distributor of a competitor's products. Newport
Manufacturing is an air filter manufacturer with some limited manufacturing
capacity for specialty products. Bio-Tec is an indoor air quality consulting
firm. The Company's financial statements include the operating results of
the Tidewater group of companies from April 1, 1999.
On May 7, 1998, the Company agreed to acquire substantially all of the
outstanding stock of Eco-Air Products, Inc. ("Eco-Air") in a transaction
which has been recorded as a purchase. The total cost of the acquisition,
net of cash acquired, was approximately $15,455,160, plus the Company's
common stock equivalent in value to $5,000,000 or cash if certain
performance criteria are met. In connection with this purchase, the Company
recorded approximately $11,107,000 of goodwill. Upon achieving certain
performance criteria, common stock will be issued or a liability recorded
for cash payment over a five year period and will be added to goodwill
associated with the purchase transaction and amortized over the remaining
amortization period of the respective goodwill asset. The acquisition of
Eco-Air was funded by utilizing a revolving credit facility which provides a
line of credit up to a maximum principal amount of $30,000,000. The
effective date of the acquisition for financial statement purposes was June
30, 1998, and the Company's financial statements include the operating
activities and assets of Eco-Air from that date. As of December 31, 1999, no
shares have been issued or liability recorded to the Eco-Air sellers as a
result of not having met the performance criteria.
Effective December 1, 1997, the Company acquired all the outstanding stock
of Glass Fiber Industries, Inc. ("GFI"), a manufacturer of glass fiber, by
exchanging 187,502 shares of the Company's stock for all the outstanding
stock of GFI in a tax free merger in a transaction which has been recorded
as a purchase. The total cost of acquisition was $1,394,639, based on the
price of the Company's stock on November 26, 1997, of approximately $7.44.
In connection with the purchase, the Company recorded approximately $547,000
of goodwill.
Summarized below are the unaudited pro forma results of operations of the
Company as though Eco-Air had been acquired at the beginning of the fiscal
year ended December 31, 1997.
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Revenues $ 178,473,654 $ 154,250,241
============= =============
Earnings from continuing operations $ 6,594,619 $ 6,390,694
============= =============
Earnings per common share from continuing
operations:
Basic $ 0.26 $ 0.34
============= =============
Diluted $ 0.24 $ 0.29
============= =============
</TABLE>
Pro forma results of operations of the Company as though Tidewater had been
acquired as of January 1, 1998 and GFI had been acquired as of January 1,
1997 are not presented because amounts of pro forma differences are not
significant.
F-13
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note C. Inventories
Inventories consists of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Finished goods $12,041,722 $12,988,501
Work in progress 1,665,953 1,036,809
Raw materials 12,382,025 11,587,908
----------- -----------
26,089,700 25,613,218
Less allowance for obsolete raw materials 188,000 94,414
----------- -----------
$25,901,700 $25,518,804
=========== ===========
</TABLE>
Note D. Discontinued Operations
During 1997, the Company established a new subsidiary, Airseal West, Inc.,
to serve as a manufacturer of industrial air handlers, custom housings, and
related products for the western U.S. The market opportunities envisioned by
this venture failed to materialize, and Airseal West focused its primary
efforts on perceived opportunities in businesses and products unrelated to
air filtration, including sporting goods, vending equipment and other
general manufacturing.
In December 1999, the Company adopted a formal plan to close Airseal West, a
wholly owned subsidiary, and sell its various assets and product lines to
unrelated third parties. The anticipated date of closure is approximately
April 30, 2000. All dispositions of assets are expected to be completed
December 31, 2000. The assets to be sold consist primarily of non-filtration
assets consisting of inventories, manufacturing equipment, designs and
intellectual properties.
Operating results of Airseal West for 1999 are shown separately in the
accompanying statement of earnings. Revenues and expenses associated with
Airseal West for 1998 and 1997 have been reclassified and combined into the
heading, "Loss from operations of discontinued subsidiary."
The estimated loss on the disposal of the discontinued operations of
approximately $893,000 (net of income tax benefit of approximately $566,000)
represents the estimated loss on the disposal of the assets of Airseal West
and the write-off of goodwill associated with Airseal West.
Net sales of Airseal West for 1999, 1998 and 1997 were approximately
$2,354,000, $3,057,000 and $2,237,000, respectively. These amounts are not
included in net sales in the accompanying statement of earnings.
Net assets of Airseal West at December 31, 1999 consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable $ 952,379
Inventories 1,348,888
Other current assets 48,439
Property and equipment, net 3,487,864
Accounts payable (429,075)
Accrued liabilities (25,204)
Current portion long term debt (165,554)
-----------
Net assets of discontinued operations $ 5,217,737
===========
</TABLE>
F-14
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note E. Other Assets
Other assets consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Real estate held for sale $ 1,578,218 $ 1,578,218
Notes receivable 960,709 --
Cash value of officers' life insurance -- 104,921
Prepaid commissions -- 839,331
Deposits 295,643 800,531
Deferred expenses, net of accumulated amortization
of $214,001 in 1999 and $108,643 in 1998 1,118,937 903,740
All other 159,984 410,321
----------- -----------
$ 4,113,491 $ 4,637,062
=========== ===========
</TABLE>
Note F. Intangible Assets
Intangible assets consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Goodwill, net of accumulated amortization of
$1,773,144 in 1999 and $980,253 in 1998 $29,160,232 $28,095,134
Trademarks and trade names, net of accumulated
amortization of $174,929 in 1999 and
$135,178 in 1998 862,255 895,790
----------- -----------
$30,022,487 $28,990,924
=========== ===========
</TABLE>
Note G. Property and Equipment
Property and equipment and estimated useful lives consist of the following
at December 31:
<TABLE>
<CAPTION>
Estimated
1999 1998 Useful Lives
----------- ----------- ------------
<S> <C> <C> <C>
Land $ 3,862,886 $ 1,018,007 --
Buildings 28,107,676 27,852,661 15-40 years
Machinery and equipment 38,411,695 35,605,613 10 years
Office equipment 6,187,553 4,557,195 5 years
Vehicles 1,141,145 963,289 5 years
Construction in progress 6,382,453 3,640,045 --
----------- -----------
84,093,408 73,636,810
Less accumulated depreciation 18,839,580 14,069,608
----------- -----------
$65,253,828 $59,567,202
=========== ===========
</TABLE>
Total depreciation expense charged to operations totaled $5,544,018,
$4,435,744 and $3,103,271 for 1999, 1998 and 1997, respectively.
F-15
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note H. Pledged Assets and Debt
A summary of the Company's debt, and collateral pledged thereon, consists
of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Short-term debt:
Lower of prime or LIBOR plus defined percentage line
of credit agreements (A) $ -- $1,300,000
========== ==========
Long-term debt:
Lower of prime (8.5% at December 31, 1999) or LIBOR
plus defined percentage line of credit agreements (A) $11,369,750 $13,000,000
Prime(8.5% at December 31, 1999) plus 0.25 percent
notes payable to a mortgage company due in monthly
payments of $30,096 including interest through
January 2006, at which time all unpaid principal is
due, collateralized by a deed of trust on land and
buildings with a carrying value of approximately
$3,530,000 at December 31, 1999 1,570,104 1,795,731
Real estate contract payable to a company for purchase
of land and buildings 3,994,000 --
10.125 percent note payable to a mortgage company, due
in monthly payments of $13,775, including interest
through July 2004, collateralized by a first deed of
trust on real property with a carrying value of
approximately $974,000 at December 31, 1999, and a
second security interest in certain machinery and
equipment 593,818 693,513
Various notes payable to a bank with interest at prime
(8.5% at December 31, 1999) plus .25 percent due in
monthly installments of $12,038, including interest,
expiring at various times through April 2004,
collateralized by a deed of trust on property with a
carrying value of approximately $1,510,000 at
December 31, 1999 1,114,020 1,180,226
6.5 percent note payable to a regional development
authority, due in varying quarterly installments,
plus interest, through December 2017, collateralized
by a security agreement and financing statement on
real and personal property with a carrying value of
approximately $5,400,000 at December 31, 1999 5,680,000 5,845,000
Note payable to a bank with interest at 7.9 percent
until June 2001 when interest rate changes to prime
plus 0.25 percent, due in monthly payments of $7,098
including interest through June 2017 subject to a
call option in June 2007, collateralized by a deed
of trust on real properties with a carrying value of
approximately $1,870,000 at December 31, 1999 833,623 849,751
Industrial revenue bond with a variable tax exempt
interest rate as determined by a remarketing agent
which was 3.2% at December 31, 1999, collateralized
by a $4,500,000 letter of credit which expires June
28, 2002 4,500,000 4,500,000
Note payable to an industrial development authority,
with an interest rate of 83 percent of prime rate
(8.5% at December 31, 1999), due in monthly
installments of $11,333 plus interest through
January 2005, collateralized by a deed of trust on
real property with a carrying value of approximately
$2,900,000 at December 31, 1999 702,810 838,810
</TABLE>
F-16
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note H. Pledged Assets and Debt - Continued
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Note payable to a bank with interest at LIBOR plus an
adjusted base rate, as defined, due in monthly
installments of $17,788 plus interest, with a
balloon payment due on June 30, 2002, of $1,120,625,
collateralized by a second deed of trust and
security agreement on real property with a carrying
value of approximately $2,900,000 at December 31,
1999 1,654,256 1,849,920
Various contracts payable including capital lease
obligations; interest rates from 6.3 percent to 9.6
percent at December 31, 1999 and 1998,
collateralized by certain equipment; due in monthly
payments aggregating approximately $40,000 including
interest, expiring at various dates through May
2003 315,788 817,777
------------ ------------
32,328,169 31,370,728
Less current maturities 1,115,184 1,265,014
------------ ------------
$ 31,212,985 $ 30,105,714
============ ============
</TABLE>
(A) These are amounts outstanding on revolving credit facilities with banks
which provide lines of credit up to a maximum principal amount of
$45,000,000 and $33,000,000 at December 31, 1999 and 1998, respectively. The
lines of credit bear interest rates at the option of the Company at either
1) prime rate, which was 8.5% at December 31, 1999, or 2) LIBOR, which was
5.3% at December 31, 1999, 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.
The line of credit agreements expire June 28, 2002. The lines of credit are
collateralized by the pledge of all common stock of the subsidiaries owned
by the Company.
In connection with the line of credit agreements and notes payable to a regional
development authority and bank, the Company has agreed to certain restrictive
covenants which include, among other things, not paying dividends and
maintenance of certain financial ratios at all times including a minimum current
ratio, minimum tangible net worth, a maximum ratio of total liabilities to
tangible net worth and a minimum fixed charge coverage ratio.
Aggregate maturities required on long-term debt as of December 31, 1999 are due
in future years as follows:
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C> <C>
2000 $ 1,115,184
2001 1,002,232
2002 13,774,451
2003 1,075,354
2004 1,108,414
Later years 14,252,534
------------
$ 32,328,169
============
</TABLE>
F-17
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note I. Accounts Payable
Accounts payable consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Accounts payable, trade $15,017,193 $13,889,388
Commissions payable 543,365 1,577,470
Customer deposits 199,464 384,229
----------- -----------
$15,760,022 $15,851,087
=========== ===========
</TABLE>
Note J. Accrued Expenses
Accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Payroll $ 1,486,216 $ 1,618,197
Insurance, including workers compensation 1,053,794 1,133,331
Sales and use taxes 144,951 65,679
Interest 28,680 137,424
Income taxes payable -- 298,458
All other 1,181,633 680,829
----------- -----------
$ 3,895,274 $ 3,933,918
=========== ===========
</TABLE>
Note K. Stockholders' Equity
During the year ended December 31, 1997, the Company raised $57,054,013, net
of offering commissions and expenses of $6,052,237, through the sale of
8,320,000 shares of common stock by underwritten public offerings dated
January 16, 1997 at $9.50 per share and October 16, 1997 at $7.00 per share
and the private placement of 57,000 shares of Common Stock at a weighted
average price of $4.67 per share. In conjunction with these offerings, the
Company granted warrants to purchase a total of 540,000 shares to the
underwriters with exercise prices between $8.40 and $14.725 per share,
expiring at various periods between January 2002 and October 2002.
The President and Vice President/Chief Financial Officer of the Company had
options to purchase 3,321,021 and 2,214,014 shares, respectively, of the
Company's common stock from two stockholders of the Company at an option
price of $2.50 per share. The President and Vice President/Chief Financial
Officer of the Company exercised options to acquire 2,830,732 and 1,799,188
shares, respectively, of the common stock from the two stockholders on
December 1, 1997. The remaining options were not exercised and expired on
December 15, 1997.
F-18
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note L. Income Taxes
The components of income tax expense (benefit) are as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal $ 2,485,920 $ 2,655,933 $ 3,266,645
State 792,986 756,088 472,633
----------- ----------- -----------
3,278,906 3,412,021 3,739,278
----------- ----------- -----------
Deferred:
Federal (250,675) 162,098 (151,017)
State (57,952) 23,716 116,462
----------- ----------- -----------
(308,627) 185,814 (34,555)
----------- ----------- -----------
Total 2,970,279 3,597,835 3,704,723
Allocated to discontinued operations (1,700,403) (852,244) (46,676)
----------- ----------- -----------
Total provision from continuing operations $ 4,670,682 $ 4,450,079 $ 3,751,399
=========== =========== ===========
</TABLE>
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate of 34% to pretax income due to the
following for years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Computed "expected" tax expense $ 1,967,719 $ 3,021,374 $ 3,244,956
Increase (decrease) in income taxes resulting from:
Nondeductible expenses 377,919 150,210 82,051
Nontaxable income (1,061) (23,874) --
State income taxes net of federal tax benefit 427,769 515,233 435,000
Change in valuation allowance (2,094) (17,479) (19,224)
Tax credits -- (47,629) (5,396)
Adjustment to estimated income tax accrual 200,000 -- --
All other -- -- (32,664)
----------- ----------- -----------
$ 2,970,252 $ 3,597,835 $ 3,704,723
=========== =========== ===========
</TABLE>
Net deferred tax assets and liabilities consist of the following components
as of December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable allowance $ 181,935 $ 103,454
Inventory allowances 861,637 547,446
Accrued expenses 740,261 773,041
Prepaid expenses 65,648 --
----------- -----------
1,849,481 1,423,941
Less valuation allowance -- 2,094
----------- -----------
1,849,481 1,421,847
Deferred tax liabilities:
Property and equipment (5,840,654) (5,721,647)
----------- -----------
$(3,991,173) $(4,299,800)
=========== ===========
</TABLE>
F-19
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note L. Income Taxes - Continued
The components giving rise to the net deferred tax assets and liabilities
described above have been included in the accompanying consolidated balance
sheets at December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Current assets $ 1,849,481 $ 1,421,847
Noncurrent liabilities (5,840,654) (5,721,647)
----------- -----------
$(3,991,173) $(4,299,800)
=========== ===========
</TABLE>
Note M. Commitments and Contingencies
1. Employment Agreements:
The President and Chief Executive Officer, the Chief Operating Officer/Vice
President Finance/Chief Financial Officer, and the Vice President Operations
all have employment agreements which expire at various times from March 2003
to December 2010. In addition to a base salary and bonuses which may be paid
at the discretion of the Board of Directors, the agreements provide for a
termination payment ranging from one hundred percent of their base annual
compensation to the minimum amount due under the employment contract if the
officer had served their full term, in the event the officers' employment is
terminated under various circumstances.
The Company pays discretionary cash bonuses to its officers and employees.
The Company did not pay bonuses for 1999, 1998 and 1997.
2. Litigation
The Company is being sued by a customer regarding a purchase of
approximately $5 million in laminar-flow cleanroom-grade HEPA filters, with
approximately $2.6 million of related accounts receivable currently
uncollected. The customer contends that these filters were manufactured
using a defective urethane sealant and seeks reimbursement for replacement
costs and damages. The Company contends that the filters meet all the
specifications of the customer, and are not, in fact, defective. We believe
that in the event of an adverse decision, it is reasonably likely that we
would be able to successfully assert liability by the manufacturer of the
sealant, and we have filed a cross-complaint against the sealant
manufacturer. We also believe that any losses due to these lawsuits are
fully insured under both our general liability insurance policy and the
general liability policy of the sealant manufacturer. For these reasons, we
do not believe that the resolution of this matter will have a material
adverse impact upon our financial condition or results of operations.
From time to time, the Company is a party to various legal proceedings
related to our normal business operations. Management of the Company does
not believe that the ultimate outcome of this litigation will have a
material impact on the Company's results of operations or financial
condition.
F-20
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note M. Commitments and Contingencies - Continued
3. Lease Commitments and Total Rental Expense
Certain equipment and buildings are leased under agreements expiring between
2000 and 2004. The following is a schedule for the total rental commitments
under these leases as of December 31, 1999
<TABLE>
<CAPTION>
Fiscal Years Ending
-------------------
<S> <C> <C>
2000 $ 2,012,281
2001 1,850,515
2002 1,505,735
2003 1,339,361
2004 1,350,570
---------------
$ 8,058,462
===============
</TABLE>
The total rental expense charged to operations was approximately $2,900,000,
$2,000,000 and $2,300,000 for 1999, 1998 and 1997, respectively.
Note N. Employee Benefit Plans
The Company has a defined contribution 401(k) salary reduction plan intended
to qualify under section 401(a) of the Internal Revenue Code of 1986
("Salary Savings Plan"). The Salary Savings Plan allows the eligible
employees, as defined in the plan document, to defer up to 15 percent of
their eligible compensation, with the Company contributing an amount
determined at the discretion of the Company's Board of Directors. The
Company contributed approximately $195,000, $168,000 and $145,000 to the
Salary Savings Plan and the 401(k) Plans for the years ended December 31,
1999, 1998 and 1997, respectively.
The Company employee benefit program also includes health, accident, dental,
life insurance and disability benefits. Substantially all the Company's
subsidiaries have elected to self-insure the health and accident insurance
at an individual maximum ranging from $30,000 to $90,000 per employee per
claim year. A stop loss policy is maintained for subsidiaries that are
self-insured, which covers 100 percent of liability over amounts ranging
from $30,000 to $80,000 per occurrence per individual per plan year. The
employer's portion of claims charged to operations totaled approximately
$1,100,000, $1,160,000 and $650,000 for 1999, 1998 and 1997, respectively.
During 1996, the Company adopted the Long Term Incentive Plan ("LTI Plan")
to assist the Company in securing and retaining key employees and
consultants. The LTI Plan authorizes grants of incentive stock options,
nonqualified stock options, stock appreciation rights ("SARs"), restricted
stock performance shares and dividend equivalents to officers and key
employees of the Company and outside consultants to the Company. There are
1,986,800 shares of Common Stock reserved for award under the LTI Plan.
During 1999, 1998 and 1997, the Company awarded options to purchase 52,850,
316,850 and 95,600 shares of Common Stock under the LTI Plan, respectively
(Note P).
During 1996, the Company also adopted the 1996 Director Option Plan which
provides for the grant of stock options to outside directors of the Company
who were elected or appointed after February 1, 1996, and who were not
existing directors on the effective date of the plan. Each such outside
director who is serving as a director on January 1 of each calendar year
will automatically be granted an option to acquire up to 5,000 shares of
Common Stock on such date, assuming such outside director had been serving
for at least six months prior to the date of grant. The Company has reserved
500,000 shares of its Common Stock for issuance under the 1996 Director
Option Plan which expires in 2006. During 1999, 1998 and 1997, the Company
awarded options to purchase 105,000, 115,000 and 5,000 shares, respectively,
of Common Stock under the 1996 Director Option Plan (Note P).
F-21
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note O. Related Party Transactions and Balances
At December 31, 1999 and 1998, the Company had notes receivable of
$4,369,028 and $4,263,409, respectively, due from various directors,
officers and employees with interest thereon varying between 6.31% and
8.75%, maturing at various dates to December 2010 and callable on demand by
the Company (Note K).
Note P. Stock Options and Warrants
During 1999, the Company granted options to purchase 52,850 shares of common
stock under its LTI Plan at a weighted average exercise price of $3.76 per
share. The Company also granted options in 1999 to purchase 105,000 shares
under the Director Option Plan, at a weighted average exercise price of
$2.57 per share. All options granted during 1999 were non-qualified fixed
price options, and all 157,850 options were not exercisable at December 31,
1999.
The following table summarizes the activity related to all Company stock
options and warrants for 1999, 1998, and 1997:
<TABLE>
<CAPTION>
Weighted Average
Shares 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 9.57 3.51
Granted - 331,850 - 3.94 - 8.50 - 4.69
Exercised - (611,000) - 1.00 - 2.50 - 2.13
Canceled or expired - (83,400) - 1.00 - 9.50 - 2.83
------------- ------------
Outstanding at December 31, 1998 637,239 6,930,370 5.54 - 14.73 1.00 - 9.50 9.57 3.70
Granted - 157,850 - 2.50 - 4.75 - 2.97
Exercised - - - - - -
Canceled or expired (25,000) (82,520) 9.63 2.50 - 9.50 9.63 5.29
------------- ------------
Outstanding at December 31, 1999 612,239 7,005,700 5.54 - 14.73 1.00 - 9.50 9.57 3.66
============= ============
Exercisable at December 31, 1999 612,239 6,847,850 5.54 - 14.73 1.00 - 9.50 9.57 3.68
============= ============
Exercisable at December 31, 1998 637,239 6,753,520 5.54 - 14.73 1.00 - 9.50 9.57 3.69
============= ============
Exercisable at December 31, 1997 97,239 7,192,320 5.54 - 9.63 1.00 - 9.50 6.98 3.46
============= ============
</TABLE>
During 1999, the expiration date of options to purchase 2,000,000 shares at
$2.50 per share was extended from February 2001 to February 2006, which
resulted in a new measurement date under interpretations to APB Opinion No.
25.
F-22
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note P. Stock Options and Warrants - Continued
The warrants and options expire at various dates ranging from February 2000
to December 2008. A further summary of information related to fixed options
outstanding at December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Weighted Average Weighted Average
Range of Exercise Number Remaining Contractual Exercise Price
Prices Outstanding / Exercisable Life (Years) Outstanding / Exercisable
- ---------------------- -------------------------- ------------------------- ----------------------------
<S> <C> <C> <C>
$1.00 2,300,000 / 2,300,000 0.88 $ 1.00 / 1.00
2.50 to 4.75 2,377,600 / 2,219,750 6.01 2.67 / 2.65
5.38 to 7.50 2,282,100 / 2,282,100 1.58 7.33 / 7.33
8.50 to 9.50 46,000 / 46,000 1.96 9.19 / 9.19
</TABLE>
As permitted under generally accepted accounting principles, grants under
the LTI Plan and other grants of options are accounted for following APB
Opinion No. 25 and related interpretations. Accordingly, no compensation
cost has been recognized for grants under the LTI Plan, since all options
granted had an exercise price at or above the market price of the Company's
common stock on the date of grant. Had compensation cost for the LTI Plan
been determined based on the grant date fair values of awards using the
Black-Scholes option pricing model (the method described in FASB Statement
No. 123), reported net earnings and earnings per common share would have
been reduced to the pro forma amounts shown below for the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net earnings:
As reported $ 2,817,134 $ 5,288,568 $ 5,839,265
Pro forma $ 1,136,155 $ 4,962,085 $ 5,766,265
Basic earnings per share:
As reported $ 0.11 $ 0.21 $ 0.32
Pro forma $ 0.04 $ 0.20 $ 0.31
Diluted earnings per share:
As reported $ 0.11 $ 0.20 $ 0.27
Pro forma $ 0.04 $ 0.18 $ 0.26
Weighted average fair value per option of options
Granted during the year $ 1.53 $ 1.40 $ 2.11
</TABLE>
In determining the pro forma amounts above, the value of each grant is
estimated at the grant date using the Black-Scholes option pricing method
prescribed in FASB Statement No. 123, with the following assumptions:
Dividend rate of 0%; risk-free interest rates based upon the zero-coupon
rate on the date of grant for the expected life of the option; and expected
price volatility on the date of grant. Weighted average assumptions for
options granted in 1999, 1998 and 1997 were as follows: Dividend rate of 0%;
average risk-free interest rate of 5.66%, 5.18% and 6.11%, respectively;
average expected lives of 5, 4.3 and 2.5 years, respectively; and average
expected price volatility of 67%, 40% and 40%, respectively.
F-23
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note Q. Earnings per Share
The following data show the amounts used in computing net earnings per
common share from continuing operations. The following data also show the
weighted average number of shares and dilutive potential common stock.
<TABLE>
<CAPTION>
Per Share
Amounts
---------------
Numerator Denominator Net Earnings
---------------- ----------------- ---------------
Year Ended December 31, 1999
---------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share, earnings from continuing
operations available to common stockholders $ 5,502,925 25,344,433 $ 0.22
===============
Effect of dilutive securities:
Options - 1,159,996
Contingent shares - 21,000
---------------- -----------------
Diluted earnings per share, earnings from continuing
operations available to common stockholders plus
assumed exercise of options and warrants and
issuance of contingent shares $ 5,502,925 26,525,429 $ 0.21
================ ================= ===============
Year Ended December 31, 1998
---------------------------------------------------------
Basic earnings per share, earnings from continuing
operations available to common stockholders $ 6,541,307 25,133,820 $ 0.26
===============
Effect of dilutive securities:
Options - 1,949,177
Contingent shares - 21,000
Warrants - 2,927
---------------- -----------------
Diluted earnings per share, earnings from continuing
operations available to common stockholders plus
assumed exercise of options and warrants and issuance
of contingent shares $ 6,541,307 27,106,924 $ 0.24
================ ================= ===============
Year Ended December 31, 1997
---------------------------------------------------------
Basic earnings per share, earnings from continuing
operations available to common stockholders $ 6,098,287 18,508,763 $ 0.33
===============
Effect of dilutive securities:
Options - 2,737,642
Contingent shares - 752,187
Convertible debt 163,956 470,250
Warrants - 8,342
---------------- -----------------
Diluted earnings per share, earnings from continuing
operations available to common stockholders plus
assumed exercise of options and warrants, conversion
of debt and issuance of contingent shares $ 6,262,243 22,477,184 $ 0.28
================ ================= ===============
</TABLE>
F-24
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note R. Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $37,629,851 $44,706,108 $48,658,081 $40,398,241
Gross profit 9,860,706 12,191,179 13,734,386 8,188,257
Operating income (loss)
from continuing operations 2,479,216 3,856,610 4,280,124 (443,626)
Earnings (loss) from
continuing operations $ 1,249,208 $ 2,008,580 $ 2,257,560 $ (12,423)
============ ============ ============ ============
Earnings (loss) from continuing
operations per share:
Basic $ 0.05 $ 0.08 $ 0.09 $ --
Diluted 0.05 0.08 0.09 --
Common stock prices:
High $ 5 1/8 $ 3 13/16 $ 3 3/8 $ 3 1/8
Low 2 9/16 2 1/2 2 3/8 2 1/4
</TABLE>
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $30,213,699 $38,771,247 $48,486,595 $ 37,293,263
Gross profit 7,479,158 9,106,988 12,569,942 8,503,739
Operating income from
continuing operations 1,929,177 3,461,093 3,780,532 380,653
Earnings (loss) from
continuing operations $ 1,359,001 $ 2,404,309 $ 2,190,490 $ (665,232)
=========== =========== =========== ============
Earnings (loss) from continuing
operations per share:
Basic $ 0.05 $ 0.08 $ 0.09 $ (0.02)
Diluted 0.05 0.08 0.09 (0.02)
Common stock prices:
High $ 8 1/2 6 $ 5 1/2 $ 4 3/16
Low 5 9/16 4 1/2 3 1/2 2 15/16
</TABLE>
F-25
<PAGE>
FLANDERS CORPORATION
FINANCIAL STATEMENT SCHEDULES
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON THE SUPPLEMENTAL SCHEDULE
Board of Directors
Flanders Corporation
Our audit was made for the purpose of forming an opinion on the 1999 basic
consolidated financial statements taken as a whole. The consolidated
Supplemental Schedule II is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our 1999 audit of the basic consolidated
financial statements and, in our opinion, the 1999 information is fairly stated
in all material respects in relation to the 1999 basic consolidated financial
statements taken as a whole.
/s/ Grant Thornton LLP
Salt Lake City, Utah
March 8, 2000
F-27
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON THE SUPPLEMENTAL SCHEDULE
To the Board of Directors
Flanders Corporation
Washington, North Carolina
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated
Supplemental Schedule II for the years ended December 31, 1998 and 1997 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic consolidated financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
consolidated financial statements taken as a whole.
/s/ McGladrey & Pullen, LLP
New Bern, North Carolina
March 12, 1999
F-28
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Additions
----------------------
Balance at Charged to Charged to Balance
Beginning Cost and Other at End
of Period Expense Accounts Deductions of Period
--------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1999
Allowance for doubtful accounts $551,725 $ 39,620 $ -- $(104,024)(1) $487,321
Allowance for inventory value 94,414 93,586 -- -- 188,000
Valuation allowance for deferred tax assets 2,094 -- -- (2,094)(2) --
-------- -------- ------- --------- --------
Total $648,223 $133,206 $ -- $(106,118) $675,321
======== ======== ======= ========= ========
For the year ended December 31, 1998
Allowance for doubtful accounts $380,566 $148,168 60,000 $ (37,009)(1) $551,725
Allowance for inventory value 62,000 32,414 -- -- 94,414
Valuation allowance for deferred tax assets 19,573 -- -- (17,479)(2) 2,094
-------- -------- ------- --------- --------
Total $462,139 $180,582 $60,000 $ (54,488) $648,233
======== ======== ======= ========= ========
For the year ended December 31, 1997
Allowance for doubtful accounts $346,480 $ 80,245 $25,000(3) $ (71,159)(1)(2) $380,566
Allowance for inventory value 45,000 17,000 -- -- 62,000
Valuation allowance for deferred tax assets 38,797 -- -- $ (19,224)(2) 19,573
-------- -------- ------- --------- --------
Total $430,277 $ 97,245 $25,000 $ (90,383) $462,139
======== ======== ======= ========= ========
</TABLE>
- -----------------------------
(1) Uncollected receivables written-off, net of recoveries.
(2) Reduction in allowance.
(3) Increase due to acquisition of subsidiary.
F-29
CREDIT AGREEMENT
Among
FLANDERS CORPORATION,
As Borrower,
SUNTRUST EQUITABLE SECURITIES CORPORATION,
As Lead Arranger,
SUNTRUST BANK,
as Administrative Agent, Issuing Lender,
and Swing Line Lender,
and
The LENDERS Party Hereto
February 9, 2000
<PAGE>
TABLE OF CONTENTS
TABLE OF CONTENTS.............................................................i
CREDIT AGREEMENT..............................................................1
BACKGROUND....................................................................1
TERMS.........................................................................1
SECTION 1. DEFINITIONS........................................................1
1.1 Defined Terms.................................................1
1.2 Other Definitional Provisions................................10
SECTION 2. THE CREDIT FACILITIES.............................................10
2.1 The Revolving Credit Advances................................10
2.2 Making Revolving Credit Advances.............................11
2.3 Swing Line Advances..........................................13
2.4 The Line of Credit Facility..................................13
2.5 Requesting Letters of Credit and Making Line
of Credit Default Advances...................................14
2.6 Evidence of Indebtedness.....................................16
2.7 Principal....................................................16
2.8 Interest.....................................................16
2.9 Fees.........................................................17
2.10 Termination and Reduction of the Commitments.................18
2.11 Optional Prepayments.........................................18
2.12 Continuation and Conversion Elections Applicable
to Revolving Credit Advances.................................19
2.13 Computations and Manner of Payments..........................20
2.14 Yield Protection; Changed Circumstances......................21
2.15 Liability Regarding Letters of Credit........................24
2.16 Indemnification Regarding Letters of Credit..................24
2.17 Obligations Absolute (relating to Letters of Credit).........24
SECTION 3. SECURITY AND GUARANTIES...........................................25
3.1 Stock Pledge.................................................25
3.2 Guaranties...................................................26
i
<PAGE>
SECTION 4. REPRESENTATIONS AND WARRANTIES....................................27
4.1 Corporate Existence; Compliance with Law; Name History.......27
4.2 Corporate Power and Authorization to Execute Loan
Documents; No Conflict; No Consent...........................27
4.3 Enforceable Obligations......................................28
4.4 Financial Condition..........................................28
4.5 No Litigation................................................28
4.6 Investment Company Act; Regulation...........................29
4.7 Disclosure and No Untrue Statements..........................29
4.8 Title to Assets; Leases in Good Standing.....................29
4.9 Payment of Taxes.............................................30
4.10 Agreement or Contract Restrictions; No Default...............30
4.11 Patents, Trademarks, Licenses, Etc...........................30
4.12 Government Contract..........................................30
4.13 ERISA Requirement............................................30
4.14 Solvency.....................................................31
4.15 Racketeer Influenced and Corrupt Organization(s) Act.........31
4.16 Location of Offices..........................................31
4.17 Subsidiaries.................................................31
SECTION 5. CONDITIONS OF LENDING.............................................32
5.1 Continuing Accuracy of Representations and Warranties........32
5.2 No Default...................................................32
5.3 Opinion of Borrower's Counsel................................32
5.4 Approval of Counsel..........................................32
5.5 Loan Documents...............................................32
5.6 UCC Filings and Stock Certificates...........................32
5.7 Supporting Documents.........................................33
SECTION 6. AFFIRMATIVE COVENANTS.............................................34
6.1 Financial Reports and Other Information......................34
6.2 Payment of Indebtedness; Performance of Other
Covenants; Payment of Other Obligations......................35
6.3 Conduct of Business; Maintenance of Existence
and Rights...................................................35
6.4 Maintenance of Property......................................36
6.5 Right of Inspection; Discussions.............................36
6.6 Notices......................................................36
6.7 Payment of Taxes; Liens......................................37
6.8 Insurance of Properties......................................37
6.9 True Books...................................................37
6.10 Observance of Laws...........................................37
6.11 Further Assurances...........................................37
6.12 ERISA Benefit Plans..........................................38
6.13 Withholding Taxes............................................38
ii
<PAGE>
6.14 Change of Name, Principal Place of Business,
Office, or Agent.............................................38
6.15 Financial Covenants..........................................38
6.16 Affirmative Covenants Applicable to Subsidiaries.............39
SECTION 7. NEGATIVE COVENANTS................................................39
7.1 Indebtedness.................................................39
7.2 Limitations on Mortgages, Liens, Etc.........................39
7.3 Guaranties...................................................39
7.4 Merger, Sale of Assets, Sale-Leaseback
Transactions, Dissolution, Etc...............................39
7.5 Acquisitions.................................................40
7.6 Prohibitions on Dividends, Redemptions,
Distributions and Other Payments.............................40
7.7 Limitations on Loans, Advances, Investments,
Transfer of Assets, and Acquisition of Assets................40
7.8 Regulation U.................................................40
7.9 Insider Transactions.........................................41
7.10 Loans to Officers, Stockholders, Employees, Etc..............41
7.11 Changes in Governing Documents, Accounting
Methods, Fiscal Year.........................................41
7.12 Negative Covenants Applicable To Subsidiaries................41
SECTION 8. EVENTS OF DEFAULT.................................................42
8.1 Payment of Obligations Under Loan Documents..................42
8.2 Representation or Warranty...................................42
8.3 Covenants Under the Loan Documents...........................42
8.4 Other Defaults under the Loan Documents......................42
8.5 Cross-Default................................................42
8.6 Payment, Performance, or Default of Other
Monetary Obligations.........................................43
8.7 Other Covenants or Defaults to Lenders or Others.............43
8.8 Liquidation; Dissolution; Bankruptcy; Etc....................43
8.9 Involuntary Bankruptcy, Etc..................................43
8.10 Judgments....................................................44
8.11 Attachment, Garnishment, Liens Imposed by Law................44
8.12 Corporate Existence, Transfer of Property....................44
8.13 Invalidity of Security Interest and Liens;
Transfer of Collateral.......................................44
8.14 Invalidity of Guaranty.......................................44
8.15 Subsidiaries.................................................44
SECTION 9. RIGHTS AND REMEDIES...............................................45
9.1 Remedies Available Under Loan Documents and Otherwise........45
9.2 Remedies Upon Event of Default...............................45
SECTION 10. THE ADMINISTRATIVE AGENT.........................................45
10.1 Authorization and Action.....................................45
iii
<PAGE>
10.2 Administrative Agent's Reliance, Etc.........................46
10.3 SunTrust Bank and Affiliates.................................46
10.4 Lender Credit Decision.......................................47
10.5 Indemnification by Lenders...................................47
10.6 Successor Administrative Agent...............................47
SECTION 11. MISCELLANEOUS....................................................48
11.1 Amendments and Waivers.......................................48
11.2 Sharing of Payments..........................................48
11.3 Liens; Set-Off...............................................49
11.4 Payment of Expenses, Including Attorneys' Fees and Taxes.....49
11.5 Notices......................................................50
11.6 Governing Law................................................50
11.7 Venue; Personal Jurisdiction.................................50
11.8 Severability and Enforceability of Provisions................50
11.9 Failure of Party to Execute..................................51
11.10 Counterparts; Facsimile Signatures; Effective Date...........51
11.11 No Waiver....................................................51
11.12 Cumulative Remedies..........................................51
11.13 Course of Dealing; Amendment; Supplemental Agreements........51
11.14 Time of Essence..............................................52
11.15 Binding Obligation on Successors and Assigns.................52
11.16 Assignments and Participations...............................52
11.17 Reliance Upon, Survival of and Materiality of
Representations and Warranties, Agreements,
and Covenants................................................53
11.18 Legal or Governmental Limitations............................54
11.19 Estoppel and Release.........................................54
11.20 Waiver of Appraisement, Valuation, Stay, etc.................54
11.21 Consultation With Counsel; Voluntary Execution...............55
11.22 Cooperation, Further Assurances..............................55
11.23 WAIVER OF TRIAL BY JURY......................................55
iv
<PAGE>
Schedule 1.1(a)..............................................................60
SCHEDULE 1.1(b)..............................................................61
SCHEDULE 2.4.................................................................62
SCHEDULE 4.1(a)..............................................................63
SCHEDULE 4.1(b)..............................................................64
SCHEDULE 4.5.................................................................65
SCHEDULE 4.16................................................................66
SCHEDULE 7.7.................................................................67
SCHEDULE 7.9.................................................................68
EXHIBIT A BORROWING NOTICE..................................................69
EXHIBIT B CONVERSION/CONTINUANCE NOTICE.....................................71
EXHIBIT C FORM OF ASSIGNMENT AND ACCEPTANCE.................................73
EXHIBIT D SWEEP AGREEMENTS..................................................77
v
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and entered into as of this 9th day of
February, 2000, by and between FLANDERS CORPORATION, a North Carolina
corporation, as Borrower, SUNTRUST EQUITABLE SECURITIES CORPORATION, as Lead
Arranger, SUNTRUST BANK, a state bank organized under the laws of Georgia, as
Administrative Agent, the Lenders which are, or may from time to time become,
listed on the signature pages of this Agreement or any assignment hereof, and
SUNTRUST BANK, as Swing Line Lender, Issuing Lender, and a Lender.
BACKGROUND
Borrower has applied to Lenders for a revolving credit facility in the
maximum principal amount of $30,000,000.00 (including a swing line facility in
the maximum principal amount of $2,000,000.00) and a line of credit facility for
the issuance of letters of credit in the maximum principal amount of
$15,000,000.00. Lenders are willing to establish on their books such revolving
credit (including the swing line availability) and the line of credit for
Borrower upon the terms and conditions described in this Agreement.
TERMS
NOW, THEREFORE, in consideration of the premises and the mutual agreements,
covenants, and conditions herein, Borrower, Lenders, and Administrative Agent
agree as follows:
SECTION 1. DEFINITIONS.
1.1 Defined Terms. Except as otherwise expressly provided in this Agreement,
the following capitalized terms shall have the respective meanings ascribed to
them for all purposes of this Agreement:
"Addendum to Stock Pledge Agreement" has the meaning specified in Subsection
3.1 hereof.
"Advance" means a Revolving Credit Advance, a Line of Credit Default
Advance, or a Swing Line Advance.
"Administrative Agent" means SunTrust Bank, its successors and assigns, in
its capacity as agent hereunder and under the other Loan Documents, together
with any successor agent appointed pursuant to the provisions hereof.
1
<PAGE>
"Affiliate" means a Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with
another Person.
"Agreement" means this Credit Agreement, as the same may be amended,
supplemented, restated, replaced, or otherwise modified from time to time in
accordance with the provisions hereof.
"Applicable Margin" means one percent (1.00%) per annum initially, and reset
sixty (60) days after each quarter-end thereafter, based on the Ratio as
calculated from Borrower's previous quarter-end financial statements as follows:
Applicability Applicable Margin
(i) If the Ratio is less than 1.00 1.00%
(ii) If the Ratio is greater than or 1.50%
equal to 1.00 but is less than 1.50
(iii) If the Ratio is greater than 2.00%
or equal to 1.50
"Assignment and Acceptance Agreement" has the meaning specified in
Subsection 11.16 hereof.
"Base Advance" means an Advance bearing interest based on the Base Rate.
"Base Rate" means a per annum interest rate equal to the lesser of (a) the
highest lawful rate, and (b) the greater of (i) the Prime Rate (ii) or one-half
percent (0.5%) per annum above the Federal Funds Rate.
"Borrower" means Flanders Corporation, a North Carolina corporation, and its
successors and permitted assigns.
"Business Day" means a day that is not a Saturday, a Sunday, or a day on
which Administrative Agent is closed pursuant to authorization or requirement of
law.
"Borrowing Notice" has the meaning specified in Subsection 2.2 hereof.
"Capital Stock" means, as to any Person, the equity interests in such
Person, including, without limitation, the shares of each class of capital stock
of any Person that is a corporation, the partnership interests (including
without limitation, general, limited and preferred units) in any Person that is
a partnership, and the membership interests in any Person that is a limited
liability company.
"Consequential Loss" with respect to (a) the Borrower's payment of all or
any portion of the then-outstanding principal amount of a LIBOR Advance on a day
2
<PAGE>
other than the last day of the related Interest Period, including, without
limitation, payments made as a result of the acceleration of the maturity of a
Note, (b) subject to Administrative Agent's prior consent, a LIBOR Advance made
on a date other than the date on which the Advance is to be made according to
Section 2.2(a) or Section 2.12 hereof to the extent such Advance is made on such
other date at the request of the Borrower, or (c) any of the circumstances
specified in Section 2.14 hereof on which a Consequential Loss may be incurred,
means any loss, cost or expense incurred by any Lender as a result of the timing
of the payment or Advance or in liquidating, redepositing, redeploying or
reinvesting the principal amount so paid or affected by the timing of the
Advance or the circumstances described in Section 2.14 hereof, which amount
shall be the same of (i) the interest that, but for the payment or timing of
Advance, such Lender would have earned in respect of that principal amount,
reduced, if such Lender is able to redeposit, redeploy, or reinvest the
principal amount, by the interest earned by such Lender as a result of
redepositing, redeploying or reinvesting the principal amount plus (ii) any
expense or penalty incurred by such Lender by reason of liquidating,
redepositing, redeploying or reinvesting the principal amount. Each
determination by each Lender of any Consequential Loss is, in the absence of
manifest error, presumptive evidence of the validity of such claim.
"Consistent Basis" means, in reference to the application of Generally
Accepted Accounting Principles that the accounting principles observed in the
current period are comparable in all material respects to those applied in the
preceding period.
"Continue," "Continuation" and "Continued" each refer to the continuation of
a LIBOR Advance from one Interest Period to the next Interest Period.
"Current Ratio" means the ratio of current assets to current liabilities of
Borrower and its Subsidiaries on a consolidated basis.
"Default Rate" has the meaning contained in Subsection 2.8 hereof.
"EBITDA" means, for the Borrower and its Subsidiaries on a consolidated
basis, for any period of determination, the sum of (a) net income for such
period, plus (b) amortization and depreciation for such period, plus (c)
extraordinary non-cash charges (not to exceed $1,000,000.00 per item unless
consented to in writing by Administrative Agent) (minus extraordinary non-cash
income) and other extraordinary items for such period, plus (d) interest expense
for such period, plus (f) income tax expense for such period.
"ERISA" means the Employee Retirement Income Security Act of 1974, as the
same may be supplemented or amended from time to time.
"Event of Default" means any of the events specified in Section 8 hereof.
3
<PAGE>
"Federal Funds Rate" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of Dallas, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such date on such
transactions received by Administrative Agent from three federal funds brokers
of recognized standing selected by it.
"Fixed Charge Coverage Ratio" means the ratio of EBITDA to Fixed Charges.
"Fixed Charges" means for the Borrower and its Subsidiaries on a
consolidated basis the sum of (a) required or scheduled principal payments and
required capital lease payments for the coming twelve months, plus (b) cash paid
for interest payments for the previous twelve months, and (c) cash paid for
taxes for the previous twelve months.
"Generally Accepted Accounting Principles" means those principles of
accounting set forth in Opinions of the Financial Accounting Standards Board or
the American Institute of Certified Public Accountants or which have other
substantial authoritative support and are applicable in the circumstances as of
the date of any report required herein or as of the date of an application of
such principles as required herein.
"Guarantor" and "Guarantors" means each currently owned or hereafter
acquired direct or indirect Subsidiary of Borrower with annual revenues or
assets in excess of $1,000,000.00, but shall include, at a minimum, Air Seal
Filter Housing, Inc., Airseal West, Inc., Eco-Air Products, Inc., Flanders
Airpure Products Company, LLC, Flanders/CSC Corporation, Flanders Filters, Inc.,
Flanders International Pte, Ltd., Industrias Seco de Tijuana, S.A. de C.V.,
Precisionaire, Inc., Sierra Ridge Filtration, Inc., Tidewater Airfilter
Fabrication Co.
"Guaranty" and "Guaranties" have the meaning specified in Subsection 3.2
hereof.
"Interest Period" means, with respect to any LIBOR Advance, the period
beginning on the date the Advance is made or Continued as a LIBOR Advance and
ending one, two, three, or six months thereafter (as the Borrower shall select),
provided, however, that:
(a) the Borrower may not select any Interest Period that ends after any
principal repayment date unless, after giving effect to such selection, the
aggregate principal amount of LIBOR Advances having Interest Periods that end on
or prior to such principal repayment date, shall be at least equal to the
principal amount of Advances under such facility due and payable on and prior to
such date;
4
<PAGE>
(b) whenever the last day of any Interest Period would otherwise occur
on a day other than a Business Day, the last day of such Interest Period shall
be extended to occur on the next succeeding Business Day, provided, however,
that if such extension would cause the last day of such Interest Period to occur
in the next following calendar month, the last day of such Interest Period shall
occur on the next preceding Business Day; and
(c) whenever the first day of any Interest Period occurs on a day of an
initial calendar month for which there is no numerically corresponding day in
the calendar month that succeeds such initial calendar month by the number of
months equal to the number of months in such Interest Period, such Interest
Period shall end on the last Business Day of such succeeding calendar month.
"Issuing Lender" means SunTrust Bank, its successors and assigns.
"Lead Arranger" means SunTrust Equitable Securities Corporation, its
successors and assigns.
"Lenders" means, collectively, the persons identified as "Lenders" which are
or from time to time may become, listed on the signature pages of this
Agreement, together with their successors and permitted assigns, and "Lender"
means any one of the Lenders. "Lender" shall be deemed to also make reference to
Swing Line Lender and Issuing Lender, unless the context shall clearly otherwise
require.
"Letters of Credit" has the meaning contained in Subsection 2.4 hereof.
"Letter of Credit Contingent Obligations" and "Letters of Credit Contingent
Obligations" mean the contingent obligation to pay the Letter of Credit or
Letters of Credit in the amount of credit available for drawing and remaining
undrawn thereunder.
"LIBOR Advance" means an Advance bearing interest based on the LIBOR Rate.
"LIBOR Rate" means a simple per annum interest rate equal to the lesser of
(a) the highest lawful rate, and (b) sum of the Applicable Margin plus the LIBOR
Rate Basis. The LIBOR Rate shall, with respect to LIBOR Advances subject to
reserve or deposit requirements under any law, be subject to premiums, assessed
therefor by each Lender, which are payable directly to each Lender in an amount
sufficient to compensate such Lender for any increased cost or reduced rate of
return attributable to such reserve deposit requirements. Any calculation by a
Lender of such increased cost or reduced rate of return which is in reasonable
detail and submitted to Borrower shall, in the absence of manifest error, be
presumptive evidence of the validity of such claim. Once determined for any
LIBOR Advance, the LIBOR Rate shall remain unchanged during the applicable
Interest Period.
5
<PAGE>
"LIBOR Rate Basis" means, for any LIBOR Advance for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) appearing in the Money Rates section of The Wall Street Journal as
the London interbank offered rate for deposits in U.S. dollars at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period for a term comparable to such Interest Period. If for any reason
such rate is not available, the term "LIBOR Rate Basis" shall mean, for any
LIBOR Advance for any Interest Period therefor, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen
LIBO Page as the London interbank offered rate for deposits in U.S. dollars at
approximately 11:00 a.m. (London time) two Business Days prior to the first day
of such Interest Period for a term comparable to such Interest Period; provided,
however, if more than one rate is specified on Reuters Screen LIBO Page, the
applicable rate shall be the arithmetic means of all such rates.
"Line of Credit Commitment" means $15,000,000.00, as the same may be reduced
from time to time or terminated pursuant to the terms hereof.
"Line of Credit Default Advance" means an advance made by a Lender to the
Borrower pursuant to Section 2.5 hereof.
"Line of Credit Default Base Rate" means an interest rate equal to two
percent (2.00%) above the Base Rate.
"Line of Credit Default Base Rate Advance" means an advance bearing interest
at the Line of Credit Default Base Rate.
"Line of Credit Note" means a promissory note of Borrower evidencing a
Lender's Specified Percentage of Letter of Credit Contingent Obligations and any
Line of Credit Default Advances, and Lender's Specified Percentage of any
unreimbursed amounts paid in respect of Letters of Credit, together with any
extension, renewal, or amendment thereof, or substitution therefor.
"Loan Documents" means this Agreement, the Revolving Credit Notes, the Line
of Credit Notes, the Swing Line Note, the Tax Indemnification Agreement, the
Guaranties, the Stock Pledges, the Addenda to Stock Pledges, and all other
documents executed in connection therewith.
"Material Adverse Effect" means (a) a material adverse effect upon the
business, operations, properties, assets, condition (financial or otherwise), or
prospects of Borrower and its Subsidiaries, taken as a whole or (b) the material
impairment of the ability of Borrower to perform, or of Administrative Agent or
Lenders to enforce, the obligations hereunder.
"Maturity Date" means June 28, 2002.
6
<PAGE>
"Note" means any Revolving Credit Note, Line of Credit Note, or Swing Line
Note.
"Permitted Acquisition" means any acquisition by Borrower or any Subsidiary
of substantially all assets, Capital Stock or other equity interests of any
Person if: (a) as a consequence of such transaction Borrower would not be in
violation of the provisions of Section 6.15 hereof or any other terms or
conditions of this Agreement, (b) the total consideration for such acquisition
(including without limitation cash paid, stock issued, and debt assumed by
Borrower or any Subsidiary), when aggregated with the total consideration for
all other such acquisitions by Borrower or any of its Subsidiaries on or after
the date of this Agreement, does not exceed thirty-five percent (35%) of the
Tangible Net Worth of Borrower and its Subsidiaries on a consolidated basis, and
(c) if such transaction involves a merger to which Borrower or any Subsidiary is
a party, Borrower (or the applicable Subsidiary) must be the survivor of such
merger.
"Permitted Indebtedness" means (a) indebtedness to Lenders pursuant to this
Agreement; (b) indebtedness now existing, in such amounts, and with such terms
as described in Schedule 1.1(a) attached hereto; (c) indebtedness incurred in
connection with the purchase of equipment or vehicles and secured by purchase
money security interests therein in an aggregate amount not to exceed
$500,000.00 outstanding at any time; (d) unsecured indebtedness to a Guarantor
(or, in the case of Permitted Indebtedness of a Subsidiary, to Borrower or a
Guarantor) and indebtedness, not to exceed $1,000,000.00 in the aggregate at any
time, to one or more Subsidiaries of Borrower that are not Guarantors, and (e)
other unsecured indebtedness in an amount not to exceed $1,000,000.00 in the
aggregate at any time.
"Permitted Liens" means (a) mortgages or security interests that secure
Borrower's indebtedness to Lenders pursuant to the term of this Agreement; (b)
liens now existing and in such amounts as described in Schedule 1.1(b) attached
hereto; (c) purchase money security liens incurred in connection with purchase
money indebtedness constituting Permitted Indebtedness; (d) mechanics',
workmen's, materialmen's, or other like liens arising in the ordinary course of
business in respect of obligations which are not due or which are being
contested in good faith; (d) liens for taxes not yet due or being contested in
good faith by appropriate proceedings, and, in the case of those being
contested, as to which Borrower shall have set aside on its books adequate
reserves; and (e) easements, rights-of-way, restrictions, and other similar
encumbrances incurred in the ordinary course of business and not interfering
with the ordinary course of the business.
"Person" means any corporation, business entity, natural person, firm, joint
venture, partnership, trust, unincorporated organization, association,
government, or any department or agency of any government.
7
<PAGE>
"Prime Rate" means the annual interest rate announced by SunTrust Banks,
Inc., from time to time, as the "prime rate" (which interest rate is only a
bench mark, is purely discretionary, and is not necessarily the best or lowest
rate charged borrowing customers of any subsidiary bank of SunTrust Banks,
Inc.).
"Pro Rata" means, as to any Lender, in accordance with its Specified
Percentage.
"Ratio" means the ratio of Total Net Liabilities of Borrower and its
Subsidiaries (on a consolidated basis) to Tangible Net Worth (on a consolidated
basis).
"Required Lenders" means at any time the Lenders owing or holding in the
aggregate at least 51% of the sum of the aggregate unpaid principal amount of
the Advances and the aggregate Letter of Credit Contingent Obligations, or in
the event that no Advances or Letters of Credit are outstanding, the Lenders
having at least 51% of the aggregate amount of the Revolving Credit Commitment
and the Line of Credit Commitment.
"Revolving Credit Advance" means an advance made by a Lender to the Borrower
pursuant to Section 2.1 hereof.
"Revolving Credit Base Rate" means an interest rate equal to the Base Rate.
"Revolving Credit Base Rate Advance" means an advance bearing interest at
the Revolving Credit Base Rate.
"Revolving Credit Commitment" means $30,000,000.00, as the same may be
reduced from time to time or terminated pursuant to the terms hereof.
"Revolving Credit Facility" means the facility established pursuant to
Subsection 2.1 hereof.
"Revolving Credit Note" means a promissory note of Borrower evidencing
Revolving Credit Advances hereunder, together with any extension, renewal, or
amendment thereof, or substitution therefor.
"Solvent" means, with respect to any Person, that as of the date of
determination, both (a)(i) the then fair saleable value of the property of such
Person is (y) greater than the total amount of liabilities (including contingent
obligations) of such Person and (z) greater than the amount that will be
required to pay the probable liabilities of such Person's then existing debts as
they become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to such Person; (ii) such Person's
capital is not unreasonably small in relation to its business or any
contemplated or undertaken transaction; and (iii) such Person does not intend to
incur, or believe or reasonably should believe that it will incur, debts beyond
its ability to pay such debts as they become due and (b)
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such Person is solvent within the meaning given that term and similar terms
under applicable laws relating to fraudulent transfers.
"Specified Percentage" means, as to any Lender, the percentage indicated
beside its name on the signature pages of this Agreement or any Assignment and
Acceptance Agreement.
"Stock Pledge" has the meaning specified in Subsection 3.1 hereof.
"Subsidiary" means, for any Person, any corporation, partnership, or other
entity of which fifty percent (50%) or more of the securities or other ownership
interests having ordinary voting power to elect the board or directors or having
direct power to perform functions similar to that of a board of directors is at
the time directly or indirectly owned or controlled by such Person. Unless the
context clearly indicates otherwise, the term "Subsidiary" refers to each
Subsidiary of Borrower currently owned or hereafter acquired.
"Sweep Agreement" has the meaning specified in Subsection 2.3 hereof.
"Swing Line Advance" means an advance made by the Swing Line Lender to
Borrower pursuant to Subsection 2.3 hereof.
"Swing Line Base Rate" means an interest rate equal to the Base Rate.
"Swing Line Base Rate Advance" means an advance bearing interest at the
Swing Line Base Rate.
"Swing Line Commitment" means $2,000,000.00.
"Swing Line Facility" means the facility established pursuant to Subsection
2.3 hereof.
"Swing Line Lender" means SunTrust Bank, its successors and assigns.
"Swing Line Note" means the promissory note of Borrower evidencing Swing
Line Advances hereunder, together with any extension, renewal, or amendment
thereof, or substitution therefor.
"Tangible Net Worth" means the aggregate amount of assets shown on the
balance sheet of Borrower and its Subsidiaries on a consolidated basis,
excluding capitalized organization and development costs, capitalized interest,
goodwill, patents, trademarks, copy rights, franchises, licenses, and such other
assets classified as "intangible assets" under Generally Accepted Accounting
Principles, less all liabilities of Borrower and its Subsidiaries on a
consolidated basis.
"Tax Indemnification Agreement" means the agreement between Borrower,
Lenders and Administrative Agent of even date regarding payment of and
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reimbursement for documentary stamp taxes and intangible taxes, and any similar
agreements that may be entered into between Borrower, Lenders, and
Administrative Agent from time to time.
"Total Net Liabilities" means total liabilities minus cash in excess of
$1,000,000.00 of Borrower and its Subsidiaries on a consolidated basis.
"Unused Fee Percentage" means one-tenth percent (0.1%) per annum initially,
and reset sixty (60) days after each quarter-end thereafter, based on the Ratio
as calculated from Borrowers' previous quarter-end financial statements as
follows:
Applicability Unused Fee Percentage
(i) If the Ratio is less than 1.00 0.10%
(ii) If the Ratio is greater than or 0.15%
equal to 1.00 but is less than 1.50
(iii) If the Ratio is greater than 0.20%
or equal to 1.50
1.2 Other Definitional Provisions. The terms "material" and "materially"
shall have the meanings ascribed to such terms under Generally Accepted
Accounting Principles as such would be applied to the business of Borrower or
others, except as the context shall clearly otherwise require; (b) all of the
terms defined in this Agreement shall have such defined meanings when used in
other documents issued under, or delivered pursuant to, this Agreement unless
the context shall otherwise require; (c) words in singular shall include the
plural and words in plural shall include the singular, unless the context
clearly requires otherwise; (d) accounting terms to the extent not otherwise
defined shall have the respective meanings given them under, and shall be
construed in accordance with, Generally Accepted Accounting Principles; (e)
terms defined in, or by reference to, Article 9 of the Uniform Commercial Code
as adopted in Florida to the extent not otherwise defined herein shall have the
respective meanings given to them in Article 9 with the exception of the word
"document" unless the context clearly requires such meaning; (f) the words
"hereby," "hereto," "hereof," "herein," "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement; (g) words of any gender shall
include all other genders; and (h) whenever in this Agreement any of the parties
hereto is referred to, such reference shall be deemed to include the successors
and assigns of such parties unless the context shall expressly provide
otherwise.
SECTION 2. THE CREDIT FACILITIES.
2.1 The Revolving Credit Advances. Each Lender severally agrees, on the
terms and subject to the conditions hereinafter set forth, to make Revolving
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Credit Advances to the Borrower from time to time on a Business Day prior to the
Maturity Date in an aggregate principal amount not to exceed at any time
outstanding (i) such Lender's Specified Percentage of the Revolving Credit
Commitment, less (ii) such Lender's Specified Percentage of the aggregate amount
of Swing Line Advances then outstanding. Subject to the terms and conditions of
this Agreement, the Borrower may borrow, repay and reborrow the Revolving Credit
Advances; provided, however, that at no time shall the sum of all outstanding
Revolving Credit Advances plus all outstanding Swing Line Advances then
outstanding ever exceed the Revolving Credit Commitment.
2.2 Making Revolving Credit Advances.
(a) Each borrowing of Revolving Credit Advances shall be made upon the
written notice of the Borrower, received by Administrative Agent not later than
(i) 10:00 a.m. two Business Days prior to the date of the proposed borrowing in
the case of LIBOR Advances, and (ii) 10:00 a.m. on the date of such borrowing,
in the case of Base Advances. Each such notice of a borrowing (a "Borrowing
Notice") shall be by telecopy or telephone, promptly confirmed by letter, in
substantially the form of Exhibit "A" hereto specifying therein:
(i) the date of such proposed borrowing, which shall be a Business
Day;
(ii) the type of Advances of which the borrowing is to be comprised;
(iii) the amount of such proposed borrowing which: (A) shall not
exceed the unused portion of the Revolving Credit Commitment, and (B) shall, in
the case of a borrowing of LIBOR Advances, be in an amount of not less than
$100,000.00 or an integral multiple of $50,000.00 in excess thereof; and
(iv) if the borrowing is to be comprised of LIBOR Advances, the
duration of the initial Interest Period applicable to such Advances.
(b) If the Borrowing Notice fails to specify the duration of the initial
Interest Period for any Borrowing comprised of LIBOR Advances, such Interest
Period shall be three months. Administrative Agent shall promptly notify Lenders
of each such notice.
(c) Notwithstanding the foregoing, Borrower may not select any LIBOR
Advances if (i) the obligation of the Lenders to make LIBOR Advances is
suspended pursuant to Subsection 2.14 hereof, or (ii) after giving effect to the
LIBOR Advances, the aggregate number of different Interest Periods for
outstanding LIBOR Advances is greater than eight (8), unless otherwise agreed by
Required Lenders (for purposes of this clause, Interest Periods of the same
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duration, but commencing on different dates, shall be treated as different
Interest Periods).
(d) Each Lender shall, before 1:00 p.m. on the date of each Advance
hereunder make available to Administrative Agent, at its office at 401 East
Jackson Street, Tampa, Florida 33602, or such other address as may be specified
by Administrative Agent, such Lender's Specified Percentage of the aggregate
Advances to be made on that day in immediately available funds.
(e) Unless any applicable condition specified in Section 5 has not been
satisfied, Administrative Agent will make the funds promptly available to the
Borrower by wiring such amounts pursuant to any wiring instructions specified by
the Borrower to the Administrative Agent in writing.
(f) After giving effect to any borrowing, the aggregate principal amount
of outstanding Revolving Credit Advances plus outstanding Swing Line Advances
shall not exceed the Revolving Credit Commitment.
(g) No Interest Period applicable to any Revolving Credit Advance shall
extend beyond the Maturity Date.
(h) Unless a Lender shall have notified Administrative Agent prior to
the date of any borrowing of Revolving Credit Advances that it will not make
available its Revolving Credit Advance, Administrative Agent may assume that
such Lender has made the appropriate amount available in accordance with Section
2.2(a) hereof, and Administrative Agent may, in reliance upon such assumption,
make available to the Borrower a corresponding amount. If and to the extent any
Lender shall not have made such amount available to Administrative Agent, such
Lender and the Borrower severally agree to repay to Administrative Agent
immediately on demand such corresponding amount together with interest thereon,
from the date such amount is made available to the Borrower until the date such
amount is repaid to Administrative Agent, at (i) in the case of the Borrower,
the Base Rate, and (ii) in the case of such Lender, the Federal Funds Rate.
(i) The failure by any Lender to make available its Revolving Credit
Advance hereunder shall not relieve any other Lender of its obligation, if any,
to make available its Revolving Credit Advance. In no event, however, shall any
Lender be responsible for the failure of any other Lender to make available any
portion of any Revolving Credit Advance.
(j) The Borrower shall indemnify each Lender against any Consequential
Loss incurred by each Lender in connection with a LIBOR Advance as a result of
(i) any failure to fulfill, on or before the date specified for the Revolving
Credit Advance, the conditions to the Revolving Credit Advance set forth herein
or (ii) the Borrower's requesting that a Revolving Credit Advance not be made on
the date specified in the Borrowing Notice.
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2.3 Swing Line Advances. (a) Swing Line Advances may be made by Swing Line
Lender to Borrower if Swing Line Lender, in its sole discretion, elects to do
so, under a swing line facility ("Swing Line Advances" and "Swing Line Facility"
respectively), from time to time on a Business Day prior to the Maturity Date,
in an aggregate principal amount (i) not to exceed at any time outstanding the
Swing Line Commitment and (ii) not to exceed the aggregate unused portion of the
Revolving Credit Commitment as of such date. Swing Line Advances may be made, in
Swing Line Lender's sole discretion, pursuant to that certain Line of Credit
Sweep Agreement and that certain Business Sweep Services Agreement entered into
between Borrower and SunTrust Bank (collectively, together with any other
documents executed in connection therewith, the "Sweep Agreement") substantially
in the form attached as Exhibit D hereto. Within the limits of the Swing Line
Facility, and so long as the Swing Line Lender, in its sole discretion, elects
to make Swing Line Advances, Borrower may borrow and reborrow amounts repaid.
(b) Immediately upon the making of each Swing Line Advance, the Swing
Line Lender shall be deemed to have sold and transferred to each Lender, and
each Lender shall be deemed to have purchased and received from the Swing Line
Lender, in each case irrevocably and without any further action by any party, an
undivided interest and participation in such Swing Line Advance and the
obligations of the Borrower under this Agreement in respect thereof in an amount
equal to the product of (x) such Lender's Specified Percentage times (y) the
amount of such Swing Line Advance. Upon demand made by Swing Line Lender, each
Lender shall, according to its Specified Percentage, promptly provide to Swing
Line Lender its purchase price therefor in an amount equal to its participation
therein. Upon payment of the purchase price by a Lender for its participation in
the Swing Line Advance, the Lender shall be entitled to receive its pro rata
share of interest on the Swing Line Advance from the date of payment until
repaid, to the extent such interest is actually received. The obligations of
each Lender to provide its purchase price to Swing Line Lender shall be absolute
and unconditional, and shall not be affected by any default or Event of Default
or any other occurrence or event. If any Lender shall fail to make such payment
when due, such Lender shall pay interest thereon until paid at the Federal Funds
Rate.
(c) The failure by any Lender to make available its Specified Percentage
of any Swing Line Advance hereunder shall not relieve any other Lender of its
obligation, if any, to make available its Specified Percentage of any Swing Line
Advance. In no event, however, shall any Lender be responsible for the failure
of any other Lender to make available any portion of any Swing Line Advance.
2.4 The Line of Credit Facility. On the terms and subject to the conditions
hereinafter set forth, the Line of Credit Facility may be utilized, upon the
request of Borrower, for the issuance of standby letters of credit, commercial
letters of credit, and documentary letters of credit ("Letters of Credit," and
individually a "Letter of Credit") by the Issuing Lender from time to time on a
Business Day prior
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to the Maturity Date if Issuing Lender, in its sole discretion, elects to do so.
No Letter of Credit shall have a term extending beyond the Maturity Date, nor
shall any Letter of Credit be issued which, when the stated amount thereof is
aggregated with the amount of Letter of Credit Contingent Obligations and any
Line of Credit Default Advances would exceed the Line of Credit Commitment, nor
shall any Letter of Credit be issued (unless Required Lenders otherwise
determine in their sole discretion) unless all amounts paid by Issuing Lender
under Letters of Credit have been reimbursed to Issuing Lender by Borrower and
all Line of Credit Default Advances have been paid. The Letters of Credit
previously issued by SunTrust Bank described on the attached Schedule 2.4 shall
be deemed to be Letters of Credit issued by Issuing Lender pursuant to this
Agreement.
2.5 Requesting Letters of Credit and Making Line of Credit Default Advances.
(a) Each Letter of Credit shall be requested by irrevocable notice
(effective upon receipt) from Borrower to the Issuing Lender and the
Administrative Agent (which shall promptly give notice thereof to the Lenders)
no later than 10:00 a.m. three (3) Business Days prior to the date of the
proposed issuance of the Letter of Credit. Each such notice from Borrower shall
be in writing, or shall be by telecopy or telephone, promptly confirmed by
letter, specifying therein (i) the proposed date of issuance of the Letter of
Credit, which shall be a Business Day, (ii) the proposed stated amount of such
Letter of Credit, (iii) the proposed expiration date of the Letter of Credit,
(iv) the proposed name and address of the beneficiary of such Letter of Credit,
(v) the proposed form of such Letter of Credit, and (vi) the description of the
transaction supported by the Letter of Credit. The request shall be accompanied
by such other letter of credit applications, reimbursement agreements,
information, and documents as the Administrative Agent or the Issuing Lender
shall require, and the payment of the fees described in Subsection 2.9 hereof.
(b) If the form of the Letter of Credit and transaction supported by the
Letter of Credit is satisfactory to the Issuing Lender in its sole discretion,
and subject to the other terms and conditions of this Agreement, the Issuing
Lender will make such Letter of Credit available to Borrower at the Issuing
Lender's office described in the signature pages hereof or as otherwise agreed
with Borrower in connection with such issuance.
(c) Upon the issuance of any Letter of Credit by the Issuing Lender, the
Issuing Lender shall be deemed, irrevocably and without further action by any
party hereto, to have sold to each Lender, and each Lender shall be deemed,
irrevocably and without further action by any party hereto, to have purchased
from the Issuing Lender, an undivided interest and participation in, to the
extent of such Lender's Specified Percentage, the Letter of Credit and the
related Letter of Credit Contingent Obligation. The Issuing Lender shall notify
the Administrative Agent of the issuance of any Letter of Credit, and the
Administrative Agent shall promptly notify each Lender of such Lender's
Specified Percentage of the amount of the Letter
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of Credit and the related Letter of Credit Contingent Obligation. Each Lender's
Specified Percentage of the Letter of Credit Contingent Obligation shall be
deemed to utilize the Lender's Specified Percentage of the Line of Credit
Commitment and reduce the availability thereunder, until such time as (i) the
related Letter of Credit terminates or is paid and (ii) either any amounts paid
in respect of such Letter of Credit Contingent Obligation are reimbursed by
Borrower or Line of Credit Default Advances are made in Required Lenders' sole
discretion with respect to such amounts.
(d) The Issuing Lender shall give the Administrative Agent prompt notice
of any presentation of a draw under a Letter of Credit, including whether
Borrower has reimbursed Issuing Lender for such draw and whether Required
Lenders have determined, in their sole discretion, to make Line of Credit
Default Advances in respect thereof, which notice shall be in writing or by
telephone or telecopier, and the Administrative Agent shall give prompt notice
thereof to the Lenders. If Required Lenders determine to make Line of Credit
Default Advances in respect thereof, each Lender shall, on the date of receipt
of such notice, make a Line of Credit Default Advance in an amount equal to its
Specified Percentage of the aggregate advances to be made, and shall
simultaneously make available to the Issuing Lender, in immediately available
funds, the proceeds of such Line of Credit Default Advance. The obligations of
each Lender to make such a Line of Credit Default Advance and to remit the
proceeds to the Issuing Lender shall be absolute and unconditional, and shall
not be affected by any default or Event of Default or any other occurrence or
event. In the event that Issuing Lender determines not to make Line of Credit
Default Advances in respect of any unreimbursed Letter of Credit payment, an
Event of Default shall occur hereunder.
(e) Unless a Lender shall have notified Administrative Agent Issuing
Lender prior to the date of any borrowing of Line of Credit Default Advances
that it will not make available its Line of Credit Default Advances,
Administrative Agent may assume that such Lender has made the appropriate amount
available in accordance with Section 2.5(d) hereof, and Administrative Agent and
Issuing Lender may, in reliance upon such assumption, consider the respective
Contingent Letter of Credit Obligation to be satisfied with the proceeds of the
Line of Credit Default Advance. If and to the extent that any Lender shall not
have so made the proceeds of such a Line of Credit Default Advance available to
the Issuing Lender, if required, the Lender and Borrower severally agree to
repay to the Issuing Lender forthwith upon demand, to the extent not collected
from the other, such corresponding amount together with interest thereon, for
each day from the date of receipt of notice of the Advance until the date the
Lender's Specified Percentage thereof is paid to the Issuing Lender at (i) in
the case of Borrower, the Line of Credit Default Base Rate, and (ii) in the case
of the Lender, the Federal Funds Rate, provided, however, that Borrower shall
not be required to repay such amount if and to the extent that the
Administrative Agent, in its capacity as a Lender, has availability therefor
under its Line of Credit Default Commitment. In such circumstances, the
Administrative
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Agent, in its capacity as a Lender, may, but shall not be required to, make a
Line of Credit Default Credit Advance in respect of such amount. If Borrower
shall repay to the Administrative Agent such corresponding amount, or if the
Administrative Agent in its capacity as a Lender, shall make an Advance
therefor, such payment or Advance shall not relieve the delinquent Lender of its
obligations hereunder.
(f) The failure by any Lender to make a Line of Credit Default Advance
and remit the proceeds to Issuing Lender shall not relieve any other Lender of
its obligation to do so. In no event, however, shall any Lender be responsible
for the failure of any other Lender to fulfill its obligations hereunder.
2.6 Evidence of Indebtedness.
(a) The Revolving Credit Advances and Revolving Credit Letter of Credit
Advances made by each Lender shall be evidenced by a Revolving Credit Note in
the amount of such Lender's Specified Percentage of the Revolving Credit
Commitment in effect on the date hereof.
(b) The Swing Line Advances made by Swing Line Lender shall be evidenced
by a Swing Line Note in the amount of the Swing Line Commitment.
(c) Each Lender's Specified Percentage of the Letter of Credit
Contingent Obligations and the obligations of the Borrower in respect thereof,
and each Lender's Line of Credit Default Advances shall be evidenced by a Line
of Credit Note in the amount of such Lender's Specified Percentage of the Line
of Credit Commitment in effect on the date hereof.
(d) Administrative Agent's, Issuing Lender's, Swing Line Lender's and
Lender's records shall be presumptive evidence as to amounts owed Administrative
Agent and such Lender under the Notes and this Agreement, as to Borrower.
2.7 Principal. (a) The Borrower shall repay all Revolving Credit Advances no
later than the Maturity Date.
(b) The Borrower shall repay all Swing Line Advances in accordance with
the provisions of the Sweep Agreement or through Advances under the Revolving
Credit Facility, but no later than the Maturity Date.
(c) The Borrower shall repay all Line of Credit Default Advances no
later than the Maturity Date.
2.8 Interest. (a) The Borrower shall pay interest on the unpaid principal
amount of each Advance from the date of such Advance until such principal shall
be paid in full, at the following rates per annum:
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(i) Each Revolving Credit Advance shall be either a Revolving Credit
Base Rate Advance or a LIBOR Advance at the option of Borrower pursuant to
Subsection 2.2 hereof, each Swing Line Advance shall be a Swing Line Base Rate
Advance, and each Line of Credit Default Advance shall be a Line of Credit
Default Base Rate Advance.
(ii) Revolving Credit Base Rate Advances, Swing Line Base Rate
Advances, and Line of Credit Default Base Rate Advances shall bear interest at a
rate per annum equal to the Revolving Credit Base Rate, Swing Line Base Rate, or
Line of Credit Default Base Rate, respectively, as in effect from time to time.
Any unreimbursed amounts outstanding under the Line of Credit Note which are not
evidenced by Line of Credit Default Advances shall bear interest at the Default
Rate set forth below.
(iii) LIBOR Advances shall bear interest at the rate per annum equal
to the LIBOR Rate applicable to such Advance.
(iv) If any amount of principal under any of the Advances is not
paid when due (whether at the stated maturity, by acceleration, or otherwise)
such amount shall bear interest until paid, at a rate equivalent to the lesser
of (i) the highest lawful rate, or (ii) the higher of twelve percent (12.0%) per
annum or three percent (3.0%) per annum above the Base Rate, adjusted daily (the
"Default Rate").
(b) Accrued and unpaid interest on Base Advances shall be paid monthly
in arrears, on the first day of each month, and on the Maturity Date. Accrued
and unpaid interest in respect of each LIBOR Advance shall be paid on the last
day of the appropriate Interest Period and on the date of any prepayment or
repayment of such Advance.
2.9 Fees.
(a) At closing, the Borrower shall pay to Administrative Agent for the
Pro Rata account of the Lenders an origination and facility fee equal to five
hundredth percent (0.05%) of the Revolving Credit Commitment and the Line of
Credit Commitment, which amount is equal to $27,500.00.
(b) The Borrower shall pay to the Administrative Agent for the Pro Rata
account of the Lenders nonrefundable fees for the issuance of Letters of Credit
(other than existing Letters of Credit described in the attached Schedule 2.4)
for the period from and including the date of issuance of the Letters of Credit
until the stated expiration thereof, at a per annum rate equal to the Applicable
Margin in the case of standby letters of credit and fifty percent (50.0%) of the
Applicable Margin in the case of commercial and documentary letters of credit,
based on the stated amount of the Letter of Credit. Fees payable under this
paragraph shall be payable in advance and shall be paid on the date of issuance
of the Letters of Credit and on
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the like day of any year thereafter. In addition, Borrower shall pay to the
Issuing Lender, for the account of the Issuing Lender only, such additional fees
and charges as are customarily charged by the Issuing Lender in respect of
letters of credit.
(c) The Borrower shall pay to the Administrative Agent for the Pro Rata
account of the Lenders an unused fee from the date hereof to the Maturity Date,
equal to the Unused Fee Percentage per annum of the unused portion of the
aggregate Revolving Credit Commitment and Line of Credit Commitment. Such fee
shall be computed on the basis of the average daily unused portion of the then
existing commitments and shall be payable quarterly in arrears, on the first day
of each calendar quarter hereafter.
(d) The Borrower shall pay to Administrative Agent, Issuing Lender, and
Lead Arranger for their own account fees separately agreed on between such
parties in a fee letter between such parties dated November 3, 1999.
2.10 Termination and Reduction of the Commitments.
(a) The Revolving Credit Commitment, Swing Line Commitment, and Line of
Credit Commitment shall terminate on the Maturity Date.
(b) The Borrower may from time to time, upon notice to Administrative
Agent not later than 1:00 p.m., five Business Days in advance, terminate in
whole or reduce in part the Revolving Credit Commitment and the Line of Credit
Commitment, or either of them, as designated by the Borrower; provided, however,
that the Borrower shall pay the accrued but unpaid interest on the amount of
such reduction and all amounts due hereunder as of the reduction date in excess
of the amount to which the facility is reduced, and any partial reduction shall
be in an aggregate amount which is an integral multiple of $2,500,000.00.
(c) To the extent outstanding Advances exceed the applicable Revolving
Credit Commitment or Line of Credit Commitment after any reduction thereof, the
Borrower shall repay, on the date of such reduction, any such excess amount and
all accrued interest thereon, and all amounts due together with any
Consequential Losses. Once reduced or terminated, the Revolving Credit
Commitment and the Line of Credit Commitment may not be increased or reinstated
without the prior written consent of the Lenders.
2.11 Optional Prepayments.
(a) The Borrower may, upon at least two Business Days prior written
notice to Administrative Agent stating the proposed date and aggregate principal
amount of the prepayment, prepay the outstanding principal amount of any
Advances in whole or in part, together with accrued interest to the date of such
prepayment on the principal amount prepaid and any Consequential Loss, but
without premium or penalty other than any Consequential Loss; provided, however,
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that in the case of a prepayment of a Base Advance, the notice of prepayment may
be given by telephone by 10:00 a.m. on the date of prepayment. Each partial
prepayment shall, in the case of Base Advances, be in an aggregate principal
amount of not less than $50,000.00 or a larger integral multiple of $50,000.00
in excess thereof and, in the case of LIBOR Advances, be in an aggregate
principal amount of not less than $100,000.00 or a larger integral multiple of
$50,000.00 in excess thereof. If any notice of prepayment is given, the
principal amount stated therein, together with accrued interest on the amount
prepaid and the amount, if any, due in respect of any Consequential Loss, shall
be due and payable on the date specified in such notice unless the Borrower
revokes its notice, provided that, if the Borrower revokes its notice of
prepayment prior to such date specified, the Borrower shall reimburse the
Administrative Agent for the account of all Lenders for all Consequential Losses
suffered by each Lender as a result of the Borrower's failure to repay. A
certificate of each Lender claiming compensation under this paragraph (a),
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to it hereunder shall be presumptive evidence of the validity
of such claim.
(b) As a condition precedent to any prepayment herein, each prepayment
must be in the amount of 100% of the principal amount to be prepaid, plus
accrued interest thereon, plus any other sums that have become due to
Administrative Agent and Lenders hereunder on or before the prepayment date but
have not been paid, plus any Consequential Loss.
2.12 Continuation and Conversion Elections Applicable to Revolving Credit
Advances.
(a) The Borrower may upon irrevocable written notice to Administrative
Agent and subject to the terms of this Agreement, with respect to Revolving
Credit Advances:
(i) elect to convert, on any Business Day, all or any portion of
outstanding Base Advances (in an aggregate amount not less than $100,000.00 or
an integral multiple of $50,000.00 in excess thereof) into LIBOR Advances
(subject to the requirements of Subsection 2.14 hereof); or
(ii) elect to convert at the end of any Interest Period therefor,
all or any portion of outstanding LIBOR Advances constituting the same borrowing
(in an aggregate amount not less than $100,000.00 or an integral multiple of
$50,000.00 in excess thereof) into Base Advances; or
(iii) elect to continue, at the end of any Interest Period therefor,
any LIBOR Advances;
provided, however, that if the aggregate amount of outstanding LIBOR Advances
comprised in the same borrowing shall have been reduced as a result of any
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payment, prepayment or conversion of part thereof to an amount less than
$100,000.00, the LIBOR Advances comprised in such borrowing shall automatically
convert into Base Advances at the end of each respective Interest Period.
(b) The Borrower shall deliver a notice of conversion or continuation (a
"Conversion or Continuation Notice"), in substantially the form of Exhibit B
hereto, to Administrative Agent not later than 10:00 a.m. (i) two Business Days
prior to the proposed date of conversion or continuation, if the Advances or any
portion thereof are to be converted into or continued as LIBOR Advances; and
(ii) on the Business Day of the proposed conversion, if the Advances or any
portion thereof are to be converted into Base Advances.
Each such Conversion or Continuation Notice shall be by telecopy or telephone,
promptly confirmed by letter, specifying therein:
(i) the proposed date of conversion or continuation;
(ii) the aggregate amount of Advances to be converted or continued;
(iii) the nature of the proposed conversion or continuation; and
(iv) the duration of the applicable Interest Period.
(c) If, upon the expiration of any Interest Period applicable to LIBOR
Advances, the Borrower shall have failed to select a new Interest Period to be
applicable to such LIBOR Advances or if an Event of Default shall then have
occurred and be continuing, the Borrower shall be deemed to have elected to
convert such LIBOR Advances into Base Advances effective as of the expiration
date of such current Interest Period.
2.13 Computations and Manner of Payments.
(a) The Borrower shall make each payment hereunder and under the other
Loan Documents not later than 1:00 p.m. on the day when due in same day funds to
Administrative Agent, for the Pro Rata account of Lenders unless otherwise
specifically provided herein, at Administrative Agent's office the location of
which is described on the signature pages hereto.
(b) Unless Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due hereunder that the
Borrower will not make payment in full, Administrative Agent may assume that
such payment is so made on such date and may, in reliance upon such assumption,
make distributions to Lenders. If and to the extent the Borrower shall not have
made such payment in full, each Lender shall repay to Administrative Agent
forthwith on demand the applicable amount distributed, together with interest
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thereon at the Federal Funds Rate, from the date of distribution until the date
of repayment. The Borrower hereby authorizes each Lender, if and to the extent
payment is not made when due hereunder, to charge the amount so due against any
account of the Borrower with such Lender. Each Lender will provide Borrower
written notice of any such charge.
(c) Interest on Advances under the Loan Documents shall be calculated on
the basis of actual days elapsed but computed as if each year consisted of 360
days. All payments under the Loan Documents shall be made in U.S. dollars, and
without setoff, counterclaim, or other defense.
(d) Whenever any payment to be made hereunder or under any other Loan
Documents shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day, and such extension of
time shall be included in the computation of interest or fees, if applicable;
provided, however, if such extension would cause payment of interest on or
principal of LIBOR Advances to be made in the next following calendar month,
such payment shall be made on the next preceding Business Day.
(e) Reference to any particular index or reference rate for determining
any applicable interest rate under this Agreement is for purposes of calculating
the interest due and is not intended as and shall not be construed as requiring
any Lender to actually obtain funds for any Advance at any particular index or
reference rate.
2.14 Yield Protection; Changed Circumstances.
(a) If any Lender determines that either (i) the adoption, after the
date hereof, of any applicable law, rule, regulation or guideline regarding
capital adequacy and applicable to commercial banks or financial institutions
generally or any change therein, or any change, after the date hereof, in the
interpretation or administration thereof by any tribunal, central bank or
comparable agency charged with the interpretation or administration thereof, or
(ii) compliance by any Lender with any request or directive made after the date
hereof applicable to commercial banks or financial institutions generally
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 such Lender's capital as a consequence of its obligations hereunder
to a level below that which such Lender could have achieved but for such
adoption, change or compliance (taking into consideration such Lender's policies
with respect to capital adequacy) by an amount reasonably deemed by such Lender
to be material, then from time to time, within fifteen days after demand by such
Lender, the Borrower shall pay to such Lender such additional amount or amounts
as will adequately compensate such Lender for such reduction. Each Lender will
notify the Borrower of any event occurring after the date of this Agreement
which will entitle such Lender to compensation pursuant to this Section 2.14(a)
as promptly as practicable after such Lender obtains actual
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knowledge of such event; provided, no Lender shall be liable for its failure or
the failure of any other Lender to provide such notification. A certificate of
such Lender claiming compensation under this Section 2.14(a), setting forth in
reasonable detail the calculation of the additional amount or amounts to be paid
to it hereunder and certifying that such claim is consistent with such Lender's
treatment of similar customers having similar provisions generally in their
agreements with such Lender shall be presumptive evidence of the validity of
such claim. Each Lender shall use reasonable efforts to mitigate the effect upon
the Borrower of any such increased costs payable to such Lender under this
Section 2.14(a).
(b) If, after the date hereof, any tribunal, central bank or other
comparable authority, at any time imposes, modifies or deems applicable any
reserve (including, without limitation, any imposed by the Board of Governors of
the Federal Reserve System), special deposit or similar requirement against
assets of, deposits with or for the amount of, or credit extended by, any
Lender, or imposes on any Lender any other condition affecting a LIBOR Advance,
the Notes, or its obligation to make a LIBOR Advance; and the result of any of
the foregoing is to increase the cost to such Lender of making or maintaining
its LIBOR Advances, or to reduce the amount of any sum received or receivable by
such Lender under this Agreement or under the Notes, by an amount deemed by such
Lender, to be material, then, within five days after demand by such Lender, the
Borrower shall pay to such Lender such additional amount or amounts as will
compensate such Lender for such increased cost or reduction. Each Lender will
notify the Borrower of any event occurring the date of this Agreement that
entitles such Lender to compensation pursuant to this Section 2.14(b), as
promptly as practicable after such Lender obtains actual knowledge of the event;
provided, no Lender shall be liable for its failure or the failure of any other
Lender to provide such notification. A certificate of such Lender claiming
compensation under this Section 2.14(b), setting forth in reasonable detail the
computation of the additional amount or amounts to be paid to it hereunder and
certifying that such claim is consistent with such Lender's treatment of similar
customers having similar provisions generally in their agreements with such
Lender shall be presumptive evidence of the validity of such claim. If such
Lender demands compensation under this Section 2.14(b), the Borrower may at any
time, on at least five Business Days' prior notice to such Lender (i) repay in
full the then outstanding principal amount of LIBOR Advances, of such Lender,
together with accrued interest thereon, or (ii) convert the LIBOR Advances to
Base Advances in accordance with the provisions of this Agreement; provided,
however, that the Borrower shall be liable for the Consequential Loss arising
pursuant to those actions.
(c) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation or administration of
any law shall make it unlawful, or any central bank or other tribunal shall
assert that it is unlawful, for a Lender to perform its obligations hereunder to
make LIBOR Advances or to continue to fund or maintain LIBOR Advances hereunder,
then, on notice thereof and demand therefor by such Lender to the Borrower, (i)
each LIBOR
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Advance will automatically, upon such demand, convert into a Base Advance, (ii)
the obligation of such Lender to make, or to convert Advances into, LIBOR
Advances shall be suspended until such Lender notifies Administrative Agent and
the Borrower that such Lender has determined that the circumstances causing such
suspension no longer exist, notifies Administrative Agent and the Borrower that
such Lender has determined that the circumstances causing such suspension no
longer exist.
(d) Upon the occurrence and during the continuance of any Default or
Event of Default, (i) each LIBOR Advance will automatically, on the last day of
the then existing Interest Period therefor, convert into a Base Advance and (ii)
the obligation of each Lender to make, or to convert Advances into, LIBOR
Advances shall be suspended.
(e) If any Lender notifies Administrative Agent that the LIBOR Rate for
any Interest Period for any LIBOR Advances will not adequately reflect the cost
to such Lender of making, funding or maintaining LIBOR Advances for such
Interest Period, Administrative Agent shall promptly so notify the Borrower,
whereupon (i) each such LIBOR Advance will automatically, on the last day of the
then existing Interest Period therefor, convert into a Base Advance and (ii) the
obligation of such Lender to make, or to convert Advances into, LIBOR Advances
shall be suspended until such Lender notifies Administrative Agent that such
Lender has determined that the circumstances causing such suspension no longer
exist and Administrative Agent notifies the Borrower of such fact.
(f) Failure on the part of any Lender to demand compensation for any
increased costs, increased capital or reduction in amounts received or
receivable or reduction in return on capital pursuant to this Section 2.14 with
respect to any period shall not constitute a waiver of any Lender's right to
demand compensation with respect to such period or any other period, subject,
however, to the limitations set forth in this Section 2.14.
(g) The obligations of the Borrower under this Section 2.14 shall
survive any termination of this Agreement, provided that, in no event shall the
Borrower be required to make a payment under this Section 2.14 with respect to
any event of which the Lender making such claim had knowledge more than twelve
months prior to demand for such payment.
(h) Determinations by Lenders for purposes of this Section 2.14 shall be
presumptively correct. Any certificate delivered to the Borrower by a Lender
pursuant to this Section 2.14 shall include in reasonable detail the basis for
such Lender's demand for additional compensation and a certification that the
claim for compensation is consistent with such Lender's treatment of similar
customers having similar provisions generally in their agreements with such
Lender.
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2.15 Liability Regarding Letters of Credit. Borrower assumes all risks of
the acts or omissions of the beneficiary or any transferee of any letter of
credit issued hereunder with respect to its use of the letter of credit. Neither
Issuing Lender, Lenders, nor Administrative Agent nor any of their officers or
directors shall be liable or responsible for: (a) the use which may be made of
any letter of credit or for any acts or omissions of the beneficiary or any
transferee in connection therewith; (b) the form, validity, sufficiency,
accuracy, genuineness, or legal effect of documents, or of any endorsements
thereon, even if such documents should in fact prove to be in any or all
respects invalid, insufficient, fraudulent, or forged; (c) payment by Issuing
Lender against presentation of documents which do not comply with the terms of
any letter of credit, including failure of any documents to bear any reference
or adequate reference to the letter of credit; or (d) any other circumstance
whatsoever in making or failing to make payment under any letter of credit. In
furtherance and not in limitation of the foregoing, Issuing Lender may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary.
2.16 Indemnification Regarding Letters of Credit. Without limiting the
generality of Subsection 11.4 hereof, Borrower hereby releases and indemnifies
Issuing Lender, Lenders, and Administrative Agent and holds such parties
harmless from and against any and all claims, suits, proceedings, damages,
losses, liabilities, costs, or expenses of any kind whatsoever (including
reasonable attorneys' fees) which such parties may incur (or which may be
claimed against such parties by any person or entity whatsoever), by reason of
or in connection with the execution and delivery or transfer of, or payment or
failure to pay under, any letter of credit provided, that Borrower shall not be
required to indemnify Issuing Lender, Lenders, or Administrative Agent for any
claims, suits, proceedings, damages, losses, liabilities, costs, or expenses to
the extent, but only to the extent, caused by (a) the willful misconduct or
gross negligence of such parties in determining whether a sight draft, document,
or certificate presented under any letter of credit complies with the terms of
the letter of credit or (b) Issuing Lender's willful failure to pay under any
letter of credit after the presentation to it by the beneficiary (or a successor
beneficiary to whom the letter of credit has been transferred in accordance with
its terms) of a sight draft, documents, and certificate strictly complying with
the terms and conditions of the letter of credit. The agreements in this
Subsection shall survive repayment of all other amounts payable hereunder or
pursuant hereto, now or in the future.
2.17 Obligations Absolute (relating to Letters of Credit). The obligations
of Borrower under this Agreement are primary, absolute, independent,
unconditional, and irrevocable, and shall be paid and performed strictly in
accordance with the terms of this Agreement, under all circumstances whatsoever,
including without limitation, the following circumstances:
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(a) Any lack of validity or enforceability of any portion of any letter
of credit, this Agreement, or any agreement or instrument relating thereto;
(b) Any amendment or waiver of or any consent to or actual departure
from any letter of credit, this Agreement, or any agreement or instrument
relating thereto;
(c) Any exchange, release, or nonperfection of any collateral;
(d) The existence of any claim, set-off, defense or other right which
Borrower may have at any time against any beneficiary of any letter of credit
(or any persons or entities for whom such beneficiary may be acting), Issuing
Lender or any other person or entity, whether in connection with this Agreement,
any letter of credit, the transactions contemplated herein or therein, or any
unrelated transaction;
(e) Any demand, certificate, statement, sight draft, or other document
presented under any letter of credit proving to be forged, fraudulent, invalid,
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever;
(f) Payment by Issuing Lender under any letter of credit against
presentation of a demand, draft, or certificate which does not comply with the
terms of the letter of credit, provided that such payment shall not have
constituted gross negligence or willful misconduct of Issuing Lender;
(g) Any delay, extension of time, renewal, compromise, or other
indulgence or modification granted to or agreed by Issuing Lender, Lenders, or
Administrative Agent, with or without notice to or approval by Borrower in
respect of any of Borrower's indebtedness under this Agreement;
(h) The failure of Issuing Lender, Lenders, or Administrative Agent to
give any notice to Borrower hereunder; or
(i) Any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing.
SECTION 3. SECURITY AND GUARANTIES.
Payment of the loan or loans hereunder shall be secured and guaranteed as
provided in this Section 3.
3.1 Stock Pledge. (a) Payment of the Revolving Credit Notes, the Line of
Credit Notes, the Swing Line Note, any other obligations under the Loan
Documents, and any other obligations of Borrower to Administrative Agent,
Issuing Lender, Swing Line Lender, and Lenders, presently existing or hereafter
arising,
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shall be secured by a pledge of all Capital Stock (including partnership and
membership interests) of the present and future Subsidiaries of Borrower.
(b) Such pledge shall be evidenced by one or more stock pledge
agreements in favor of the Administrative Agent for the benefit of the Issuing
Lender, Swing Line Lender, and the Lenders, in form and substance satisfactory
to Administrative Agent (each, a "Stock Pledge"). Each Stock Pledge shall be
sufficient, when delivery of the stock certificates or other evidence of
ownership interest, if any, is made to Administrative Agent, to grant first
perfected security interests in the Capital Stock of the Subsidiaries, subject
to no prior liens or encumbrances.
(c) To the extent Borrower indirectly owns the Capital Stock (including
partnership or membership interests) of any Subsidiary, Borrower shall cause the
owner of such interests to execute a stock pledge agreement in favor of
Administrative Agent, for the benefit of Issuing Lender, Swing Line Lender, and
the Lenders, in form and substance satisfactory to Administrative Agent (also, a
"Stock Pledge") and comply with the remainder of the provisions of (a), (b),
(d), (e), and (f).
(d) Borrower shall deliver or cause to be delivered into the actual
physical possession of Administrative Agent the stock certificates or other
evidence of ownership interests, if any, and shall execute stock or similar
powers for each present and future Subsidiary.
(e) Borrower will provide Administrative Agent an addendum to stock
pledge agreement ("Addendum to Stock Pledge") and an acknowledgement and consent
of the Subsidiary whose Capital Stock is being pledged, both in form and
substance satisfactory to Administrative Agent, except that such requirement
shall apply only to Subsidiaries with annual revenues or assets in excess of
$1,000,000.00, unless otherwise notified by Administrative Agent.
(f) Borrower agrees to execute or otherwise provide to Administrative
Agent any and all modifications, financing statements, and other agreements or
consents required by Administrative Agent now or in the future in connection
therewith.
3.2 Guaranties. (a) Payment of the Revolving Credit Notes, the Line of
Credit Notes, the Swing Line Note, and any other obligations under the Loan
Documents, presently existing or hereafter arising, shall be guaranteed by all
present and future Guarantors, which guarantees shall be evidenced by continuing
and unconditional guaranties in form and substance satisfactory to
Administrative Agent and Lenders (individually, a "Guaranty" and collectively,
the "Guaranties").
(b) Each existing Guarantor shall (a) consent to the provisions of this
Agreement; (b) waive and release all known claims and defenses as of the date of
this Agreement against Administrative Agent, Lead Arranger, Issuing Lender,
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Swing Line Lender, and Lenders; and (c) waive appraisement, valuation, stay, and
other similar rights related to collateral given by Borrower and Guarantors.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
To induce Lender to enter into this Agreement and to make the loan or loans
hereunder, Borrower represents and warrants to each Lender, Issuing Lender,
Swing Line Lender, and Administrative Agent (which representations and
warranties shall survive the delivery of the documents mentioned herein and the
making of the loan or loans contemplated hereby) as follows:
4.1 Corporate Existence; Compliance with Law; Name History. Borrower is a
corporation duly incorporated and organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation. Borrower has
all requisite power (corporate and otherwise) to own and operate its properties
and to carry on its business as now being conducted, is duly qualified as a
foreign corporation to do business in every jurisdiction in which the nature of
its business or the ownership of its properties makes such qualification
necessary and is in good standing in such jurisdictions, has all licenses and
permits necessary to carry on and conduct its business in all states and
localities wherein it now operates (except for such licenses and permits that
the failure to obtain would not cause a Material Adverse Effect), and is in
compliance with all other requirements of law, rule, or regulation applicable to
it and to its business. Borrower does not have any Subsidiaries, except as set
forth on the attached Schedule 4.1(a). Borrower has not merged, changed its
name, or done business under a fictitious name during the past five years,
except as set forth on the attached Schedule 4.1(b).
4.2 Corporate Power and Authorization to Execute Loan Documents; No
Conflict; No Consent. Borrower has the corporate power and authority and the
legal right to execute and deliver the Loan Documents to be executed by it and
to perform its obligations thereunder and has taken all corporate action
necessary to authorize the execution, delivery, and performance of such Loan
Documents and to authorize the transactions contemplated thereby. The execution,
delivery, and performance by Borrower of the Loan Documents to be executed by it
will not: (a) contravene, conflict with, result in the breach of, or constitute
a violation of or default under (i) the articles of incorporation or bylaws of
Borrower, (ii) any applicable law, rule, regulation, judgment, order, writ,
injunction, or decree of any court or governmental authority, or (iii) any
agreement or instrument to which Borrower is a party or by which Borrower or its
property may be bound or affected; or (b) result in the creation of any lien,
charge, or encumbrance upon any property or assets of Borrower pursuant to any
of the foregoing, except the liens created by the Loan Documents. No consent,
license, or authorization of, or filing with, or notice to, any Person or entity
(including, without limitation, any governmental authority), is necessary or
required in connection with the execution, delivery, performance, validity, or
enforceability of the Loan Documents and the transactions as contemplated
thereunder, except for consents, licenses,
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authorizations, filings, and notices already obtained or performed and of which
Administrative Agent has been provided written notice, or referred to or
disclosed in the Loan Documents. Any such consents, licenses, authorizations,
filings, or notices remain in full force and effect.
4.3 Enforceable Obligations. The Loan Documents constitute legal, valid, and
binding agreements enforceable against the respective parties thereto and any
property described therein in accordance with their respective terms.
4.4 Financial Condition.
(a) The consolidated financial statements as of September 30, 1999, of
Borrower and its Subsidiaries, copies of which have been furnished to
Administrative Agent, are correct, complete, and fairly present the financial
condition of Borrower and its Subsidiaries as of the date of the financial
statements and fairly present the results of the operations of Borrower and its
Subsidiaries for the period covered thereby.
(b) The financial statements described above have been prepared in
accordance with Generally Accepted Accounting Principles applied on a Consistent
Basis maintained throughout the period involved. There has been no material
adverse change in the business, properties, or condition, financial or
otherwise, of Borrower or its Subsidiaries since the date of such financial
statements.
(c) Neither Borrower nor any of its Subsidiaries have any material
direct or contingent liabilities, liabilities for taxes, long-term leases, or
unusual forward or long-term commitments as of the date of this Agreement which
are not disclosed by, provided for, or reserved against in the foregoing
financial statements or referred to in notes thereto, and at the date of this
Agreement there are no material unrealized or anticipated losses from any
unfavorable commitments of Borrower or any of its Subsidiaries.
4.5 No Litigation. There is no suit or proceeding at law or in equity or
other proceeding or investigation (including proceedings by or before any court,
arbitrator, governmental or administrative commission, board, bureau, or other
administrative agency) pending, or to the best knowledge of Borrower threatened,
by or against or involving Borrower or against any of its Subsidiaries,
properties, existence, or revenues which, individually or in the aggregate, if
adversely determined, is reasonably likely to have a Material Adverse Effect on
the properties, assets, or business or on the condition, financial or otherwise,
of Borrower or impair the right or ability of Borrower to carry on its
operations substantially as now conducted or as anticipated to be conducted in
the future, or, regardless of outcome, which would be required to be disclosed
in notes to any balance sheet as of the date hereof of Borrower prepared in
reasonable detail in accordance with Generally Accepted Accounting Principles
applied on a Consistent
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Basis. Set forth on the attached Schedule 4.5 is a list of all suits or
proceedings to which Borrower or any of its Subsidiaries is a party.
4.6 Investment Company Act; Regulation.
(a) Borrower is not an "investment company," an "affiliated person" of,
or "promoter" or "principal underwriter" for, any "investment company," or a
company "controlled" by an "investment company," and Borrower is not an
"investment advisor" or an "affiliated person" of an "investment advisor" (as
each of the quoted terms is defined or used in the Investment Company Act of
1940, as amended). Neither the making of the loans, nor the establishment of the
credits hereunder, nor the application of the proceeds or repayment thereof by
Borrower, nor the consummation of the other transactions contemplated hereby,
will violate the provisions of the foregoing Act or any rule, regulation, or
order promulgated thereunder.
(b) Borrower is not subject to regulation under any state or local
public utilities code or federal, state, or local statute or regulation limiting
the ability of Borrower to incur indebtedness for money borrowed or to pledge
assets of the type contemplated hereunder.
4.7 Disclosure and No Untrue Statements. No representation or warranty made
by Borrower in the Loan Documents or which will be made by Borrower from time to
time in connection with the Loan Documents (a) contains or will contain any
misrepresentation or untrue statement of any material fact, or (b) omits or will
omit to state any material fact necessary to make the statements therein not
misleading. There is no fact (excluding information relating to world or
national economic, social, or political conditions generally) known to Borrower
which materially adversely affects, or which might in the future materially
adversely affect, the business, assets, properties, or condition, financial or
otherwise, of Borrower, or the ability of Borrower to perform its obligations
under the Loan Documents, except as set forth or referred to in the Loan
Documents or otherwise disclosed in writing to Administrative Agent.
4.8 Title to Assets; Leases in Good Standing. Borrower has good and
marketable title in fee to such of its fixed assets as are real property and
good and marketable title to its other properties and assets, including the
properties and assets reflected in the financial statements and notes thereto
described in Subsection 4.4 hereof, except for such assets as have been disposed
of in the ordinary course of business, and all such properties and assets are
free and clear of all liens, mortgages, pledges, security interests, charges,
title retention agreements, or other encumbrances of any kind except those
permitted under Subsection 7.2. Borrower enjoys peaceful and undisturbed
possession under all leases under which it is now operating, none of which
contain any burdensome or unusual provisions which may affect its operations,
and all such leases are valid, subsisting, and in full
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force and effect and Borrower is not in violation of any material term of any
such lease.
4.9 Payment of Taxes. Borrower has filed or caused to be filed all federal,
state, and local tax returns which are required to be filed by it and has paid
or caused to be paid all taxes as shown on said returns or on any assessment
received by it, to the extent that such taxes have become due, other than taxes
being contested in good faith by appropriate proceedings diligently conducted
and for which adequate reserves have been established in accordance with
Generally Accepted Accounting Principles, and no controversy in respect of
additional taxes of Borrower is pending, or, to the knowledge of Borrower,
threatened.
4.10 Agreement or Contract Restrictions; No Default. Borrower is not a party
to, nor is bound by, any agreement, contract, or instrument or subject to any
charter or other corporate restriction which materially adversely affects the
business, properties, assets, operations, or condition, financial or otherwise,
of Borrower except as disclosed in the financial statements and notes thereto
described in Subsection 4.4 hereof. Borrower is in full compliance with and is
not in default in the performance, observance, or fulfillment of any material
obligation, covenant, or condition contained in any material agreement or
instrument to which it is a party.
4.11 Patents, Trademarks, Licenses, Etc. Borrower owns, possesses, or has
the right to use, and holds free from burdensome restrictions or known conflicts
with the rights of others, all patents, patent rights, licenses, trademarks and
service marks, trademark and service mark rights, trade names, trade name
rights, and copyrights, and all rights with respect to the foregoing, necessary
to conduct its business as now conducted, and is in full compliance with the
terms and conditions, if any, of all such patents, patent rights, licenses,
trademarks and service marks, trademark and service mark rights, trade names,
trade name rights, or copyrights and the terms and conditions of any agreements
relating thereto.
4.12 Government Contract. Borrower is not subject to the renegotiation of
any government contract in any material amount.
4.13 ERISA Requirement. Except as previously disclosed to Lenders in
writing, Borrower does not have in force any written or oral bonus plan, stock
option plan, employee welfare, pension or profit sharing plan, or any other
employee benefit arrangement or understanding. In addition, Borrower and any
predecessor of Borrower is not now or was not formerly during the five year
period immediately preceding the effective date of this Agreement a
participating employer in any multi-employer or "multiple employer" plans within
the meaning of Sections 4001(1)(a)(3), 4063, and 4064 of ERISA. Each employee
benefit plan subject to the requirements of ERISA complies with all of the
requirements of ERISA and those plans which are subject to being "qualified"
under Sections 401(a) and 501(a) of the Internal Revenue Code of 1986, as
amended from time to time,
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have since their adoption been "qualified" and have received favorable
determination letters from the Internal Revenue Service so holding. There is no
matter which would adversely affect the qualified tax exempt status of any such
trust or plan, and except as previously disclosed to Lenders there are no
deficiencies or liabilities for any such plan or trust. No employee benefit plan
sponsored by Borrower has engaged in a non-exempt "prohibited transaction" as
defined in ERISA.
4.14 Solvency. Borrower is, and on and after the consummation of the
transactions contemplated herein will be, Solvent.
4.15 Racketeer Influenced and Corrupt Organization(s) Act. Borrower has
never been and is not now engaged, and will not engage, directly or indirectly,
in any pattern of "racketeering activity" or in any "collection of any unlawful
debt," as each of the quoted terms or phrases is defined or used by the
Racketeer Influenced and Corrupt Organization(s) Act of either the United States
or the State of Florida, Title 18, United States Code, Section 1961 et seq.;
Chapter 895, Florida Statutes, respectively, as each act now exists or is
hereafter amended (the "RICO Lien Acts"). None of Borrower's real property, none
of Borrower's interest or interests of any kind, including any beneficial
interest or interests, mortgages, and leases, in or on real property and none of
Borrower's personal property, including money, has ever been, is now, or is in
any way reasonably anticipated by Borrower to become, subject to any lien,
notice, civil investigative demand, action, suit, or other proceeding pursuant
to the RICO Lien Acts.
4.16 Location of Offices. The chief executive office, the principal place of
business, and the office where all books and records of Borrower are kept, and
all other offices of Borrower are described in Schedule 4.16 attached hereto.
4.17 Subsidiaries. (a) The matters with respect to Borrower, its business,
and its assets described at Subsections 4.1, 4.2, 4.3, 4.5, 4.6, 4.7, 4.10,
4.11, 4.12, 4.13, 4.14, 4.15, and 4.16, are true with respect to each
Subsidiary, its business, and its assets, except that with respect to
Subsidiaries that are partnerships or limited liability companies, the
provisions of Subsections 4.1 and 4.2 shall be interpreted in accordance with
such Subsidiary's organizational structure.
(b) The matters with respect to Borrower, its business, and its assets
described at Subsections 4.8 and 4.9 are true with respect to each Subsidiary,
its business, and its assets, except for, in the case of Subsection 4.8, assets
and leases up to the aggregate amount of $250,000.00 for any Subsidiary, and in
the case of Subsection 4.9, taxes up to the aggregate amount of $250,000.00 for
any Subsidiary.
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SECTION 5. CONDITIONS OF LENDING.
The obligations of Lenders, Swing Line Lender, and Issuing Lender to make
Advances, issue letters of credit, or permit any borrowings hereunder is
conditioned upon the performance of all agreements by Borrower contained herein,
as well as satisfaction of the following conditions precedent:
5.1 Continuing Accuracy of Representations and Warranties. At the time of
each borrowing or issuance of a letter of credit hereunder, the representations
and warranties set forth in Section 4 hereof shall be true, correct, and
complete on and as of the date of the borrowing with the same effect as though
the representations and warranties had been made on and as of the date of the
borrowing, except to the extent that such representations and warranties may
expressly relate to an earlier date, in which case they shall continue to be
true as of such date.
5.2 No Default. At the time of each borrowing or issuance of a letter of
credit hereunder, Borrower and each Subsidiary shall be in compliance with all
terms and conditions set forth herein, and no Event of Default, nor any event
which upon notice or lapse of time or both would constitute an Event of Default,
shall have occurred and be continuing at the time of such borrowing.
5.3 Opinion of Borrower's Counsel. On or prior to the date of this
Agreement, and to the extent required by Administrative Agent at the time of any
borrowing or issuance of a letter of credit hereunder if the unused portion of
the Revolving Credit Facility or the Line of Credit Facility, respectively, is
less than 50% thereof, each Lender and Administrative Agent shall have received
the favorable opinion of counsel for Borrower, in form and substance
satisfactory to each Lender and Administrative Agent, as to such matters as they
may require.
5.4 Approval of Counsel. All legal matters in connection with the Loan
Documents and the transactions herein and therein contemplated and all documents
and proceedings shall be satisfactory in form and substance to Holland & Knight
LLP, counsel for SunTrust Bank.
5.5 Loan Documents. On or prior to the date of this Agreement,
Administrative Agent shall have received, duly executed, this Agreement and the
other Loan Documents, all in form and substance satisfactory to Administrative
Agent and its counsel.
5.6 UCC Filings and Stock Certificates. On or prior to the date of this
Agreement, Borrower shall have provided for the termination of all UCC filings
against the Borrower or any Subsidiary and the delivery to Administrative
Agent's possession of all stock certificates encumbered by the Stock Pledges,
together with
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duly completed stock powers, and any other documentation required by the Stock
Pledges.
5.7 Supporting Documents. On or prior to the date of this Agreement,
Administrative Agent shall have received all other documents and instruments
required hereunder or otherwise reasonably required by Lenders to be executed
and delivered or otherwise provided to Administrative Agent in form and
substance satisfactory to Lenders and their counsel, including without
limitation:
(a) a certificate of good standing of Borrower and each Guarantor
certified by the secretary of state, or other appropriate governmental
authority, of the state of incorporation of Borrower and each Guarantor;
(b) certificates of qualification to do business of Borrower and each
Guarantor certified by the secretary of state, or other appropriate governmental
authority, of each state in which the chief executive office or any material
manufacturing plant of Borrower or the Guarantor is located;
(c) A copy of the articles of incorporation of Borrower and each
Guarantor, accompanied by a certificate from an appropriate officer of Borrower
and each Guarantor that the copy is complete and that the articles of
incorporation have not been amended, annulled, rescinded, or revoked except as
reflected in the copy, if any;
(d) a copy of the bylaws of Borrower and each Guarantor in effect on the
date of this Agreement, accompanied by a certificate from an appropriate officer
of Borrower and each Guarantor that the copy is true and complete and that the
bylaws have not been amended, annulled, rescinded, or revoked except as
reflected in the copy, if any;
(e) a copy of resolutions of the board of directors of Borrower and each
Guarantor authorizing the execution, delivery, and performance of the Loan
Documents to which it is a party and the transactions thereunder, and specifying
the officer or officers of Borrower and each Guarantor authorized to execute the
Loan Documents, accompanied by a certificate from an appropriate officer that
the resolutions are true and complete, were duly adopted at a duly called
meeting in which a quorum was present and acting throughout, or were duly
adopted by written action, and have not been amended, annulled, rescinded or
revoked in any respect and remain in full force and effect on the date of the
certificate, together with an incumbency certificate containing the names,
titles, and genuine signatures of all duly elected officers of Borrower and each
Guarantor as of the date of this Agreement, accompanied by a certificate from an
appropriate officer that the information is true and complete; and
(f) such additional supporting documents as Lenders may request.
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SECTION 6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that from the date of this Agreement until
payment in full of all present or future indebtedness hereunder, expiration of
all letters of credit issued hereunder, and termination of all present or future
credit facilities established hereunder, Borrower will fully comply with the
following provisions:
6.1 Financial Reports and Other Information. Borrower will deliver or cause
to be delivered to each Lender the following:
(a) As soon as practicable and in any event within sixty (60) days after
the end of each fiscal quarter, a consolidated and consolidating balance sheet
as of the last day of such quarter and the related consolidated and
consolidating statement of income for such quarter and cumulative year-to-date
for Borrower, setting forth in each case in comparative form figures for the
corresponding period in the preceding fiscal year, all in reasonable detail and
satisfactory in scope to Lenders and certified by the chief financial officer of
Borrower as to the fairness of such financial statements and that the same have
been prepared in accordance with Generally Accepted Accounting Principles
applied on a Consistent Basis, subject to changes resulting from normal,
recurring year-end adjustments;
(b) As soon as practicable and in any event within ninety (90) days
after the end of each fiscal year, the consolidated and consolidating balance
sheet of Borrower as of the end of such fiscal year, and related consolidated
and consolidating statements of income, and changes in financial position for
such fiscal year, setting forth in each case in comparative form figures for the
corresponding period in the preceding fiscal year, all in reasonable detail and
satisfactory in scope to Lenders and certified by and containing an unqualified
opinion of independent certified public accountants of recognized national
standing selected by Borrower and satisfactory to Lenders;
(c) Together with each delivery of those items required by clause 6(a)
and (b) ninety (90) above, a certificate executed by the chief financial officer
of Borrower, containing computations in reasonable detail indicating compliance
with Sections 6 and 7 hereof, and stating that to the best of the officer's
knowledge, (i) Borrower has kept, observed, performed, and fulfilled each and
every agreement binding on it contained in the Loan Documents, and is not at the
time in default of the keeping, observance, performance, or fulfillment of any
of the terms, provisions, and conditions thereof, and (ii) none of the Events of
Default or events which upon notice or the lapse of time or both would
constitute Events of Default has occurred (or specifying all such defaults and
events of which he may have knowledge and what actions Borrower is taking or
proposes to take with respect thereto);
(d) Together with each delivery of the financial statements required by
clause 6(b) above, a certificate of the independent certified accountants
stating
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that in making the examination necessary to said certification of the financial
statements, they obtained no knowledge of any condition or event pertaining to
financial or accounting matters, that constitutes an Event of Default or event
which after notice by Administrative Agent or lapse of time, or both, would
constitute an Event of Default; or if the accountants have obtained knowledge of
any Event of Default or other such event, a statement specifying the nature and
period of existence thereof. In addition, such accountants' certificate shall
state that with respect to the fulfillment of any of the terms, covenants,
provisions, or conditions of the Loan Documents, other than those relating to
financial or accounting matters, they have obtained no knowledge of any default
or Event of Default, or if the accountants have obtained knowledge of any such
default or Event of Default they shall make disclosure thereof, but the
accountants shall not be liable to Lenders for any failure to obtain knowledge
of any default or Event of Default referred to in this sentence;
(e) Within ten (10) days after receipt thereof, copies of any management
audit letters or other communications provided to Borrower by the independent
certified public accountant who prepared Borrower's financial statements;
(f) As soon as practicable and in any event within ten (10) days after
the filing thereof with the United States Securities and Exchange Commission,
copies of the quarterly 10-Q and annual 10-K reports, and any 8-K reports, filed
by Borrower;
(g) With reasonable promptness, such additional financial or other data
(including but not limited to consolidating financial statements) as Lenders may
from time to time reasonably request.
Lenders and Administrative Agent are hereby authorized to deliver a copy of
any financial statements or any other information relating to the business,
operations, properties, or financial condition of Borrower which may be
furnished to it or come to its attention pursuant to the Loan Documents or
otherwise, to any regulatory body or agency having jurisdiction over them or to
any Person which shall, or shall have the right or obligation to, succeed to all
or any part their respective interests in the Loan Documents.
6.2 Payment of Indebtedness; Performance of Other Covenants; Payment of
Other Obligations. (a) Borrower will make full and timely payment of the
principal of and interest on the indebtedness owed hereunder; (b) Borrower will
duly comply with all the terms and covenants contained in the Loan Documents;
and (c) Borrower will make full and timely payment of all other indebtedness of
Borrower, whether now existing or hereafter arising.
6.3 Conduct of Business; Maintenance of Existence and Rights. Borrower will
do or cause to be done all things necessary to preserve and to keep in
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full force and effect its corporate existence and rights and privileges as a
corporation and its franchises, licenses, trade names, patents, trademarks, and
permits which are necessary for the continuance of its business, and continue to
engage principally in the business currently operated by Borrower.
6.4 Maintenance of Property. Borrower will maintain its property in good
condition and repair and, from time to time, make all necessary and proper
repairs, renewals, replacements, additions, and improvements thereto, so that
the business carried on may be properly and advantageously conducted at all
times in accordance with prudent business management.
6.5 Right of Inspection; Discussions. Borrower will permit any Person
designated by Lenders, to visit and inspect any of the properties, corporate
books, records, papers, and financial reports of Borrower, including the making
of any copies thereof and abstracts therefrom, and to discuss its affairs,
finances, and accounts with its principal officers, all at such reasonable times
and as often as Lenders may reasonably request. Borrower will also permit
Lenders, or their designated representatives, to audit or appraise any of its
assets or financial and business records.
6.6 Notices. Borrower will promptly give notice to Administrative Agent of:
(a) The occurrence of any default or Event of Default (or event which
would constitute a default or Event of Default but for the requirement that
notice be given or time elapse or both) hereunder, in which case such notice
shall specify the nature thereof, the period of existence thereof, and the
action that Borrower proposes to take with respect thereto;
(b) the occurrence of any material casualty to any material facility of
Borrower or any other force majeure (including, without limitation, any strike
or other labor disturbance) materially affecting the operation or value of any
such facility, and whether or not such casualty or force majeure is covered by
insurance;
(c) the commencement or any material change in the nature or status of
any litigation, dispute, or proceeding that may involve a claim for damages,
injunctive relief, enforcement, or other relief pending, being instituted, or
threatened by, against, or involving Borrower, or the institution of any
attachment, levy, execution, or other process by or against any assets of
Borrower, which might impair the conduct of Borrower's business or might
adversely affect financially or otherwise its business, operations, properties,
condition, or prospects; and
(d) the occurrence of a material change in, modification to,
cancellation or early termination of, or default in (or event which would
constitute a default but for the requirement that notice be given or time elapse
or both) any material obligation, contract, or agreement of Borrower with any
Person.
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6.7 Payment of Taxes; Liens. Borrower will pay, or cause to be paid, when
due, subject to any permitted extensions, all taxes, assessments, and other
governmental charges which may lawfully be levied or assessed (a) upon the
income or profits of Borrower; (b) upon any property, real, personal or mixed,
belonging to Borrower, or upon any part thereof; or (c) by reason of employee
benefit plans sponsored by Borrower, and will also pay, or cause to be paid,
when due, subject to any permitted extensions, any lawful claims for labor,
material, or supplies which, if unpaid, might become a lien or charge against
any property of Borrower; provided, however, Borrower shall not be required to
pay any such tax, assessment, charge, levy, or claim so long as the validity
thereof shall be actively contested in good faith by appropriate proceedings and
Borrower shall have set aside on its books adequate reserves (determined in
accordance with Generally Accepted Accounting Principles) with respect to any
such tax, assessment, charge, levy, or claim so contested; but provided further
that any such tax, assessment, charge, levy, or claim shall be paid forthwith
upon the commencement of proceedings to foreclose any lien securing the same.
6.8 Insurance of Properties. Borrower will keep its business and properties
insured at all times by insurance companies acceptable to Lenders against the
risks for which provision for such insurance is usually made by other Persons
engaged in a similar business similarly situated (including without limitation
insurance for fire and other hazards and insurance against liability on account
of damage to persons or property and insurance under all applicable workman's
compensation laws) and to the same extent thereto and carry such other types and
amounts of insurance as are usually carried by Persons engaged in the same or a
similar business similarly situated, and upon request deliver to Lenders a
certificate from the insurer setting forth the nature of the risks covered by
such insurance, the amount carried with respect to each risk, and the name of
the insurer.
6.9 True Books. Borrower will keep proper and true books of record and
account, satisfactory to Administrative Agent, in which full, true, and correct
entries will be made of all of its dealings and transactions, and establish on
its books such reserves as may be required by Generally Accepted Accounting
Principles with respect to all taxes, assessments, charges, levies, and claims
referred to in Subsection 6.7 hereof, and with respect to its business in
general, and will include such reserves in any interim as well as year-end
financial statements.
6.10 Observance of Laws. Borrower will conform to and duly observe all laws,
regulations, and other valid requirements of any governmental authority with
respect to the conduct of its business.
6.11 Further Assurances. At its cost and expense, upon request of any
Lender, Borrower will duly execute and deliver or cause to be duly executed and
delivered to Lenders such further instruments or documents and do and cause to
be done such further acts as may be reasonably necessary or proper in the
opinion of
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Lenders to carry out more effectively the provisions and purposes of this
Agreement.
6.12 ERISA Benefit Plans. Borrower will comply with all requirements of
ERISA applicable to it and will not materially increase its liabilities under or
violate the terms of any present or future benefit plans maintained by it
without the prior approval of Lenders. Borrower will furnish to Lenders as soon
as possible and in any event within 10 days after Borrower or a duly appointed
administrator of a plan (as defined in ERISA) knows or has reason to know that
any reportable event, funding deficiency, or prohibited transaction (as defined
in ERISA) with respect to any plan has occurred, a statement of the chief
financial officer of Borrower describing in reasonable detail such reportable
event, funding deficiency, or prohibited transaction and any action which
Borrower proposes to take with respect thereto, together with a copy of the
notice of such event given to the Pension Benefit Guaranty Corporation or the
Internal Revenue Service or a statement that said notice will be filed with the
annual report of the United States Department of Labor with respect to such plan
if such filing has been authorized.
6.13 Withholding Taxes. Borrower will pay, as and when due, all employee
withholding, FICA, and other tax payments required by federal, state, and local
governments with respect to wages paid to employees.
6.14 Change of Name, Principal Place of Business, Office, or Agent. Borrower
will notify Lenders of any change in the name of Borrower, the principal place
of business of Borrower, the office where the books and records of Borrower are
kept, or any change in the registered agent of Borrower for the purposes of
service of process.
6.15 Financial Covenants. Borrower will, in accordance with Generally
Accepted Accounting Principles applied on a Consistent Basis, maintain on a
consolidated basis at all times:
(a) A minimum Current Ratio at all times greater than or equal to 1.50
to 1.00.
(b) A minimum Tangible Net Worth greater than or equal to $70,000,000.00
at all times for the fiscal quarter ending on December 31, 1999. Beginning with
Borrower's fiscal quarter-end on March 31, 2000, and continuing on each
quarter-end thereafter during the term of this Agreement, the required minimum
Tangible Net Worth amount for each quarter shall be increased by an amount equal
to the sum of 60% of net income of Borrower (on a consolidated basis) for the
preceding quarter.
(c) A ratio of Total Net Liabilities to Tangible Net Worth at all times
less than or equal to 2.00 to 1.00.
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(d) A minimum Fixed Charge Coverage Ratio at all times greater than or
equal to 1.50 to 1.00.
6.16 Affirmative Covenants Applicable to Subsidiaries. Borrower will cause
each Subsidiary to do, with respect to itself, its business, and its assets, all
of the things required of Borrower in Subsections 6.2 (b) and (c), 6.3, 6.4,
6.5, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11, 6.12, 6.13, and 6.14.
SECTION 7. NEGATIVE COVENANTS.
Borrower covenants and agrees that from the date of this Agreement until
payment in full of all present or future indebtedness hereunder, expiration of
all letters of credit issued hereunder, and termination of all present or future
credit facilities established hereunder, Borrower will fully comply with the
following provisions:
7.1 Indebtedness. Borrower will not, directly or indirectly, (a) create,
incur, assume, or permit to exist any indebtedness for borrowed money (operating
leases are not considered "indebtedness for borrowed money" for the purposes
hereof), except Permitted Indebtedness, or (b) enter into or commit to enter
into operating leases for the lease or rental of personal property, unless the
aggregate value of the property for leases entered into during any fiscal year
(at the time of entering into the lease) would not exceed $1,500,000.00.
7.2 Limitations on Mortgages, Liens, Etc. Borrower will not, directly or
indirectly, create, incur, assume, or suffer or permit to exist any mortgage,
pledge, lien, security interest, or other charge or encumbrance (including the
lien or retained security title of a conditional vendor or lessor) upon or with
respect to any of its assets, or assign or otherwise convey any right to receive
income, except Permitted Liens.
7.3 Guaranties. Borrower will not, directly or indirectly, guarantee,
assume, endorse, become a surety or accommodation party for, or otherwise in any
way extend credit or become responsible for or remain liable or contingently
liable in connection with any indebtedness or other obligations of any other
Person or entity, except guaranties and endorsements made in connection with the
deposit of negotiable instruments and other items for collection or credit in
the ordinary course of business and except guaranties of indebtedness of
Subsidiaries permitted pursuant to the provisions of Subsection 7.12 and 7.1
hereof.
7.4 Merger, Sale of Assets, Sale-Leaseback Transactions, Dissolution, Etc.
Borrower will not, directly or indirectly: (a) enter into any transaction of
merger or consolidation, except pursuant to a Permitted Acquisition or except
pursuant to a merger or consolidation with an existing Subsidiary where Borrower
is the surviving entity; (b) transfer, sell, assign, lease, or otherwise
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dispose of all or a substantial part of its properties or assets; (c) transfer,
sell, assign, discount, lease, or otherwise dispose of any of its notes or other
instruments, accounts receivable, or contract rights with or without recourse,
except for collection in the ordinary course of business, or any assets or
properties necessary or desirable for the proper conduct of its business; (d)
change the scope or nature of its business; (e) enter into any arrangement,
directly or indirectly, with any Person whereby Borrower shall sell or transfer
any property, real or personal, used or useful in its business, whether now
owned or hereafter acquired, and thereafter rent or lease such property which
Borrower intends to use for substantially the same purpose or purposes as the
property being sold or transferred; (f) invest in, acquire assets or stock of,
transfer any assets to, or do business through any Subsidiary not described in
Subsection 4.1 hereof except for Subsidiaries formed by Borrower for the purpose
of consummating a Permitted Acquisition, which Subsidiaries will survive any
such Permitted Acquisition; (g) wind up, liquidate, or dissolve itself or its
business; or (h) agree to any of the foregoing.
7.5 Acquisitions. Borrower will not acquire all or substantially all assets,
or Capital Stock (or other equity interest) of any Person except pursuant to
Permitted Acquisitions.
7.6 Prohibitions on Dividends, Redemptions, Distributions and Other
Payments. Borrower will not, directly or indirectly, declare allocate or pay any
dividends on any shares of stock of any class of Borrower, now or hereafter
outstanding, or purchase, redeem, or otherwise acquire or retire any shares of
stock of any class of Borrower or apply or set apart any of its assets therefor
or make any other distribution (by redemption of capital or otherwise) in
respect of any such shares, except that Borrower may purchase its own stock in
an aggregate cumulative amount not to exceed $15,000,000.00 or 3,500,000 shares.
7.7 Limitations on Loans, Advances, Investments, Transfer of Assets, and
Acquisition of Assets. Borrower will not, directly or indirectly, make or have
outstanding a loan or advance to or an investment in, or transfer assets to, or
acquire all or a substantial part of the assets or properties of, or own or
acquire stock or other securities of, any Person, except: (a) stock or other
securities received in settlement of a debt that was created in the ordinary
course of business; (b) travel advances in the ordinary course of business to
its officers and employees; (c) readily marketable securities issued by the
United States of America; (d) certificates of deposit or repurchase agreements
of Lenders or of any other financial institution of comparable standing; (e)
such outstanding matters as are set forth on the attached Schedule 7.7; (f)
loans and advances to, and investments in, Subsidiaries subject to the
requirements of Section 7.12 and 7.1 hereof; and (g) acquisitions permitted
pursuant to Subsection 7.5 hereof or loans or advances permitted pursuant to
Subsection 7.10 hereof.
7.8 Regulation U. Borrower will not permit any part of the proceeds of the
loan or loans made pursuant to this Agreement to be used to purchase or carry
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or to reduce or retire any loan incurred to purchase or carry any margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System) or to extend credit to others for the purpose of purchasing or
carrying any such margin stock, or to be used for any other purpose which
violates, or which would be inconsistent with, the provisions of Regulation U or
other applicable regulation. Borrower covenants that it is not engaged and will
not become engaged as one of its principal or important activities in extending
credit for the purpose of purchasing or carrying such margin stock. If requested
by Lenders, Borrower will furnish to Lenders in connection with any loan or
loans hereunder, a statement in conformity with the requirements of Federal
Reserve Form U-1 referred to in said regulation. In addition, Borrower covenants
that no part of the proceeds of the loan or loans hereunder will be used for the
purchase of commodity future contracts (or margins therefor for short sales) for
any commodity not required for the normal raw material inventory of Borrower.
7.9 Insider Transactions. Borrower will not, directly or indirectly,
purchase, acquire, or lease any property or services from, or sell, provide, or
lease any property or services to, or otherwise deal with, in the ordinary
course of business or otherwise, (i) any stockholder or (ii) any business
entity, corporation, partnership, or association in which a stockholder owns a
controlling interest, except upon terms and conditions not less favorable to
Borrower than if no such relationship existed, and except for such outstanding
matters as are set forth on the attached Schedule 7.9.
7.10 Loans to Officers, Stockholders, Employees, Etc. Borrower will not,
directly or indirectly, lend or advance or permit to be outstanding any loans or
advances of money, credit, or property to officers, stockholders, employees,
agents, or consultants of Borrower (other than travel advances in the ordinary
course of business) in an aggregate amount in excess of $4,500,000.00 at
December 31, 1999 (with such limit to increase $100,000.00 for each fiscal
quarter-end thereafter to reflect only the deferral of interest and no
additional principal).
7.11 Changes in Governing Documents, Accounting Methods, Fiscal Year.
Borrower will not amend in any respect its articles of incorporation or bylaws
from that in existence on the date of this Agreement or change its accounting
methods or practices, its depreciation or amortization policy or rates, or its
fiscal year end from that in existence as of the date of the financial
statements provided to Lenders pursuant to Subsection 4.4 hereof, except as
required to comply with law or with Generally Accepted Accounting Principles.
7.12 Negative Covenants Applicable To Subsidiaries. Borrower will not permit
any Subsidiary to do, with respect to itself, its business, or its assets, any
of the things prohibited to Borrower in Subsections 7.1, 7.2, 7.3, 7.4 (except
that in the case of a merger or consolidation of a Guarantor with a Subsidiary
that is not a Guarantor, the Guarantor must be the surviving entity), 7.5, 7.6,
7.7, 7.8, 7.9, 7.10, and 7.11 (except that a Subsidiary may change its
accounting methods or practices,
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depreciation or amortization policy or rates, or fiscal year end to conform to
that of Borrower) (any aggregate amounts specified in any of such Subsections to
be applied on a consolidated basis for the Borrower and Subsidiaries).
SECTION 8. EVENTS OF DEFAULT.
The following events shall constitute "Events of Default" hereunder.
8.1 Payment of Obligations Under Loan Documents. Borrower fails to make
payment of any principal, interest, or other amount due on any indebtedness owed
any Lender, Swing Line Lender, Issuing Lender, or Administrative Agent under the
Loan Documents (including but not limited to the obligation of Borrower to
timely pay or reimburse Issuing Lender for each draw under the Letter of
Credit), or fails to make any other payment to any Lender as contemplated
thereunder either by the terms hereof or otherwise.
8.2 Representation or Warranty. Any representation or warranty made or
deemed made by Borrower or any other Person herein or in any writing furnished
in connection with or pursuant to the Loan Documents, or any report,
certificate, financial statement, or other information provided by Borrower or
any other Person to any Lender, Swing Line Lender, Issuing Lender, or
Administrative Agent in connection with or pursuant to the Loan Documents, shall
be false or misleading in any material respect on the date when made or when
deemed made, and continues to be false or misleading for a period of thirty (30)
days.
8.3 Covenants Under the Loan Documents. Borrower or any other Person fails
to fully and promptly perform when due any agreement, covenant, term, or
condition binding on it contained in this Agreement or any other Loan Document,
or otherwise a part of the transactions covered hereby, and with respect to
agreements, covenants, terms or conditions other than payment obligations (a)
set forth in Section 6.15, such failure to perform continues for a period of
fifteen (15) days, and (b) and other than those set forth in Section 6.15, such
failure to perform continues for a period of thirty (30) days.
8.4 Other Defaults under the Loan Documents. A default or event of default
occurs under any other Loan Document, other than with respect to any matters
described in Subsection 8.1, 8.2, or 8.3 above, and such default continues for a
period of thirty (30) days.
8.5 Cross-Default. A default or event of default occurs under any present or
future indebtedness of Borrower to any Lender not evidenced by the Loan
Documents or a default or event of default occurs under any guaranty or security
document executed by any Person in connection therewith, and any such default or
event of default continues beyond the expiration of any applicable grace or cure
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period. An Event of Default hereunder shall constitute a default under any such
indebtedness, guaranty, or security document.
8.6 Payment, Performance, or Default of Other Monetary Obligations. Borrower
fails to make payment on any contract obligation or of principal or interest on
any indebtedness other than that created under the Loan Documents or otherwise
owed to any Lender, Swing Line Lender, Issuing Lender, or Administrative Agent,
or Borrower fails to fully and promptly perform any other obligation, agreement,
term, or condition contained in any agreement under which any such other
indebtedness is created or there is otherwise a default or event of default
thereunder.
8.7 Other Covenants or Defaults to Lenders or Others. Borrower fails to
fully and promptly perform when due any agreement, covenant, term, or condition
involving an amount in excess of $100,000.00, binding on it contained in any
lease, contract, or other agreement to which it is a party or in respect of
which it is obligated, other than the Loan Documents and other than those
containing monetary obligations (as described in Subsections 8.5 and 8.6 above),
or there is otherwise a default or event of default thereunder, and such failure
to perform continues for a period of thirty (30) days.
8.8 Liquidation; Dissolution; Bankruptcy; Etc. Borrower liquidates or
dissolves; the business of Borrower is suspended; Borrower files or commences a
voluntary petition, case, proceeding, or other action seeking reorganization,
arrangement, readjustment of its debts, or any other relief under any existing
or future law of any jurisdiction, domestic or foreign, state or federal,
relating to bankruptcy, insolvency, reorganization, or relief of debtors, or
Borrower takes any other action indicating its consent to, approval of, or
acquiescence in, any such petition, case, proceeding, or other action seeking to
have an order for relief entered with respect to it or its debts; Borrower
applies for, or consents to or acquiescence in, the appointment of a receiver,
trustee, custodian, or other similar official for Borrower or for all or a
substantial part of its property; Borrower makes an assignment for the benefit
of creditors; or Borrower is unable to pay its debts as they mature or admits in
writing its inability to pay its debts as they mature.
8.9 Involuntary Bankruptcy, Etc. An involuntary petition, case, proceeding,
or other action is commenced against Borrower under the Bankruptcy Code or
seeking reorganization, arrangement, readjustment of its debts, or any other
relief under any existing or future law of any jurisdiction, domestic or
foreign, state or federal, relating to bankruptcy, insolvency, reorganization,
or relief of debtors; a receiver, trustee, custodian, or other similar official
is involuntarily appointed for Borrower or for all or a substantial part of
Borrower's property or assets; or any case, proceeding, or other action seeking
issuance of a warrant of attachment, execution, distraint, or similar process
against all or a substantial part of Borrower's assets or property results in
the entry of an order for such relief; and
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any of the foregoing continues for sixty (60) days without being vacated,
discharged, stayed, bonded, or dismissed.
8.10 Judgments. A judgment is entered against Borrower for the payment of
damages or money in excess of $100,000.00, if the same is not discharged or if a
writ of execution or similar process is issued with respect thereto and is not
stayed within the time allowed by law for filing notice of appeal of the final
judgment.
8.11 Attachment, Garnishment, Liens Imposed by Law. A writ of attachment or
garnishment is issued against, or a lien is imposed by operation of law on, any
property of Borrower, if the amount of the claim or the value of the affected
property is in excess of $100,000.00, if the lien is not discharged within
thirty (30) days after it has attached.
8.12 Corporate Existence, Transfer of Property. Any act or omission (formal
or informal) of Borrower or its officers, directors, or shareholders leading to,
or resulting in: (a) the termination, invalidation (partial or total),
revocation, suspension, interruption, or unenforceability of (i) its corporate
existence, or (ii) any rights, licenses, franchises, or permits the failure of
which to retain would have a Material Adverse Effect; or (b) the transfer or
disposition (whether by sale, lease, or otherwise) to any Person of all or a
substantial part of its property.
8.13 Invalidity of Security Interest and Liens; Transfer of Collateral. For
any reason after the execution and delivery thereof, any document delivered
pursuant hereto that creates, or was intended to create, a security interest, or
other lien to secure indebtedness created hereunder, for a period of thirty (30)
days: (a) ceases to be in full force and effect; or (b) the liens intended to be
created thereby cease to be or are not valid and perfected first liens subject
to no other liens except as expressly permitted herein; (c) or the party
executing such document contests the validity or enforceability thereof or the
lien created thereby; or (d) any collateral covered thereby is transferred to
another Person.
8.14 Invalidity of Guaranty. For any reason after the execution and delivery
thereof, any document that gives rise to or was intended to give rise to a
guaranty of the indebtedness created hereunder, for a period of thirty (30)
days: (a) ceases to be in full force and effect; or (b) the party executing such
document contests the validity or enforceability of its guaranty or denies that
it has further liability with respect to any portion thereof, including without
limitation with respect to future loans.
8.15 Subsidiaries. Any of the matters described in Subsections 8.8 or 8.9
hereof occurs with respect to any Subsidiary and continues beyond any applicable
cure period, or any of the matters described at Subsections 8.1, 8.2, 8.3, 8.5,
8.6, 8.7, 8.10, 8.11, 8.12 (with respect to its own organizational structure)
hereof occurs with respect to any Subsidiary and continues beyond any applicable
cure period.
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SECTION 9. RIGHTS AND REMEDIES.
9.1 Remedies Available Under Loan Documents and Otherwise. Lenders and
Administrative Agent shall have, in addition to the rights and remedies
contained in this Agreement and the other Loan Documents, all of the rights and
remedies of a creditor and, to the extent applicable, of a secured party, now or
hereafter available at law or in equity. Administrative Agent may, at its
option, exercise any one or more of such rights and remedies individually,
partially, or in any combination from time to time. No right, power, or remedy
conferred by the Loan Documents shall be exclusive of any other right, power, or
remedy referred to therein or now or hereafter available at law or in equity.
9.2 Remedies Upon Event of Default. Without limiting the generality of the
foregoing, if an Event of Default shall occur: (a) All commitments to make
advances or to issue Letters of Credit shall terminate; (b) Administrative Agent
may declare the indebtedness owed hereunder and any or all of any other
indebtedness owed by Borrower to Lenders, Swing Line Lender, Issuing Lender, or
Administrative Agent, whether direct or indirect, contingent or certain, to be
accelerated and due and payable at once, whereupon such indebtedness, together
with interest thereon, shall forthwith become due and payable, all without
presentment, demand, protest, or other notice of any kind, all of which are
hereby expressly waived; (c) Administrative Agent may require Borrower to pay to
Issuing Lender a sum equal to the maximum amount available to be drawn under the
Letters of Credit, which sum Issuing Lender will hold for reimbursement of any
amounts drawn under a Letter of Credit; and (d) Administrative Agent may proceed
to do other all things provided by law, equity, or contract to enforce its
rights and the rights of Issuing Lender and the Lenders under such indebtedness
and to collect all amounts owing hereunder. Should Borrower fail to make any
payments required to be made under clause (c) above, Required Lenders may, but
shall not be obligated to, determine that Lenders shall make advances under the
Line of Credit Notes (which advances shall, in Required Lenders' discretion bear
interest at either the Line of Credit Default Base Rate or the Default Rate) and
deposit such advances into an escrow account established for such purpose, to
apply to amounts drawn under the Letters of Credit. Borrower shall immediately
repay such advances to Lenders, and upon any failure to do so Administrative
Agent shall be entitled to pursue any and all remedies it may have.
SECTION 10. THE ADMINISTRATIVE AGENT.
10.1 Authorization and Action. Each Lender (including Swing Line Lender and
Issuing Lender) hereby appoints and authorizes Administrative Agent to take such
action as Administrative Agent on its behalf and to exercise such powers under
this Agreement and the other Loan Documents, as are delegated to the
Administrative Agent by the terms of the Loan Documents, together with such
powers as are reasonably incidental thereto. As to any matters not expressly
provided for by this Agreement and the other Loan Documents (including without
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limitation enforcement or collection of the Notes), Administrative Agent shall
not be required to act or to refrain from acting (and shall be fully protected
in so acting or refraining from acting) upon the instructions of any Lender, and
Administrative Agent shall not be required to take any action which exposes
Administrative Agent to personal liability or which is contrary to any Loan
Documents or applicable law. Administrative Agent agrees to give to each Lender
notice of each notice given to it by the Borrower pursuant to the terms of this
Agreement, and to distribute to each applicable Lender in like funds all amounts
delivered to Administrative Agent by Borrower for the Pro Rata or individual
account of any Lender. Functions of the Administrative Agent are administerial
in nature and in no event shall the Administrative Agent have a fiduciary or
trustee relationship in respect of any Lender by reason of this agreement or any
Loan Document.
10.2 Administrative Agent's Reliance, Etc. Neither Administrative Agent, nor
any of its directors, officers, agents, employees, or representatives shall be
liable for any action taken or omitted to be taken by it or them under or in
connection with this Agreement or any other Loan Document, except for its or
their own gross negligence or willful misconduct. Without limitation of the
generality of the foregoing, Administrative Agent (a) may treat the payee of any
Note as the holder thereof until Administrative Agent receives written notice of
the Lender; (b) may consult with legal counsel (including counsel for the
Borrower or any of its Subsidiaries), independent public accountants, and other
experts selected by it, and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants, or experts; (c) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, warranties, or
representations made in or in connection with this Agreement or any other Loan
Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants, or conditions of this
Agreement or any other Loan Documents on the part of any obligor or its
Subsidiaries or to inspect the property (including the books and records) of any
obligor or its subsidiaries; (e) shall not be responsible to any Lender for the
due execution, legality, validity, enforceability, genuineness, sufficiency, or
value of this Agreement, any other Loan Documents, or any other instrument or
document furnished pursuant hereto; and (f) shall incur no liability under or in
respect of this Agreement or any other Loan Documents by acting upon any notice,
consent, certificate, or other instrument or writing believe by it to be genuine
and signed or sent by the proper party or parties.
10.3 SunTrust Bank and Affiliates. With respect to its Revolving Credit
Commitment, its Advances, and any Loan Documents, SunTrust Bank has the same
rights under this Agreement as any other Lender and may exercise the same as
though it were not Administrative Agent. SunTrust Bank and its Affiliates may
accept deposits from, lend money to, act as trustee under indentures of, and
generally engage in any kind of business with, any obligor, any Affiliate
thereof,
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and any Person who may do business therewith, all as if SunTrust Bank were not
Administrative Agent and without any duty to account therefor to any Lender.
10.4 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon Administrative Agent or any other
Lender, and based on the financial statements provided by Borrower and such
other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon
Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement and the
other Loan Documents.
10.5 Indemnification by Lenders. Lenders shall indemnify Administrative
Agent, Pro Rata, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against Administrative Agent in any way relating to or arising out of
any Loan Documents or any action taken or omitted by Administrative Agent
thereunder, including any negligence of Administrative Agent; provided, however,
that no Lender shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses, or
disbursements resulting from Administrative Agent's gross negligence or willful
misconduct. Without limitation of the foregoing, Lenders shall reimburse
Administrative Agent, Pro Rata, promptly upon demand for any out-of-pocket
expenses (including reasonable attorneys' fees) incurred by Administrative Agent
in connection with the preparation, execution, delivery, administration,
modification, amendment, or enforcement (whether through negotiation, legal
proceedings or otherwise) of, or legal and other advice in respect of rights or
responsibilities under, the Loan Documents. The indemnity provided in this
Section 10.5 shall survive the termination of this Agreement.
10.6 Successor Administrative Agent. Administrative Agent may resign any
time by giving written notice thereof to Lenders and the Borrower, and may be
removed at any time with or without cause by the action of all Lenders (other
than Administrative Agent, if it is a Lender). Upon any such resignation,
Borrower shall have the option to designate an existing Lender to have a right
of first refusal to accept the position of Administrative Agent; otherwise
Lenders shall have the right to appoint a successor Administrative Agent. If no
successor Administrative Agent shall have been so appointed and shall have
accepted such appointment within thirty days after the retiring Administrative
Agent's giving of notice of resignation, then the retiring Administrative Agent
may, on behalf of Lenders, appoint a successor Administrative Agent, which shall
be a commercial bank organized under the laws of the United States of America or
of any state thereof and having a combined capital and surplus of at least
$50,000,000.00. Upon the acceptance of
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any appointment as Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall thereupon succeed to and become
vested with all the Rights and duties of the retiring Administrative Agent, and
the retiring Administrative Agent shall be discharged from its duties and
obligations under the Loan Documents, provided that if the retiring or removed
Administrative Agent is unable to appoint a successor Administrative Agent,
Administrative Agent shall, after the expiration of a sixty day period from the
date of notice, be relieved of all obligations as Administrative Agent
hereunder. Notwithstanding any Administrative Agent's resignation or removal
hereunder, the provisions of this Section shall continue to inure to its benefit
as to any actions taken or omitted to be taken by it while it was Administrative
Agent under this Agreement.
SECTION 11. MISCELLANEOUS.
11.1 Amendments and Waivers. No amendment or waiver of any provision of this
Agreement or any other Loan Documents, nor consent to any departure by the
Borrower or any obligor therefrom, shall be effective unless the same shall be
in writing and signed by the Borrower and the Administrative Agent with the
consent of the Required Lenders, and then any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver, or consent shall (and the
result of action or failure to take action shall not), unless in writing and
signed by all of Lenders and Administrative Agent, (a) increase the Revolving
Credit Commitment, (b) reduce any principal, interest, fees, or other amounts
payable hereunder, (c) postpone any date fixed for any payment of principal,
interest, fees, or other amounts payable hereunder, (d) release any collateral
or guaranties securing any obligor's obligations hereunder, other than releases
contemplated hereby and by the Loan Documents, (e) change the meaning of
"Specified Percentage" or the number of Lenders required to take any action
hereunder, or change the definitions of "Revolving Credit Commitment," "Swing
Line Commitment," "Letter of Credit Commitment," or "Maturity Date," or (f)
amend Section 2 or this Section 11.1. No amendment, waiver, or consent shall
affect the rights or duties of Administrative Agent under any Loan Documents,
unless it is in writing and signed by Administrative Agent in addition to the
requisite Lenders.
11.2 Sharing of Payments. If any Lender shall obtain any payment (whether
voluntary, involuntary, through the exercise of any Right of set-off, or
otherwise) on account of its Advances in excess of its Pro Rata share of
payments made by the Borrower, such Lender shall forthwith purchase
participations in Advances made by the other Lenders as shall be necessary to
share the excess payment Pro Rata with each of them, provided, however, that if
any of such excess payment is thereafter recovered from the purchasing Lender,
its purchase from each Lender shall be rescinded and each Lender shall repay the
purchase price to the extent of such recovery together with a Pro Rata share of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so
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recovered. The Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section 11.2 may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as full as if such Lender were the
direct creditor of the Borrower in the amount of such participation.
11.3 Liens; Set-Off. Borrower hereby grants to each Lender and
Administrative Agent a continuing lien to secure all indebtedness of Borrower
whether created hereunder, pursuant hereto, or otherwise upon any and all
monies, securities and other property of Borrower and the proceeds thereof, now
or hereafter held or received by or in transit to, the Lender or Administrative
Agent, if applicable, from or for Borrower, and also upon any and all deposits
(general or special) and credits of Borrower, if any, at Bank, at any time
existing. Upon the occurrence of any Event of Default, each Lender is hereby
authorized at any time and from time to time, without notice to Borrower, to set
off, appropriate, and apply any or all items hereinabove referred to against all
indebtedness of Borrower owed to it, whether under the Loan Documents or
otherwise, whether now existing or hereafter arising. A Lender shall be deemed
to have exercised such right of set-off and to have made a charge against such
items immediately upon the occurrence of such Event of Default although made or
entered on its books subsequent thereof.
11.4 Payment of Expenses, Including Attorneys' Fees and Taxes. Borrower
agrees: (a) to pay or reimburse Lenders and Administrative Agent for all their
respective reasonable and customary out-of-pocket costs and expenses incurred in
connection with the preparation, negotiation, execution, and delivery of, and
any amendment, supplement, or modification to, or waiver or consent under, the
Loan Documents, and the consummation of the transactions contemplated thereby,
including, without limitation, the reasonable and customary fees and
disbursements of their counsel, taxes, and all recording or filing fees; (b) to
pay or reimburse Lenders and Administrative Agent for all of its costs and
expenses incurred in connection with the administration, supervision,
collection, or enforcement of, or the preservation of any rights under, the Loan
Documents, including, without limitation, the fees and disbursements of their
counsel, including attorneys' fees out of court, in trial, on appeal, in
bankruptcy proceedings, or otherwise; (c) without limiting the generality of
provision (a) hereof, to pay or reimburse Lenders and Administrative Agent for,
and indemnify and hold them harmless against liability for, any and all
documentary stamp taxes, non-recurring intangible taxes, or other taxes,
together with any interest, penalties, or other liabilities in connection
therewith, that Lenders and Administrative Agent now or hereafter determines are
payable with respect to the Loan Documents, the obligations evidenced by the
Loan Documents, any advances under the Loan Documents, and any guaranties or
security instruments; and (d) to pay, indemnify, and hold Lenders and
Administrative Agent harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses, or disbursements of any kind or nature whatsoever with respect to
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the execution, delivery, enforcement, performance, and administration of the
Loan Documents, except in the event of gross negligence or willful misconduct on
the part of the indemnified party. The agreements in this Subsection shall
survive repayment of all other amounts payable hereunder or pursuant hereto, now
or in the future, and shall be secured by all collateral that secures the loan
or loans described herein.
11.5 Notices. Unless otherwise expressly agreed herein, and notwithstanding
any provisions to the contrary contained in the other Loan Documents, all
notices, requests, and demands to or upon the parties hereto pursuant to any
Loan Document shall be deemed to have been given or made when delivered by hand
or by courier service, when provided to a nationally recognized overnight
delivery service for overnight delivery, when transmitted to a receiving
telecopier, or three days after deposit in the mail, postage prepaid by
registered or certified mail, return receipt requested for the purposes hereof
the addresses of the parties hereto (until notice of a change thereof is
delivered and provided in this Subsection) shall be as set forth under each
party's name on the signature pages hereof.
11.6 Governing Law. The validity, interpretation, and enforcement of the
Loan Documents and the rights and obligations of the parties thereto, shall be
governed by, and construed and interpreted in accordance with, the laws of the
State of Florida excluding those laws relating to the resolution of conflicts
between laws of different jurisdictions.
11.7 Venue; Personal Jurisdiction. In any litigation in connection with or
to enforce any of the Loan Documents, Borrower irrevocably consents to and
confers personal jurisdiction on the courts of the State of Florida or the
United States courts located 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 Borrower 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 Administrative Agent or Lenders 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.
11.8 Severability and Enforceability of Provisions. In the event that any
one or more of the provisions of the Loan Documents is determined to be invalid,
illegal, or unenforceable in any respect as to one or more of the parties, all
remaining provisions nevertheless shall remain effective and binding on the
parties thereto and the validity, legality, and enforceability thereof shall not
be affected or impaired thereby. If any such provision is held to be illegal,
invalid, or unenforceable, there will be deemed added in lieu thereof a
provision as similar in terms to such provision as is possible, that is legal,
valid, and enforceable. To the
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extent permitted by applicable law, the parties hereby waive any law that
renders any such provision invalid, illegal, or unenforceable in any respect.
11.9 Failure of Party to Execute. Any party executing any of the Loan
Documents shall be bound by the terms thereof without regard to execution by any
other party, and the failure of any party to execute any of the Loan Documents
shall not release or otherwise affect the obligations of the party or parties
who do sign the other Loan Documents.
11.10 Counterparts; Facsimile Signatures; Effective Date. The Loan Documents
and any amendments, waivers, consents, or supplements hereto may be signed in
original counterparts and by facsimile transmission of signed counterparts, in
any number, each of which shall be deemed an original, no one of which need
contain all of the signatures of the parties, and as many of such counterparts
as shall together contain all of the signatures of the parties shall be deemed
to constitute one and the same instrument. A set of the counterparts of this
Agreement signed by all parties hereto shall be lodged with Administrative
Agent. This Agreement shall become effective upon the receipt by Administrative
Agent of original signed counterparts or facsimile confirmation of signed
counterparts of this Agreement, each of which shall be deemed an original, from
each of the parties hereto.
11.11 No Waiver. (a) No omission or failure of Administrative Agent or any
Lender to exercise and no delay in exercising of any right, power, or privilege
under any of the Loan Documents shall impair such right, power, or privilege,
shall operate as a waiver thereof or be construed to be a waiver thereof; nor
shall any single or partial exercise of any right, power, or privilege preclude
any other or further exercise thereof or the exercise of any other right, power,
or privilege.
(b) The execution of this Agreement and the new Loan Documents shall not
constitute a waiver of any default or Event of Default in any Loan Document
existing on the date hereof, nor shall it eliminate any right which
Administrative Agent or Lenders may otherwise have to accelerate the
indebtedness subject to this Agreement or exercise any other remedies by virtue
of any such other default or Event of Default.
11.12 Cumulative Remedies. The rights and remedies provided in the Loan
Documents are cumulative, and not exclusive of any rights or remedies provided
by law or in equity, and may be pursued singularly, successively, or together,
and may be exercised as often as the occasion therefor shall arise. The
warranties, representations, covenants, and agreements made herein and therein
shall be cumulative, except in the case of irreconcilable inconsistency, in
which case the provisions of this Agreement shall control.
11.13 Course of Dealing; Amendment; Supplemental Agreements. No course of
dealing between the parties hereto shall be effective to amend, modify, or
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change any provision of the Loan Documents. The Loan Documents may not be
amended, modified, or changed in any respect except by an agreement in writing
signed by the party against whom such change is to be enforced. The parties may,
subject to the provisions of this Subsection, from time to time, enter into
written agreements supplemental to the Loan Documents for the purpose of adding
any provisions to the Loan Documents or changing in any manner the rights and
obligations of the parties thereunder. Any such supplemental agreement shall be
binding upon the parties thereto.
11.14 Time of Essence. Time is of the essence in the performance of the Loan
Documents.
11.15 Binding Obligation on Successors and Assigns. The Loan Documents shall
be binding upon the parties thereto and their respective successors and assigns,
and shall inure to the benefit of the parties thereto and their permitted
successors and assigns.
11.16 Assignments and Participations.
(a) Borrower may not assign or transfer any of its rights or obligations
under this Agreement without the prior written consent of Lenders and
Administrative Agent.
(b) Each Lender may assign to one or more banks or other entities its rights
and obligations under this Agreement (including, without limitation, its
Specified Percentage of the Revolving Credit Commitment, the Advances owing to
it, and its obligations with respect to the Line of Credit Commitment and the
Swing Line Commitment); provided, however, that (i) Borrower shall have the
right to designate an existing Lender to have a right of first refusal to accept
such assignment, (ii) the assignment shall be of all, and not a portion, of its
rights and obligations under all of the facilities; (iii) Borrower shall consent
in writing to the assignment, which consent, shall not be unreasonably withheld
(except that no consent by Borrower shall be required in the case of any
assignment to another Lender and no consent by Borrower shall be required after
an Event of Default has occurred and is continuing); (iv) Administrative Agent
shall consent in writing to the assignment, which consent shall be in
Administrative Agent's sole discretion; and (v) the parties to the assignment
shall execute and deliver to Administrative Agent an assignment and acceptance
instrument in the form attached as Exhibit C hereto or otherwise satisfactory in
form and substance to Administrative Agent (the "Assignment and Acceptance
Agreement"), together with a processing and recordation fee of $3,500.00,
payable by the assignor. Upon such execution and delivery, the assignee shall be
a party hereto, shall be deemed a "Lender," and shall have, to the extent of
such assignment (unless otherwise provided in such assignment with the consent
of Borrower and Administrative Agent), the obligations, rights, and benefits of
a Lender hereunder, and the assigning Lender shall relinquish its rights and be
released from obligations under this Agreement.
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(c) Each Lender may sell participations to one or more banks or other
entities in all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Revolving Credit
Commitment, the Advances owing to it, and its obligations with respect to the
Swing Line Commitment and the Line of Credit Commitment); provided, however,
that (i) such Lender's obligations under this Agreement (including, without
limitation, its commitments shall remain unchanged; (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations; (iii) Borrower, the Administrative Agent, and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with the Lender's rights and obligations under this Agreement; (iv)
such Lender may not agree with the participant to require the participant's
consent or permit the participant to vote on whether to take or refrain from
taking any action or to approve any amendment or waiver of any provision of any
Loan Document, or any consent or any departure by any party therefrom, except
that such Lender may agree with the participant that such Lender will not,
without the consent or vote of the participant, agree to (1) increase the
Revolving Credit Commitment, Swing Line Commitment, or Line of Credit Commitment
of such Lender; (2) reduce the principal, interest, any fees, or other amounts
payable under the Loan Documents, or waive or result in the waive of any Event
of Default; (4) postpone any date fixed for any payment of principal, interest,
fees, or other amounts payable under the Loan Documents; or (5) release all or
substantially all of any collateral or guaranties securing any obligations under
the Loan Documents, other than releases contemplated by the Loan Documents; or
(6) change the definitions of "Revolving Credit Commitment," "Swing Line
Commitment," "Letter of Credit Commitment," or "Maturity Date," in each case if
the rights of the participant are or would be affected thereby. The assigning
Lender shall promptly notify Borrower in writing of such assignment.
(d) Administrative Agent and any Lender may disclose to any assignee or
participant or proposed assignee or participant, any information relating to
Borrower furnished to Administrative Agent or such Lender.
(e) Notwithstanding any of the foregoing to the contrary, nothing herein is
intended to prohibit the assigning, discounting, or pledging of all or any
portion of a Lender's interest in the Advances or any Note to any Federal
Reserve Bank as collateral security pursuant to regulations of the Board of
Governors of the Federal Reserve System and any Operating Circular issued by
such Federal Reserve Bank, and such Advances or a Note shall be fully
transferable as provided therein. No such assignment shall release the assigning
Lender from its obligations hereunder.
(f) Borrower agrees that any participants shall have the same rights of
set-off against Borrower as granted the Lenders herein.
11.17 Reliance Upon, Survival of and Materiality of Representations and
Warranties, Agreements, and Covenants. All representations and
53
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warranties, agreements, and covenants made in the Loan Documents are material
and shall be deemed to have been relied upon by Lenders, notwithstanding any
investigation heretofore or hereafter made by any Lender or Administrative
Agent, and shall survive the execution and delivery of the Loan Documents and
the making of the loan or loans herein contemplated, and shall continue in full
force and effect so long as any indebtedness is owed to any Lender or
Administrative Agent pursuant hereto or so long as there shall be any commitment
to make loans hereunder. All statements contained in any certificate or other
paper delivered to Lenders at any time pursuant to the Loan Documents shall
constitute representations and warranties under the Loan Documents.
11.18 Legal or Governmental Limitations. Anything contained in the Loan
Documents to the contrary notwithstanding, no Lender shall be obligated to
extend credit or make loans to Borrower in an amount in violation of any
limitations or prohibitions provided by any applicable statute or regulation.
11.19 Estoppel and Release. Borrower hereby acknowledges and agrees that, as
of the date hereof, there exists no right of offset, defense, counterclaim,
claim, or objection in favor of such party as against the Administrative Agent
or the Lenders with respect to the Revolving Credit Notes, the Line of Credit
Notes, the Swing Line Note, any collateral therefor or guaranties thereof, or
any other aspect of the transactions contemplated thereby, or alternatively,
that any such right of offset, defense, counterclaim, claim, or objection known
by Borrower is hereby expressly waived. In connection with the foregoing,
Borrower hereby releases and discharges the Administrative Agent and the
Lenders, their subsidiaries, affiliates, directors, officers, employees,
attorneys, agents, successors, and assigns from any and all rights, claims,
demands, actions, causes of action, suits, proceedings, agreements, contracts,
judgments, damages, debts, duties, liabilities, or obligations, of any kind or
character, including without limitation such claims and defenses as fraud,
mistake, duress, and usury, whether in law or in equity, choate or inchoate,
which they have had or now have, if known by Borrower, arising under or in any
manner relating to, whether directly or indirectly, the Revolving Credit Notes,
the Line of Credit Notes, the Swing Line Note, any collateral therefor or
guaranties thereof, or any other aspect of the transactions contemplated thereby
from the beginning of time until the date hereof.
11.20 Waiver of Appraisement, Valuation, Stay, etc. In consideration of the
agreements as set forth herein, Borrower agrees that neither Borrower nor anyone
claiming through or under Borrower will set up, claim, or seek to take advantage
of any moratorium, reinstatement, forbearance, appraisement, valuation, stay,
cash collateral, extension, homestead, exemption, or redemption laws now or
hereafter in force, in order to prevent or hinder the enforcement or foreclosure
of any security documents in accordance with the terms thereof, the absolute
sale of the collateral encumbered thereby, or the delivery of possession thereof
immediately after such sale to the purchaser at such sale. Borrower, for itself
and all who may
54
<PAGE>
at any time claim through or under it, hereby waives to the full extent that it
may lawfully do so, the benefit of all such laws, and any and all right to have
the assets subject to the lien of the security documents marshalled upon any
foreclosure or sale.
11.21 Consultation With Counsel; Voluntary Execution. Borrower has had the
opportunity to consult with counsel of its own choosing, and has discussed with
such counsel the provisions of this Agreement and the other new Loan Documents
or has freely and voluntarily elected not to discuss such provisions with
counsel. Borrower has executed this Agreement and the other new Loan Documents
voluntarily and with full knowledge of their significance and without any
coercion or duress from Administrative Agent or Lenders. Borrower has read and
understands the purpose and effect of this Agreement and the other new Loan
Documents.
11.22 Cooperation, Further Assurances. Borrower agrees to cooperate with
Administrative Agent and Lenders so that the interests of such parties under the
Loan Documents are protected and the intent of the Loan Documents and this
Agreement can be effectuated. Borrower agrees to execute whatever further
documents and to provide whatever further assurances Administrative Agent may
reasonably request or deem necessary to effectuate the terms of this Agreement.
11.23 WAIVER OF TRIAL BY JURY. EACH OF THE PARTIES HERETO HEREBY KNOWINGLY,
IRREVOCABLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED ON THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS, 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 LENDERS, ADMINISTRATIVE AGENT, SWING LINE
LENDER, ISSUING LENDER, AND LEAD ARRANGER TO ENTER INTO THE TRANSACTIONS
EVIDENCED HEREBY.
55
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their duly authorized officers as of the day and year
first above written.
BORROWER:
Address: 531 Flanders Filters Road FLANDERS CORPORATION,
Washington, NC 27889 a North Carolina corporation
Attn: Steven K. Clark
Telephone: (252) 946-8081
Telecopy: (252) 946-4738
By: /s/ Steven K. Clark
Steven K. Clark
Vice President
LEAD ARRANGER:
Address: SunTrust Plaza SUNTRUST EQUITABLE
303 Peachtree St., Ste 2400 SECURITIES CORPORATION, a
Atlanta, GA 30308 Georgia corporation
Attn: Susan O. Graham
By: /s/ Susan O. Graham
------------------------------
Name: Susan O. Graham
Title: Director
ADMINISTRATIVE AGENT:
Address: Corporate Banking, Tampa Bay SUNTRUST BANK,
401 East Jackson Street a state bank organized under the
20th Floor the laws of Georgia
Tampa, FL 33601
Attn: Donald J. Campisano
Telephone: (813) 224-2397 By: /s/ W. David Wisdom
Telecopier: (813) 224-2833 Name: W. David Wisdom
Title: Vice President
56
<PAGE>
SWING LINE LENDER:
Address: Corporate Banking, Tampa Bay SUNTRUST BANK,
401 East Jackson Street a state bank organized under the
20th Floor the laws of Georgia
Tampa, FL 33601
Attn: Donald J. Campisano
Telephone: (813) 224-2397 By: /s/ W. David Wisdom
Telecopier: (813) 224-2833 Name: W. David Wisdom
Title: Vice President
ISSUING LENDER:
Address: Corporate Banking, Tampa Bay SUNTRUST BANK,
401 East Jackson Street a state bank organized under the
20th Floor the laws of Georgia
Tampa, FL 33601
Attn: Donald J. Campisano
Telephone: (813) 224-2397 By: /s/ W. David Wisdom
Telecopier: (813) 224-2833 Name: W. David Wisdom
Title: Vice President
LENDERS:
Specified Percentage: 66.667% SUNTRUST BANK,
Address: Corporate Banking, Tampa Bay a state bank organized under the
401 East Jackson Street laws of Georgia
20th Floor
Tampa, Florida 33601
Telephone: (813) 224-2397 By: /s/ W. David Wisdom
Telecopier: (813) 224-2833 Name: W. David Wisdom
Title: Vice President
Specified Percentage: 33.333% ZIONS FIRST NATIONAL BANK,
Address: One South Main Street a national banking association
Salt Lake City, Utah 84111
Attn:
Telephone:
Telecopier: By: /s/ Brett Eliason
Name: Brett Eliason
Title: Vice President
57
<PAGE>
STATE OF UTAH
COUNTY OF SALT LAKE
Execution of the foregoing instrument was acknowledged before me this 1st
day of February, 2000, by Steven K. Clark, as Vice President of Flanders
Corporation, a North Carolina corporation, on behalf of the corporation. He is
either personally known to me or has produced ____________________________
____________________ as identification.
/s/ Connie R Calo
Printed/Typed Name: Connie R Calo
(AFFIX NOTARIAL SEAL) Notary Public-State of Utah
Commission Number:
My Commission Expires: 10-03-02
STATE OF GEORGIA
COUNTY OF FULTON
Execution of the foregoing instrument was acknowledged before me this 3rd
day of February, 2000, by Susan Graham as Director of SunTrust Equitable
Securities Corporation, a Georgia corporation, on behalf of the corporation.
He/She is either personally known to me or has produced
____________________________________________ as identification.
/s/ Janice J. Konopka
Printed/Typed Name: Janice J. Konopka
(AFFIX NOTARIAL SEAL) Notary Public-State of Georgia
Commission Number:
My Commission Expires: Jan. 21, 2003
58
<PAGE>
STATE OF GEORGIA
COUNTY OF FULTON
Execution of the foregoing instrument was acknowledged before me this 1 day
of February, 2000, by W. David Wisdom, as Vice President of SunTrust Bank, a
state bank organized under the laws of Georgia, on behalf of the bank. He/She is
either personally known to me or has produced _____________________________
_______________ as identification.
/s/ Shaumar K. Morris
Printed/Typed Name: Shaumar K. Morris
(AFFIX NOTARIAL SEAL) Notary Public-State of Georgia
Commission Number:
My Commission Expires: June 13, 2003
STATE OF UTAH
COUNTY OF UTAH
Execution of the foregoing instrument was acknowledged before me this 31st
day of January, 2000, by Brett Eliason, as vice-president, of Zions First
National Bank, a national banking association, on behalf of the association. He
is either personally known to me or has produced
____________________________________________ as identification.
/s/ Travis Colledge
Printed/Typed Name: Travis Colledge
(AFFIX NOTARIAL SEAL) Notary Public-State of Utah
Commission Number:
My Commission Expires: 06/10/00
59
THE JOHNSTON COUNTY INDUSTRIAL FACILITIES AND
POLLUTION CONTROL FINANCING AUTHORITY,
as the Issuer,
FLANDERS CORPORATION,
the Company
------------------------------------
LOAN AGREEMENT
------------------------------------
Dated as of March 1, 2000
Relating to
$4,000,000
The Johnston County Industrial Facilities and
Pollution Control Financing Authority
Industrial Development Revenue Bonds
(Flanders Corporation Project), Series 2000
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.................6
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...10
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........14
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...................................17
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ARTICLE V
PREPAYMENT, PURCHASE AND REDEMPTION
Section 5.1. Prepayment and Redemption....................................18
ARTICLE VI
SPECIAL COVENANTS
Section 6.1. No Warranty of Condition or Suitability by Issuer............19
Section 6.2. Access to the Project........................................19
Section 6.3. Further Assurances and Corrective Instruments................19
Section 6.4. Issuer and Company Representatives...........................19
Section 6.5. Financing Statements.........................................19
Section 6.6. Covenant to Provide Continuing Disclosure....................20
Section 6.7. Annual Report of Outstanding Bonds...........................20
Section 6.8. Notice of Control............................................20
ARTICLE VII
ASSIGNMENT, SELLING, LEASING; INDEMNIFICATION, MERGER
OR ASSET SALE, MAINTENANCE AND REPAIR, TAXES
Section 7.1. Assignment, Selling and Leasing..............................20
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
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Section 9.5. Amounts Remaining in Funds...................................28
Section 9.6. No Liability of Issuer; No Charge Against Issuer's Credit....28
Section 9.7. If Performance Date Not a Business Day.......................28
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
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<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of March 1, 2000, 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"), 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 air and water pollution control facilities to the end that
such authorities may be able to promote the right to gainful employment
opportunity, private industry, the prevention and control of the pollution of
the air, land and waters of the State, and the safety, morals and health of the
people of the State and thereby promote the general welfare of the inhabitants
of North Carolina by exercising such powers to aid in financing air and water
pollution control facilities for the purpose of reducing, controlling and
preventing environmental pollution, 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 a pollution control 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 construction of a building and
installation of equipment therein for the recycling of waste industrial glass
(the "Project") in Johnston County, North Carolina, which constitutes a
pollution control 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, 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
$4,072,223 to the Trustee at the
<PAGE>
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 Dollars ($4,000,000) (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,
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, 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.
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<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 March 21, 2000, being the date of the original
issuance and delivery of the Bonds by the Issuer.
"Default" means any Default under this Agreement as specified in and defined
by Section 8.1 hereof.
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<PAGE>
"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
$4,000,000, dated March 21, 2000, in the form attached hereto as Exhibit B,
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, construction, installation and equipping of
a facility for the recycling of waste glass 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 the rights of the Issuer provided under Sections
3.1(c), 3.8, 4.2(b), 7.2, 7.3 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.
ARTICLE II
REPRESENTATIONS, CERTAIN COVENANTS AND WARRANTIES
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<PAGE>
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 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
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<PAGE>
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 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
makes the following representations, covenants and warranties:
(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.
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(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 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.
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(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 acquire, construct and equip the Project shall assist
the Company in continuing to provide continued employment and industry in the
County.
(k) Pollution Control 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 August 20, 1999.
(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.
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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,
construct and equip the Project with all reasonable dispatch and use its best
efforts to cause the Acquisition of the Project to be completed by August, 2000,
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.
(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.
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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
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
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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 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. For purposes of applicability of the Code, 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
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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 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 $0.00.
(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 $4,500,000. 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 August 17,
1999. 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.
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(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 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 sections of
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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 take 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 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
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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 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.
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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 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
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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 twenty 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 fifteen 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 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.
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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.
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
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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, ss. 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.
Section 6.8. Notice of Control. The Company shall provide written notice to
the Trustee and the Remarketing Agent thirty (30) days prior to the consummation
of any transaction that would result in the Company controlling the Credit
Provider or being controlled by the Credit Provider within the meaning of
Section 2(a)(9) of the Investment Company Act of 1940.
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.
This Agreement may be assigned and the Project may be sold or leased, as a
whole or in part, and the Company released of all obligations under this
Agreement and the Indenture, with the prior written consent of the Issuer, the
Trustee, and the LGC, if (i) such assignee, lessee or purchaser assumes the
Company's obligations hereunder in writing, (ii) the Credit Provider
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consents in writing to such assignment, sale and/or lease and the release of the
Company hereunder (or, if no Credit Facility is in effect at the time of such
assignment, lease or sale, the Owners of a majority in aggregate principal
amount of the Bonds then Outstanding consent in writing to such assignment, sale
(or lease) and release), and (iii) prior to any assignment, lease or sale
pursuant to this Section, the Company shall have caused to be delivered to the
Issuer, the Trustee, the LGC and the Credit Provider, if any, an opinion of Bond
Counsel, satisfactory in form and substance to each of them, to the effect that
such assignment, sale (or lease) and release will not cause interest on the
Bonds to be includable in the gross income of the Owners of the Bonds for
purposes of federal income taxation. Upon the release of all of the Company's
duties and obligations under the provisions of this Section as provided above,
the Trustee may execute a release of the Company from its obligations hereunder
and under the Indenture and all references to the "Company" in this Agreement,
the Indenture and the Bonds shall mean the assignee, lessee or purchaser, as
applicable.
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.
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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.
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
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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 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
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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.
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;
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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
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.
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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, 2015 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
If to the Trustee: First-Citizens Bank & Trust Company
100 East Tryon Road
Mail Drop DAC61
Raleigh, North Carolina 27603
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
- 25 -
<PAGE>
If to the Credit Provider: SunTrust Bank
Mail Code FL-Tampa-4206
401 East Jackson Street, 20th Floor
Tampa, Florida 33602
Attn: Donald J. Campisano
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: Secretary
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.
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
- 26 -
<PAGE>
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.
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.
- 27 -
<PAGE>
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.
- 28 -
<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:______________________________
Robert R. Amerson, President
By: _____________________
Debra Hill, Secretary
- 29 -
<PAGE>
EXHIBIT A
DESCRIPTION OF PROJECT
The project consists of the construction and equipping of a facility for the
recycling of waste industrial glass into spun glass fiber. The facility will be
constructed on the site of the Company's existing manufacturing facility.
A-1
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made and entered
into this 3rd day of November, 1999, by and between Flanders Corporation, a
North Carolina corporation (formerly known as Elite Acquisitions, Inc.)
("Flanders Corporation"), Flanders Filters, Inc., a North Carolina corporation
("Flanders Filters") (Flanders Corporation and Flanders Filters are sometimes
hereinafter collectively referred to as the "Company"), and Steven Clark
("Clark" or the "Executive"). In this Amendment, Flanders Corporation, Flanders
Filters, and Clark, together with their successors and permitted assignees, are
separately referred to as a "Party" and collectively as the "Parties."
W I T N E S S E T H:
WHEREAS, Flanders Corporation, Flanders Filters and Clark entered into an
Employment Agreement (the "Agreement") dated December 15, 1995, and amended on
December 4, 1997.
WHEREAS, Flanders Corporation, Flanders Filters and Clark amended the
Agreement on November 3, 1999; and
WHEREAS, Flanders Corporation, Flanders Filters and Clark desire to further
amend the Agreement upon the terms provided herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties hereby agree to amend
the Agreement as follows:
1. AMENDMENT TO TERM.
Section 3 of the Agreement is hereby amended as follows:
The employment of the Executive by the Company under the provisions of
this Agreement shall end on December 31, 2010, unless further extended or
sooner terminated as hereinafter provided. On December 31, 2010, and on the
last day of December each year thereafter, the term of the Executives
employment shall, unless sooner terminated as hereinafter provided, be
automatically extended for an additional two year period from the date
thereof unless, at least six (6) months before such December 31, the Company
shall have delivered to the Executive or the Executive shall have delivered
to the Company written notice that the term of the Executives employment
hereunder will not be extended beyond its existing duration.
- 1 -
<PAGE>
2. NO FURTHER AMENDMENT
Except as provided above, the Agreement shall remain in full force and
effect, unless further amended pursuant to the terms of the Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed and delivered this
Amendment as of the day and year first above written.
FLANDERS CORPORATION
By: /s/ Robert R. Amerson
Its: CEO
FLANDERS FILTERS, INC.
By: /s/ Robert R. Amerson
Its: CEO
STEVEN CLARK
/s/ Steven K. Clark
Steven Clark
- 2 -
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made and entered
into this 3rd day of November, 1999, by and between Flanders Corporation, a
North Carolina corporation (formerly known as Elite Acquisitions, Inc.)
("Flanders Corporation"), Flanders Filters, Inc., a North Carolina corporation
("Flanders Filters") (Flanders Corporation and Flanders Filters are sometimes
hereinafter collectively referred to as the "Company"), and Robert Amerson
("Amerson" or the "Executive"). In this Amendment, Flanders Corporation,
Flanders Filters, and Amerson, together with their successors and permitted
assignees, are separately referred to as a "Party" and collectively as the
"Parties."
W I T N E S S E T H:
WHEREAS, Flanders Corporation, Flanders Filters and Amerson entered into an
Employment Agreement (the "Agreement") dated December 15, 1995, and amended on
December 4, 1997.
WHEREAS, Flanders Corporation, Flanders Filters and Amerson amended the
Agreement on November 3, 1999; and
WHEREAS, Flanders Corporation, Flanders Filters and Amerson desire to
further amend the Agreement upon the terms provided herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties hereby agree to amend
the Agreement as follows:
1. AMENDMENT TO TERM.
Section 3 of the Agreement is hereby amended as follows:
The employment of the Executive by the Company under the provisions of
this Agreement shall end on December 31, 2010, unless further extended or
sooner terminated as hereinafter provided. On December 31, 2010, and on the
last day of December each year thereafter, the term of the Executives
employment shall, unless sooner terminated as hereinafter provided, be
automatically extended for an additional two year period from the date
thereof unless, at least six (6) months before such December 31, the Company
shall have delivered to the Executive or the Executive shall have delivered
to the Company written notice that the term of the Executives employment
hereunder will not be extended beyond its existing duration.
- 1 -
<PAGE>
2. NO FURTHER AMENDMENT
Except as provided above, the Agreement shall remain in full force and
effect, unless further amended pursuant to the terms of the Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed and delivered this
Amendment as of the day and year first above written.
FLANDERS CORPORATION
By: /s/ Steven K. Clark
Its: CFO
FLANDERS FILTERS, INC.
By: /s/ Steven K. Clark
Its: CFO
ROBERT AMERSON
/s/ Robert R. Amerson
Robert Amerson
- 2 -
AMENDMENT TO OPTION AGREEMENT
THIS AMENDMENT TO OPTION AGREEMENT (the "Amendment") is made and entered
into this 22nd day of December 1999, by and between Flanders Corporation, a
North Carolina corporation (formerly known as Elite Acquisitions, Inc.)
("Flanders Corporation"), Flanders Filters, Inc., a North Carolina corporation
("Flanders Filters") (Flanders Corporation and Flanders Filters are sometimes
hereinafter collectively referred to as the "Company"), and Robert Amerson
("Amerson" or the "Executive"). In this Amendment, Flanders Corporation,
Flanders Filters, and Amerson, together with their successors and permitted
assignees, are separately referred to as a "Party" and collectively as the
"Parties."
W I T N E S S E T H:
WHEREAS, Flanders Corporation, Flanders Filters and Amerson entered into an
Option Agreement (the "Agreement") dated February 22, 1996.
WHEREAS, Flanders Corporation, Flanders Filters and Amerson amended the
Agreement on December 22, 1999; and
WHEREAS, Flanders Corporation, Flanders Filters and Amerson desire to
further amend the Agreement upon the terms provided herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties hereby agree to amend
the Agreement as follows:
1. AMENDMENT TO EXPIRATION DATE.
The expiration date of the Option Agreement shall end on February 22, 2006.
2. NUMBER OF SHARES
The number of shares shall remain 1,000,000 which may be purchased pursuant
to the Agreement.
Dated: 12-22-99 /s/ Robert R. Amerson
Robert Amerson
AMENDMENT TO OPTION AGREEMENT
THIS AMENDMENT TO OPTION AGREEMENT (the "Amendment") is made and entered
into this 22nd day of December 1999, by and between Flanders Corporation, a
North Carolina corporation (formerly known as Elite Acquisitions, Inc.)
("Flanders Corporation"), Flanders Filters, Inc., a North Carolina corporation
("Flanders Filters") (Flanders Corporation and Flanders Filters are sometimes
hereinafter collectively referred to as the "Company"), and Steven Clark
("Clark" or the "Executive"). In this Amendment, Flanders Corporation, Flanders
Filters, and Clark, together with their successors and permitted assignees, are
separately referred to as a "Party" and collectively as the "Parties."
W I T N E S S E T H:
WHEREAS, Flanders Corporation, Flanders Filters and Clark entered into an
Option Agreement (the "Agreement") dated February 22, 1996.
WHEREAS, Flanders Corporation, Flanders Filters and Clark amended the
Agreement on December 22, 1999; and
WHEREAS, Flanders Corporation, Flanders Filters and Clark desire to further
amend the Agreement upon the terms provided herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties hereby agree to amend
the Agreement as follows:
1. AMENDMENT TO EXPIRATION DATE.
The expiration date of the Option Agreement shall end on February 22, 2006.
2. NUMBER OF SHARES
The number of shares shall remain 1,000,000 which may be purchased pursuant
to the Agreement.
Dated: 12/22/99 /s/ Steven K. Clark
Steven K. Clark
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
State/Country of
Name Incorporation % Ownership
- ------------------------------------------ ---------------- ---------------
<S> <C> <C>
Flanders/CSC Corporation North Carolina 100.00%
Air Seal Filter Housings, Inc. Texas 100.00%
Precisionaire, Inc. Florida 100.00%
Flanders International Pte, Ltd. Singapore 100.00%
Flanders Filters, Inc. North Carolina 98.86%
Airseal West, Inc. Utah 80.00%
Flanders Airia Technologies, Inc. North Carolina 100.00%
GFI, Inc. Utah 100.00%
S.R.I., Inc. Utah 100.00%
Flanders/Precisionaire Corp. North Carolina 100.00%
Flanders Realty Corp. North Carolina 100.00%
Flanders Airpure Products Company, LLC North Carolina 100.00%(1)
Flanders Airia Technologies International England 100.00%(2)
Ltd.
Flanders Airpure Filter Sales and North Carolina 100.00%
Service, Inc.
Sierra Ridge Filter Corporation California 100.00%
Eco-Air Products, Inc. California 100.00%
Industrias Seco de Tijuana, C.C.S.A. de C.V. Mexico 100.00%(3)
_____________________
<FN>
(1) 63% owned by Flanders Filters, Inc., 37% by the Company.
(2) Owned by Flanders Airia Technologies, Inc.
(3) Owned by Eco-Air Products, Inc.
</FN>
</TABLE>
[Grant Thornton Letterhead]
CONSENT
We have issued our reports dated March 8, 2000, accompanying the consolidated
financial statements and schedule included in the Annual Report of Flanders
Corporation and Subsidiaries on Form 10-K for the year ended December 31, 1999.
We hereby consent to the incorporation by reference of said reports in the
Registration Statement of Flanders Corporation and Subsidiaries on Form S-8
(File No. 333-31667, effective July 21, 1997).
/s/ GRANT THORNTON LLP
Salt Lake City, Utah
April 8, 2000
[McGladrey & Pullen Letterhead]
CONSENT
We hereby consent to the incorporation of our report, dated March 12, 1999,
included in this Form 10-K in the previously filed Registration Statements of
Flanders Corporation and subsidiaries on Form S-8 (No. 333-31667).
/s/ McGladrey & Pullen, LLP
New Bern, North Carolina
April 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF
FLANDERS CORPORATION FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND
1997.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1999 JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<CASH> 824,220 13,672,685 35,454,580
<SECURITIES> 0 0 0
<RECEIVABLES> 29,510,546 27,222,375 21,175,241
<ALLOWANCES> 487,321 551,725 380,566
<INVENTORY> 25,901,700 25,518,804 16,520,154
<CURRENT-ASSETS> 66,191,882 70,321,597 76,251,708
<PP&E> 84,093,408 75,159,028 57,407,239
<DEPRECIATION> 18,839,580 14,069,608 9,646,832
<TOTAL-ASSETS> 169,950,716 167,780,194 145,880,516
<CURRENT-LIABILITIES> 20,770,480 22,350,019 21,071,223
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 89,809,530 90,102,881 91,995,493
<OTHER-SE> 22,317,067 19,499,933 14,211,365
<TOTAL-LIABILITY-AND-EQUITY> 169,950,716 167,780,194 145,880,516
<SALES> 171,392,281 154,764,804 131,898,603
<TOTAL-REVENUES> 171,392,281 154,764,804 131,898,603
<CGS> 127,417,753 117,104,977 99,018,962
<TOTAL-COSTS> 33,802,204 28,108,372 23,509,447
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 1,257,157 574,950 751,499
<INCOME-PRETAX> 10,173,607 10,991,386 9,849,686
<INCOME-TAX> 4,670,682 4,450,079 3,751,399
<INCOME-CONTINUING> 5,502,925 6,541,307 6,098,287
<DISCONTINUED> (2,685,791) (1,252,739) (259,022)
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 2,817,134 5,288,568 5,839,265
<EPS-BASIC> 0.11 0.21 0.32
<EPS-DILUTED> 0.11 0.20 0.27
</TABLE>
