Exhibit 10.40

September 23, 2009

Flanders Corporation

Flanders/Precisionaire Corp.

Flanders Filters, Inc.

Flanders/CSC Corporation

Precisionaire, Inc.

Precisionaire of Utah, Inc.

Eco-Air Products, Inc.

Air Seal Filter Housings, Inc.

Flanders Realty Corp.

531 Flanders Filters Road

Washington, North Carolina 27889

Attention: John Oakley

 

  RE: Twenty-First Amendment to Loan and Security Agreement

Ladies and Gentlemen:

Reference is made to that certain Loan and Security Agreement dated October 18,
2002 (as at any time amended, restated, modified or otherwise supplemented, the
“Loan Agreement”), by and among Flanders Corporation, a North Carolina
corporation (“Flanders”), Flanders/Precisionaire Corp., a North Carolina
corporation (“Flanders/Precisionaire”), Flanders Filters, Inc., a North Carolina
corporation (“Filters”), Flanders/CSC Corporation, a North Carolina corporation
(“CSC”), Precisionaire, Inc., a Florida corporation (“Precisionaire”),
Precisionaire of Utah, Inc., a Utah corporation (“Utah”), Eco-Air Products,
Inc., a California corporation (“Eco-Air”), Air Seal Filter Housings, Inc., a
Texas corporation (“Air Seal”), and Flanders Realty Corp., a North Carolina
corporation (“Flanders Realty”; Flanders, Flanders/Precisionaire, Filters, CSC,
Precisionaire, Utah, Eco-Air, Air Seal and Flanders Realty are herein referred
to collectively as “Borrowers” and each individually as a “Borrower”), and Bank
of America, N.A., a national banking association (together with its successors
and assigns, “Lender”). Each capitalized term used herein, unless otherwise
defined herein, shall have the meaning ascribed to such term in the Loan
Agreement.

Borrowers have advised Lender that Borrowers desire to repurchase up to 30,000
shares of Equity Interests of Flanders held by certain shareholders (such
transaction is referred to herein as the “Flanders Stock Repurchase”). Because
Borrowers are prohibited by Section 9.2.7 of the Loan Agreement from purchasing,
redeeming or otherwise acquiring or retiring for value any Equity Interests of
Flanders unless made contemporaneously from the net proceeds of the sale of
Equity Interests of Flanders, Borrowers request that Lender consent to the
Flanders Stock Repurchase. Borrowers also request that Lender agree to amend the
definition of “Inventory Formula Amount” contained in Appendix A to the Loan
Agreement. Lender is willing to consent to the Flanders Stock Repurchase and
amend the Loan Agreement, subject to the terms and conditions contained herein.

NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other good and
valuable consideration, the receipt and sufficiency of which are hereby
severally acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:

1. Consent to the Flanders Stock Repurchase. Lender hereby consents to the
Flanders Stock Repurchase, subject to the satisfaction of each of the following
conditions precedent, each in form and substance satisfactory to Lender: (a) no
Default or Event of Default shall exist at the time of the Flanders Stock
Repurchase or after giving effect thereto; (b) the Flanders Stock Repurchase
shall be fully consummated on or within thirty (30) days after the date hereof;
and (c) Flanders shall not pay more than the market price for Equity Interests
of Flanders as traded and determined on the NASDAQ stock exchange on the date it
repurchases such Equity Interests.

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2. Amendments to Loan Agreement. The Loan Agreement is hereby amended as
follows:

(a) By deleting the definition of “Inventory Formula Amount” contained in
Appendix A to the Loan Agreement and by substituting the following new
definition in lieu thereof, in proper alphabetical sequence:

Inventory Formula Amount - on any date of determination thereof, an amount equal
to the lesser of (i) $17,000,000 or (ii) the sum of (a) 85% of the NOLV
Percentage of the Value of Eligible Inventory consisting of raw materials or
finished goods plus (b) the lesser of (I) $500,000 or (II) 45% of the Value of
Eligible Inventory on such date consisting of Eligible In-Transit Inventory.

(b) By adding the following new definition of “NOLV Percentage” to Appendix A to
the Loan Agreement, in proper alphabetical sequence:

NOLV Percentage - the net orderly liquidation value of Inventory, expressed as a
percentage, expected to be realized at an orderly, negotiated sale held within a
reasonable period of time, net of all liquidation expenses, as determined from
the most recent appraisal of Borrowers’ Inventory performed by an appraiser and
on terms satisfactory to Lender.

3. Acknowledgments and Stipulations. By its signature below, each Borrower
acknowledges and stipulates that the Loan Agreement and the other Loan Documents
executed by such Borrower are legal, valid and binding obligations of such
Borrower that are enforceable against such Borrower in accordance with the terms
thereof; all of the Obligations are owing and payable without defense, offset or
counterclaim (and to the extent there exists any such defense, offset or
counterclaim on the date hereof, the same is hereby waived by such Borrower);
and the security interests and liens granted by such Borrower in favor of Lender
are duly perfected, first priority security interests and liens.

4. No Novation, etc. Except as expressly set forth herein, nothing in this
letter amendment shall be deemed to amend or modify any provision of the Loan
Agreement or any of the other Loan Documents, each of which shall remain in full
force and effect. This letter amendment is not intended to be, nor shall it be
construed to create, a novation or accord and satisfaction, and the Loan
Agreement as herein modified shall continue in full force and effect.

5. Additional Inducements. As inducement to Lender to enter into this letter
amendment, each Borrower covenants and agrees with Lender that such Borrower
will promptly reimburse Lender for all costs and expenses (including, without
limitation, legal fees) incurred by Lender in connection with this letter
amendment and any of the matters herein described.

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6. Miscellaneous. This letter amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. This
letter amendment may be executed in any number of counterparts and by different
parties to this letter amendment on separate counterparts, each of which, when
so executed, shall be deemed an original, but all such counterparts shall
constitute one and the same amendment. Any signature delivered by a party by
facsimile or electronic transmission shall be deemed to be an original signature
hereto. This letter amendment and the other Loan Documents, unless otherwise
specified, shall be governed by the laws of the State of Georgia, without giving
effect to any conflict of law principles (but giving effect to federal laws
relating to national banks). Each Borrower agrees to take such further actions
as Lender shall reasonably request from time to time in connection herewith to
evidence or give effect to the terms and provisions set forth herein or any of
the transactions contemplated hereby. Section titles and references used in this
letter amendment shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreements among the parties hereto.

7. Release of Claims. To induce Lender to enter into this letter amendment, each
Borrower hereby releases, acquits and forever discharges Lender, and all
officers, directors, agents, employees, successors and assigns of Lender, from
any and all liabilities, claims, demands, actions or causes of action of any
kind or nature (if there be any), whether absolute or contingent, disputed or
undisputed, at law or in equity, or known or unknown, that such Borrower now has
or ever had against Lender arising under or in connection with any of the Loan
Documents or otherwise. Each Borrower represents and warrants to Lender that
such Borrower has not transferred or assigned to any Person any claim that such
Borrower ever had or claimed to have against Lender.

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signatures begin on following page.]

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If this letter amendment is acceptable to Borrowers, please evidence each
Borrower’s agreement with the terms hereof by executing and returning this
letter amendment to Lender.

 

Very truly yours, BANK OF AMERICA, N.A. (“Lender”) By:  

 

Name:  

 

Title:  

 

[Signatures continued on following page.]

Twenty-First Amendment to Loan and Security Agreement

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FLANDERS CORPORATION (“Borrower”) By:  

 

Name:  

 

Title:  

 

FLANDERS/PRECISIONAIRE CORP. (“Borrower”) By:  

 

Name:  

 

Title:  

 

FLANDERS FILTERS, INC. (“Borrower”) By:  

 

Name:  

 

Title:  

 

FLANDERS/CSC CORPORATION (“Borrower”) By:  

 

Name:  

 

Title:  

 

PRECISIONAIRE, INC. (“Borrower”) By:  

 

Name:  

 

Title:  

 

PRECISIONAIRE OF UTAH, INC. (“Borrower”) By:  

 

Name:  

 

Title:  

 

ECO-AIR PRODUCTS, INC. (“Borrower”) By:  

 

Name:  

 

Title:  

 

[Signatures continue on following page.]

Twenty-First Amendment to Loan and Security Agreement

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AIR SEAL FILTER HOUSINGS, INC. (“Borrower”) By:  

 

Name:  

 

Title:  

 

FLANDERS REALTY CORP. (“Borrower”) By:  

 

Name:  

 

Title:  

 

Twenty-First Amendment to Loan and Security Agreement