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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
(Mark One) Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission File Number 0-19266
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ALLIED HEALTHCARE PRODUCTS, INC.
[EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER]
DELAWARE 25-1370721
(STATE OR OTHER (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION
INCORPORATION OR NO.)
ORGANIZATION)
1720 SUBLETTE AVENUE
ST. LOUIS, MISSOURI 63110
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (314) 771-2400
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each
exchange
TITLE OF EACH ON WHICH
CLASS REGISTERED
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock
Preferred Stock
Preferred Stock Purchase Rights
(Title of class)
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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 September 23, 1996, the aggregate market value of the voting stock
held by non-affiliates (6,346,898 shares) of the Registrant was $46,015,010
(based on the closing price, on such date, of $7.25 per share).
As of September 23, 1996, there were 7,796,682 shares of common stock,
$0.01 par value (the "Common Stock"), outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement dated October 4, 1996 (portion)(Part III) Annual Report to
Shareholders for the Year Ended June 30, 1996(portion)(Parts I, II and IV)
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<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
INDEX TO FORM 10-K
PAGE
PART I
Item 1. Business.........................................................1
Item 2. Properties......................................................15
Item 3. Legal Proceedings...............................................16
Item 4. Submission of Matters to a Vote of Security Holders.............16
PART II
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters.....................................17
Item 6. Selected Financial Data.........................................17
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations......................................................17
Item 8. Financial Statements and Supplementary Data.....................17
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure......................................................17
PART III
Item 10. Directors and Executive Officers of the Registrant..............18
Item 11. Executive Compensation..........................................18
Item 12. Security Ownership of Certain Beneficial
Owners and Management...........................................18
Item 13. Certain Relationships and Related
Transactions....................................................18
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.........................................19
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Allied Healthcare Products, Inc. ("Allied" or the "Company") is a leading
manufacturer of respiratory products used in the health care industry in a wide
range of hospital and alternate site settings, including post-acute care
facilities, home health care and trauma care. The Company's product lines
include respiratory therapy equipment, medical gas equipment and emergency
medical products. The Company believes that it is one of the largest U.S.
manufacturers of respiratory therapy products, with leading market shares in a
number of its principal product lines. As a result of a number of acquisitions
completed within recent years, the Company has diversified its product lines and
expanded its distribution channels. While maintaining its position as a leading
manufacturer in its traditional product lines, the Company has broadened its
focus to emphasize more technologically-advanced respiratory therapy products
for which it anticipates significant growth. Although the Company believes that
these acquisitions will provide opportunity for future growth, integration of
these operations in fiscal 1996 was more difficult and, to date, less successful
than anticipated.
Allied offers a broad spectrum of respiratory therapy products for use in
the trauma, hospital, home and post-acute care settings. The Company's products
are marketed under well-recognized and respected brand names to hospitals,
hospital equipment dealers, hospital construction contractors, home health care
dealers, emergency medical products dealers and others.
Allied's product lines include:
RESPIRATORY THERAPY EQUIPMENT MEDICAL GAS EQUIPMENT
* RESPIRATORY CARE/ANESTHESIA * MEDICAL GAS SYSTEM CONSTRUCTION
PRODUCTS PRODUCTS
* HOME RESPIRATORY CARE * MEDICAL GAS SYSTEM REGULATION
PRODUCTS DEVICES
EMERGENCY MEDICAL PRODUCTS * DISPOSABLE OXYGEN AND SPECIALTY
* RESPIRATORY/RESUSCITATION GAS CYLINDERS
PRODUCTS * PORTABLE SUCTION EQUIPMENT
* TRAUMA AND PATIENT HANDLING
PRODUCTS
The Company's principal executive offices are located at 1720 Sublette
Avenue, St. Louis, Missouri 63110, and its telephone number is (314) 771-2400.
RESPIRATORY PRODUCTS INDUSTRY
The worldwide market for respiratory products is significant and growing
due to an aging population, improved diagnostics, technology advancements and
the increased occurence of respiratory illnesses, such as asthma and respiratory
problems associated with AIDS and lung cancer. In addition, strong demand is
expected in the sectors of the industry serving lower cost venues, such as
post-acute care facilities and home health care. The treatment of respiratory
illnesses in the United States is more advanced than in many other countries
and, as a result, U.S. respiratory therapy manufacturers are well positioned to
compete in international markets.
Although consolidation has begun to occur, the respiratory products
industry remains fragmented, both domestically and internationally, with many
companies focusing on selected niches. The Company believes that the influence
of managed care and the ongoing consolidation of purchasers of respiratory
products, such as hospitals and alternate site providers, will result in further
consolidation among respiratory products suppliers. The Company believes that
such consolidation will generate economies of scale and other operating
efficiencies which will create a competitive advantage for those companies with
broad product lines, especially those companies competing in international
markets. In addition, this consolidation will result in larger buying groups and
national accounts which will increase customers' ability to negotiate prices.
1
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Sales of respiratory products continue to be impacted by the ongoing
consolidation of the Company's health care provider customers and the continued
uncertainty in their marketplace caused by the possibility of health care
reform, particularly the possibility of changes in Medicare and Medicaid
financing and health care provider reimbursement rates. In April 1996, Congress
resolved uncertainty with respect to the federal fiscal 1996 budget but deferred
resolution of health care policy issues. The Company is unable to predict the
impact of the federal government's deferral of heath care policy decisions on
the respiratory products industry.
The respiratory products industry can be categorized by the delivery site
of respiratory care. Each setting is subject to different factors which
influence demand for respiratory products. The principal venues are hospitals
and alternate sites including post-acute care facilities, trauma care and home
health care. The respiratory products industry will be affected by the
continuing shift to less expensive alternate site care. As a result of cost
control pressures, sales of respiratory products to alternate site settings are
likely to grow more quickly than sales of products to hospitals.
BUSINESS STRATEGY
Allied's objective is to enhance its position in its core respiratory
therapy and medical gas equipment markets while expanding its product lines to
provide a continuum of respiratory products for use in hospital and alternate
site settings. In addition, the Company continues to shift its emphasis from the
lower growth sectors of the respiratory therapy market, such as medical gas
construction equipment, to higher growth sectors, such as home health care, and
higher technology sectors, such as ventilation monitoring systems through new
product development.
Allied experienced disappointing results during 1996 which were the result
of both external and internal factors. As discussed above, continued
consolidation of health care providers and uncertainty over federal budget
issues relating to Medicare and Medicaid impacted the Company's sales in fiscal
1996. In addition, Allied's recent acquisitions have taken longer to integrate
than originally anticipated. As a result, the Company has refocused its efforts
to develop and initiate strategic programs to return Allied to the historical
level of performance it is capable of achieving. In order to implement its
business strategy, Allied intends to:
RATIONALIZE OPERATIONS TO ACHIEVE EFFICIENCIES. Allied intends to continue
to evaluate opportunities to consolidate acquired operations in order to
eliminate excess capacity, reduce manufacturing, marketing and administrative
overhead costs, and develop and implement financial and operational controls
required for effective cost, inventory and accounts receivable control and
market share advances. In fiscal 1996, Allied consolidated its disposable
medical products operation in Mt. Vernon, Ohio into its facility in Toledo,
Ohio. In August 1996, the Company initiated the consolidation of its ventilation
and patient specialist field sales forces to increase sales coverage and
optimize selling costs. Allied will continue to evaluate additional
rationalization opportunities to achieve efficiencies with respect to both newly
acquired businesses and existing facilities.
EMPHASIZE NEW PRODUCT DEVELOPMENT. The Company plans to enhance its market
position by offering innovative, high quality products with superior technology
coupled with high customer service levels and competitive pricing. The Company
has recently introduced several respiratory therapy products which apply
advanced technologies to improve clinical outcomes or reduce costs, including
the Bear Cub 750R Infant Ventilator and the Smart TriggerTM for its adult
critical care ventilator. The Company has significantly increased its commitment
to internal research and development efforts and increased spending from $2.5
million in fiscal 1995 to $3.3 million in fiscal 1996. Research and development
expenditures in fiscal 1997 are expected to be $3.5 million.
EXPAND THE COMPANY'S INTERNATIONAL PRESENCE. The Company intends to
strategically expand its direct sales force abroad and expand its relationships
with foreign distributors. Allied's international sales have increased from 18%
of sales in fiscal 1994 to 26% of sales in fiscal 1996. Recent acquisitions have
broadened the Company's product offerings which should enable Allied to compete
more effectively in international markets. The Company believes that expanded
access to international markets will be particularly important as these markets
continue to grow.
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UPGRADE MANUFACTURING CAPABILITIES. The Company is in the process of
modernizing two of its primary manufacturing facilities. During the last quarter
of fiscal 1996, the Company purchased five computer controlled machining centers
and began the programming and installation process of this machinery in its
St. Louis, Missouri facility. This $1.5 million investment, which should be
fully operational by the end of the fiscal 1997 second quarter, will
substantially modernize the Company's metal machining capabilities and will
result in significant opportunities to reduce product costs as a result of
shorter set-up times, elimination of secondary operations in component
manufacturing, reduced inventory levels, reductions in scrap and improvements in
quality. In addition, the Company will invest $1.8 million in molds and
injection molding machinery to modernize and expand the production capacity and
gain efficiencies at its Toledo, Ohio facility. This investment in enhanced
injection molding capabilities is expected to increase production throughput by
20%, and to provide significant cost reduction opportunities, including reduced
product material content and labor and utility costs, while improving overall
quality. The injection molding machinery project is scheduled to be completed by
the end of the fiscal 1997 second quarter. Finally, during fiscal 1997, the
Company expects to implement a new information technology system in order to
enhance customer service and improve materials management and production
scheduling.
3
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MARKETS AND PRODUCTS
In fiscal 1996, respiratory therapy equipment, medical gas equipment and
emergency medical products represented approximately 53%, 36% and 11%,
respectively, of the Company's net sales. The Company operates in a single
industry segment and its principal products are described in the following
table:
<TABLE>
PRINCIPAL
PRODUCT DESCRIPTION BRAND NAMES PRIMARY USERS
- ----------------------------- ----------------------------- ------------------------------ ----------------
<S> <C> <C> <C>
RESPIRATORY THERAPY EQUIPMENT
Respiratory Care/Anesthesia Ventilators; large volume Bear; Timeter Hospitals and
Products compressors; ventilator calibrators; post-acute care
humidifiers and monitoring facilities
systems
Home Respiratory Oxygen concentrators; bottled Timeter; B&F; Patients at home
Care Products oxygen equipment; pressure Schuco; Bear
regulators; nebulizers;
portable large volume
compressors; portable suction
equipment and portable
ventilators
MEDICAL GAS EQUIPMENT
Construction Products In-wall medical gas system Chemetron; Hospitals and
components; central station Oxequip post-acute care
pumps and compressors and facilities
headwalls
Regulation Devices Flowmeters; vacuum regulators; Chemetron; Hospitals
pressure regulators and related Oxequip;
products Timeter
Disposable Cylinders Disposable oxygen and specialty Lif-O-Gen First aid providers
gas cylinders and substance abuse
compliance personnel
Suction Equipment Portable suction equipment and Gomco Hospitals and
disposable suction canisters post-acute care
facilities
EMERGENCY MEDICAL PRODUCTS
Respiratory/Resuscitation Demand resuscitation valves; LSP; Emergency service
Products portable resuscitation systems; Omni-Tech providers
emergency transport ventilators
and oxygen products
Trauma and Patient Handling Spine immobilization products; LSP Emergency service
Products pneumatic anti-shock garments providers
and trauma burn kits
</TABLE>
4
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RESPIRATORY THERAPY EQUIPMENT
MARKET. Respiratory therapy equipment is used in the treatment of chronic
respiratory and pulmonary disease and temporary respiratory distress. Conditions
treatable with respiratory therapy products include asthma and respiratory
problems associated with AIDS and lung cancer. The Company believes that sales
of respiratory therapy products will benefit from the treatment of AIDS
patients, the aging population, improved diagnosis, technology advancements and
an increased recognition of respiratory illnesses. Allied expects that the
global home respiratory care equipment market will be a particularly significant
growth area as cost containment pressures continue to encourage a shift in the
delivery of health care from the hospital to lower cost alternate site settings
while technology advancements make home treatment of respiratory patients
possible.
Respiratory therapy equipment is used in both hospitals and alternate site
settings. Sales of respiratory care and anesthesia products are made directly to
hospitals and post-acute care facilities while sales of home respiratory therapy
products are made through durable medical equipment dealers, which are
increasingly national chains.
The Company believes that it holds a significant share of the U.S. market
and selected foreign markets for certain respiratory therapy equipment,
including large volume compressors and ventilator calibrators. The Company also
believes that it has the leading share of the U.S. market for portable suction
equipment and has a significant market presence in other areas, including CO2
absorbent, adult ventilation, bottled oxygen equipment and accessories. Through
its acquisitions of B&F Medical Products, Inc. ("B&F") and Bear Medical Systems,
Inc. ("Bear"), Allied broadened its line of home respiratory care products and
believes that once its expansion of injection molding machinery is completed and
capacity constraints are eliminated, it is well positioned to increase its
penetration of the home health care market. Many durable medical equipment
distributors have had previous experience in the hospital setting and are
therefore familiar with Allied's traditional brands. The Company believes that
the experience of these home health care providers with its products will
provide it with significant sales opportunities in this market.
RESPIRATORY CARE/ANESTHESIA PRODUCTS. The Company manufactures and sells a
broad range of products for use in respiratory care and anesthesia delivery. As
a result of its acquisitions of Bear and BiCore Monitoring Systems, Inc.
("BiCore"), the Company markets a full line of critical care ventilators,
humidifiers and monitoring systems to hospitals, post-acute care facilities and
home health care dealers. Ventilators ease the work of patient breathing while
monitoring other pulmonary functions for the care provider. The Company
manufactures ventilators designed for both infants and adults. In August 1996,
the Company received 510(k) approval from the United States Food and Drug
Administration and introduced the Bear Cub 750R, a new infant ventilator which
utilizes a unique patented "volume limits" technology which establishes an upper
boundary to minimize the potential risk of overinflation of an infant's lungs.
In addition, the Company manufactures large volume compressors, which are
utilized to power volume ventilators and to convert certain drugs into an
aerosol form for delivery through the upper airways, and ventilator calibrators,
which are used primarily by hospital biomedical departments for testing
ventilators for compliance with manufacturers' specifications. The Company's
ventilator calibrator is referred to in virtually every major ventilator
manufacturer's operating and maintenance manuals.
The Company's other respiratory care/anesthesia products include CO2
absorbent which is used to absorb carbon dioxide in anesthesia machines that
deliver gas through a closed system mask covering the patient's nose and mouth,
oxygen tents, spirometers used to test lung capacity for purposes of detecting
and analyzing lung disease, oxygen timers used to measure oxygen usage and
ultrasonic nebulizers used to convert drugs into a fine mist for delivery to the
lungs.
HOME RESPIRATORY CARE PRODUCTS. Home respiratory care products represent
one of Allied's fastest growing businesses. Allied's broad line of home
respiratory care products includes oxygen concentrators, bottled oxygen
equipment, pressure regulators, portable large volume compressors, portable
suction equipment and portable ventilators.
5
<PAGE>
Allied's oxygen concentrators, bottled oxygen equipment and pressure
regulators are all used in the delivery of home oxygen therapy. Oxygen
concentrators take air from a room and convert it into approximately 95% pure
oxygen. The Company believes that the market for oxygen concentrators will
experience substantial growth, particularly in markets outside of the United
States. Bottled oxygen equipment includes lightweight aluminum cylinders
containing pure oxygen. This equipment is utilized by mobile patients when they
leave the home. Pressure regulators manufactured by the Company, similar to
those that Allied sells in the hospital market, are used on these aluminum
cylinders.
Allied's portable large volume compressors are used to provide air to
drive ventilators and to deliver aerosolized drugs in the home. Portable suction
equipment is used in the home by people who have had tracheotomies and have had
tracheal tubes temporarily inserted. Suctioning is used intermittently to keep
the artificial airway clear.
The Company manufactures critical care ventilators and humidifiers which
are sold to patients for use in the home. The Company also offers an extensive
line of plastic disposable medical products, including tubing, humidifiers,
cannulas, oxygen masks, aerosol masks used with nebulizers and ventilator
circuits. In addition, Allied manufactures compressor nebulizers which convert
liquid medicine into airborne particles for application deep into the lungs.
Compressor nebulizers are primarily used by children suffering from asthma,
cystic fibrosis and other breathing disorders.
MEDICAL GAS EQUIPMENT
MARKET. The market for medical gas equipment consists of hospitals and, to
a lesser degree, alternate site settings, as well as durable medical equipment
dealers and other users of portable equipment. Medical gas system construction
products and regulation devices are sold to hospitals and post-acute care
facilities. Medical gas equipment is used to deliver oxygen, air and suction to
patients for brief or extended periods in settings ranging from intensive-care
facilities in hospitals to restaurants and industrial facilities. The Company's
medical gas equipment product line is subject to severe cost containment
pressures as managed care programs increasingly direct patients to lower cost
alternate site settings. The Company's medical gas products are sold directly to
hospitals, hospital construction contractors and durable medical equipment
dealers. Principal customers for disposable oxygen and specialty gas cylinders
include substance abuse compliance personnel and customers that require oxygen
for infrequent emergencies. Portable suction equipment is sold to health care
facilities and durable medical equipment dealers.
The Company believes that it holds a leading share of the U.S. market for
in-wall components, and that its Chemetron and Oxequip lines are well recognized
by hospital construction contractors. The Company believes that its in-wall
components are installed in more than 3,000 hospitals in the United States. The
Company also believes that it holds a significant share of the U.S. market for
flowmeters, vacuum regulators and pressure regulators and many medical gas
system regulation and portable suction equipment devices. Allied tracks its
market position through a proprietary database developed by management that
registers and tracks hospital construction projects in the U.S. market and
enables the Company to determine pricing trends, volume trends and market shares
for each of Allied's sales territories and for the U.S. market as a whole.
Allied believes that its installed base of equipment in this market will
continue to generate follow-on sales. Since hospitals typically do not have more
than one medical gas system, the manufacturer of the existing installed system
has a competitive advantage in sales of such products to a hospital in which its
system is installed. Accordingly, the Company's existing installed equipment
generates continued demand from its customers for replacement products and
extensions of existing systems, which constitute a significant percentage of the
Company's total sales of medical gas products. The Company also believes that
most hospital and post-acute care facility construction spending is for
expansion and renovation of existing facilities. Many hospital systems and
individual hospitals undertake major renovations to upgrade and rationalize
acquired operations, to improve the quality of care they provide and to attract
patients and personnel. The Company expects that its installed equipment base
will continue to provide the Company with a significant competitive advantage in
the hospital renovation market.
6
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MEDICAL GAS SYSTEM CONSTRUCTION PRODUCTS. Allied's medical gas system
construction products consist of in-wall medical gas system components, central
station pumps and compressors and headwalls. These products are typically
installed during construction or renovation of a health care facility and are
built in as an integral part of the facility's physical plant. Typically, the
contractor for the facility's construction or renovation purchases medical gas
system components from manufacturers and ensures that the design specifications
of the health care facility are met.
Allied's in-wall components, including outlets, manifolds, alarms and zone
valves, serve a fundamental role in medical gas delivery systems by regulating
and monitoring the flow of medical gases.
Central station pumps and compressors are individually engineered systems
consisting of compressors, reservoirs, valves and controls designed to drive a
hospital's medical gas and suction systems. Each system is designed specifically
for a given hospital or facility by the Company, which purchases pumps and
compressors from suppliers and subcontracts the actual construction of the
system. The Company's sales of pumps and compressors are driven, in large part,
by its share of the in-wall components market.
Headwalls are prefabricated wall units for installation in patient rooms
and intensive care areas which house medical gas, suction and electrical outlets
and fixtures for monitoring equipment. These prefabricated walls also
incorporate designs for lighting and nurse call systems. Headwalls are built to
design specifications and eliminate the need for time-consuming installation of
fixtures and outlets and related piping and wiring directly into the hospital
wall. During fiscal 1995, the Company introduced the Trio headwall, which
includes a detachable face plate that permits a health care provider to switch
among one of three gases, thus providing greater flexibility to a hospital or
post-acute care facility.
MEDICAL GAS SYSTEM REGULATION DEVICES. The Company's medical gas system
regulation products include flowmeters, vacuum regulators and pressure
regulators, as well as related adapters, fittings and hoses which measure,
regulate, monitor and help transfer medical gases from walled piping or
equipment to patients in hospital rooms or intensive care areas. The Company's
leadership position in the in-wall components market gives the Company a
competitive advantage in marketing medical gas system regulation devices that
are compatible with those components. Hospitals that procure medical gas system
regulation devices from the Company's competitors were previously required to
utilize adapters in order to use Allied's in-wall components. However, in August
1996, the Company introduced its patented Connect II universal outlet, the first
such outlet to allow a hospital to utilize medical gas system regulation devices
and in-wall components produced by different manufacturers.
DISPOSABLE OXYGEN AND SPECIALTY GAS CYLINDERS. Disposable oxygen cylinders
are designed to provide oxygen supplies for short periods in emergency
situations. Since they are not subjected to the same pressurization as standard
containers, they are much lighter and less expensive than standard gas
cylinders. The Company markets filled disposable oxygen cylinders through
industrial safety distributors and similar customers, principally to first aid
providers, restaurants, industrial plants and other customers that require
oxygen for infrequent emergencies. The Company also markets disposable cylinders
to specialty gas manufacturers for use by substance abuse compliance personnel.
PORTABLE SUCTION EQUIPMENT AND SUCTION CANISTERS. Portable suction
equipment is typically used when in-wall suction is not available or when
medical protocol specifically requires portable suction. The Company also
manufactures disposable suction canisters, which are clear containers used to
collect the fluids suctioned by in-wall or portable suction systems. The
containers have volume calibrations which allow the medical practitioner to
measure the volume of fluids suctioned.
7
<PAGE>
EMERGENCY MEDICAL PRODUCTS
MARKET. Emergency medical products are used in the treatment of
trauma-induced injuries. The Company's emergency medical products provide
patients resuscitation or ventilation during cardiopulmonary resuscitation or
respiratory distress as well as immobilization and treatment for burns. The
Company believes that the trauma care venue for health care services is
positioned for growth in light of the continuing trend in the health care
industry towards providing health care outside the traditional hospital setting.
The Company also expects that other countries will continue to develop trauma
care systems in the future, although no assurance can be given that such systems
will to continue to develop or that they will have a favorable impact on the
Company. Sales of emergency medical products are made through specialized
emergency medical products distributors.
The Company believes it is a market share leader with respect to certain of
its emergency medical products, including demand resuscitation valves, portable
resuscitation systems and autovents.
RESPIRATORY/RESUSCITATION PRODUCTS. The Company's respiratory/resuscitation
products include demand resuscitation valves, portable resuscitation systems and
related products, emergency transport ventilators, precision oxygen regulators,
minilators and multilators and humidifiers.
Demand resuscitation valves are designed to provide 100% oxygen to
breathing or non-breathing patients. In an emergency situation, the valve can be
used with a mask or tracheotomy tubes and operates from a standard regulated
oxygen system. The Company's portable resuscitation systems provide fast, simple
and effective means of ventilating a non-breathing patient during
cardiopulmonary resuscitation and 100% oxygen to breathing patients on demand
with minimal inspiratory effort. The Company also markets a full line of
disposable and reusable bag mask resuscitators. Bag mask resuscitators are
available in a variety of adult and child-size configurations. Disposable
mouth-to-mask resuscitation systems have the added advantage of reducing the
risk of transmission of communicable diseases.
The Company has introduced the first domestic line of emergency transport
ventilators, or autovents, which are small and compact in design. The Company's
autovent can meet a variety of needs in different applications ranging from
typical emergency medical situations to more sophisticated air and ground
transport. Each autovent is accompanied by a patient valve which provides for
effective ventilation during cardiopulmonary resuscitation or respiratory
distress. When administration of oxygen is required at the scene of a disaster,
in military field hospitals or in a multiple-victim incident, Allied's
minilators and multilators are capable of providing oxygen to one or a large
number of patients.
To enhance its position in the transport ventilation market, the Company
acquired Omni-Tech Medical, Inc. The Omni-Vent Series D, a high-tech transport
ventilator, is a pneumatically powered single circuit, volume-constant, time
cycled and inspirtory flow variable ventilator which is used in demanding
transport environments, including airmobile operations, hyperbaric chambers,
emergency medicine and other transport settings.
To complement the family of respiratory/resuscitation products, the Company
offers a full line of oxygen products accessories. This line of accessory
products includes reusable aspirators, tru-fit masks, disposable cuffed masks
and related accessories.
TRAUMA AND PATIENT HANDLING PRODUCTS. The Company's trauma and patient
handling products include spine immobilization products, pneumatic anti-shock
garments and trauma burn kits. Spine immobilization products include a back
board which is designed for safe immobilization of injury victims and provides a
durable and cost effective means of emergency patient transportation and
extrication. The infant/pediatric immobilization board is durable and scaled for
children. The half back extractor/rescue vest is useful for both suspected
cervical/spinal injuries and for mountain and air rescues. The Company's
pneumatic anti-shock garments are used to treat victims experiencing hypovolemic
shock. Allied's trauma burn kits contain a comprehensive line of products for
the treatment of trauma and burns.
8
<PAGE>
SALES AND MARKETING
Allied sells its products primarily to respiratory care/anesthesia product
distributors, hospital construction contractors, emergency medical equipment
dealers and directly to hospitals. The Company maintains a domestic direct sales
force of 70 sales professionals, all of whom are full-time employees of the
Company. The sales force includes 36 respiratory products specialists, 16
hospital construction specialists, 10 home health care specialists, five
emergency medical specialists and three national account representatives. The
Company also utilizes eight telemarketers to generate sales in the home health
care market.
Respiratory products specialists are responsible for sales of medical gas
system regulation devices, portable suction equipment and respiratory
care/anesthesia products. These products are principally sold to the
approximately 5,700 hospitals in the United States through specialized
respiratory care/anesthesia product distributors. Many of these suppliers have
had experience with the Company's products as hospital respiratory therapists.
The Company hopes to capitalize on its brand name recognition and the
familiarity of its products and their reputations among these former hospital
therapists as a means of increasing its share of the home respiratory care
products market.
Respiratory products specialists are also responsible for sales of the full
line of infant and adult critical care ventilators and humidifiers, as well as
related monitoring equipment. These products are principally sold to hospitals,
post-acute care facilities and to durable medical equipment suppliers. In August
1996, Allied consolidated its patient care and ventilator specialists sales
forces to form the respiratory products sales force. The Company believes this
consolidation will yield several benefits, which include decreasing the cost to
the Company of the sales call, increasing the amount of time spent with
customers as opposed to traveling and, most importantly, satisfying the
customer's desire to consolidate purchases and be presented with a larger group
of products in one meeting.
Construction specialists are responsible for sales of medical gas system
construction products, including in-wall components, central station pumps and
compressors and headwalls. Construction specialists work with hospitals,
architects and project management firms, but most frequently sell to mechanical
and electrical contractors for new construction or renovation projects.
Home health care specialists are responsible for sales of home respiratory
care products. These products are sold through durable medical equipment
suppliers, who then rent or sell the products directly to the patient for use in
the home.
Emergency medical specialists are responsible for sales of
respiratory/resuscitation products, trauma and patient handling products. These
products are principally sold to ambulance companies, fire departments and
emergency medical systems volunteer organizations through specialized emergency
medical products distributors.
The Company employs national account representatives who are responsible
for marketing Allied's products to national hospital groups, managed care
organizations and other health care providers and to national chains of durable
medical equipment suppliers through sales efforts at the executive level.
Generally, the national account representatives secure a commitment from the
purchaser to buy a specified quantity of Allied's products over a defined time
period at a discounted price based on volume.
INTERNATIONAL. International sales represent a growth area which the
Company has been emphasizing, as reflected by the 27% increase in international
sales from $24.2 million in fiscal 1995 to $30.8 million in fiscal 1996.
Allied's net sales to foreign markets totaled approximately 26% of the Company's
total net sales in fiscal 1996. International sales are made through a network
of dealers, agents and U.S. exporters who distribute the Company's products
throughout the world. The Company currently maintains five international sales
offices. Allied has market presence in Canada, Mexico, Central and South
America, Europe, the Middle East and the Far East. Due to recent acquisitions
and distribution-related improvements, the Company has increased its sales in
the Far East, an area which is expected to show considerable market growth as a
result of anticipated improvements in the health care infrastructure. In
connection with the acquisition of Bear, the Company expanded its base of
operations throughout Europe and anticipates that, based upon that presence, it
will have the opportunity to
9
<PAGE>
continue to increase its market share in Europe, particularly with respect to
ventilation and home health care products. For information regarding the
Company's export sales by geographic area, see Note 10 of the Notes to
Consolidated Financial Statements incorporated by reference herein.
MANUFACTURING
Allied's manufacturing processes include fabrication, electro-mechanical
assembly operations and plastics manufacturing. A significant part of Allied's
manufacturing operations involves electro-mechanical assembly of proprietary
products and circuit boards and the Company is vertically integrated in most
elements of metal machining and fabrication. Most of Allied's hourly employees
are involved in machining, metal fabrication or plastics manufacturing assembly.
Allied manufactures small metal components from bar stock in a machine
shop which includes automatic screw machines, horizontal lathes and drill
presses. The Company makes larger metal components from sheet metal using
computerized punch presses, brake presses and shears. The Company utilizes
automated welding equipment and an automated paint line in the production of its
disposable oxygen cylinders. In its plastics manufacturing processes, the
Company utilizes both extrusion and injection molding. The Company believes
that, with the improvements discussed below, its production facilities and
equipment are in good condition and sufficient to meet planned increases in
volume over the next few years and that conditions in local labor markets should
permit the implementation of additional shifts and days operated to meet any
future increased production capacity requirements.
The Company is in the process of modernizing two of its primary
manufacturing facilities. During the last quarter of fiscal 1996, the Company
purchased five computer controlled machining centers and began the programming
and installation process of this machinery in its St. Louis, Missouri facility.
This $1.5 million investment will substantially modernize the Company's metal
machining capabilities and will result in significant opportunities to reduce
product costs from shorter set-up times, elimination of secondary operations in
component manufacturing, reduced inventory levels, reductions in scrap and
improvements in quality.
Since its acquisition of B&F, Allied's production of its disposable
products has been constrained by outdated molds and injection molding machinery.
During fiscal 1996, manufacturing inefficiencies and capacity constraints
prevented the Company from shipping to the level of demand for certain products.
Accordingly, the Company will invest $2.0 million in molds and injection molding
machinery to expand the production capacity and gain efficiencies at its Toledo,
Ohio facility. This investment in enhanced injection molding capabilities is
expected to increase production throughput by 20%, and to provide significant
cost reduction opportunities, including reduced product material content, labor
and utility costs, while improving overall quality.
Production and inventory control are becoming increasingly important as
durable medical equipment dealers and other Allied customers decrease their
inventory levels and expect same-day or next-day shipment of orders. As a
result, the Company utilizes just-in-time ("JIT") manufacturing at all of its
facilities. JIT manufacturing allows Allied to respond to customer requests more
quickly. JIT processes are expected to result in work-in-process and finished
inventory reductions, space savings, significant reductions in scrap and rework
and corresponding productivity improvements, reduction in throughput time and
increased service levels. Allied also utilizes a quality assurance program as
part of its transition to the principles of KAIZEN or "lean" manufacturing. This
program focuses on training all employees with respect to customer product
specifications and inspection of machines, tools and finished products.
RESEARCH AND DEVELOPMENT
Consistent with its focus on more technologically-advanced products, the
Company has increased the level of its research and development activities and
anticipates committing more resources to research and development in the future.
Research and development expenditures in fiscal 1995 and 1996 were approximately
$2.5 million and $3.3 million, respectively, and are expected to be $3.5 million
in fiscal 1997.
10
<PAGE>
Expenditures for research and development activities primarily include
updating current products and developing new respiratory therapy products. The
Company has approximately 40 engineers and technicians working on research and
development projects.
The Company has recently introduced several new products which are the
result of its research and development efforts. Such products include the Bear
Cub 750R infant ventilator, the Connect II universal medical gas outlet, the
Schuco 2000 nebulizer, Chemetron'sTM line of flowmeters, the BearTM 1000
ventilator with Smart TriggerR and the GomcoTM Opti-Vac. The Bear Cub 750R
infant ventilator utilizes a unique patented volume limit technology which
establishes an upper boundary to minimize the potential risk of over inflation
of an infant's lungs. The Schuco 2000 home care nebulizer is designed for the
treatment of asthmatics, primarily children, and has lower production costs, an
extended warranty and greater ease of use. The ChemetronTM flowmeter has been
redesigned to more effectively utilize space with the metering knob in front and
offers an extended warranty. The BearTM 1000 adult and pediatric ICU ventilator
with Smart-TriggerR provides a unique mechanism for automatically adjusting
pressure and flow thresholds. Finally, the GomcoTM Opti-Vac meets suctioning
needs in all health care settings, including emergency, acute care, sub-acute
care and the home.
GOVERNMENT REGULATION
The Company's products and its manufacturing activities are subject to
extensive and rigorous government regulation by federal and state authorities in
the United States and other countries. In the United States, medical devices for
human use are subject to comprehensive review by the United States Food and Drug
Administration (the "FDA"). The Federal Food, Drug, and Cosmetic Act ("FDC
Act"), and other federal statutes and regulations, govern or influence the
research, testing, manufacture, safety, labeling, storage, record keeping,
approval, advertising, and promotion of such products. Noncompliance with
applicable requirements can result in Warning Letters, fines, recall or seizure
of products, injunction, civil fines, refusal to permit products to be imported
into or exported out of the United States, refusal of the government to clear or
approve marketing applications or to allow the Company to enter into government
supply contracts, withdrawal of previously approved marketing applications and
criminal prosecution.
The Company will be required to file a premarket notification submission
("510(k) notification") or premarket approval ("PMA") application or supplement
with FDA before it begins marketing a new medical device or changes or modifies
an existing device in a manner that could significantly affect the device's
safety or effectiveness or make a major change or modification in the device's
intended use. Commercial distribution in certain foreign countries is subject to
additional regulatory requirements and receipt of approvals that vary from
country to country.
FDA categorizes medical devices into three regulatory classifications
subject to varying degrees of regulatory control. In general, Class I devices
are those whose safety and effectiveness can be reasonably ensured through
general controls (e.g., labeling, premarket notification and adherence to the
good manufacturing practice ("GMP") regulation for medical devices). Class II
devices may be subject to additional regulatory controls, including performance
standards and other special controls such as guidelines, postmarket surveillance
and patient registries. Class III devices, which typically are life-sustaining
or life-supporting and implantable devices, or new devices that have not been
found to be substantially equivalent to a legally marketed predicate device,
require clinical testing to ensure safety and effectiveness and FDA approval
prior to marketing and distribution. FDA also has the authority to require
clinical testing of Class I and Class II devices. Allied currently manufactures
only Class I and Class II devices.
If a medical device manufacturer can establish that a newly developed
device is "substantially equivalent" to a legally marketed Class I or Class II
device, or to a Class III device for which FDA has not called for PMAs, the
manufacturer may seek clearance from FDA to market the device by filing a 510(k)
notification. The 510(k) notification may need to be supported by appropriate
data establishing the claim of substantial equivalence to the satisfaction of
FDA. FDA recently has been requiring a more rigorous demonstration of
substantial equivalence.
11
<PAGE>
Following submission of the 510(k) notification, the manufacturer or
distributor may not place the device into commercial distribution until an order
is issued by FDA. No law or regulation specifies the time limit by which FDA
must respond to a 510(k) notification. At this time, FDA typically responds to
the submission of a 510(k) premarket notification within 100 to 120 days. An FDA
order may declare that the device is substantially equivalent to another legally
marketed device and allow the proposed device to be marketed in the United
States. FDA, however, may determine that the proposed device is not
substantially equivalent or requires further information, such as additional
test data, before the agency is able to make a determination regarding
substantial equivalence. Such determination or request for additional
information could delay the Company's market introduction of its products and
could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the Company
will obtain 510(k) notification clearance within the above time frames, if at
all, for any of the devices for which it may file a 510(k) notification.
If a manufacturer or distributor of medical devices cannot establish that
a proposed device is substantially equivalent, whether or not FDA has made a
determination in response to a 510(k) notification, the manufacturer or
distributor must seek premarket approval of the proposed device through
submission of a PMA application. To date, none of the Company's products have
been subject to PMA applications. A PMA application must be supported by
extensive data, including preclinical and clinical trial data, as well as
extensive literature to prove the safety and efficacy of the device. Upon
receipt, FDA conducts a preliminary review of the PMA to determine whether the
submission is sufficiently complete to permit a substantive review. If
sufficiently complete, the submission is declared fileable by FDA. Under the FDC
Act, FDA has 180 days to review a PMA application, although the review of such
applications more often occurs over a significantly protracted time period, and
generally takes approximately two years or more from the date of filing to
complete.
The PMA process can be expensive, uncertain and lengthy. A number of
devices for which FDA marketing approval has been sought have never been
approved for marketing. There can be no assurance that the Company will be able
to obtain necessary PMA application approval on a timely basis, or at all.
Delays in receipt or failure to receive such approvals, the loss of previously
received approvals, or failure to comply with existing or future regulatory
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations.
If human clinical trials of a proposed device are required and the device
presents "significant risk," the manufacturer or distributor of the device will
have to file an Investigational Device Exemption ("IDE") application with FDA
prior to commencing human clinical trials. To date, none of the Company's
products have been subject to IDE applications. The IDE application must be
supported by data, typically including the results of animal and mechanical
testing. If the IDE application is approved, human clinical trials may begin at
the specified investigational sites, and the number of research subjects or
patients included in the clinical trials must be limited to that approved by
FDA. The conduct of preclinical studies must be done in conformity with FDA's
good laboratory practice regulation. Clinical studies must comply with FDA's
regulations for Institutional Review Board ("IRB") approval and informed
consent.
The Company manufacturers and distributes a broad spectrum of respiratory
therapy equipment, emergency medical equipment and medical gas equipment. To
date, all of the Company's FDA clearances have been obtained through the 510(k)
clearance process. FDA's premarket notification regulation requires that agency
clearance of a new 510(k) notification is required before the Company can market
a previously cleared device that has been changed or modified, if the change or
modification could significantly affect the safety or effectiveness of the
device or if there is a major change or modification in the intended use of the
device. These determinations are very fact specific, and FDA has stated that,
initially, the manufacturer is best qualified to make these determinations,
which should be based on adequate supporting data and documentation. FDA,
however, may disagree with a manufacturer's determination and require the
submission of a new 510(k) notification for the changed or modified device.
Where FDA believes that the change or modification raises significant new
questions of safety or effectiveness, the agency may require a manufacturer to
cease distribution of the device pending clearance of a new 510(k) notification.
Certain of the Company's medical devices have been changed or modified
subsequent to 510(k) marketing clearance of the original device by FDA. Certain
of the Company's medical devices, which were first marketed prior to May 28,
1976 and, therefore, grandfathered and exempt from the 510(k) notification
process, also have been subsequently changed or modified. The Company believes
that these
12
<PAGE>
changes or modifications do not significantly affect the devices' safety or
effectiveness or make a major change or modification in the devices' intended
uses and, accordingly, that submission of new 510(k) notifications to FDA is not
required. There can be no assurance, however, that FDA would agree with the
Company's determinations.
The Company's medical device manufacturing facilities are registered with
FDA. As such, the Company will be inspected by FDA for compliance with the GMP
regulations for medical devices. This regulation requires that the Company
manufacture its products and maintain documents in a prescribed manner with
respect to manufacturing, testing and control activities. The GMP regulation may
be revised by FDA to include design controls as well. The Company also is
subject to the registration and inspection requirements of state regulatory
agencies.
During fiscal 1996, FDA conducted inspections at Allied's St. Louis,
Missouri, Toledo, Ohio and Stuyvesant Falls, New York facilities. No alleged
violations of the GMP and MDR regulations were identified by FDA. During fiscal
1995, FDA conducted an inspection of the Company's Riverside, California
manufacturing facility and issued a Form FDA 483 and a Warning Letter during
July and August 1995, respectively and a Form FDA 483 in January 1996.
Subsequent to the receipt of these documents, the Company took all necessary
corrective action at the Riverside facility. The Company has been notified by
FDA that all restrictions on 510(k) applications have been lifted.
The Medical Device Reporting regulation requires that the Company provide
information to FDA on deaths or serious injuries alleged to have been associated
with the use of its devices, as well as product malfunctions that would likely
cause or contribute to death or serious injury if the malfunction were to recur.
The Medical Device Tracking regulation requires the Company to adopt a method of
device tracking of certain devices, such as ventilators and oxygen
concentrators, which are life-supporting or life-sustaining devices used outside
of a device user facility or which are permanently implantable devices. The
regulation requires that the method adopted by the Company ensures that the
tracked device can be traced from the device manufacturer to the person for whom
the device is indicated (i.e., the patient). In addition, FDA prohibits a
company from promoting an approved device for unapproved applications and
reviews a company's labeling for accuracy. Labeling and promotional activities
also are, in certain instances, subject to scrutiny by the Federal Trade
Commission.
There can be no assurance that any required FDA or other governmental
approval will be granted, or, if granted, will not be withdrawn. Governmental
regulation may prevent or substantially delay the marketing of the Company's
proposed products and cause the Company to undertake costly procedures. In
addition, the extent of potentially adverse government regulation that might
arise from future administrative action or legislation cannot be predicted. Any
failure to obtain, or delay in obtaining, such approvals could adversely affect
the Company's ability to market its proposed products.
Sales of medical devices outside the United States are subject to foreign
regulatory requirements that vary widely from country to country. Whether or not
FDA approval has been obtained, approval of a device by a comparable regulatory
authority of a foreign country generally must be obtained prior to the
commencement of marketing in those countries. The time required to obtain such
approvals may be longer or shorter than that required for FDA approval.
No FDA approval is required to export a device that is legally marketed in
the United States by the exporting company, or for a device that is eligible for
marketing clearance by FDA through the 510(k) premarket notification process.
Permission from FDA is required, however, to export an unapproved Class III
medical device for which a PMA is required for marketing in the United States,
unless the device has been approved for marketing in Australia, Canada, Israel,
Japan, New Zealand, Switzerland, South Africa, the European Union or a country
in the European Economic Area. FDA must determine that exportation of the device
is not contrary to public health and safety and has the approval of the country
to which it is intended for export. FDA approval also is required to export an
investigational device to a country other than one of those listed in the
proceeding sentence, unless the device is the subject of an FDA-approved IDE and
will be marketed or used in clinical trials in the importing country for the
same intended use, or the manufacturer has been informed by at least two IRBs in
the United States that the device is a non-significant risk device and the
device will be marketed or used for clinical trials in the importing county for
the same intended use. In order to obtain FDA approval, a company must provide
the agency
13
<PAGE>
with documentation from the medical device regulatory authority of the country
in which the purchaser is located, stating that the sale of the device is not in
violation of the country's medical device laws. There can be no assurance that
the Company will obtain any required approval by FDA or the country to which a
device is intended for export.
The Company also is subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protections, fire hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that it will not be
required to incur significant cost to comply with such laws and regulations in
the future or that such laws or regulations will not have a materially adverse
effect upon the Company's ability to do business.
THIRD PARTY REIMBURSEMENT
The cost of a majority of medical care in the United States is funded by
the U.S. Government through the Medicare and Medicaid programs and by private
insurance programs, such as corporate health insurance plans. Although the
Company does not receive payments for its products directly from these programs,
home respiratory care providers and durable medical equipment suppliers, who are
the primary customers for several of the Company's products, depend heavily on
payments from Medicare, Medicaid and private insurers as a major source of
revenues. In addition, sales of certain of the Company's products are affected
by the extent of hospital and health care facility construction and renovation
at any given time. The federal government indirectly funds a significant
percentage of such construction and renovation costs through Medicare and
Medicaid reimbursements. In recent years, governmentally imposed limits on
reimbursement of hospitals and other health care providers have impacted
negatively spending for services, consumables and capital goods. In addition,
Congress has deferred resolution of health care policy issues, including the
Medicare and Medicaid programs and whether there should be changes in the
eligibility requirements for participation in such programs or whether they
should be restructured. Restructuring of Medicare and Medicaid most likely will
be considered again by Congress in 1997. A material decrease from current
reimbursement levels or a material change in the method or basis of reimbursing
health care providers, especially with respect to capital spending, as well as
uncertainty with respect to the possibility of such changes, are likely to
adversely affect future sales of the Company's products.
PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY
The Company has recently expanded the number of products it manufactures
which are subject to patents and has applied for several patents for new product
developments. Allied holds patents on the Bear Cub 750R infant ventilator, the
Connect II universal gas outlet, the Trio headwall and certain ventilator
components which it believes to be material to its business. The Company expects
that as it shifts its focus to the higher technology portion of the respiratory
products industry, new patents obtained through its research and development
efforts and acquisitions will be increasingly material to the Company's
business.
The Company owns and maintains U.S. trademark registrations for Chemetron,
Gomco, Oxequip, Lif-O-Gen, Life Support Products, Timeter, Vacutron and Schuco,
its principal trademarks. Registrations for these trademarks are also owned and
maintained in all countries where such products are sold and such registrations
are considered necessary to preserve the Company's proprietary rights therein.
COMPETITION
Allied competes in the markets for respiratory products. The Company has
different competitors within each of its product lines. The Company's principal
competitors include: Nellcor Puritan-Bennett Corporation; DeVilbiss Health Care,
Inc., a subsidiary of Sunrise Medical Inc.; Healthdyne Technologies, Inc.; Bird
Medical Technologies, Inc., a subsidiary of Thermo Election Corp.; Invacare
Corporation; Medaes Inc., Ohmeda, a division of BOC Group plc; Hill-Rom Company,
Inc., a subsidiary of Hillenbrand Industries, Inc.; Laerdal Medical Corporation;
Ambu, Inc.; Impact Instrumentation, Inc. and Ferno-Washington, Inc. Many of the
Company's principal competitors are larger than Allied and the Company believes
that most of these competitors have greater financial and other resources than
the Company. The Company competes primarily on the basis of price, quality
14
<PAGE>
and service. The Company believes that it is well positioned with respect to
product cost, brand recognition, product reliability and customer service to
compete effectively in each of its markets.
EMPLOYEES
At June 30, 1996, the Company had 814 full-time employees and 143
part-time employees. Approximately 265 employees in the Company's principal
manufacturing facility located in St. Louis, Missouri, are covered by a
collective bargaining agreement which expires in May 1997. An aggregate of
approximately 115 employees at the Company's facilities in Oakland, California,
Toledo, Ohio and Stuyvesant Falls, New York are also covered by collective
bargaining agreements which expire in 1997 and 1998. The Company has not
experienced a strike or work stoppage during the past five years, and believes
that its labor relations are good.
ENVIRONMENTAL AND SAFETY REGULATION
The Company is subject to federal, state and local environmental laws and
regulations that impose limitations on the discharge of pollutants into the
environment and establish standards for the treatment, storage and disposal of
toxic and hazardous wastes. The Company is also subject to the federal
Occupational Safety and Health Act and similar state statutes. From time to time
the Company has been involved in environmental proceedings involving clean-up of
hazardous waste. There are no such material proceedings currently pending. Costs
of compliance with environmental, health and safety requirements have not been
material to the Company. The Company believes it is in material compliance with
all applicable environmental laws and regulations.
ITEM 2. PROPERTIES
The Company's headquarters are located in St. Louis, Missouri and the
Company maintains manufacturing facilities in Missouri, California, Ohio and New
York. Set forth below is certain information with respect to the Company's
manufacturing facilities.
<TABLE>
SQUARE OWNED/
FOOTAGE LEASED
LOCATION (APPROXIMATE) ACTIVITIES/PRODUCTS
- --------------------- --------- ------- -----------------------
<S> <C> <C> <C>
St. Louis, Missouri 270,000 Owned Headquarters; medical
gas equipment;
respiratory therapy
equipment; emergency
medical products
Riverside, 164,000 Leased Respiratory therapy
California equipment
Toledo, Ohio 56,700 Owned Home health care
products
Stuyvesant Falls, 30,000 Owned CO2 absorbent
New York
Oakland, California 12,500 Leased Headwalls
</TABLE>
In the event of the expiration, cancellation or termination of a lease
relating to any of the Company's leased properties, the Company anticipates no
significant difficulty in connection with leasing alternate space at reasonable
rates. The Company leases facilities in Mt. Vernon, Ohio, which it subleased in
fiscal 1996 as a second stage of its plant consolidation strategy for its
disposable products operations. In addition, the Company also owns an additional
16.8 acre parcel of undeveloped land in Stuyvesant Falls, New York.
15
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Product liability lawsuits are filed against the Company from time to time
for various injuries alleged to have resulted from defects in the manufacture
and/or design of the Company's products. Several such proceedings are currently
pending, which are not expected to have a material adverse effect on the
Company. The Company maintains comprehensive general liability insurance
coverage which it believes to be adequate for the continued operation of its
business, including coverage of product liability claims.
In addition, from time to time the Company's products may be subject to
product recalls in order to correct design or manufacturing flaws in such
products. To date, no such recalls have been material to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information required by this item is set forth under the caption
"Common Stock Information" appearing on page 29 of the Company's 1996 Annual
Report to Shareholders (the "Annual Report"), which information is incorporated
herein by reference thereto.
As of September 23, 1996, there were 244 record owners of the Company's
Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is set forth under the caption
"Income Statement Data" and "Balance Sheet Data" appearing on page 29 of the
Annual Report, which information is incorporated herein by reference thereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is set forth under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing on pages 10 through 16 of the Annual Report, which
information is incorporated herein by reference thereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item are
presented under Item 14 and incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
17
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A definitive proxy statement is expected to be filed with the Securities
and Exchange Commission on or about October 4, 1996. The information required by
this item is set forth under the caption "Election of Directors" on pages 2
through 4, under the caption "Executive Officers" on page 7 under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" on page 18 of the
definitive proxy statement, which information is incorporated herein by
reference thereto.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth under the caption
"Executive Compensation" on pages 8 through 14 of the definitive proxy
statement, which information is incorporated herein by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" on pages 4
through 6 of the definitive proxy statement, which information is incorporated
herein by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth under the caption
"Certain Transactions" on page 15 of the definitive proxy statement, which
information is incorporated herein by reference thereto.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
1. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company and its
subsidiaries, included on pages 17 to 28 in the Annual Report are incorporated
herein by reference:
Consolidated Statement of Income for the years
ended June 30, 1996, 1995 and 1994
Consolidated Balance Sheet at June 30, 1996 and 1995
Consolidated Statement of Changes in Shareholders' Equity
for the years ended June 30, 1996, 1995 and 1994
Consolidated Statement of Cash Flows for the years ended
June 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Accountants
2. FINANCIAL STATEMENT SCHEDULES
Report of Independent Accountants on Financial Statement Schedule
Valuation and Qualifying Accounts and Reserves for the Years
Ended June 30, 1996, 1995 and 1994
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
3. EXHIBITS
The exhibits listed on the accompanying Index to Exhibits are filed as
part of this Report.
4. REPORTS ON FORM 8-K
None.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 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.
ALLIED HEALTHCARE PRODUCTS, INC.
By: /S/ BARRY F.BAKER
________________________________
Barry F. Baker
Vice President-Finance and Chief
Financial Officer
Dated: September 27, 1996
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 indicated on September 27, 1996.
SIGNATURES TITLE
* Chairman of the Board
_____________________________
Dennis W. Sheehan
* President, Chief Executive Officer and
_____________________________ Director (Principal Executive Officer)
James C. Janning
/S/ BARRY F. BAKER Vice President-Finance and Chief
_____________________________ Financial Officer (Principal Financial
Barry F. Baker Officer and Principal Accounting Officer)
*
_____________________________ Director
David A. Gee
*
_____________________________ Director
Samuel A. Hamacher
*
_____________________________ Director
Robert E. Lefton
*
_____________________________ Director
Donald E. Nickelson
*
_____________________________ Director
William A. Peck
*By: /S/ BARRY F. BAKER
_____________________________
Barry F. Baker
Attorney-in-Fact
- ----------
*Such signature has been affixed pursuant to the following Power of Attorney.
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints each of James C. Janning and Barry F. Baker as
his true and lawful attorney-in-fact and agent, each with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the 1996 Annual Report on Form 10-K of Allied Healthcare
Products, Inc., and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto each said attorney-in-fact and agent full power and authority to
do and perform each and every act and thing requisite as fully to all intents
and purposes as he might or could do in person, and ratifying and confirming all
that said attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
Allied Healthcare Products, Inc.
Our audits of the consolidated financial statements referred to in our
report dated August 21, 1996, except as to Note 14, which is as of September 20,
1996, appearing in the 1996 Annual Report to Shareholders of Allied Healthcare
Products, Inc. (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedule listed in item 14(2) of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PRICE WATERHOUSE LLP
St. Louis, Missouri
August 21, 1996
S-1
<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
RULE 12-09 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
FOR THE YEAR ENDED JUNE 30, 1996
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------------------------------------------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER
BEGINNING COSTS AND - ACCOUNTS DEDUCTIONS BALANCE AT
DESCRIPTION OF PERIOD EXPENSES DESCRIBE -- DESCRIBE END OF PERIOD
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve For
Doubtful
Accounts ($590,459) ($107,871) $275,814(1)
($422,516)
Inventory
Allowance
For
Obsolescence ($4,349,467)
and Excess
Quantities $83,700
$2,453,225(2) ($1,812,542)
- ------------------------------------------------------------------------------------
FOR THE YEAR ENDED JUNE 30, 1995
Reserve For
Doubtful
Accounts
($320,000) $124,205 ($394,664)(3) ($590,459)
Inventory
Allowance
For
Obsolescence
and Excess ($812,389) ($469,664) ($4,006,742) (($4,349,467)
Quantities
- ------------------------------------------------------------------------------------
FOR THE YEAR ENDED JUNE 30, 1994
Reserve For
Doubtful
Accounts ($245,446) $54,636 ($129,190)(5) ($320,000)
Inventory
Allowance
For
Obsolescence
and Excess ($485,000) ($148,384) $179,005(6) ($812,389)
Quantities
</TABLE>
- --------------------------------------------------------------------------------
(1) Decrease due to bad debt write-offs, bad debt recoveries and changes in
estimate. Offsetting increase of $80,000 due to the acquisition of Omni-Tech
Medical, Inc.
(2) Decrease due to inventory disposed of and changes in estimate.
Offsetting increase of $105,470 due to the acquisition of Omni-Tech Medical,
Inc.
(3) $404,993 due to the acquisition of B&F Medical Products, Inc., Bear
Medical Systems, Inc. and BiCore Monitoring Systems, Inc. Offsetting
decrease due to bad debt write-offs, bad debt recoveries and changes in
estimate.
(4) $5,369,689 due to the acquisition of B&F Medical Products, Inc., Bear
Medical Systems, Inc. and BiCore Monitoring Systems, Inc. Offsetting
decrease due to inventory determined to be obsolete and disposed of and
changes in estimate.
(5) $50,488 due to the acquisition of Life Support Products, Inc. and
Hospital Systems, Inc. Remainder due to Bad debt write-offs, bad debt
recoveries and changes in estimate.
(6) $294,393 due to the acquisition of Life Support Products, Inc. and
Hospital Systems, Inc. Remainder due to inventory determined to be obsolete
and disposed of and changes in estimate.
S-2
<PAGE>
<TABLE>
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
No. Description Page
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated as of August 4, 1994, by and among
Allied Healthcare Products, Inc., BFM Acquisition Corporation, B&F
Medical Products, Inc., and the major stockholders listed therein
(filed as Item 7(d) to the Current Report on Form 8-K, filed with the
Commission on September 16, 1994, as amended on November 4, 1994, and
incorporated herein by reference)
2.2 Stock Purchase Agreement, dated as of February 10, 1995, by and among
Allied Healthcare Products, Inc., Selwood, Inc., and BTR Dunlop, Inc.
(filed as Item 7 (c) to the Current Report on Form 8-K filed with the
Commission on February 24, 1995, as amended on April 24, 1995, and
incorporated herein by reference)
3.1 Amended and Restated Certificate of Incorporation of the Registrant
(filed as Exhibit 3(1) to the Company's Registration Statement on Form
S-1, as amended, Registration No. 33-40128, filed with the Commission
on May 8, 1991 (the "Registration Statement") and incorporated herein
by reference) 3.2 Certificate of Designations, Preferences and Rights
of Series A Preferred Stock of Allied Healthcare Products, Inc. dated
August 21, 1996
3.2 Certificate of Designations, Preferences and Rights of Series A
Preferred Stock of Allied Healthcare Products, Inc. dated August 21,
1996.
3.3 By-Laws of the Registrant (filed as Exhibit 3(2) to the Registration
Statement and incorporated herein by reference)
10.1 Lease Agreement, dated June 30, 1988, between Luke D. Wenger and
Shirley A. Wenger and Timeter Instrument Corporation (filed as Exhibit
10(14) to the Registration Statement and incorporated herein by
reference)
10.2 NCG Trademark License Agreement, dated April 16, 1982, between
Liquid Air Corporation and Allied Healthcare Products, Inc. (filed as
Exhibit 10(24) to the Registration Statement and incorporated herein
by reference)
10.3 Allied Healthcare Products, Inc. 1991 Directors Non-Qualified Stock
Option Plan (filed as Exhibit 10(25) to the Registration Statement and
incorporated herein by reference)
10.4 Allied Healthcare Products, Inc. 1991 Employee Non-Qualified Stock
Option Plan (filed as Exhibit 10(26) to the Registration Statement and
incorporated herein by reference)
10.5 Amended and Restated Registration Rights Agreement dated November 8,
1991 among Allied Healthcare Products, Inc., Harbour Group
Investments, L.P., Earl R. Refsland and Robert L. Ricks (filed as
Exhibit 10(41) to the Registration Statement and incorporated herein
by reference)
<PAGE>
Sequentially
Exhibit Numbered
No. Description Page
<S> <C> <C>
10.6 Employee Stock Purchase Plan (filed with the Commission as Exhibit
10(45) to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1992 (the "1992 Form 10-K") and incorporated herein by
reference)
10.7 Amendment to Allied Healthcare Products, Inc. 1991 Directors Non-
Qualified Stock Option Plan dated September 14, 1992 (filed as Exhibit
10(46) to the 1992 Form 10-K and incorporated herein by reference)
10.8 First Amendment to Lease Agreement, dated January 24, 1992, between
Luke D. Wenger and Shirley A. Wenger and Timeter Instrument
Corporation (filed as Exhibit 10(32) to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993 and incorporated
herein by reference)
10.9 Operations Consulting and Advisory Services Agreement dated January
26, 1994 between Harbour Group Ltd. and Allied Healthcare Products,
Inc. (filed with the Commission as Exhibit 10(33) to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1994
(the "1994 Form 10-K") and incorporated herein by reference)
10.10 Corporate Development Consulting and Advisory Services Agreement
dated January 26, 1994 between Harbour Group Industries, Inc. and
Allied Healthcare Products, Inc. (filed with the Commission as Exhibit
10(34) to the 1994 Form 10-K and incorporated herein by reference)
10.11 Allied Healthcare Products, Inc. 1994 Employee Stock Option Plan
(filed with the Commission as Exhibit 10(39) to the 1994 Form 10-K and
incorporated herein by reference)
10.12 Memorandum of Agreement dated June 1, 1994 covering June 1, 1994 - May
31, 1997 between Allied Healthcare Products, Inc. and District No. 9,
International Association of Machinist and Aerospace Workers (filed
with the Commission as Exhibit 10(40) to the 1994 Form 10-K and
incorporated herein by reference)
10.13 Letter Agreement dated August 4, 1994 between Harbour Group, Ltd.
and Allied Healthcare Products, Inc. (filed with the Commission as
Exhibit 10(42) to the 1994 Form 10-K and incorporated herein by
reference)
10.14 Lease dated as of November 4, 1993 between Essup Part and B&F Medical
Products, Inc. (filed with the Commission as Exhibit 10(43) to the
1994 Form 10-K and incorporated herein by reference)
10.15 Union Labor Agreement dated May 9, 1994 covering July 1, 1994 - June
30, 1997 between B&F Medical Products, Inc. and B&F Employee Committee
(filed with the Commission as Exhibit 10(44) to the 1994 Form 10-K and
incorporated herein by reference)
10.16 Commercial Lease and Deposit Receipt between Hospital Systems, Inc.
and 5301 Adeline Associates, a California Limited Partnership (filed
with the Commission as Exhibit 10(47) to the 1994 Form 10-K and
incorporated herein by reference)
<PAGE>
Sequentially
Exhibit Numbered
No. Description Page
<S> <C> <C>
10.17 1994-1997 Agreement dated June 24, 1994 covering May 1, 1994 - April
30, 1997 between Hospital Systems, Inc. and Electrical Workers Union,
Local 2131 (filed with the Commission as Exhibit 10(48) to the 1994
Form 10-K and incorporated herein by reference)
10.18 Lease dated as of December 27, 1982 by and between B.M.S./Riverside
Limited Partnership and Intermed Holdings, Inc., as amended (filed
with the Commission as Exhibit 10(31) to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1995 (the "1995 Form
10-K") and incorporated herein by reference)
10.19 Allied Healthcare Products, Inc. 1995 Directors Non-Qualified Stock
Option Plan (filed with the Commission as Exhibit 10(25) to the 1995
Form 10-K and incorporated herein by reference) 10.20 Assignment of
Lease dated October 3, 1988 by Intermed Holdings, Inc. to Bear Medical
Systems, Inc. (filed with the Commission as Exhibit 10(32) to the 1995
Form 10-K and incorporated herein by reference)
10.21 Warehouse Lease dated December 7, 1990 by and between Mineola/Hemmer,
L.P. and Bear Medical Systems, Inc. (filed with the Commission as
Exhibit 10(33) to the 1995 Form 10-K and incorporated herein by
reference)
10.22 Agreement and Plan of Merger dated May 31, 1995 by and among Bear
Medical Systems, Inc., BMS Acquisition Corporation and BiCore
Monitoring Systems, Inc. (filed with the Commission as Exhibit 10(34)
to the 1995 Form 10-K and incorporated herein by reference)
10.23 Memorandum of Agreement dated April 19, 1995 covering April 16, 1995 -
April 15, 1998 between Allied Healthcare Products, Inc., Chemetron
Medical Division and International Chemical Workers Union, Local No.
626 (filed with the Commission as Exhibit 10(35) to the 1995 Form 10-K
and incorporated herein by reference)
10.24 Second Amended and Restated Loan and Reimbursement Agreement
dated as of February 10, 1995 provided by The Boatmen's National Bank
of St. Louis and The Daiwa Bank, Ltd. to Allied Healthcare Products,
Inc., Life Support Products, Inc., B&F Medical Products, Inc.,
Hospital Systems, Inc. and Bear Medical Systems, Inc. (the "Restated
Loan Agreement") (filed with the Commission as Exhibit 10(36) to the
1995 Form 10-K and incorporated herein by reference)
10.25 Amendment No. 1, dated as of June 7, 1995, to the Restated Loan
Agreement (filed with the Commission as Exhibit 10(37) to the 1995
Form 10-K and incorporated herein by reference)
10.26 Amended and Restated Credit Facilities Agreement dated October 13,
1995 by and among Allied Healthcare Products, Inc. and its
subsidiaries and The Boatman's National Bank of St. Louis as agent
(filed with the Commission as Exhibit 1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995 and
incorporated herein by reference)
<PAGE>
Sequentially
Exhibit Numbered
No. Description Page
<S> <C> <C>
10.27 Underwriting Agreement dated September 28, 1995 by and among Allied
Healthcare Products, Inc., and Cowen & Company, Dillon, Read & Co.
Inc. and A.G. Edwards & Sons, Inc., as representatives of the
underwriters (filed as Exhibit 2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995 and incorporated
herein by reference)
10.28 Allied Healthcare Products, Inc. Amendment to 1994 Employee Stock
Option Plan
10.29 Amendment Number One to Amended and Restated Credit Facilities
Agreement dated April 19, 1996 among The Boatmen's National Bank of
St. Louis, as Agent, and The Boatmen's National Bank of St. Louis and
the other lenders listed on the signature pages thereof, as Lenders,
and Allied Healthcare Products, Inc., and the other borrowers listed
on the signature pages thereof, as Borrowers
10.30 Amendment Number Two to Amended and Restated Credit Facilities
Agreement dated September 23, 1996 among The Boatmen's National Bank
of St. Louis, as Agent, and The Boatmen's National Bank of St. Louis
and the other lenders listed on the signature pages thereof, as
Lenders, and Allied Healthcare Products, Inc., and the other borrowers
listed on the signature pages thereof, as Borrowers
10.31 Consulting and Severance Agreement dated as of September 1, 1996 by
and between Allied Healthcare Products, Inc. and David V. LaRusso
10.32 Rights Agreement dated August 21, 1996 by and between Allied
Healthcare Products, Inc. and Boatmen's Trust Company, as Rights Agent
(filed with the Commission as Exhibit (2) to the Company's Current
Report on Form 8-K dated August 7, 1996 and incorporated herein by
reference)
13 Annual Report to Stockholders
21 Subsidiaries of the Registrant
23 Consent of Price Waterhouse LLP
24 Powers of Attorney
</TABLE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF SERIES A PREFERRED STOCK
of
ALLIED HEALTHCARE PRODUCTS, INC.
Pursuant to the provisions of Section 151 of the General Corporation Law of
the State of Delaware.
ALLIED HEALTHCARE PRODUCTS, INC., a Delaware corporation (the
"Corporation"), certifies that pursuant to the authority conferred in Article
Fourth of its Amended and Restated Certificate of Incorporation, and in
accordance with the provisions of Section 151 of the General Corporation Law of
the State of Delaware, its Board of Directors has adopted the following
resolution establishing and designating a series of shares and fixing and
determining the relative rights and preferences thereof.
RESOLVED, that pursuant to the authority vested in the Board of Directors
of this Corporation in accordance with the provisions of its Amended and
Restated Certificate of Incorporation, a series of Preferred Stock of the
Corporation be and it hereby is created, and that the designation and amount
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series A Preferred Stock" and the number of shares constituting
such series shall be 200,000.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior rights of the holders of any shares
of any series of Preferred Stock ranking prior and superior to the
shares of Series A Preferred Stock with respect to dividends, the
holders of shares of Series A Preferred Stock in preference to the
holders of Common Stock, par value $0.01 per share (the "Common
Stock"), shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of March,
June, September and December in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the
first issuance of a share or fraction of a share of Series A Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to
the greater of (a) $1.00 or (b) subject to the provision for adjustment
hereinafter set
<PAGE>
forth, one hundred (100) times the aggregate per share amount of
all cash dividends, and one hundred (100) times the aggregate per share
amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Preferred
Stock. In the event the Corporation shall at any time after August 21,
1996 (the "Rights Declaration Date") (i) declare any dividend on the
Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the
amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under clause (b) of the
preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Series
A Preferred Stock as provided in Paragraph (A) above immediately after
it declares a dividend or distribution on the Common Stock (other than
a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the
Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $1.00 per share on the Series A Preferred Stock shall
nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Series A Preferred
Stock, unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive
a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends
2
<PAGE>
paid on the shares of Series A Preferred Stock in an amount less than
the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors
may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than
30 days prior to the date fixed for the payment thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to
one hundred (100) votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall
at any time after the Rights Declaration Date (i) declare any
dividend on the Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each
such case the number of votes per share to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such
event shall be adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock outstanding immediately prior
to such event.
(B) Except as otherwise provided herein or by law, the holders of shares
of Series A Preferred Stock and the holders of shares of Common Stock
and any other capital stock of the corporation having general voting
rights shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Preferred Stock shall be
in arrears in an amount equal to six (6) quarterly dividends thereon,
the occurrence of such contingency shall mark the beginning of a period
(herein called a "default period") which shall extend until such time
when all accrued and unpaid dividends for all previous quarterly
dividend periods and for the current quarterly dividend period on all
shares of Series A Preferred Stock then outstanding shall have been
declared and paid or set apart for payment. During each default period,
all holders of Preferred Stock (including holders of the Series A
Preferred Stock) with dividends in
3
<PAGE>
arrears in an amount equal to six (6) quarterly dividends thereon,
voting as a class, irrespective of series, shall have the right to
elect two (2) Directors.
(ii) During any default period, such voting rights of the holders of
Series A Preferred Stock may be exercised initially at a special
meeting called pursuant to subparagraph (iii) of this Section 3(C)
or at any annual meeting of stockholders, and thereafter at
annual meetings of stockholders, provided that neither such voting
right nor the right of the holders of any other series of Preferred
Stock, if any, to increase, in certain cases, the authorized number
of Directors shall be exercised unless the holders of ten percent (10%)
in number of shares of Preferred Stock outstanding shall be present in
person or by proxy. The absence of a quorum of the holders of Common
Stock shall not affect the exercise by the holders of Preferred Stock
of such voting right. At any meeting at which the holders of
Preferred Stock shall exercise such voting right initially during an
existing default period, they shall have the right, voting as a
class, to elect Directors to fill such vacancies, if any, in the
Board of Directors as may then exist up to two (2)Directors or, if such
right is exercised at an annual meeting, to elect two (2)Directors. If
the number which may be so elected at any special meeting does not
amount to the required number, the holders of the Preferred Stock shall
have the right to make such increase in the number of Directors as
shall be necessary to permit the election by them of the required
number. After the holders of the Preferred Stock shall have exercised
their right to elect Directors in any default period and during
the continuance of such period, the number of Directors shall not
be increased or decreased except by vote of the holders of Preferred
Stock as herein provided or pursuant to the rights of any equity
securities ranking senior to or PARI PASSU with the Series A Preferred
Stock.
(iii) Unless the holders of Preferred Stock shall, during an existing
default period, have previously exercised their right to elect
Directors, the Board of Directors may order, or any stockholder or
stockholders owning in the aggregate not less than ten percent (10%)
of the total number of shares of Preferred Stock outstanding,
irrespective of series, may request, the calling of a special meeting
of the holders of Preferred Stock, which meeting shall thereupon be
called by the President, a Vice-President or the Secretary of the
Corporation. Notice of such meeting and of any annual meeting at
which holders of Preferred Stock are entitled to vote pursuant to
this Paragraph (C)(iii) shall be given to each holder of record of
Preferred Stock by mailing a copy of such notice to him at his last
address as the same appears on the books of the Corporation. Such
meeting shall be called for a time not earlier than twenty (20) days
and not later than sixty (60) days after such order or request, such
meeting may be called on similar notice by any stockholder or
stockholders owning in the aggregate
4
<PAGE>
not less than ten percent (10%) of the total number of shares of
Preferred Stock outstanding. Notwithstanding the provisions of this
Paragraph (C)(iii), no such special meeting shall be called during
the period within sixty (60) days immediately preceding the date
fixed for the next annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and other
classes of stock of the Corporation, if applicable, shall continue
to be entitled to elect the whole number of Directors until the holders
of Preferred Stock shall have exercised their right to elect two (2)
Directors voting as a class, after the exercise of which right (x)
the Directors so elected by the holders of Preferred Stock shall
continue in office until their successors shall have been elected by
such holders or until the expiration of the default period, and (y) any
vacancy in the Board of Directors may (except as provided in Paragraph
(C)(ii) of this Section 3) be filled by vote of a majority of the
remaining Directors theretofore elected by the holders of the class
of stock which elected the Director whose office shall have become
vacant. References in this Paragraph (C) to Directors elected by the
holders of a particular class of stock shall include Directors elected
by such Directors to fill vacancies as provided in clause (y) of the
foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Preferred Stock as a class to elect Directors
shall cease, (y) the term of any Directors elected by the holders
of Preferred Stock as a class shall terminate, and (z) the number of
Directors shall be such number as may be provided for in the
certificate of incorporation or by-laws irrespective of any increase
made pursuant to the provisions of Paragraph (C)(ii) of this Section 3
(such number being subject, however, to change thereafter in any
manner provided by-law or in the certificate of incorporation or
by-laws). Any vacancies in the Board of Directors effected by the
provisions of clauses (y) and (z) in the preceding sentence may be
filled by a majority of the remaining Directors.
(D) Except as set forth herein, holders of Series A Preferred Stock shall
have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.
Section 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions,
5
<PAGE>
whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration anyshares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred
Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such parity stock in exchange for
shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the Series
A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series A Preferred Stock, or any shares of stock ranking on a parity
with the Series A Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of
the Corporation unless the Corporation could, under Paragraph (A)
of this Section 4, purchase or otherwise acquire such shares at such
time and in such manner.
Section 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and nay be reissued as
6
<PAGE>
part of a new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP.
(A) Upon any liquidation (voluntary or otherwise), dissolution winding up
of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount
equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment (the "Series A
Liquidation Preference"). Following the payment of the full amount of
the Series A Liquidation Preference, no additional distributions shall
be made to the holders of shares of Series A Preferred Stock unless,
prior thereto, the holders of shares of Common Stock shall have
received an amount per share (the "Common Adjustment") equal to the
quotient obtained by dividing (i) the Series A Liquidation Preference
by (ii) one hundred (100) (as appropriately adjusted as set forth in
subparagraph (C) below to reflect such events as stock splits, stock
dividends and recapitalizations with respect to the Common Stock) (such
number, the "Adjustment Number"). Following the payment of the full
amount of the Series A Liquidation Preference and the Common Adjustment
in respect of all outstanding shares of Series A Preferred Stock and
Common Stock, respectively, holders of Series A Preferred Stock and
holders of shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the
ratio of the Adjustment Number to one (1) with respect to such
Preferred Stock and Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets available
to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of Preferred Stock,
if any, which rank on a parity with the Series A Preferred Stock, then
such remaining assets shall be distributed ratably to the holders of
such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not sufficient
assets available to permit payment in full of the Common Adjustment,
then such remaining assets shall be distributed ratably to the holders
of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or
7
<PAGE>
(iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by multiplying such
Adjustment Number by a fraction the numerator of which is the number
of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
Section 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to one hundred (100) times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
Section 8. NO REDEMPTION. The shares of Series A Preferred Stock
shall not be redeemable.
Section 9. RANKING. The Series A Preferred Stock shall rank junior to
all other series of the Corporation's Preferred Stock which may be created in
the future as to the payment of dividends and the distribution of assets, unless
the terms of any such series shall provide otherwise.
Section 10. AMENDMENT. The Amended and Restated Certificate of
Incorporation of the Corporation shall not be further amended in any manner
which would materially alter or change the powers, preferences or special rights
of the Series A Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding shares
of Series A Preferred Stock, voting separately as a class.
Section 11. FRACTIONAL SHARES. Series A Preferred Stock may be issued
in fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
8
<PAGE>
IN WITNESS WHEREOF, ALLIED HEALTHCARE PRODUCTS, INC. has caused this
Certificate of Designations, Preferences and Rights of Series A Preferred Stock
to be executed by its President and Chief Executive Officer and attested to by
its Secretary this 21st day of August, 1996.
ALLIED HEALTHCARE PRODUCTS, INC.
/s/ James C. Janning
By: ___________________________
James C. Janning
President and Chief Executive
Officer
ATTEST:
/s/ Barry F. Baker
By:____________________________
Barry F. Baker
Secretary
9
ALLIED HEALTHCARE PRODUCTS, INC.
AMENDMENT TO 1994 EMPLOYEE STOCK OPTION PLAN
WHEREAS, Allied Healthcare Products, Inc., a Delaware corporation (the
"Company"), adopted the Allied Healthcare Products, Inc. 1994 Employee Stock
Option Plan (the "Plan"), dated August 4, 1994. Capitalized terms used herein
and not otherwise defined have the meanings given such terms in the Plan;
WHEREAS, Article IV of the Plan provides that the Board may at any time
amend or revise the terms of the Plan, subject to stockholder approval as
described therein; and
WHEREAS, the Board has resolved to make certain amendments and revisions to
the Plan, subject to stockholder approval thereof.
NOW, THEREFORE, the Plan is hereby amended, effective upon stockholder
approval thereof, as follows:
1. Section 1(a) of Article I and Section 3 of Article II thereof are
hereby revised to state that a total of 550,000 shares are available for
issuance pursuant to the Plan.
2. Section 2(a) of Article I thereof is hereby revised to read as
follows:
a. The Plan shall be administered by a committee (the "Committee")
as appointed from time to time by the Board of Directors (the "Board") of
the Company (or any successor committee appointed by the Board). The
Committee shall consist of two or more individuals who shall be members of
the Board and each of whom shall be a "non-employee director" within the
meaning of Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Members of the Committee shall not
be eligible to receive Options under the Plan while a member. Any member of
the Committee may, however, exercise Options previously granted. A majority
of the members of the Committee shall constitute a quorum. Any action of
the Committee with respect to the
<PAGE>
administration of the Plan shall be taken by majority vote or written
consent of a majority of its members. The Board of Directors, acting by
resolution approved at a duly convened meeting of the full Board of
Directors at which a quorum was present or by written consent of all of the
members of the Board of Directors, may exercise any of the powers granted
to the Committee under the Plan.
In addition, Options may be granted with any terms and conditions not
inconsistent with the Plan without approval of the Committee if such
Options (i) are subject to shareholder approval or (ii) may not be
exercised within six (6) months of the date of grant.
3. Section 6(a) of Article II thereof is hereby revised to read as
follows:
a. A participant may exercise each Option granted to the participant
in such installments as the Committee shall determine at the time of grant
thereof.
4. Section 8(g) of Article III thereof is hereby revised to read as
follows:
g. If the employment of any participant with the Company and all
parent and subsidiary corporations of the Company shall terminate for any
reason described in clause (i) or (ii) of paragraph a of this Section 8 and
at the time of such termination a Non-Qualified Option previously granted
to such participant was not fully exercisable solely because a period of
time prior to exercise set forth in the applicable Non-Qualified Stock
Option Agreement had not passed, then the Committee in its discretion may
amend such Agreement to permit the exercise of such Options at such times,
not after three years following such termination of employment, as the
Committee may determine in its discretion to be appropriate in any
particular instance.
5. Section 1(a) of Article IV thereof is hereby revised to read as
follows:
a. The Board may, in its discretion, at any time suspend or
terminate the Plan. The Board may also at any time amend or revise the
terms of the Plan or any Option granted under the Plan.
<PAGE>
6. No other provision of the Plan shall be altered, amended, revised or
otherwise modified hereby.
7. This Amendment to 1994 Employee Stock Option Plan shall become
effective upon stockholder approval hereof.
IN WITNESS WHEREOF, this Amendment has been duly executed by order of the
Board as of the 10th day of September 1996.
ALLIED HEALTHCARE PRODUCTS, INC.
By: /S/ BARRY F. BAKER
Barry F. Baker
Vice President--Finance,
Chief Financial Officer and
Secretary
AMENDMENT NUMBER ONE
TO
AMENDED AND RESTATED CREDIT FACILITIES AGREEMENT
AMONG
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, AS "AGENT"
AND
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS
AND
THE OTHER LENDERS LISTED ON THE SIGNATURE PAGES HEREOF, AS "LENDERS"
AND
ALLIED HEALTHCARE PRODUCTS, INC.
AND
THE OTHER BORROWERS LISTED ON THE SIGNATURE PAGES HEREOF, AS "BORROWERS"
AMENDMENT NUMBER ONE to AMENDED AND RESTATED CREDIT FACILITIES AGREEMENT
(the "Amendment") entered into as of April 19, 1996, by and among Allied
Healthcare Products, Inc. ("Allied"), a Delaware corporation, Life Support
Products, Inc., a California corporation ("LSP"), B&F Medical Products, Inc., a
Delaware corporation ("B&F"), Hospital Systems, Inc., a California corporation
("HSI"), Bear Medical Systems, Inc., a California corporation ("BMS") and BiCore
Monitoring Systems, Inc., a California corporation ("Bicore") (Allied, LSP, B&F,
HSI, BMS and Bicore are referred to herein both collectively and individually as
"Borrower", The Boatmen's National Bank of St. Louis ("Boatmen's"), individually
and as "Agent", and Boatmen's and the additional lenders listed on the signature
pages hereof, as lenders (each a "Lender" and collectively, "Lenders").
RECITALS:
A. Borrower and Lenders are party to that certain Amended and Restated Credit
Facilities Agreement dated as of October 13, 1995 (as it may be amended,
restated, extended, renewed, or otherwise modified from time to time, the
"Loan Agreement').
B. The Daiwa Bank, Ltd. has assigned all of its right, title and interest in
and to the Loan Obligations and Loan Documents to The Sumitomo Bank, Ltd.,
effective as of February 2, 1996, which assignment has been accepted and
consented to by Agent and Borrower.
C. Borrower has requested that Lenders make certain amendments to the Loan
Agreement.
D. Lenders are willing to amend the Loan Agreement upon the terms and
conditions hereinafter set forth.
Therefore, in consideration of the mutual agreements herein and other
sufficient consideration, the receipt of which is hereby acknowledged, Borrower
and Lenders hereby amend the Loan Agreement as follows:
1. DEFINITIONS. Capitalized terms used and not otherwise defined herein have
the meanings given them in the Loan Agreement.
2. AMENDMENTS TO LOAN AGREEMENT.
2.1. NEW LENDER. The Sumitomo Bank, Ltd. replaced The Daiwa Bank, Ltd.
as a Lender, effective as of February 2, 1996, in accordance with the terms of
Section 20.4 of the Loan Agreement. All references in
<PAGE>
the Loan Agreement to "The Daiwa Bank, Ltd." or "Daiwa" shall be deemed to be
references to The Sumitomo Bank, Ltd.
2.2. MINIMUM OPERATING CASH FLOW. Section 17.10 of the Loan Agreement
is hereby amended by deleting therefrom in its entirety the table therein and
substituting the following in lieu thereof:
<TABLE>
<S> <C>
PERIOD MINIMUM OPERATING CASH FLOW
four fiscal quarters ending 3/31/96 $19,400,000
four fiscal quarters ending 6/30/96 $19,400,000
four fiscal quarters ending 9/30/96 $19,400,000
four fiscal quarters ending 12/31/96 $20,000,000
four fiscal quarters ending 3/31/97 $20,000,000
four fiscal quarters ending 6/30/97 $21,000,000
four fiscal quarters ending 9/30/97 $22,000,000
four fiscal quarters ending 12/31/97 $23,000,000
and the four fiscal quarters ending
each June 30 and December 31 thereafter
</TABLE>
2.3. DEFINITIONS.
2.3.1. NEW DEFINITIONS. The following definitions are hereby added
to the Loan Agreement in proper alphabetical order:
"'Lease': a Capital Lease or an Operating Lease."
2.3.2. AMENDED DEFINITIONS.
The definition of "Qualified Financial Institution" is hereby
deleted in its entirety and the following is substituted in lieu
thereof:
"'Qualified Financial Institution': a commercial bank chartered
under the laws of the United States or any state thereof having
capital and surplus of at least $500,000,000."
2.4. EXHIBIT 13. Exhibit 13 to the Loan Agreement is hereby amended by
adding thereto the disclosures contained in Exhibit A, attached hereto and
incorporated herein by this reference.
3. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower hereby represents and
warrants to Lenders that (i) this Amendment has been duly authorized by
Borrower's Board of Directors, (ii) no consents are necessary from any third
parties for Borrower's execution, delivery or performance of this Amendment,
(iii) this Amendment constitutes a legal, valid and binding obligation of
Borrower enforceable against Borrower in accordance with its terms except as the
enforcement thereof may be limited by bankruptcy, insolvency or other laws
related to creditors rights generally or by the application of equity
principles, (iv) except as disclosed on the disclosure schedule attached hereto
as Exhibit A, all of the representations and warranties contained in Section 13
of the Loan
2
<PAGE>
Agreement, as amended by this Amendment, are true and correct in all material
respects with the same force and effect as if made on and as of the effective
date of this Amendment, except that with respect to the representations and
warranties made regarding financial data in Section 13.15, such representations
and warranties are hereby made with respect to the most recent Financial
Statements and other financial data (in the form required by the Loan Agreement)
delivered by Borrower to Lenders, (v) there is no Default which is continuing
and no Event of Default has occurred under the Loan Agreement as amended by this
Amendment, and (vi) the Loan Agreement (as modified by this Amendment)
represents the legal, valid and binding obligation of Borrower, enforceable
against Borrower in accordance with its terms, except to the extent that the
enforceability thereof against Borrower may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or similar laws
affecting the enforceability of creditor's rights generally or by equitable
principles of general application (whether considered in an action at law or in
equity).
4. EFFECT OF AMENDMENT. The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of Agent
or Lenders under the Loan Agreement or any of the other Loan Documents, nor
constitute a waiver of any provision of the Loan Agreement, any of the other
Loan Documents or any existing Default or Event of Default, nor act as a release
or subordination of the Security Interests of Agent or Lenders under the
Security Documents. Each reference in the Loan Agreement to "the Agreement",
"hereunder", "hereof", "herein", or words of like import, shall be read as
referring to the Loan Agreement as amended by this Amendment.
5. REAFFIRMATION. Borrower hereby acknowledges and confirms that (i) except as
expressly amended hereby the Loan Agreement remains in full force and effect,
(ii) the Loan Agreement, as amended hereby, is in full force and effect, (iii)
Borrower has no defenses to its obligations under the Loan Agreement and the
other Loan Documents, (iv) the Security Interests of Agent and Lenders under the
Security Documents secure all the Loan Obligations under the Loan Agreement as
amended by this Amendment, continue in full force and effect and have the same
priority as before this Amendment, and (v) Borrower has no claim against Agent
or any Lender arising from or in connection with the Loan Agreement or the other
Loan Documents.
6. GOVERNING LAW. This Amendment has been executed and delivered in St. Louis,
Missouri, and shall be governed by and construed under the laws of the State of
Missouri without giving effect to choice or conflicts of law principles
thereunder.
7. SECTION TITLES. The section titles in this Amendment are for convenience of
reference only and shall not be construed so as to modify any provisions of this
Amendment.
8. COUNTERPARTS; FACSIMILE TRANSMISSIONS. This Amendment may be executed in
one or more counterparts and on separate counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. Signatures to this Amendment may be given by facsimile or other
electronic transmission, and such signatures shall have the same binding effect
as an original signature on an original document.
9. INCORPORATION BY REFERENCE. Lenders and Borrower hereby agree that all of
the terms of the Loan Documents are incorporated in and made a part of this
Amendment by this reference.
10. STATUTORY NOTICE. The following notice is given pursuant to Section 432.045
of the Missouri Revised Statutes; nothing contained in such notice will be
deemed to limit or modify the terms of the Loan Documents or this Amendment:
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO
3
<PAGE>
EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU
(BORROWER(S)) AND US (CREDITOR) FROM MISUNDERSTANDING OR
DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE
CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE
STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN
WRITING TO MODIFY IT.
BORROWER AND LENDERS HEREBY AFFIRM THAT THERE IS NO UNWRITTEN ORAL CREDIT
AGREEMENT BETWEEN BORROWER AND LENDERS WITH RESPECT TO THE SUBJECT MATTER
OF THIS AMENDMENT.
[rest of page intentionally blank]
4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by appropriate duly authorized officers as of the date first above
written.
ALLIED HEALTHCARE PRODUCTS, INC. LIFE SUPPORT PRODUCTS, INC.
/s/ David V. LaRusso /s/ David V. LaRusso
By: ____________________________ By:_____________________________
Name: David V. LaRusso Name: David V. LaRusso
Title: President Title: President
B&F MEDICAL PRODUCTS, INC. HOSPITAL SYSTEMS, INC.
/s/ David V. LaRusso /s/ David V. LaRusso
By: ____________________________ By:_____________________________
Name: David V. LaRusso Name: David V. LaRusso
Title: President Title: President
BEAR MEDICAL SYSTEMS, INC. BICORE MONITORING SYSTEMS, INC.
/s/ David V. LaRusso /s/ David V. LaRusso
By: ____________________________ By:_____________________________
Name: David V. LaRusso Name: David V. LaRusso
Title: President Title: President
THE BOATMEN'S NATIONAL BANK OF CREDITANSTALT CORPORATE FINANCE, INC.
ST. LOUIS
/s/ Alex D. Fennoy
By:___________________________ By: ___________________________
Name: Alex D. Fennoy Name: _________________________
Title: Corporate Banking Officer Title: ________________________
5
<PAGE>
THE SUMITOMO BANK, LIMITED DRESDNER BANK A.G. CHICAGO AND
GRAND CAYMAN BRANCHES
/s/ Jayleen R. P. Hague
By: ___________________________ By: ___________________________
Name: Jayleen R. P. Hague Name: _________________________
Title: Vice President Title: ________________________
/s/ Theresa A. Lekich
By: ___________________________
Name: Theresa A. Lekich
Title: Vice President
FIRST BANK LASALLE NATIONAL BANK
/s/ Brenda J. Laux
By: ___________________________ By: ___________________________
Name: Brenda J. Laux Name: _________________________
Title: Senior Vice President Title: ________________________
MERCANTILE BANK OF ST. LOUIS PNC BANK, NATIONAL ASSOCIATION
NATIONAL ASSOCIATION
/s/ L. Alec Blanc III
By: ___________________________ By: ___________________________
Name: L. Alec Blanc III Name: _________________________
Title: Vice President Title: ________________________
SANWA BUSINESS CREDIT CORPORATION
/s/ Lawrence J. Placek
By: ___________________________
Name:Lawrence J. Placek
Title: Vice President
6
<PAGE>
THE SUMITOMO BANK, LTD. DRESDNER BANK A.G. CHICAGO AND
GRAND CAYMAN BRANCHES
/s/ Elizabeth Holden
By: ___________________________ By: ___________________________
Name:__________________________ Name: Elizabeth Holden
Title:_________________________ Title: Vice President
/s/ Paul M.Casey
By: ___________________________ By: ___________________________
Name:__________________________ Name: Paul M. Casey
Title:_________________________ Title: Assistant Vice President
FIRST BANK LASALLE NATIONAL BANK
By: ___________________________ By: ___________________________
Name:__________________________ Name: _________________________
Title:_________________________ Title: ________________________
MERCANTILE BANK OF ST. LOUIS PNC BANK, NATIONAL ASSOCIATION
NATIONAL ASSOCIATION
/s/ David M. Eichenlaub
By: ___________________________ By: ___________________________
Name:__________________________ Name: David M. Eichenlaub
Title:_________________________ Title: Vice Presidet
SANWA BUSINESS CREDIT CORPORATION
By: ___________________________
Name:__________________________
Title:_________________________
7
<PAGE>
EXHIBIT A
Additions to Exhibit 13 of the Loan Agreement
None, if nothing listed below.
AMENDMENT NUMBER TWO
TO
AMENDED AND RESTATED CREDIT FACILITIES AGREEMENT
AMONG
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, AS "AGENT"
AND
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS
AND
THE OTHER LENDERS LISTED ON THE SIGNATURE PAGES HEREOF, AS "LENDERS"
AND
ALLIED HEALTHCARE PRODUCTS, INC.
AND
THE OTHER BORROWERS LISTED ON THE SIGNATURE PAGES HEREOF,
AS "BORROWERS"
AMENDMENT NUMBER TWO to AMENDED AND RESTATED CREDIT FACILITIES AGREEMENT
(the "Amendment") entered into as of September 23, 1996, by and among Allied
Healthcare Products, Inc. ("Allied"), a Delaware corporation, Life Support
Products, Inc., a California corporation ("LSP"), B&F Medical Products, Inc., a
Delaware corporation ("B&F"), Hospital Systems, Inc., a California corporation
("HSI"), Bear Medical Systems, Inc., a California corporation ("BMS") and BiCore
Monitoring Systems, Inc., a California corporation ("Bicore") (Allied, LSP, B&F,
HSI, BMS and Bicore are referred to herein both collectively and individually as
"Borrower", The Boatmen's National Bank of St. Louis ("Boatmen's"), individually
and as "Agent", and Boatmen's and the additional lenders listed on the signature
pages hereof, as lenders (each a "Lender" and collectively, "Lenders").
RECITALS:
A. Borrower and Lenders are party to that certain Amended and Restated Credit
Facilities Agreement dated as of October 13, 1995, as amended by that certain
Amendment Number One dated as of April 19, 1996 (as it may be further
amended, restated, extended, renewed, or otherwise modified from time to
time, the "Loan Agreement").
B. As of the date of this Amendment, the Term Loans and Acquisition Loans are as
reflected on Exhibit 1 attached hereto and incorporated herein by this
reference.
C. Borrower and Lenders desire to make certain amendments to the Loan Agreement
upon the terms and conditions hereinafter set forth.
Therefore, in consideration of the mutual agreements herein and other
sufficient consideration, the receipt of which is hereby acknowledged, Borrower
and Lenders hereby amend the Loan Agreement as follows:
1. DEFINITIONS. Capitalized terms used and not otherwise defined herein
have the meanings given them in the Loan Agreement. Section references are
references to Sections of the Loan Agreement unless otherwise indicated. Exhibit
references are references to Exhibits to the Loan Agreement unless otherwise
indicated.
<PAGE>
2. AMENDMENTS TO LOAN AGREEMENT.
2.1. CANCELLATION OF AGGREGATE ACQUISITION LOAN COMMITMENT. The Aggregate
Acquisition Loan Commitment in Section 3.4 of the Loan Agreement is hereby
canceled. Borrower shall continue to make payments and prepayments of the
Aggregate Acquisition Term Loan as provided in the Loan Agreement.
2.2. EXHIBIT 3. Exhibit 3 to the Loan Agreement is hereby deleted in its
entirety and replaced with Exhibit 3 attached hereto and incorporated herein by
this reference.
2.3. BORROWING BASE. The following paragraph and table are added to the
end of Section 3.1.3 of the Loan Agreement:
The percentages set forth in Sections 3.1.3.1 and 3.1.3.2 above with
respect to Eligible Accounts and Eligible Inventory, respectively,
shall, for the periods listed below, be replaced with the respective
percentages set forth in the following table:
<TABLE>
=====================================================================
PERIOD SECTION 3.1.3.1 SECTION 3.1.3.2
PERCENTAGE PERCENTAGE
=====================================================================
<S> <C> <C>
Date of Amendment Number Two 90% 70%
through 12/31/96
=====================================================================
1/1/97 through 1/31/97 89% 67%
=====================================================================
2/1/97 through 2/28/97 88% 64%
=====================================================================
3/1/97 through 3/31/97 87% 61%
=====================================================================
4/1/97 through 4/30/97 86% 58%
=====================================================================
5/1/97 through 5/31/97 85% 54%
=====================================================================
6/1/97 through 6/30/97 85% 52%
=====================================================================
7/1/97 and thereafter 85% 50%
=====================================================================
</TABLE>
2.4. 1996 SECURED TERM LOAN. A new Section 3.3A is hereby added to the
Loan Agreement immediately before Section 3.4 of the Loan Agreement as follows:
"3.3A. 1996 SECURED TERM LOAN COMMITMENT. Boatmen's for itself, and
not on behalf of the other Lenders, commits to make a term loan to Borrower
in the amount of $5,000,000 (the "1996 Secured Term Loan Commitment") in a
single advance on the Amendment Number Two Effective Date (the "1996
Secured Term Loan Advance"). (The from time to time outstanding principal
amount of the 1996 Secured Term Loan Advance is referred to herein as the
"1996 Secured Term Loan". The obligation of Borrower to repay the 1996
Secured Term Loan shall be evidenced by a promissory note payable to
the order of Boatmen's and satisfactory to Boatmen's (the "1996 Secured
Term Note"). Amounts applied to reduce the 1996 Secured Term Loan may not
be reborrowed."
2
<PAGE>
2.5. INTEREST ON LOANS. Section 4.1 of the Loan Agreement is hereby
amended by (i) deleting from the first sentence, the words "Each Loan other than
the Swingline Loan" and inserting in lieu thereof, the words "Each Loan other
than the Swingline Loan and the 1996 Secured Term Loan" and (ii) inserting the
following sentence immediately after the second sentence of such Section: "The
1996 Secured Term Loan shall bear interest at the fixed rate of eleven and
one-half percent (11 1/2%) per annum."
2.6. CONVERSION OF LOANS. Section 4.6 of the Loan Agreement is hereby
amended by deleting the words "provided, further, that the Swingline Loan may
not", and substituting in lieu thereof, the words "provided, further, that
neither the Swingline Loan nor the 1996 Secured Term Loan may".
2.7. CBR INCREMENTS AND LIBOR INCREMENTS. Section 4.4 of the Loan
Agreement is hereby amended by inserting the following immediately before the
table therein:
"From the Amendment Number Two Effective Date through July 1, 1997, the CBR
Increment shall be 1.00% and the LIBOR Increment shall be 3.00%.
Thereafter, the CBR Increment and LIBOR Increment shall be the applicable
increment as determined pursuant to the following table."
2.8. SCHEDULED PRINCIPAL PAYMENTS ON REVOLVING LOANS AND SWINGLINE LOAN.
Sections 6.1.2, 6.1.2.1 and 6.1.2.2 of the Loan Agreement are hereby deleted in
their entirety and the following is substituted in lieu thereof:
"6.1.2. PRINCIPAL.
6.1.2.1. DAILY PAYMENTS. Borrower shall maintain one or more
lockboxes with Agent under its standard lockbox agreements or other
institutions acceptable to Agent (the "Lockboxes"). Agent will establish on
its books an account in the name of Borrower designated as the "Cash
Collateral Account". Borrower shall direct all Account Debtors to remit
payments on their Accounts to one or another of the Lockboxes. All proceeds
of Collateral and all funds Borrower receives directly (other than
Revolving Advances and Swingline Advances) shall be deposited in the Cash
Collateral Account. Collected funds in the Cash Collateral Account on each
Business Day, to the extent they do not exceed the Swingline Loan on such
Business Day, shall be remitted by Agent to Boatmen's and applied by
Boatmen's to reduce the Swingline Loan. The collected funds remaining in
the Cash Collateral Account on every Wednesday (the "Settlement Date")
after such remittance and application to reduce the Swingline Loan, to the
extent they do not exceed the aggregate of the Alternate Base Rate
Revolving Loans on the Settlement Date, shall be remitted by Agent to
Lenders in accordance with their prorata shares of the Revolving Commitment
and applied by Lenders to reduce the Alternate Base Rate Revolving Loans.
Any collected funds still remaining in the Cash Collateral Account after
such remittances and application to reduce the Swingline Loan and Alternate
Base Rate Revolving Loans on any date which is the last day of an Interest
Period for LIBOR Loans that are Revolving Loans shall be remitted by Agent
to Lenders in accordance with their prorata shares of the respective
Aggregate Commitments and applied by Lenders to reduce such LIBOR Loans.
6.1.2.2. PAYMENT ON REVOLVER MATURITY DATE. Borrower shall pay
the entire amount of the Swingline Loan and the Aggregate Revolving Loan on
the Revolver Maturity Date."
3
<PAGE>
2.9. PRINCIPAL PAYMENTS ON TERM LOAN. Section 6.2.2 of the Loan Agreement
is hereby deleted in its entirety and the following is substituted in lieu
thereof:
"6.2.2. PRINCIPAL. Borrower shall repay the Aggregate Term Loan in
consecutive equal quarterly installments of $750,000 each commencing on the
last Business Day of December, 1995 and continuing on the last Business Day
of each calendar quarter thereafter through the last Business Day of June,
1998 and a final installment of the remaining balance of the Aggregate Term
Loan on the Term Maturity Date."
2.10. SCHEDULED PAYMENTS ON THE 1996 SECURED TERM LOAN. A new Section 6.2A
is hereby added to the Loan Agreement immediately before Section 6.3 as follows:
"6.2A. SCHEDULED PAYMENTS ON 1996 SECURED TERM LOAN.
6.2A.1. INTEREST. Borrower shall pay interest accrued at the per annum
rate of eleven and one-half percent (11 1/2%) on the 1996 Secured Term Loan
monthly in arrears, beginning on the last Business Day of the first
calendar month beginning after the Amendment Number Two Effective Date, and
continuing on the last Business Day of each calendar month thereafter, and
on the Term Maturity Date. Borrower shall pay interest accrued on the 1996
Secured Term Loan after the Term Maturity Date on demand.
6.2A.2. PRINCIPAL. Borrower shall pay the entire amount of the 1996
Secured Term Loan on the Term Maturity Date; provided however, that
Borrower shall not make, and Boatmen's shall not receive, any payments of
principal on the 1996 Secured Term Loan so long as any principal or
interest remains outstanding on any of the other Loans."
2.11. REVOLVER MATURITY DATE. Section 3.1.1 of the Loan Agreement is
hereby amended by deleting from the first sentence thereof the words "the fifth
anniversary of the Effective Date" and substituting in lieu thereof, the date
"July 31, 1998".
2.12. TERM MATURITY DATE. Section 6.2.1 of the Loan Agreement is hereby
amended by deleting from the first sentence thereof the words "the fifth
anniversary of the Effective Date" and substituting in lieu thereof, the date
"July 31, 1998".
2.13. ACQUISITION LOAN MATURITY DATE. Section 6.3.1 of the Loan Agreement
is hereby amended by deleting therefrom the date "October 13, 2000" and
substituting in lieu thereof, the date "July 31, 1998".
2.14. VOLUNTARY PREPAYMENTS. Section 6.4.1 of the Loan Agreement is
hereby amended by adding the following sentence to the end of such Section:
"Borrower may not prepay or otherwise make any principal payments on the 1996
Secured Term Loan until after all principal and interest on all other Loans has
been fully and irrevocably paid."
2.15. EXHIBIT 13. Exhibit 13 to the Loan Agreement is hereby amended by
adding thereto the disclosures contained in Exhibit 13 attached hereto and
incorporated herein by this reference.
2.16. USE OF PROCEEDS. Section 15.1 of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
4
<PAGE>
"15.1. USE OF PROCEEDS. Subject to the terms and conditions hereof,
(i) the proceeds of the Term Advance shall be used only for Capital
Expenditures permitted hereunder, general corporate purposes; and (ii) the
proceeds of all Revolving Advances, Swingline Advances and the 1996 Secured
Term Loan shall be used solely for Capital Expenditures permitted
hereunder, working capital and general corporate purposes, including for
payment of Borrower's reimbursement obligations with respect to draws on
Letters of Credit and for payment of fees to Lenders."
2.17. BORROWING BASE CERTIFICATE. Section 15.15.1 of the Loan Agreement
is hereby deleted in its entirety and replaced with the following:
15.15.1. BORROWING BASE CERTIFICATE. On date of Amendment Number
Two, and periodically thereafter, but not less often than weekly within 5
Business Days after the close of business on each Friday, a borrowing base
certificate in substantially the form of Exhibit 15.15.1 (the "Borrowing
Base Certificate") duly completed and signed by the chief executive
officer, the chief financial officer or any other authorized officer of
Borrower's Representative. If there is an Existing Default, or the
difference between the Maximum Available Amount and the Aggregate Revolving
Loan is less than $250,000, Borrower shall provide a Borrowing Base
Certificate more often if so requested by Agent in its discretion.
2.18. FOREIGN ACCOUNTS. A new Section 15.15.7 is hereby added to the Loan
Agreement as follows:
15.15.7. FOREIGN ACCOUNTS. Borrower shall promptly obtain for the
benefit of Agent foreign credit insurance policies insuring, or letters of
credit securing, substantially all of Borrower's present and future
International Accounts in a manner satisfactory to Agent. Borrower shall at
all times be in compliance with all requirements under all such policies.
Agent shall be named loss payee on each such insurance policy. Borrower
shall cause all present and future letters of credit securing International
Accounts to be assigned to the Agent.
2.19. AUDITS BY AGENT. Section 15.20 of the Loan Agreement is hereby
amended by adding the following to the end of such Section:
"Agent may perform or cause to be performed from time to time (i)
appraisals of any Collateral, including, without limitation, Accounts,
Inventory, machinery, equipment, Real Property Collateral or any other
Collateral; and (ii) Collateral monitoring and auditing services. Borrower
shall cooperate with all persons performing such services and shall provide
all access deemed necessary or desirable by Agent in its sole discretion
for all such services to be performed.
2.20. DISTRIBUTIONS. The first sentence of Section 16.9 is deleted and
replaced with the following: "Directly or indirectly declare or make, or incur
any liability to make, (a) any Distribution during the period from the date of
Amendment Number Two through June 30, 1997, or (b) thereafter, (i) when there is
an Existing Default or (ii) Distributions which aggregate in excess of
$2,300,000 in any fiscal year.
2.21. FINANCIAL COVENANTS. Sections 17.5, 17.6, 17.7, 17.8, 17.9 and
17.10 are deleted and replaced with the following:
5
<PAGE>
17.5. MINIMUM FIXED CHARGE COVERAGE. The ratio of Borrower's Operating
Cash Flow to Fixed Charges, calculated at the end of each fiscal quarter of
Borrower on the basis of the four consecutive fiscal quarters then ended, shall
not, for the four consecutive fiscal quarters ended on date specified below, be
less than the ratio specified opposite such date:
<TABLE>
================================================================================
PERIOD MINIMUM FIXED CHARGE COVERAGE
================================================================================
<C> <C>
9/30/96 0.50 to 1.00
================================================================================
12/31/96 0.50 to 1.00
================================================================================
3/31/97 0.60 to 1.00
================================================================================
6/30/97 0.90 to 1.00
================================================================================
thereafter 1.00 to 1.00
================================================================================
</TABLE>
17.6. MINIMUM NET WORTH. Borrower's Net Worth shall at no time during any
fiscal period specified in the table below be less than the amount specified
below:
<TABLE>
================================================================================
PERIOD MINIMUM NET WORTH
================================================================================
<C> <C>
9/30/96 through 6/30/97 $62,000,000
================================================================================
7/1/97 through 6/30/98 $66,000,000
================================================================================
thereafter $72,000,000
================================================================================
</TABLE>
17.7. MINIMUM INTEREST COVERAGE. The ratio of Borrower's EBIT to
Interest Expense, calculated at the end of each fiscal quarter of Borrower on
the basis of the four consecutive fiscal quarters then ended, shall not, for the
four consecutive fiscal quarters ended on the date specified below, be less than
the ratio set forth opposite such date:
<TABLE>
================================================================================
PERIOD RATIO OF EBIT TO INTEREST EXPENSE
================================================================================
<S> <C>
Execution Date through 9/30/96 0.75 to 1.00
================================================================================
12/31/96 0.80 to 1.00
================================================================================
3/31/97 1.00 to 1.00
================================================================================
6/30/97 1.75 to 1.00
================================================================================
thereafter 2.00 to 1.00
================================================================================
</TABLE>
6
<PAGE>
17.8. INDEBTEDNESS TO OPERATING CASH FLOW. The ratio of Borrower's
Indebtedness to Operating Cash Flow, calculated at the end of each fiscal
quarter of Borrower on the basis of the four consecutive fiscal quarters then
ended, shall not, for the four consecutive fiscal quarters ended on the date
specified below, be greater than the ratio set forth opposite such date:
<TABLE>
================================================================================
PERIOD RATIO OF INDEBTEDNESS TO OPERATING CASH
FLOW
================================================================================
<C> <C>
9/30/96 8.00 to 1.00
================================================================================
12/31/96 7.50 to 1.00
================================================================================
3/31/97 5.75 to 1.00
================================================================================
6/30/97 4.00 to 1.00
================================================================================
6/30/98 and thereafter 3.50 to 1.00
================================================================================
</TABLE>
17.9. INDEBTEDNESS TO CAPITALIZATION. The ratio of Borrower's Indebtedness
to Capitalization shall not at any time during each fiscal period specified
below, be greater than the ratio set forth opposite such period:
<TABLE>
================================================================================
PERIOD RATIO OF INDEBTEDNESS TO CAPITALIZATION
================================================================================
<S> <C>
Execution Date through 9/30/96 .555 to 1.00
================================================================================
10/1/96 through 6/30/97 .500 to 1.00
================================================================================
7/1/97 through Maturity .500 to 1.00
================================================================================
</TABLE>
17.10. MINIMUM OPERATING CASH FLOW. Borrower's Operating Cash Flow,
calculated at the end of each period specified in the table below on the basis
of the four consecutive fiscal quarters then ended, shall not be less than the
amount set forth opposite such period:
<TABLE>
================================================================================
PERIOD MINIMUM OPERATING CASH FLOW
================================================================================
<C> <C>
9/30/96 $7,000,000
================================================================================
12/31/96 $7,700,000
================================================================================
3/31/97 $9,200,000
================================================================================
6/30/97 $13,500,000
================================================================================
thereafter $15,000,000
================================================================================
</TABLE>
Upon the completion of any Permitted Acquisition, the minimum Operating Cash
Flow required during any period in the foregoing table shall be automatically
increased by 75% of the Operating Cash Flow of such acquired company as set
forth in the Historical Financial Statements provided pursuant to Section 15.24.
7
<PAGE>
2.22. APPLICATION OF FUNDS. Section 18.3.10 of the Loan Agreement is
hereby amended by deleting everything following the semi-colon at the end of
clause (iv) and substituting in lieu thereof, the following: "(v) fifth, to the
payment of interest accrued on the Loans (except interest accrued on the 1996
Secured Term Loan) prorata to each of the Lenders, (vi) sixth, to the payment of
the Loans (except the 1996 Secured Term Loan) of each of the Lenders, in such
order as each Lender determines in its absolute discretion, (vii) seventh, to
the payment of all other Loan Obligations (except the 1996 Secured Term Loan and
interest accrued thereon), (viii) eighth, to the payment of interest accrued on
the 1996 Secured Term Loan, and (ix) ninth, to the payment of the 1996 Secured
Term Loan. Any remaining amounts shall be paid to Borrower or such other Persons
as shall be legally entitled thereto."
2.23. COLLECTIONS AND DISBURSEMENTS TO LENDERS BY AGENT. Section 19.14 of
the Loan Agreement is hereby amended by (i) adding, inside the parenthetical
clause, the words "and the 1996 Secured Term Loan" immediately after the words
"Swingline Loan" and before the closing parenthesis, and (ii) adding the
following sentence at the end of such Section: "Notwithstanding anything in this
Section 19.14 to the contrary, no payment of principal or interest shall be made
on the 1996 Secured Term Loan until all principal and interest on all other
Loans has been fully and irrevocably paid."
2.24. SALE OF PARTICIPATIONS. Section 20.4.6.4 is hereby amended by adding
the following to the end of such Section, immediately before the period:
"; provided that Boatmen's may sell (i) a participation in the 1996 Secured
Term Loan in the amount of $2,500,000 to Sam Fox and (ii) other
participations in the 1996 Secured Term Loan in a minimum amount of
$1,125,000 or such lesser amount which constitutes Boatmen's entire 1996
Secured Term Loan Commitment"
2.25. PAYMENT OF EXPENSES. Section 20.5 of the Loan Agreement is hereby
amended by (i) inserting in the first sentence, immediately after the words
"Agent's out-of-pocket costs", the following parenthetical clause: "(including,
without limitation all fees and disbursements of legal counsel, appraisers,
accountants, financial advisors, collateral monitoring services and other
consultants and experts employed or retained by Agent or its legal counsel
notwithstanding any restrictions or limitations in Sections 15.20 and 15.22 or
otherwise in this Agreement to the contrary)" and (ii) deleting the second
sentence thereof in its entirety and substituting in lieu thereof, the
following: "Borrower further agrees to pay or reimburse to each Lender all of
such Lender's out-of-pocket costs incurred after a Default or Event of Default".
2.26. DEFINITIONS.
2.26.1. NEW DEFINITIONS. The following definitions are hereby
added to the Loan Agreement in proper alphabetical order:
"`Amendment Number Two': That certain Amendment Number Two to Amended and
Restated Credit Facilities Agreement among Agent, Lenders and Borrowers,
dated as of the date first written in such Amendment.
"`Amendment Number Two Effective Date': the date first written in Amendment
Number Two."
"`International Accounts': the Accounts described in clause (viii) of the
definition of Eligible Accounts."
"`1996 Secured Term Loan': as defined in Section 3.3A."
8
<PAGE>
"`1996 Secured Term Loan Advance': as defined in Section 3.3A."
"`1996 Secured Term Loan Commitment': as defined in Section 3.3A."
"`1996 Secured Term Note': as defined in Section 3.3A."
2.26.2. AMENDED DEFINITIONS. The following definitions are hereby
deleted in their entirety and following is substituted in lieu thereof:
"`Advance': a Revolving Advance, a Swingline Advance, a Term Advance, an
Acquisition Advance or the 1996 Secured Term Loan Advance."
"`Commitments': the Aggregate Revolving Commitment, the Swingline
Commitment, the Aggregate Term Commitment, the Aggregate Acquisition
Commitment, the Letter of Credit Commitment and the 1996 Secured Term Loan
Commitment."
"Loan": a Revolving Loan, a Swingline Loan, a Term Loan, an Acquisition
Term Loan or the 1996 Secured Term Loan."
"`Note": the Swingline Note, the 1996 Secured Term Note, any Revolving
Note, any Term Note, or any Acquisition Note."
"Ultimate Maturity Date": July 31, 1998."
3. TEMPORARY BORROWING BASE ADJUSTMENT. On the Amendment Number Two Effective
Date, the Borrowing Base shall be increased by the amount of $1,937,000 (the
"Collateral Adjustment"), subject to the provisions of this paragraph. In no
event shall (i) the Aggregate Revolving Loan exceed $33,500,000; nor (ii) any
new Letters of Credit be issued, at any time when any portion of the Collateral
Adjustment is outstanding. The from time to time Collateral Adjustment amount
shall be reduced permanently, dollar for dollar, by (a) each from time to time
increase in International Accounts that become Eligible Accounts, (b) all
payments received on International Accounts that are not Eligible Accounts, and
(c) the full amount of all payments received on the Account owed to Borrower by
Medic Corporation; provided however, that in any event, the Collateral
Adjustment shall be reduced permanently on the following dates to the lesser of
(x) the following amounts, or (y) the Collateral Adjustment amount resulting the
payments from the events in clauses (a), (b) and (c): (i) $968,500 as of 60 days
after the Amendment Number Two Effective Date, (ii) $484,250 as of 90 days after
the Amendment Number Two Effective Date and (iii) zero Dollars as of 120 days
after the Amendment Number Two Effective Date. Borrower shall notify Agent
within three (3) Business Days of the receipt of any payment on the Medic
Corporation Account. Notwithstanding the daily principal payments on the
Revolving Loan pursuant to Section 6.1.2.1, the reduction of the Collateral
Adjustment as a result of any of the events set forth in clauses (a), (b) and
(c) above, shall be effective upon receipt of the Borrowing Base immediately
following such event.
4. CONDITION TO EFFECTIVENESS OF THIS AMENDMENT - CERTIFICATE OF SECRETARY OF
EACH BORROWER. This Amendment shall not become effective, and the Loan Agreement
shall continue in full force and effect as it existed in the absence of this
Amendment unless (i) each Borrower shall deliver to Agent, in form and substance
satisfactory to Agent, a Certificate of the Secretary of such Borrower
certifying (a) that the articles or certificate of incorporation and bylaws of
such Borrower previously certified to Lenders in connection with the execution
of the Loan Agreement have not been amended, (b) that resolutions adopted by the
Board of Directors of such Borrower authorizing the execution, delivery and
performance of this Amendment by
9
<PAGE>
such Borrower, are attached to the certificate and remain in full force and
effect, and (c) the names, titles and true signatures of the incumbent corporate
officers who are authorized to sign this Amendment or attest signatures or seals
on this Amendment on behalf of Borrower and (ii) the 1996 Secured Term Loan has
been fully advanced.
5. FURTHER ASSURANCES. Borrower hereby reaffirms and agrees that its
obligations under the 1996 Secured Term Loan shall be and are secured by the
Collateral as a part of and as provided in the Security Documents. Borrower
shall execute and deliver, or cause to be executed and delivered, to Agent such
amendments to the Security Documents as may be reasonably necessary to secure
fully the 1996 Secured Term Loan by all of the Collateral, and thereafter shall
take or cause to be taken such actions as Agent may from time to time request to
carry out the terms and conditions of this Amendment and the transactions
contemplated hereunder.
6. LENDERS' FEES. On the day of the full execution of Amendment Number Two,
Borrower shall pay to Agent, for the ratable benefit of Lenders, the following
fees:
6.1. FACILITY FEE INSTALLMENT. The portion of the Facility Fee in the
amount of $312,500 which is currently due and payable under Section 5.1.
6.2. AMENDMENT FEE. An Amendment fee in the amount of $135,875.
7. BOATMEN'S FEE. At Maturity, Borrower shall pay to Boatmen's, for Boatmen's
own account, a fee in connection with the 1996 Secured Term Loan in the amount
of $75,000.
8. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower hereby represents and
warrants to Lenders that (i) this Amendment and the 1996 Secured Term Loan have
been duly authorized by Borrower's Board of Directors, (ii) no consents are
necessary from any third parties for Borrower's execution, delivery or
performance of this Amendment and the 1996 Secured Term Loan, (iii) this
Amendment and the 1996 Secured Term Loan constitutes the legal, valid and
binding obligation of Borrower enforceable against Borrower in accordance with
its terms except as the enforcement thereof may be limited by bankruptcy,
insolvency or other laws related to creditors rights generally or by the
application of equity principles, (iv) to the best of Borrower's knowledge,
after due inquiry, except as disclosed on the disclosure schedule attached
hereto as Exhibit 13, all of the representations and warranties contained in
Section 13 of the Loan Agreement, as amended by this Amendment, are true and
correct in all material respects with the same force and effect as if made on
and as of the effective date of this Amendment, except that with respect to the
representations and warranties made regarding financial data in Section 13.15,
such representations and warranties are hereby made with respect to the most
recent Financial Statements and other financial data (in the form required by
the Loan Agreement) delivered by Borrower to Lenders, (v) to the best of
Borrower's knowledge, after due inquiry, there is no Default which is continuing
and no Event of Default has occurred under the Loan Agreement as amended by this
Amendment, and (vi) the Loan Agreement (as modified by this Amendment)
represents the legal, valid and binding obligation of Borrower, enforceable
against Borrower in accordance with its terms, except to the extent that the
enforceability thereof against Borrower may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or similar laws
affecting the enforceability of creditor's rights generally or by equitable
principles of general application (whether considered in an action at law or in
equity).
9. EFFECT OF AMENDMENT. The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of Agent
or Lenders under the Loan Agreement or any of the other Loan Documents, nor
constitute a waiver of any provision of the Loan Agreement, any of the
10
<PAGE>
other Loan Documents or any existing Default or Event of Default, nor act as a
release or subordination of the Security Interests of Agent or Lenders under the
Security Documents. Each reference in the Loan Agreement to "the Agreement",
"hereunder", "hereof", "herein", or words of like import, shall be read as
referring to the Loan Agreement as amended by this Amendment.
10. REAFFIRMATION. Borrower hereby acknowledges and confirms that (i) except
as expressly amended hereby the Loan Agreement remains in full force and effect,
(ii) the Loan Agreement, as amended hereby, is in full force and effect, (iii)
Borrower has no defenses to its obligation under the Loan Agreement and the
other Loan Documents, (iv) the Security Interests of Agent and Lenders under the
Security Documents secure all the Loan Obligations under the Loan Agreement as
amended by this Amendment, continue in full force and effect and have the same
priority as before this Amendment, and (v) Borrower has no claim against Agent
or any Lender arising from or in connection with the Loan Agreement or the other
Loan Documents.
11. GOVERNING LAW. This Amendment has been executed and delivered in St.
Louis, Missouri, and shall be governed by and construed under the laws of the
State of Missouri without giving effect to choice or conflicts of law principles
thereunder.
12. SECTION TITLES. The section titles in this Amendment are for convenience
of reference only and shall not be construed so as to modify any provisions of
this Amendment.
13. COUNTERPARTS; FACSIMILE TRANSMISSIONS. This Amendment may be executed in
one or more counterparts and on separate counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. A counterpart of this Amendment or a signature page of this
Amendment transmitted by facsimile machine or telecopier and showing a signature
shall have the same binding effect as an original bearing an original signature.
No party may raise the use of a facsimile machine or telecopier or the fact that
any signature was transmitted through the use of a facsimile or telecopier
machine as a defense to the enforcement of this Amendment.
14. INCORPORATION BY REFERENCE. Lenders and Borrower hereby agree that all of
the terms of the Loan Documents (including that certain letter agreement dated
August 26, 1996, waiving certain Events of Default) are incorporated in and made
a part of this Amendment by this reference.
15. STATUTORY NOTICE. The following notice is given pursuant to Section
432.045 of the Missouri Revised Statutes; nothing contained in such notice will
be deemed to limit or modify the terms of the Loan Documents or this Amendment:
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW
SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER(S)) AND US
(CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH
COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE
AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER
AGREE IN WRITING TO MODIFY IT.
BORROWER AND LENDERS HEREBY AFFIRM THAT THERE IS NO UNWRITTEN ORAL CREDIT
AGREEMENT BETWEEN BORROWER AND LENDERS WITH RESPECT TO THE SUBJECT MATTER OF
THIS AMENDMENT.
11
<PAGE>
[rest of page intentionally blank]
12
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by appropriate duly authorized officers as of the date first above written.
ALLIED HEALTHCARE PRODUCTS, INC. LIFE SUPPORT PRODUCTS, INC.
/s/ Barry F. Baker /s/ Barry F. Baker
By:_____________________________ By:_____________________________
Name: Barry F. Baker Name: Barry F. Baker
Title: Vice President Finance Title: Vice President Finance
Chief Financial Officer Chief Financial Officer
B&F MEDICAL PRODUCTS, INC. HOSPITAL SYSTEMS, INC.
/s/ Barry F. Baker /s/ Barry F. Baker
By:_____________________________ By:_____________________________
Name: Barry F. Baker Name: Barry F. Baker
Title: Vice President Finance Title: Vice President Finance
Chief Financial Officer Chief Financial Officer
BEAR MEDICAL SYSTEMS, INC. BICORE MONITORING SYSTEMS, INC.
/s/ Barry F. Baker /s/ Barry F. Baker
By:_____________________________ By:_____________________________
Name: Barry F. Baker Name: Barry F. Baker
Title: Vice President Finance Title: Vice President Finance
Chief Financial Officer Chief Financial Officer
THE BOATMEN'S NATIONAL BANK OF CREDITANSTALT CORPORATE
ST. LOUIS FINANCE, INC.
/s/ Alex D. Fennoy /s/ Christina T. Schoen
By:_____________________________ By:_____________________________
Name: Alex D. Fennoy Name: Christina T. Schoen
Title: Corporate Banking Officer Title: Vice President
/s/ Richard P. Buckanavage
By:_____________________________
Name: Richard P. Buckanavage
Title: Vice President
13
<PAGE>
THE SUMITOMO BANK, LIMITED. DRESDNER BANK A.G. NEW YORK AND
GRAND CAYMAN BRANCHES
/s/ Jayleen R. P. Hague /s/ Thomas Nadramia
By:_____________________________ By:_____________________________
Name: Jayleen R. P. Hague Name: Thomas Nadramia
Title: Vice President Title: Vice President
/s/ Theresa A. Lekich /s/ John W. Sweeney
By:_____________________________ By:_____________________________
Name: Theresa A. Lekich Name: John W. Sweeney
Title: Vice President Title: Assistant Vice President
FIRST BANK LASALLE NATIONAL BANK
/s/ Brenda J. Laux /s/ Mark E. McCarthy
By:_____________________________ By:_____________________________
Name: Brenda J. Laux Name: Mark E. McCarthy
Title: Senior Vice President Title: Senior Vice President
MERCANTILE BANK OF ST. LOUIS PNC BANK, NATIONAL ASSOCIATION
NATIONAL ASSOCIATION
/s/ Peter W. Bakken /s/ Charles Shoemake
By:_____________________________ By:_____________________________
Name: Peter W. Bakken Name: Charles Shoemake
Title: Vice President Title: Vice President
SANWA BUSINESS CREDIT CORPORATION
/s/ Lawrence J. Placek
By:_____________________________
Name: /s/ Lawrence J. Placek
Title: Vice President
14
<PAGE>
<TABLE>
EXHIBIT 1
TERM LOANS AND ACQUISITION LOANS
(AS OF THE DATE OF AMENDMENT NUMBER TWO)
------------------------------------------------------------------
LENDER TERM LOAN ACQUISITION TERM
------------------------------------------------------------------
<S> <C> <C>
The Boatmen's National $2,550,000 $320,000
Bank of St. Louis
------------------------------------------------------------------
Sanwa Business Credit $1,938,000 $243,200
Corporation
------------------------------------------------------------------
The Sumitomo Bank, $1,632,000 $204,800
Limited.
------------------------------------------------------------------
Creditanstalt Corporate $1,224,000 $153,600
Finance, Inc.
------------------------------------------------------------------
Dresdner Bank A.G. New $1,224,000 $153,600
York and Grand
Cayman Branches
------------------------------------------------------------------
LaSalle National Bank $1,224,000 $153,600
------------------------------------------------------------------
Mercantile Bank of $1,224,000 $153,600
St. Louis National
Association
------------------------------------------------------------------
PNC Bank National $1,020,000 $128,000
Association
------------------------------------------------------------------
First Bank $714,000 $89,600
------------------------------------------------------------------
AGGREGATES $12,750,000 $1,600,000
------------------------------------------------------------------
</TABLE>
15
<PAGE>
<TABLE>
EXHIBIT 3
LENDERS' COMMITMENTS AND PRORATA SHARES1
(AS OF THE DATE OF AMENDMENT NUMBER TWO)
- ---------------------------------------------------------------------------------------------------------------------------
LENDER TOTALS REVOLVING TERM LOAN ACQUISITION TERM PRORATA SHARES
COMMITMENT COMMITMENT LOAN COMMITMENT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Boatmen's National $10,870,000 $8,000,000 $2,550,000 $320,000 20.00%
Bank of St. Louis
- ---------------------------------------------------------------------------------------------------------------------------
Sanwa Business Credit $8,261,200 $6,080,000 $1,938,000 $243,200 15.20%
Corporation
- ---------------------------------------------------------------------------------------------------------------------------
The Sumitomo Bank, Limited. $6,956,800 $5,120,000 $1,632,000 $204,800 12.80%
- ---------------------------------------------------------------------------------------------------------------------------
Creditanstalt Corporate $5,217,600 $3,840,000 $1,224,000 $153,600 9.60%
Finance, Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Dresdner Bank A.G. New $5,217,600 $3,840,000 $1,224,000 $153,600 9.60%
York and Grand
Cayman Branches
- ---------------------------------------------------------------------------------------------------------------------------
LaSalle National Bank $5,217,600 $3,840,000 $1,224,000 $153,600 9.60%
- ---------------------------------------------------------------------------------------------------------------------------
Mercantile Bank of $5,217,600 $3,840,000 $1,224,000 $153,600 9.60%
St. Louis National
Association
- ---------------------------------------------------------------------------------------------------------------------------
PNC Bank National $4,348,000 $3,200,000 $1,020,000 $128,000 8.00%
Association
- ---------------------------------------------------------------------------------------------------------------------------
First Bank $3,043,600 $2,240,000 $714,000 $89,600 5.60%
- ---------------------------------------------------------------------------------------------------------------------------
AGGREGATES $54,350,000 $40,000,000 $12,750,000 $1,600,000 100.00%
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
- --------
1/ Boatmen's 1996 Secured Term Loan Commitment is not included in the
calculation of Lenders' pro rata shares.
</FN>
</TABLE>
16
<PAGE>
EXHIBIT 13
ADDITIONS TO EXHIBIT 13 OF THE LOAN AGREEMENT
None, if nothing listed below.
CONSULTING AND SEVERANCE AGREEMENT
Agreement dated as of the 1st day of September, 1996 by and between David
V. LaRusso ("Consultant") and Allied Healthcare Products, Inc. ("Allied"), a
Delaware corporation.
WHEREAS, Consultant resigned as an officer and director of Allied and its
subsidiaries on August 7, 1996 and terminated his service as an employee
effective August 31, 1996; and
WHEREAS, Allied and Consultant wish to provide for consulting services to
be rendered by Consultant to Allied, severance benefits and certain other
matters.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
1. TERM. This Agreement shall be deemed to have commenced as of September
1, 1996 and shall expire on August 31, 1998.
2. DUTIES. During the term of this Agreement, Consultant shall upon
specific written request therefor advise Allied orally or in writing with
respect to any matters concerning Allied that relate to the period of
Consultant's prior employment by Allied, and shall in that connection cooperate
with Allied, its officers, agents and attorneys with respect thereto. Consultant
shall not be required to perform any minimum number of hours of
<PAGE>
service hereunder and no request for advice or cooperation shall in any way
impede or interfere with Consultant's other business activities or constitute an
unreasonable burden upon Consultant. Consultant shall not be obligated to
perform more than ten (10) hours of service per month hereunder.
3. COMPENSATION. In consideration of Consultant's obligations under
Paragraphs 2, 6 and 7 and the release and covenant contained in Paragraph 8, and
to provide a severance benefit to Consultant, Allied shall pay Consultant at the
rate of $5,384.62 biweekly ($140,000 per annum) through August 31, 1997 and
$2,307.70 biweekly ($60,000 per annum) from September 1, 1997 through August 31,
1998. Such payments shall be made on Allied's regularly scheduled payroll dates.
In the event Consultant shall perform more than ten (10) hours of service per
month hereunder, Allied shall pay consultant a fee for such services in excess
of such ten (10) hours at an hourly, per diem, per project or other rate to be
mutually agreed upon by Allied and Consultant; PROVIDED HOWEVER, that Allied
shall not be obligated to pay Consultant for more than fourteen (14) hours of
service per day. For purposes of this Agreement, hours of service shall be
deemed to include travel time, other than commuting time. In the event
Consultant shall die or be disabled during the term of this Agreement, Allied
agrees to pay Consultant's designated beneficiary, or if no beneficiary has been
designated in writing to Allied, Consultant's estate, the compensation provided
for hereunder for the remaining term of this Agreement. Consultant shall also be
reimbursed by Allied for any expenses incurred by him hereunder.
2
<PAGE>
4. INDEPENDENT CONTRACTOR. Consultant and Allied agree that for the
purposes of this Agreement, Consultant shall be an independent contractor and
not an employee of Allied.
5. BENEFITS. Consultant shall be provided substantially the same medical
and employee insurance benefits that he was receiving from Allied at the time of
the termination of employment, including medical insurance for his dependents
and life insurance, except that the term life insurance provided hereunder shall
be limited to (a) $280,000 for the period September 1, 1996 through August 31,
1997 and (b) $120,000 for the period September 1, 1997 through August 31, 1998.
Such benefits will continue for a period (the "Benefit Period") that ends on the
earlier of (a) August 31, 1998 or (b) the date on which Consultant is first
entitled to obtain medical insurance provided by a successor employer. In
addition, Consultant shall be permitted to continue to utilize, at Allied's
expense, the vehicle heretofore provided to him by Allied through December 31,
1996. At such time, Consultant may either return the vehicle to Allied or
purchase the same at the lease buyout value specified in the vehicle lease.
6. COVENANT NOT TO DISCLOSE.
a. Consultant covenants and agrees that he will not, during the
period of his consultancy with Allied or at any time thereafter, except with the
express prior written consent of the President and Chief Executive Officer of
Allied, directly or indirectly disclose, communicate or divulge to any Person
(as defined in Section 15 hereof), or use
3
<PAGE>
for the benefit of any Person, any Proprietary Information (as defined in
Section 15 hereof). The restriction contained in the preceding sentence shall
not apply to any Proprietary Information that (i) is a matter of public
knowledge on the date of this Agreement, (ii) becomes a matter generally known
in Allied's industry after the date of this Agreement from another source which
is under no obligation of confidentiality to Allied or its Affiliates (as
defined in Section 15 hereof) or (iii) is acquired from another source which is
under no obligation of confidentiality to Allied or its Affiliates.
b. All written data, designs, drawings, blueprints, tracings,
sketches, plans, layouts, specifications, models, programs, cards, tapes, disks,
printouts, writings, manuals, guides, notes and any and all other memoranda
which may be or has been furnished to Consultant during his employment with
Allied or his consultancy hereunder or which was produced, prepared or designed
by Consultant in connection with his employment with Allied or his consultancy
hereunder shall be, become and remain the exclusive property of Allied.
Consultant acknowledges that all originals, copies and reprints in Consultant's
possession, custody or control have been surrendered and/or delivered to Allied
and Consultant agrees that he shall thereafter make no further use (except as
contemplated hereby), either directly or indirectly, of any such data, designs,
drawings, blueprints, tracings, sketches, plans, layouts, specifications,
models, programs, cards, tapes, disks, printouts, writings, manuals, guides,
notes or other memoranda or written information.
4
<PAGE>
7. COVENANT NOT TO SOLICIT CUSTOMERS OR EMPLOYEES; NONCOMPETITION COVENANT.
a. Consultant covenants and agrees that he will not personally
and/or individually at any time during the term of this Agreement, whether as
employee, owner, partner, agent, director, officer, consultant or shareholder
(except as the holder of not more than one percent (1%) of the outstanding
shares of a corporation whose stock is listed on any national or regional
securities exchange or reported by The Nasdaq Stock Market or any successor
thereto) solicit, divert or accept business competitive with Allied's business
as of the date hereof from or otherwise take away or interfere with any customer
of Allied.
b. Consultant further covenants and agrees that he will not personally
and/or individually at any time during the term of this Agreement or for a
period of three (3) years thereafter, whether as employee, owner, partner,
agent, director, officer, consultant or shareholder (except as the holder of not
more than one percent (1%) of the outstanding shares of a corporation whose
stock is listed on any national or regional securities exchange or reported by
The Nasdaq Stock Market or any successor thereto), without the prior written
consent of the President and Chief Executive Officer of Allied, solicit or
induce any person employed by Allied on the date hereof to accept employment in
any capacity with Consultant or any firm, person or entity with whom Consultant
is employed or associated whether as employee, owner, partner, agent, director,
officer, consultant or shareholder (except as the holder of not more than one
percent (1%) of the
5
<PAGE>
outstanding shares of a corporation whose stock is listed on any national or
regional securities exchange or reported by The Nasdaq Stock Market or any
successor thereto).
c. Consultant further covenants and agrees that he will not, during
the term of this Agreement, directly or indirectly, whether as employee, owner,
partner, agent, director, officer, consultant, shareholder (except as the holder
of not more than one percent (1%) of the outstanding shares of a corporation
whose stock is listed on any national or regional securities exchange or
reported by The Nasdaq Stock Market or any successor thereto) or in any other
capacity, for his own account or for the benefit of any Person in any business
in competition with Allied or any of its subsidiaries, without the prior written
consent of the President and Chief Executive Officer of Allied, establish,
engage in or be connected with any Person which competes with Allied or any of
its subsidiaries or proposes to compete with Allied or any of its subsidiaries
in any business in which Allied is engaged on the date hereof. For purposes of
this Agreement, "business" shall mean the business engaged in by Allied and its
subsidiaries on the date hereof in the manufacture and marketing of respiratory
therapy, medical gas and emergency medical equipment. Notwithstanding the
foregoing, Allied acknowledges and agrees that this Paragraph shall not prevent
Consultant from accepting employment with or otherwise being associated with
Sunrise Medical Inc.
d. If any provision of the covenants and agreements set forth in
Paragraph 6 and this Paragraph 7 shall be held invalid or unenforceable because
of the scope of the territory or the actions thereby restricted, or the period
of time within which
6
<PAGE>
such covenant or agreement is operative, or for any other reason, it is the
intent of the parties hereto that such provision shall be construed by limiting
and reducing it, or, if necessary, eliminating it so that the provisions hereof
be valid and enforceable to the extent compatible with applicable law as
determined by a court of competent jurisdiction.
8. RELEASE; NONDISPARAGEMENT. In further consideration of the payments to
be made to Consultant hereunder, Consultant hereby (a) completely and
irrevocably releases, to the extent he may lawfully do so, any claim that
Consultant may have against Allied, its subsidiaries and Affiliates and their
respective directors, officers, employees, partners and stockholders, except for
claims arising under (i) indemnification rights contained in Allied's Amended
and Restated Certificate of Incorporation or By-laws or arising under the
Delaware General Corporation Law or any other statutory or common law rights to
indemnification applicable to Consultant's service as a director, officer,
employee and/or agent of Allied; or (ii) Allied's Internal Revenue Code Section
401(k) retirement savings plan; and (b) agrees that he shall not disparage
Allied, its subsidiaries and Affiliates or their respective directors, officers,
employees, partners or stockholders or their respective personnel, products or
practices. Allied agrees that it will (a) instruct its executive officers not to
disparage Consultant, (b) request its directors not to disparage Consultant and
(c) as a corporate entity and body, not disparage Consultant. Without limiting
the generality of the foregoing, Allied acknowledges and agrees that it shall
indemnify Consultant against all liabilities, costs and expenses (including
reasonable attorney's fees and expenses) arising from Consultant's service as a
director and/or officer of Allied and its subsidiaries to the
7
<PAGE>
fullest extent permitted by the Delaware General Corporation Law and as provided
in the By-Laws of Allied as in effect on the date hereof.
9. ASSIGNMENT. Neither party shall have the right to assign this Agreement.
10. ENTIRE AGREEMENT. This Agreement contains all the understandings, terms
and conditions between the parties regarding the subject matter hereof. This
Agreement shall constitute the entire understanding and agreement between the
parties and shall supersede and be in lieu of any and all prior agreements
between the parties.
11. WAIVER. No waiver, alteration or modification of any of the provisions
of this Agreement or cancellation or replacement of this Agreement shall be
valid unless in writing and signed by the parties to this Agreement.
12. APPLICABLE LAW. The laws of the State of Missouri shall apply to this
Agreement without regard to principles of conflicts of law. In the event any
provision of this Agreement is declared null and void, it is hereby agreed that
the remaining provisions of this Agreement shall be deemed separate and shall
remain in full force and effect.
13. HEADINGS. The headings used in this Agreement have been included solely
for ease of reference and shall not be considered in the interpretation or
construction of this Agreement.
14. NOTICES. Any notice hereunder to Allied shall be addressed to it at its
offices, 1720 Sublette Avenue, St. Louis, Missouri 63110, Attention: President
and Chief
8
<PAGE>
Executive Officer, and any notice hereunder to Consultant shall be addressed to
him at 12511 Triple Oaks Drive, Sunset Hills, Missouri 63128 , subject to the
right of either party to designate at any time hereafter in writing some other
address. Such notices shall be sent by hand or certified mail, return receipt
requested.
15. DEFINITIONS.
a. "Affiliate" means any Person now or hereafter controlling,
controlled by, or under common control with another Person.
b. "Person" means any individual, corporation, firm, partnership
or other business entity.
c. "Proprietary Information" means all secret, confidential or
proprietary knowledge, information or data with respect to the conduct or
details of the business of Allied including, as applicable but without
limitation, methods of operation, customers and customer lists, products,
products under development as of the date of this Agreement, proposed, pending
or completed acquisitions of any company, division, product line or other
business unit, prices, fees, costs, plans, designs, technology, know-how,
software, marketing methods, policies, plans, personnel, suppliers, competitors,
markets or other specialized information or proprietary matters of Allied.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the date first above written.
ALLIED HEALTHCARE PRODUCTS, INC.
/s/ James C. Janning
By:_______________________________________
Name: James C. Janning
Title: President and Chief Executive Officer
/s/ David V. LaRusso
______________________________________
David V. LaRusso
10
What Allied is doing today...
to make a different tomorrow.
1996 ANNUAL REPORT TO SHAREHOLDERS
Allied
<PAGE>
Medical Gas Equipment
Allied's medical gas systems consist of in-wall components, central pumps and
compressors, and headwalls. These products serve a fundamental role in medical
gas delivery systems by regulating and monitoring the flow of medical gases, and
are typically installed during construction or renovation of a health care
facility. The Company estimates that its in-wall medical gas systems are
installed in approximately 3,000 acute-care hospitals.
In addition, Allied holds a leading domestic market share for in-wall
components utilized in conjunction with in-wall medical gas systems. Examples
include: flowmeters, vacuum regulators, pressure regulators and portable suction
equipment. Allied's hospital equipment product line consists of well-recognized
trade names, including: Chemetron(TM), Hospital Systems(TM), Gomco(TM),
Timeter(TM) and Oxequip(TM). Medical gas devices comprise 36% of sales.
Corporate Overview
Global Support of Life
Allied Healthcare Products, Inc. is a leading manufacturer of respiratory
products used in the health care industry in a wide range of hospital and
alternate site settings, including post-acute care facilities, home health care
and trauma care. The Company's product lines include medical gas equipment,
respiratory therapy equipment and emergency medical products. Allied's products
are marketed worldwide under well-recognized and respected brand names. Recent
acquisitions have strengthened Allied's global position, particularly within the
ventilator, emergency medical and home health care market.
Allied currently maintains seven international sales offices, supported by
a network of dealers, agents and U.S. exporters who distribute products
throughout the world -- including the United States, Canada, Mexico, Central and
South America, Europe, the Middle East and the Far East.
Respiratory Therapy
Recent acquisitions significantly broadened Allied's position within the
respiratory therapy equipment market -- now representing 53% of total sales.
Demand for respiratory equipment is expected to increase in the foreseeable
future, supported by increased recognition of respiratory illnesses, an aging
population and technology advancement. Economic considerations also play a role,
with increased attention on controlling medical costs and a desire to discharge
patients from acute-care hospitals to lower-cost alternate sites, or the home,
more quickly.
Allied's broad range of products for use in respiratory care and anesthesia
delivery includes: large volume compressors; adult, pediatric, infant and
transport ventilators and calibrators; humidifiers; monitoring systems; oxygen
concentrators; and nebulizers.
Emergency Medical
The emergency medical services industry continues to be an important business
opportunity for Allied, currently representing 11% of sales. Growth is being
supported by ongoing changes within the health care industry, a focus on
providing treatment outside the traditional hospital setting and a worldwide
commitment to improving trauma treatment.
Allied's emergency medical sales specialists market, under the Life Support
Products(TM) trade name, respiratory and resuscitation products, trauma and
patient handling equipment and related; items to ambulance companies, fire
departments and emergency medical system volunteer organizations. Industry
sources estimate the market for Allied's specialized emergency medical products
to be approximately $40 million in the United States alone, with significant
additional potential in foreign countries that are seeking to improve their
trauma care systems.
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Five Year
(Dollars in thousands, Compound
except per share data) % Change Annual Rate
For years ended June 30, 1996 1995 (1996-1995) 1991 (1996-1991)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Results
Net sales $120,123 $111,639 7.6% $54,609 17.1%
Income before income taxes 3,300 14,677 (77.5)% 6,762 (13.4)%
Net income 1,827 8,823 (79.3)% 4,231 (15.5)%
Net income as a % of sales 1.5% 7.9% -- -- --
Financial Position
Working capital $ 38,030 $ 2,810 -- $ 7,591 --
Total assets 136,760 126,192 -- 35,111 --
Total debt 52,882 69,022 -- 13,167 --
Shareholders' equity 63,886 38,374 -- 14,163 --
Current ratio 2.69:1 1.05:1 -- 1.60:1 --
Per Share Data
Net income $ 0.25 $ 1.45 (82.7)% $ 0.64 (17.1)%
Book value $ 8.19 $ 6.20 -- $ 2.08 --
</TABLE>
2. Letter to Shareholders
4. Operations Review
10. Management's Discussion and Analysis of
Financial Condition and Results of Operations
17. Consolidated Statement of Income
18. Consolidated Balance Sheet
19. Consolidated Statement of Changes in
Shareholders' Equity
20. Consolidated Statement of Cash Flows
21. Notes to Consolidated Financial Statements
28. Report of Independent Public Accountants
28. Statement of Management's Responsibility for
Financial Reporting
29. Selected Consolidated Financial Data
30. Directors and Officers
31. Corporate Information
[graph]
Sales
(Dollars in millions)
Net sales in fiscal 1996 increased by $8.5 million, or 7.6%, to $120.1 million
primarily as a result of acquisitions. Sales of existing products decreased by
10.3% due to a difficult macroeconomic environment.
[graph]
Net Income
(Dollars in millions)
Net income in fiscal 1996 was $1.8 million, a decrease of $7.0 million, or
79.3%. Reduced sales in the base business due to the dramatic swing to the
managed care environment and the on-going consolidation of health care providers
were among the primary causes for the decrease in net income.
[graph]
Earnings per Share
(Dollars)
After four consecutive increases in earnings per share since Allied's initial
public offering in 1992, earnings per share decreased to $0.25 in fiscal 1996.
1996 Annual Report to Shareholders 1
<PAGE>
To Our Shareholders
After five years of reporting record results and accomplishments, fiscal 1996
was a period of great disappointment for management both in Allied's base
business and recently acquired product lines.
As we reported to you over the last few quarters, the health care industry
continues to be impacted by a variety of factors. The trends of rising medical
costs, industry consolidation, new federal reimbursement guidelines and budget
issues related to Medicare and Medicaid have remained in the public spotlight.
Allied has certainly been affected by these issues. The situation has been
further exacerbated by acquisitions that have taken longer than expected to
assimilate and additional requirements for new manufacturing equipment and
operating systems.
Realizing our Potential
However, we have not been complacent during these challenging times. Our
disappointment with the results of fiscal 1996 has caused us to focus our
efforts on improving our Company and moving it to reach its full potential.
The BEAR CUB(TM) 750 is a significant
accomplishment for Allied and
will greatly enhance the Company's
growing line of ventilation
products -- a market estimated
to be over $150 million.
[photo]
Seated: James C. Janning, President and Chief Executive Officer
Standing: Dennis W. Sheehan, Chairman of the Board
We are continuing our efforts to strengthen Allied's management team, while
developing and initiating strategic programs to return Allied to the historical
level of performance it is capable of achieving. In addition, the Company
continues its focus on improving existing products, while, at the same time,
developing new technologies and products.
For example, subsequent to fiscal year end, Allied announced that it
received FDA 510(k) clearance to market a new infant ventilator in the United
States -- the BEAR CUB(TM) 750. The ventilator, available internationally since
March, utilizes a unique U.S. patented "volume limit" technology which
establishes an upper boundary for deliverable tidal volumes. This is a
significant accomplishment for Allied and will greatly enhance the Company's
growing line of ventilation products -- a market estimated to be over $150
million.
2 Allied Healthcare Products, Inc.
<PAGE>
Financial Position
While net sales for fiscal 1996 rose 8% to $120.1 million from $111.6 million a
year ago, net income of $1.8 million was significantly below the $8.8 million
reported a year ago. On a per share basis, net income declined to $0.25 compared
with $1.45 in fiscal 1995, based upon a 22% increase in the number of weighted
average shares outstanding for the 12-month period.
Positioning for Tomorrow
Going forward, our acquisitions have helped position the Company in the
high-growth areas of home health care, extended care and attractive
international markets. The investments required in new product development,
international expansion, manufacturing equipment and operating systems
contributed to earnings problems in fiscal 1996, particularly in the fourth
quarter. These investments, however, are expected to better position Allied for
future growth in sales and earnings.
Management is continuing efforts to improve operational efficiencies,
implementing plans to reduce costs and focusing on enhancing results throughout
the organization. For example, in August, Allied initiated
[photo]
The new Vacutron(TM), which is scheduled for worldwide introduction later this
fiscal year, is greatly reduced in size. This feature will allow health care
providers to effectively utilize this product in all types of facilities
including both acute care and non-acute care settings.
Our acquisitions have helped position
the Company in the high-growth areas
of home health care, extended care,
and attractive international markets.
a restructuring and consolidation of its field sales force to realize the
potential synergies of recent acquisitions, optimize selling costs and further
improve customer service. In summary, Allied's focus in 1997 includes:
. Reducing manufacturing costs through plant modernizations at two primary
facilities;
. Intensifying efforts in new product development; and
. Enhancing international distribution capabilities.
On behalf of all the employees at Allied Healthcare Products, we appreciate
your support during this difficult period and look forward to positive changes
in fiscal 1997.
Sincerely,
/s/ James C. Janning
James C. Janning
President and CEO
/s/ D. W. Sheehan
Dennis W. Sheehan
Chairman
1996 Annual Report to Shareholders 3
<PAGE>
Allied's strategy in today's radically changing health care industry reflects a
commitment to continuous improvement in product offerings, innovation and the
highest level of customer service and satisfaction.
The combination of lower hospital admissions, shorter average stays,
pricing pressures and a significant slowdown in health care inflation has
substantially reduced the growth in domestic health care spending. Although an
aging population, coupled with extended life expectancies and greater incidences
of respiratory illnesses, will contribute to an increase in health care demand,
overall industry trends will seek to meet these demands with more efficiency and
fewer services.
Allied's philosophy that permeates our entire organization is one of
continuous improvement in order to be effective in today's health care
environment. We believe that it is vital for Allied to improve the way its
business operates and we have taken the necessary steps in the areas of customer
service, sales, marketing support, production capabilities, FDA compliance, new
product development, post-sale service and information technology.
Allied is in the process of modernizing two of its primary manufacturing
facilities. During the last quarter of fiscal 1996, five computer controlled
machining centers were purchased and installed at the Healthcare Products
Division located in St. Louis, Missouri. This $1.5 million investment will
substantially modernize all of the Company's metal machining capabilities,
resulting in significant opportunities to reduce product costs. Cost reductions
will result from shorter set-up times, elimination of secondary operations in
component
Both the health care provider and the patient will benefit from Allied's
commitment to continuous improvement. Allied's dedication to improved product
offerings will enhance patient outcomes and reduce health care costs.
4 Allied Healthcare Products, Inc.
<PAGE>
manufacturing, reduced inventory levels, reductions in scrap and improvements in
quality. Benefits from the return on this investment will enhance future Company
performance.
The second site of continuous improvement to our manufacturing facilities
is our Disposable Products Division, located in Toledo, Ohio. Since the
acquisition of B&F Medical Products, Inc., our operation has been hindered by
outdated molds and injection molding machinery. Approximately $2.0 million is
being spent during the first half of fiscal 1997 to greatly expand the
production capacity and to gain significant production efficiencies. Production
throughput will be increased by 20%, allowing for greater sales of our
disposable line of respiratory therapy products. In addition, this investment in
improved injection molding capabilities will allow for significant
cost-reduction opportunities in material, labor and utility costs, while
improving the quality of our products.
Cost reductions will result from
shorter set-up times, elimination of
secondary operations in component
manufacturing, reduced inventory
levels, reductions in scrap and
improvements in quality.
Another major initiative which will positively impact all of Allied's
operations in fiscal 1997 is the implementation of a new information technology
system. During the year, a new computer system is expected to be installed to
enhance customer service and improve materials management and production
scheduling. All Company operations will be networked on a common information
technology platform, giving all personnel access to the necessary information to
better serve our customers. Although this commitment has short-term cost
implications, it will create long-term opportunities to reduce operating costs
in all facets of Allied's operations.
The Chemetron(TM) and Timeter(TM) flowmeters, introduced into the marketplace in
the second half of fiscal 1996, have been redesigned to more effectively utilize
space with the metering knob in front. In addition, the new efficient design
allows Allied to offer an extended warranty, thereby reducing the overall cost
to a health care provider.
In early 1996, the Schuco 2000 nebulizer was introduced for the treatment of
asthmatics. The Schuco 2000 was designed for lower production costs, and has an
extended warranty and greater ease of use by patients, who are primarily
children.
The Gomco(TM) "OptiVac" was recently introduced and fits the suctioning needs in
all health care settings -- emergency, acute care, sub-acute care and the home.
The AC/DC feature gives the clinician great flexibility, which is crucial in
today's managed care environment.
1996 Annual Report to Shareholders 5
<PAGE>
R&D spending has been increased significantly since 1994. Allied is now poised
to benefit from several new product offerings which were introduced in the
second half of fiscal 1996 or are scheduled to be introduced during fiscal 1997.
Our customers expect products that are technologically advanced and effective in
treating patients, while still simple to operate. Product reliability is a must
in order to stay ahead of the competition.
Consistent with the Company's focus on offering technologically advanced
products, Allied has increased the level of its research and development
efforts. We anticipate continuing our commitment to research and development in
the future. By way of reference, our research and development expenditures in
fiscal 1994, 1995 and 1996 were approximately $1.5 million, $2.5 million and
$3.3 million, respectively.
Expenditures for research and development activities include updating
and/or reducing costs for current products and developing new and improved
respiratory therapy devices. The Company has approximately 40 engineers and
technicians working on new product development projects.
R&D Efforts
(Dollars in millions)
[graph]
In the last half of fiscal 1996, a number of new product offerings were
introduced, including the Schuco 2000 nebulizer, Chemetron's line of flowmeters,
the Bear(TM) 1000 ventilator with Smart Trigger(R), and the Gomco "OptiVac"
(AC/DC portable suction pump). Subsequent to fiscal 1996 year end, several new
products have been introduced, including the Connect II universal medical gas
outlet and the BEAR CUB 750 infant ventilator. It is anticipated that additional
new products will be introduced during the course of fiscal 1997.
Consistent with the Company's
focus on offering technologically
advanced products, Allied has
increased the level of its research
and development efforts.
Although Allied has invested heavily in revitalizing its product offerings
and introducing new technology into the marketplace, this is only one aspect of
our corporate objective. Our mission is to enhance our leadership position by
providing a broad spectrum of reliable and respected respiratory care products
to the health care industry.
6 Allied Healthcare Products, Inc.
<PAGE>
Hospitals and other health care facilities continue to benefit from the
longevity of our products, utilizing equipment such as critical ventilators and
surgical suction pumps. The average life of this equipment has been extended
from a five-to-seven year period to eight-to-ten years. An additional important
consideration is the fact that hospitals, in an effort to reduce operating
costs, no longer employ as many trained service personnel. This, in turn, has
placed the burden entirely on the manufacturer. Product reliability is,
therefore, very important to health care purchasing personnel in determining the
true total cost of products.
Allied has responded to this challenge by raising our standard above the
already rigorous quality standards mandated by the FDA and through the
introduction of a statistical control process utilized during manufacturing of
metal and plastic components. Allied's Ventilation Products Division located in
Riverside, California, is ISO 9001 certified, and we are working toward this
certification in our two other primary manufacturing facilities. Also, greater
utilization of bar coding technology will be implemented during the year to help
reduce manufacturing lead times and to improve upon product identifications
during the order fulfillment process.
Patients will be better served by the technically advanced products marketed by
Allied. The Company is a leader in both medical gas system and invasive
ventilation products.
[photo]
1996 Annual Report to Shareholders 7
<PAGE>
Excel to survive. This statement is the new creed by which we abide. The
products we market must excel by either reducing the cost of patient care or by
simply costing less.
The respiratory products industry can be categorized by the delivery site
of respiratory care. Each setting is subject to different factors which
influence demand for respiratory products. The principal venues are hospitals
and alternate sites -- including post-acute care facilities, trauma care and
home health care. The respiratory products industry will be affected by the
continuing shift to less expensive alternate site care. Cost containment efforts
have greatly accelerated demand for long-term care for individuals requiring
complex medical services and equipment outside the acute care setting. Hospitals
are discharging patients much more rapidly than ever before. Long-term care
facilities are now part of the continuum of patient care, providing a broad
range of services to patients of various ages and acuity levels. Many patients
admitted to long-term care facilities are later discharged to home care
settings.
Allied offers a broad spectrum of respiratory therapy products for use in
trauma, hospital, home and post-acute care settings. The Company's products are
marketed under well-recognized and respected brand names to hospitals, hospital
equipment dealers, hospital construction contractors, home health care dealers,
emergency medical product dealers and others. As we face the challenges ahead,
our strength will be in the utilization of Allied's broad product line, brand
name recognition and an ability to provide respiratory therapy products that
exceed the requirements of our customers who are participating in the
competitive health care environment.
Allied is proud to participate in health care reform -- providing affordable yet
better patient care. This is the challenge we face and we intend to be a leader
in the new era of health care.
8 Allied Healthcare Products, Inc.
<PAGE>
Allied has launched many initiatives during fiscal 1996, with a particular
focus on producing long-term benefits. Current initiatives include the
investment in modern machinery and equipment for two manufacturing facilities,
implementation of a new information technology system, revitalization of many of
our traditional product lines and the introduction of several technologically
advanced products. These initiatives are vital to our future success, but
represent only the beginning of many other opportunities. Allied completed seven
acquisitions during fiscal years 1994, 1995 and 1996. These acquisitions are
expected to better position Allied in an industry facing continued consolidation
and competition.
Allied is committed to controlling
the cost of patient care by providing
superior and less expensive products,
and introducing products that result
in lower patient treatment costs.
Allied is committed to providing high quality products for the benefit of
patients worldwide. We are further dedicated to controlling the cost of patient
care by providing superior and less expensive products, and introducing products
that result in lower patient treatment costs. Management believes that the
formula for future success in today's health care system is very
straightforward. We will continue the objective of enhancing our leadership
position in our core respiratory therapy and medical gas equipment markets,
while expanding Allied's product line to provide a continuum of respiratory
products for use in hospital and alternate site settings.
The Bear 1000 adult and pediatric ICU ventilator with Smart-Trigger provides a
unique state-of-the-art mechanism for automatically adjusting pressure and flow
thresholds. Allied's complete line of ventilation products coupled with the
BiCore monitoring system offer unparalleled technology in respiratory therapy.
The BEAR CUB 750 infant ventilator offers integrated synchrony and volume
monitoring, dual flow capability, an internal battery and a graphics package.
Also, the BEAR CUB 750 utilizes a unique patented volume limit technology which
establishes an upper boundary to minimize the potential risk of over-inflation
of an infant's lungs.
1996 Annual Report to Shareholders 9
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
The following discussion summarizes the significant factors affecting the
consolidated operating results and financial condition of the Company for the
three fiscal years ended June 30, 1996. This discussion should be read in
conjunction with the consolidated financial statements, notes to the
consolidated financial statements and selected consolidated financial data
included elsewhere herein.
Certain statements contained herein are forward-looking statements. Actual
results could differ materially from those anticipated as a result of various
factors, including cyclical and other industry downturns, the effects of federal
and state legislation on health care reform, including Medicare and Medicaid
financing, the inability to achieve cost reductions through rationalization of
acquired companies, difficulties or delays in the introduction of new products
or disruptions in selling efforts.
Since December 1993, the Company has completed seven acquisitions which
have significantly expanded its product lines. These acquisitions were each
accounted for under the purchase method of accounting and were financed
primarily through bank borrowings, resulting in a large increase in the
Company's debt and interest expense. One acquisition was partially financed
through the issuance of common stock. Results of operations of each acquired
company have been included in Allied's consolidated statement of income from the
date of acquisition. The purchase price of each acquisition was allocated to the
assets acquired and liabilities assumed, based on their estimated fair value at
the date of acquisition. The excess of purchase price over the estimated fair
value of net assets acquired was, in each instance, recorded as goodwill and is
amortized over 20- or 40-year periods from the date of acquisition. Primarily as
a result of these acquisitions, the Company incurred a total of approximately
$1.4 million in goodwill amortization expense in the fiscal year ended June 30,
1996.
The following table summarizes the seven acquisitions:
<TABLE>
<CAPTION>
(Dollars in millions)
Date Business Products Purchase Price
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
December 1993 Life Support Products, Inc. ("LSP") Emergency medical equipment $15.7
March 1994 Hospital Systems, Inc. ("HSI") Headwall products 2.2
September 1994 B&F Medical Products, Inc. ("B&F") Home health care and respiratory therapy products 21.5
February 1995 Bear Medical Systems, Inc. ("Bear") Critical care ventilators 15.4
May 1995 BiCore Monitoring Systems, Inc. ("BiCore") Monitoring systems and equipment for ventilators 4.7
June 1995 Design Principles, Inc. ("DPI") Emergency medical equipment 0.6
November 1995 Omni-Tech Medical, Inc. ("Omni-Tech") Transport ventilators 1.6
</TABLE>
These acquisitions have strategically placed the Company in the high growth
areas of home health care and extended care markets, expanded the breadth of
products offered and are expected to provide a source of future growth in sales
and earnings. The Company believes that the expansion of product line offerings
is particularly important in international markets as the Company continues to
increase its worldwide sales force in an effort to be positioned to reach the
growth potential of these emerging international markets. While the Company
continues to believe that these acquisitions will have positive implications for
the future, progress with respect to the integration and rationalization of the
acquired businesses during fiscal 1996 was substantially less than expected and
was a major contributor to the fiscal 1996 earnings decline -- particularly the
fourth quarter 1996 net loss, as described below. The Company intends to
emphasize reductions in manufacturing costs through plant consolidations and
capital expenditure projects, sales force consolidation and training, and
information systems enhancements in an attempt to realize the potential
synergies of these acquisitions. There can be no assurance that the Company will
be successful in realizing these potential synergies.
The fiscal 1996 fourth quarter results of operations represented a
particularly difficult quarter for the Company. Core domestic markets, which had
experienced softness since the second quarter of fiscal 1996, continued to be
adversely impacted by numerous external and internal factors. The ongoing
consolidation of the Company's health care provider customers and the continued
uncertainty in their marketplace caused by health care reform adversely impacted
operating results. In addition, the integration of the Company's recent
complementary acquisitions has been more difficult than anticipated and had
particularly negative ramifications on the fourth quarter of fiscal 1996. During
the fourth quarter of fiscal 1996, the Company made significant investments in
financial and human resources to position itself to realize the potential
synergies of these acquisitions. Specifically, during the fourth quarter, the
Company significantly invested in recruiting and training of its ventilation
product line field sales force which had experienced high turnover levels. As a
result of these factors, fourth quarter fiscal 1996 net sales were $30.2 million
while the net loss was $2.2 million compared to fourth quarter sales of $33.8
million and net income of $2.8 million in the prior year.
10 Allied Healthcare Products, Inc.
<PAGE>
Sales of respiratory therapy equipment for the fourth quarter of fiscal
1996 were $15.6 million, a decline of $2.1 million, or 12.1%, compared to sales
of $17.7 million in the prior year. Declines in respiratory therapy equipment
sales primarily were caused by macroeconomic factors impacting health care
providers combined with declines in ventilation products caused by the
disruption in field sales force personnel and significant training time spent
during the quarter as well as declines in sales of home health care products
caused by capacity constraints and customer pricing pressures. Sales of medical
gas equipment products for the fourth quarter of fiscal 1996 were $11.3 million,
a decline of $1.4 million, or 11.0%, compared to sales of $12.7 million in the
prior year. The decline in new construction projects of acute care facilities as
well as the consolidation of health care providers were the primary factors
causing the sales decline. Emergency medical product sales were down slightly at
$3.2 million in the fourth quarter of fiscal 1996 compared to $3.3 million in
the fourth quarter of fiscal 1995. The sales decline in emergency medical
products was attributable to the timing of orders and shipments.
Gross profit of $7.6 million in the fourth quarter of fiscal 1996 was $5.5
million, or 42.0%, below the gross profit of $13.1 million in the prior year.
The decline in sales combined with an unfavorable product line sales mix, the
increase in lower margin international sales, which included low margin stocking
order sales to international distributors of the new BEAR CUB 750 infant
ventilator, and customer pricing pressures brought on by the consolidation of
health care providers all adversely impacted margins in the fourth quarter. In
addition, the decline in manufacturing volumes in certain product lines resulted
in the expensing of a portion of fixed plant overhead costs as period costs,
further adversely impacting margins.
Selling, general and administrative (SG&A) expenses in the fourth quarter
of fiscal 1996 were $9.3 million compared to $7.1 million in the prior year.
Increased investments in field sales force recruiting and extensive training
activities, sales promotions and literature, information technologies, and
research and development activities all contributed to the increased spending in
the fourth quarter of fiscal 1996. These increases in SG&A expenses primarily
related to planned investments to improve future operating efficiencies and to
increase sales. SG&A expenses in future periods are anticipated to decline.
The combination of decreased sales, decreased margins, and increased SG&A
expenses in the fourth quarter of fiscal 1996 resulted in a net loss of $2.2
million compared to net income of $2.8 million in the comparable prior year
period.
Results of Operations
Allied manufactures and markets respiratory products, including respiratory
therapy equipment, medical gas equipment and emergency medical products. Set
forth below is certain information with respect to amounts and percentages of
net sales attributable to respiratory therapy equipment, medical gas equipment
and emergency medical products for the fiscal years ended June 30, 1996, 1995,
and 1994.
<TABLE>
<CAPTION>
1996
-----------------------
(Dollars in thousands) Net % of Total
Year ended June 30, Sales Net Sales
- ---------------------------------------------------------------------------------
<S> <C> <C>
Respiratory therapy equipment $ 63,889 53.2%
Medical gas equipment 43,084 35.9
Emergency medical products 13,150 10.9
-------- ------
Total $120,123 100.0%
======== ======
<CAPTION>
1995
-----------------------
(Dollars in thousands) Net % of Total
Year ended June 30, Sales Net Sales
-----------------------
<S> <C> <C>
Respiratory therapy equipment $ 48,421 43.4%
Medical gas equipment 50,397 45.1
Emergency medical products 12,821 11.5
-------- ------
Total $111,639 100.0%
======== ======
<CAPTION>
1994
-----------------------
(Dollars in thousands) Net % of Total
Year ended June 30, Sales Net Sales
-----------------------
<S> <C> <C>
Respiratory therapy equipment $ 15,343 20.7%
Medical gas equipment 51,304 69.2
Emergency medical products 7,482 10.1
-------- ------
Total $ 74,129 100.0%
======== ======
</TABLE>
The following table sets forth, for the fiscal periods indicated, the
percentage of net sales represented by certain items reflected in the
Company's consolidated statement of income.
<TABLE>
<CAPTION>
Year ended June 30, 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 67.1 61.3 59.6
----- ----- -----
Gross profit 32.9 38.7 40.4
Total selling, general and
administrative expenses 26.2 22.3 22.7
----- ----- -----
Income from operations 6.7 16.4 17.7
Interest expense 3.7 3.3 1.8
Other expense 0.3 -- --
----- ----- -----
Income before provision
for income taxes 2.7 13.1 15.9
Provision for income taxes 1.2 5.2 6.1
----- ----- -----
Net income 1.5% 7.9% 9.8%
===== ===== =====
</TABLE>
1996 Annual Report to Shareholders 11
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations continued
Fiscal 1996 Compared to Fiscal 1995
Net sales increased by $8.5 million, or 7.6%, to $120.1 million in fiscal
1996 from $111.6 million in fiscal 1995. The increase in net sales included
$19.9 million in sales as a result of acquisitions partially offset by a decline
of $11.5 million in sales of existing products. Numerous external and internal
factors adversely impacted the Company's sales during fiscal 1996. Certain
macroeconomic factors first experienced in the second quarter continued to
impact sales throughout the remainder of fiscal 1996, most notably in the fourth
quarter. Political uncertainty over the federal budget, particularly the
possibility of changes in Medicare and Medicaid financing and health care
provider reimbursement rates, adversely impacted customer purchasing decisions.
In late April 1996, Congress resolved the federal fiscal 1996 budget issue, but
deferred resolution of health care policy issues. The Company is unable to
predict the impact of the government deferral of health care policy decisions on
customer purchase decisions, but management believes that until reimbursement
issues are resolved, current purchase patterns are likely to continue. The
on-going consolidation of health care providers has also impacted sales as this
activity appears to have caused customers to delay capital purchases as they
rationalize their operations, and to delay non-capital purchases as they reduce
their consolidated inventory levels. While the Company is unable to predict when
these macroeconomic conditions will be resolved, the Company believes that over
a long-term horizon it is positioned to capitalize on its ability to provide a
broad product offering to meet the demands of respiratory health care caused by
an aging population, an increase in the occurrence of lung disease, and other
respiratory illnesses requiring treatment in the home, hospital, and sub-acute
care facilities. The market softness experienced as a result of external factors
heightened the impact of internal factors on fiscal 1996 sales, most notably in
the fourth quarter. Internally, the Company experienced disruption in its
ventilation product line field sales force due to the effects of high turnover
rates. Due to the technical nature of selling the ventilation product line,
significant efforts and resources were expended to recruit and train the current
field sales force. In addition, transitioning from distributor sales to a direct
field sales force in certain other product lines, as well as manufacturing
capacity issues, have also adversely impacted fiscal 1996 sales. The Company
also experienced margin pressures in a number of its product lines due to
several factors. These factors included the significant consolidation of home
health care dealers and the resultant pricing pressures from these customers,
the adverse impact of reduced volume on the cost of manufacturing due to the
fixed nature of a significant portion of the Company's production costs, the
impact of manufacturing inefficiencies experienced at one of the Company's
plants, and the higher mix of lower margin international sales.
Respiratory therapy equipment sales increased $15.5 million, or 31.9%, to
$63.9 million for fiscal 1996 compared to sales of $48.4 million for fiscal
1995. The increase in sales of respiratory therapy products includes $19.2
million related to acquisitions partially offset by a decline of $3.7 million in
sales of existing products. The impact of political uncertainty over the federal
budget reconciliation legislation and a pledge by the Healthcare Financing
Administration, the federal agency that administers Medicare, to significantly
reduce the Medicare home oxygen rental fee rates contributed to the decline in
sales of existing products. Market softness for capital expenditure products
such as critical care ventilators, the consolidation of home health care
dealers, and increased competitive pressure to obtain business from national
accounts put pressure on pricing and margins throughout the last three quarters
of 1996. These factors are expected to continue into fiscal 1997. In addition,
manufacturing inefficiencies and capacity constraints experienced at one of the
Company's facilities during fiscal 1996 prevented the Company from shipping to
the level of demand for certain products. Although improvements have been
implemented, capacity constraints are expected to continue through at least
mid-fiscal 1997, at which time the Company's capital expenditure project at this
plant is expected to be completed.
Medical gas equipment sales of $43.1 million for fiscal 1996 decreased $7.3
million, or 14.5%, compared to sales of $50.4 million during fiscal 1995.
Consolidation of health care providers in the acute and post-acute care markets
combined with customer concerns over the outcome of possible capital
reimbursement policy changes adversely impacted fiscal 1996 sales. While the
consolidation of health care providers appears to be slowing, management expects
sales of medical gas equipment to continue to be adversely impacted until
capital reimbursement policy issues are resolved.
Emergency medical products sales of $13.1 million for fiscal 1996 increased
$0.3 million, or 2.6%, compared to sales of $12.8 million during fiscal 1995.
The increase in sales includes $0.7 million related to acquisitions partially
offset by a decline of $0.4 million in existing products. The Company believes
the decline in existing emergency medical products sales is attributable to the
timing of orders and shipments. The acquisition of Omni-Tech in November 1995
has had a favorable impact on sales to the U.S. Government, with $0.4 million in
incremental sales during fiscal 1996. The Company continued to increase its
presence in worldwide markets during the year. International sales, which are
included in the product line sales discussion above, increased $6.6 million, or
27.3%, to $30.8 million
12 Allied Healthcare Products, Inc.
<PAGE>
in fiscal 1996 compared to $24.2 million in fiscal 1995. The Company's strategy
of diversification through acquisition has had a favorable impact on
international sales as the increased breadth of products offered provides the
critical mass necessary to increase the Company's worldwide sales force and
realize the growth potential of emerging international markets. Acquisitions
contributed $8.4 million of the fiscal 1996 increase in international sales
which was partially offset by a decline in sales by $1.8 million of existing
products. The decline in international sales of existing products primarily
resulted from fewer new hospital construction projects in Mexico and other Latin
American markets.
Gross profit of $39.6 million in fiscal 1996 decreased $3.6 million, or
8.4%, from $43.2 million in fiscal 1995 as a result of sales mix, customer
pricing pressures and manufacturing volume issues. The change in gross profit
resulting from sales mix issues is due to the continued shift in sales to the
home health care market which has lower margins than the construction product
line, which had previously been the Company's primary product group; the
continued increase in international sales, which have lower margins than
domestic sales due to the large quantity, bid-based nature of these sales; and
due to an increase in sales of distributed versus manufactured products during
fiscal 1996. The consolidation of the Company's customer base, particularly in
the hospital and home health care markets, resulted in larger buying groups and
national accounts which increased customers' ability to negotiate prices.
Accordingly, these pricing pressures had an adverse impact on gross profit
margins. In addition, the decline in existing product sales resulted in a
decline in manufacturing volume in the Company's plants, particularly in the
fourth quarter of fiscal 1996. As a result, a portion of fixed plant overhead
costs was expensed as period costs, which adversely impacted margins. As a
percentage of net sales, gross profit was 32.9% and 38.7% in fiscal 1996 and
fiscal 1995, respectively. The Company anticipates continued pressures on
margins caused by the previously discussed external and internal factors. In
response to declining margins, the Company has embarked upon two significant
capital expenditure programs which are designed to reduce manufacturing costs,
improve manufacturing cycle times, improve quality, and reduce inventory levels.
The Company continues to evaluate its business with an intent to streamline
operations, improve productivity and reduce costs. Accordingly, the Company may
implement additional sales force and manufacturing or other strategic
rationalization programs in the future.
SG&A expenses for fiscal 1996 increased $6.6 million, or 26.6%, to $31.4
million in fiscal 1996 from $24.8 million in fiscal 1995. SG&A expenses
increased $6.4 million as a result of acquisitions, most notably increased
selling expenses for the demonstration-based, direct sales-intensive critical
care ventilation product line, increased research and development costs for the
critical care ventilation products, which include development of the new Smart
Trigger and BEAR CUB 750 Infant Ventilator, and increased amortization expense
attributable to the recent acquisitions. As described previously, base period
SG&A expenses increased $0.4 million as the Company invested in additional
training activities for the field sales force, technology upgrades in its
information systems, and other strategic research and development projects. As a
percentage of net sales, SG&A expenses increased to 26.2% in fiscal 1996
compared to 22.3% in fiscal 1995. This increase is attributable to the combined
factors of a decline in sales of existing products and the strategic investments
in training, technology and new products.
Income from operations in fiscal 1996 of $8.1 million was $10.2 million, or
55.8%, below fiscal 1995 income from operations of $18.4 million. As a
percentage of net sales, income from operations decreased to 6.7% from 16.4% in
fiscal 1996. This decrease is attributable to reduced sales of existing
products, reduced gross margins, and the increase in SG&A expenses discussed
above.
Other expenses increased $1.1 million, or 31.0%, to $4.8 million in fiscal
1996 from $3.7 million in fiscal 1995. Interest expense increased $0.8 million,
or 20.7%, to $4.5 million in fiscal 1996 from $3.7 million in fiscal 1995.
Interest expense increased $1.4 million due to increased debt required to
finance recent acquisitions, offset almost entirely by a reduction in interest
charges resulting from the reduction of existing bank debt as a consequence of
the equity offering completed in October 1995. The additional debt required to
finance working capital, capital expenditures and other operations accounted for
the $0.8 million net increase in interest expense in fiscal 1996. The effective
interest rate was 7.5% and 7.7% in fiscal 1996 and fiscal 1995, respectively.
The Company pays prevailing market rates on its debt and has interest rates
fixed with an interest rate protection agreement on $25.0 million in debt.
Income before provision for income taxes decreased $11.4 million, or 77.5%,
to $3.3 million in fiscal 1996 from $14.7 million in the prior year. The
Company's fiscal 1996 effective tax rate was 44.6% compared to 39.9% in fiscal
1995. This increase in the effective tax rate is primarily attributable to the
amortization of non-tax deductible acquisition goodwill, which has an increasing
impact on the effective tax rate as pre-tax income decreases.
Net income in fiscal 1996 was $1.8 million, a decrease of $7.0 million, or
79.3%, from $8.8 million in fiscal 1995. Earnings per share decreased to $0.25
in fiscal 1996 from $1.45 in fiscal 1995, or 82.7%. The weighted average number
of common shares outstanding used in the calculation of earnings per share was
7,378,478 in fiscal
1996 Annual Report to Shareholders 13
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations continued 1996 compared to 6,066,588 in fiscal 1995. The increase in
the weighted average number of common shares was the result of the October 1995
sale of 1,610,000 shares of common stock and the September 1994 issuance of
640,000 shares of common stock in connection with the acquisition of B&F.
Fiscal 1995 Compared to Fiscal 1994 Net sales increased by $37.5 million,
or 50.6%, to $111.6 million in fiscal 1995 from $74.1 million in fiscal 1994.
The increase was primarily attributable to acquisitions made during the fiscal
year, which contributed $32.8 million of incremental sales.
Excluding fiscal 1995 acquisitions, net sales increased by $4.7 million,
which included a 1.8% price increase. Sales of medical gas equipment decreased
by $0.9 million, or 1.8%, to $50.4 million in fiscal 1995 from $51.3 million in
fiscal 1994. The decline in sales of medical gas equipment resulted from a $2.3
million decrease in sales of medical gas system construction products.
Consolidation of health care providers in the hospital and post-acute care
markets combined with customer concerns over health care reform adversely
affected medical gas equipment sales in fiscal 1995, a trend which continued
throughout fiscal 1996. Excluding fiscal 1995 acquisitions, sales of respiratory
therapy products increased $0.3 million, or 2.1%, while sales of emergency
medical products increased $5.3 million, which included the full year effect on
sales resulting from the acquisition of LSP.
The Company increased its presence in worldwide markets during the year.
International sales increased $10.6 million, or 77.9%, to $24.2 million in
fiscal 1995 compared to $13.6 million in fiscal 1994. Acquisitions contributed
$6.4 million of the $10.6 million increase in international sales during the
year.
Gross profit increased 44.2% to $43.2 million in fiscal 1995 from $30.0
million in fiscal 1994. The gross profit margin percentage decreased to 38.7%
from 40.4%. The change in the gross profit margin was due to decreased sales in
the high margin medical gas system construction product line and a continued
shift in the revenue mix to the home health care market, which has lower profit
margins than the Company's other primary markets. This decrease in gross profit
margin was partially offset by increased sales in the third and fourth quarter
of higher margin ventilation products. In the fourth quarter of fiscal 1995, the
Company initiated three plant consolidation projects and completed the
consolidation of LSP's operations. The partial year savings from these
consolidations offset the costs of consolidation and accordingly had no impact
on fiscal 1995 gross profit margins.
SG&A expenses for fiscal 1995 increased $8.0 million, or 47.7%, to $24.8
million from $16.8 million in fiscal 1994. As a percent of net sales, SG&A
expenses decreased to 22.3% in fiscal 1995 compared to 22.7% in fiscal 1994.\
Income from operations in fiscal 1995 increased $5.3 million, or 39.8%, to
$18.4 million from $13.1 million in fiscal 1994. As a percentage of net sales,
income from operations decreased to 16.4% from 17.7% in fiscal 1995. This
decrease is attributable to the decline in gross profit margin which was
partially offset by the decrease in SG&A expenses as a percent of net sales.
Interest expense in fiscal 1995 increased $2.4 million to $3.7 million from
$1.3 million the prior year. This increase in interest expense was due to the
$31.6 million of debt incurred in connection with the acquisition of B&F, Bear
and BiCore. The effective interest rate on debt in fiscal 1995 was 7.7% compared
to 5.9% in fiscal 1994. The increase in the effective interest rate is
representative of the increase in prevailing market rates.
Income before provision for income taxes increased by 24.4% to $14.7
million in fiscal 1995 from $11.8 million in fiscal 1994. The Company's
effective tax rate for fiscal 1995 was 39.9% compared to 38.5% in fiscal 1994.
The increase in the effective tax rate is attributable to increased amortization
of non-tax deductible acquisition goodwill.
Net income increased by $1.5 million, or 21.6%, to $8.8 million in fiscal
1995 from $7.3 million in fiscal 1994. Earnings per share increased to $1.45 in
fiscal 1995 from $1.31 in fiscal 1994, an increase of 10.7% The weighted average
number of common shares outstanding used in the calculation of earnings per
share was 6,066,588 in fiscal 1995 compared to 5,521,659 in fiscal 1994. The
increase in the weighted average number of common shares was the result of
issuing 640,000 shares of common stock in connection with the acquisition of
B&F.
Financial Condition, Liquidity and Capital Resources
The following table sets forth selected information concerning Allied's
financial condition:
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash $ 1,489 $ 175 $ 1,394
Working capital 38,030 2,810 5,018
Total debt 52,882 69,022 29,621
Current ratio 2.69:1 1.05:1 1.19:1
</TABLE>
The Company's working capital was $38.0 million at June 30, 1996 compared
to $2.8 million at June 30, 1995, an increase of $35.2 million. This increase in
working capital primarily reflected a $30.6 million decrease in short-term
indebtedness and debt refinancing which is discussed below. Accounts receivable
decreased to $26.0 million from $27.6 million while inventories increased to
$28.0 million at June 30, 1996 from $23.9 million at
14 Allied Healthcare Products, Inc.
<PAGE>
June 30, 1995. The increase in inventories is a result of inventory stocking to
shorten the period from order placement to delivery time to improve customer
satisfaction, inventory stocking due to the transition from distributor sales to
direct sales, and the decline in sales activity.
Net cash increase/(decrease) was $1.3 million, ($1.2) million, and ($0.7)
million in fiscal 1996, 1995 and 1994, respectively. Net cash provided (used)
from operations was $2.5 million, ($0.3) million, and $4.6 million for the same
periods. Cash flow generated in fiscal 1996 resulted from operations and
proceeds from the issuance of common stock which was partially offset by capital
expenditures and reductions in debt. Prior year cash flows were significantly
impacted by acquisitions and increases in debt levels to finance the previously
noted acquisitions. The reduction in net income during fiscal 1996 has
significantly impacted cash flows and the ability of the Company to continue
historical levels of fixed payments. Accordingly, on August 21, 1996, the
Company's Board of Directors voted to suspend quarterly dividends effective
immediately with the fourth quarter of fiscal 1996. The Company also
renegotiated its credit facilities in September 1996 as described below. The
Company believes that subsequent to the suspension of cash dividends, cash flow
from operations and available borrowings under its amended revolving credit
facility, discussed below, will be sufficient to finance fixed debt service and
planned capital expenditures in fiscal 1997.
At June 30, 1996, the Company had aggregate indebtedness of $52.9 million,
including $3.9 million of short-term debt and $49.0 million of long-term debt.
Aggregate indebtedness at June 30, 1995 was $69.0 million, including $34.4
million of short-term debt and $34.6 million of long-term debt. On October 4,
1995, the Company paid down its existing debt by $25.7 million with proceeds
raised from the sale of 1,610,000 shares of common stock sold in a public
offering. On October 13, 1995, the Company entered into credit facilities with a
commercial bank syndicate to expire in the year 2000. The secured credit
facilities included a $40.0 million revolving credit facility and term loans of
$15.0 million and $70.0 million, or aggregate credit facilities of $125.0
million. In September 1996, subsequent to fiscal 1996 year end, the Company's
credit facilities were amended such that the $68.4 million unused portion of the
$70.0 million acquisition term loan facility is no longer available.
Additionally, amendments were made to the Company's credit facilities to reset
certain covenants, to increase advance rates on the revolving credit facility
borrowing base and to enter into an additional $5.0 million term loan, leaving
credit facilities totalling $60.0 million which can be utilized to finance
operations and future growth. All credit facilities' maturity dates were reset
to July 31, 1998. At June 30, 1996, the Company had total borrowings of $49.4
million on these credit facilities and was in compliance with or had received
waivers on all covenants. (See Note 14).
Capital expenditures in fiscal 1996, 1995 and 1994 were $3.6 million, $6.3
million, and $1.9 million, respectively. Fiscal 1996 capital expenditures
include strategic investments in a new machining center for the Company's St.
Louis, Missouri facility, the purchase of machinery and molds to increase
capacity at its Toledo, Ohio facility and other normal recurring replacements of
machinery and equipment. Fiscal 1995 capital expenditures included an addition
to the Company's manufacturing facility in St. Louis. The Company completed two
separate plant consolidations in fiscal 1996. The Company's headwall
construction manufacturing operation has been consolidated into its HSI
operations in Oakland, California, and its disposable medical products operation
in Mt. Vernon, Ohio was closed and consolidated into its Toledo, Ohio facility
operations. These consolidations are consistent with the Company's strategy to
rationalize operations to achieve efficiencies. Allied anticipates these
consolidations will reduce manufacturing costs, increase manufacturing
efficiencies, and reduce delivery times to customers. In addition, the Company
acquired $2.6 million of computer equipment and software under capital leases to
improve information technology systems.
The Company reduced its reserves recorded in connection with the previously
discussed acquisitions by approximately $2.0 million in fiscal 1996. These
reductions are primarily related to cash payments for various costs directly
attributable to these acquisitions, including severance, facility
rationalization and related matters and legal, accounting and consulting fees.
The remaining acquisition reserves of approximately $2.0 million at June 30,
1996 are expected to be liquidated primarily over the next two years.
As of June 30, 1996, the Company had a backlog of $21.0 million compared to
a $24.4 million backlog as of June 30, 1995. The Company's backlog, a
significant portion of which is attributable to the Company's medical gas system
construction products, consists of firm customer purchase orders which are
subject to cancellation by the customer upon notification. Allied's policy is to
recognize backlog orders only when they become shippable. The Company's backlog
has decreased primarily in medical gas construction systems products; however,
backlog in headwall construction products, emergency products and ventilation
products have all increased from year to year.
Inflation has not had a material effect on the Company's business or
results of operations.
1996 Annual Report to Shareholders 15
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations continued
Seasonality and Quarterly Results
In past fiscal years, the Company has experienced seasonal increases in net
sales during its second and third fiscal quarters (October 1 through March 31)
which, in turn, affected net income. Such seasonal variations were likely
attributable to an increase in hospital equipment purchases at the beginning of
each calendar year (which coincides with many hospitals' fiscal years) and an
increase in the severity of influenza during winter months. As the Company has
expanded its sales into the home health care, emergency medical and
international markets, these seasonal variations have diminished, but not in
their entirety.
The following table sets forth selected operating results for the eight
quarters ended June 30, 1996. The information for each of these quarters is
unaudited but includes all normal recurring adjustments which the Company
considers necessary for a fair presentation thereof. These operating results,
however, are not necessarily indicative of results for any future period.
Further, operating results may fluctuate as a result of the timing of orders,
the Company's product and customer mix, the introduction of new products by the
Company and its competitors, and overall trends in the health care industry and
the economy. While these patterns have an impact on the Company's quarterly
operations, the Company is unable to predict the extent of this impact in any
particular period.
<TABLE>
<CAPTION>
(Dollars in thousands,
except per share data) June 30, March 31, Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
Three months ended 1996 1996 1995 1995 1995 1995 1994 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $30,161 $30,334 $28,439 $31,189 $33,759 $31,643 $26,391 $19,846
Gross profit 7,574 9,772 9,889 12,338 13,060 11,980 10,164 8,005
Income (Loss) from operations (1,765) 2,461 2,705 4,723 5,927 4,672 4,419 3,342
Net income (loss) (2,159) 978 1,012 1,996 2,762 2,087 2,236 1,738
Earnings (Loss) per share $ (0.30) $ 0.12 $ 0.11 $ 0.32 $ 0.44 $ 0.34 $ 0.37 $ 0.30
</TABLE>
16 Allied Healthcare Products, Inc.
<PAGE>
Consolidated Statement of Income
<TABLE>
<CAPTION>
Year ended June 30, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $120,122,502 $111,638,712 $74,129,334
Cost of sales 80,549,685 68,430,068 44,171,947
------------ ------------ -----------
Gross profit 39,572,817 43,208,644 29,957,387
Selling, general and administrative expenses 31,449,306 24,848,486 16,823,934
------------ ------------ -----------
Income from operations 8,123,511 18,360,158 13,133,453
Other expenses:
Interest expense 4,474,316 3,703,954 1,337,769
Other, net 349,445 (20,595) 2,040
------------ ------------ -----------
4,823,761 3,683,359 1,339,809
------------ ------------ -----------
Income before provision for income taxes 3,299,750 14,676,799 11,793,644
Provision for income taxes 1,473,156 5,853,735 4,538,395
------------ ------------ -----------
Net income $ 1,826,594 $ 8,823,064 $ 7,255,249
============ ============ ===========
Earnings per share $ 0.25 $ 1.45 $ 1.31
============ ============ ===========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
1996 Annual Report to Shareholders 17
<PAGE>
Consolidated Balance Sheet
<TABLE>
<CAPTION>
June 30, 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 1,489,133 $ 174,952
Accounts receivable, net of allowance for doubtful accounts of
$422,517 and $590,459, respectively 25,964,658 27,586,290
Inventories 28,046,490 23,889,837
Income taxes receivable 2,285,224 --
Other current assets 2,713,497 3,378,079
------------ ------------
Total current assets 60,499,002 55,029,158
------------ ------------
Property, plant and equipment, net 21,968,504 18,099,690
Goodwill, net 52,821,411 52,518,771
Other assets, net 1,471,541 544,404
------------ ------------
Total assets $136,760,458 $126,192,023
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 13,104,299 $ 9,859,377
Current portion of long-term debt 3,848,780 4,669,959
Notes payable to bank -- 7,000,000
Short-term debt expected to be refinanced -- 22,750,000
Other accrued liabilities 5,516,045 7,939,770
------------ ------------
Total current liabilities 22,469,124 52,219,106
------------ ------------
Long-term debt 49,033,545 34,602,021
------------ ------------
Deferred tax liability -- noncurrent 1,371,649 996,984
------------ ------------
Commitments and contingencies (Notes 5 and 12)
Shareholders' equity:
Preferred stock; $.01 par value; 1,500,000 shares authorized;
no shares issued and outstanding
Common stock; $.01 par value; 30,000,000 shares authorized;
7,796,682 and 6,185,508 shares issued and outstanding
at June 30, 1996 and June 30, 1995, respectively 101,002 84,890
Additional paid-in capital 46,945,971 21,206,090
Retained earnings 37,570,595 37,814,360
Common stock in treasury, at cost (20,731,428) (20,731,428)
------------ ------------
Total shareholders' equity 63,886,140 38,373,912
------------ ------------
Total liabilities and shareholders' equity $136,760,458 $126,192,023
============ ============
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
18 Allied Healthcare Products, Inc.
<PAGE>
Consolidated Statement of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Additional Stock
Preferred Common Paid-In Subscriptions Retained Treasury
Stock Stock Capital Receivable Earnings Stock
- ------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Balance, June 30, 1993 $0 $ 78,250 $ 9,532,709 $(110,704) $24,729,635 $(20,731,428)
Issuance of common stock -- 25 19,975 -- -- --
Tax benefits relating to employee
stock options -- -- 545,012 -- -- --
Payments on stock subscriptions
receivable -- -- -- 40,077 -- --
Dividends declared
($.27 per common share) -- -- -- -- (1,325,163) --
Net income for the year ended
June 30, 1994 -- -- -- -- 7,255,249 --
----- -------- ----------- --------- ----------- ------------
Balance, June 30, 1994 0 78,275 10,097,696 (70,627) 30,659,721 (20,731,428)
Issuance of common stock -- 6,615 10,168,570 -- -- --
Tax benefits relating to employee
stock options -- -- 939,824 -- -- --
Payments on stock subscriptions
receivable -- -- -- 70,627 -- --
Dividends declared
($.28 per common share) -- -- -- -- (1,668,425) --
Net income for the year ended
June 30, 1995 -- -- -- -- 8,823,064 --
----- -------- ----------- --------- ----------- ------------
Balance, June 30, 1995 0 84,890 21,206,090 0 37,814,360 (20,731,428)
Issuance of common stock -- 16,112 25,739,881 -- -- --
Dividends declared
($.28 per common share) -- -- -- -- (2,070,359) --
Net income for the year ended
June 30, 1996 -- -- -- -- 1,826,594 --
----- -------- ----------- --------- ----------- ------------
Balance, June 30, 1996 $0 $101,002 $46,945,971 $ 0 $37,570,595 $(20,731,428)
===== ======== =========== ========= =========== ============
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
1996 Annual Report to Shareholders 19
<PAGE>
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year ended June 30, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,826,594 $ 8,823,064 $ 7,255,249
Adjustments to reconcile net income to net cash provided
by (used in) operating activities, excluding the effects
of acquisitions:
Depreciation and amortization 3,954,989 2,897,708 1,615,522
Tax benefits relating to employee stock options -- 939,824 545,012
Decrease (Increase) in accounts receivable, net 1,702,297 (4,230,876) (2,591,146)
Increase in inventories (4,156,653) (3,325,328) (2,757,486)
Increase in income taxes receivable (2,285,224) -- --
Decrease in other current assets 2,276,486 1,871,659 91,117
Increase (Decrease) in accounts payable 3,191,348 (223,020) 2,365,313
Increase (Decrease) in other accrued liabilities (4,325,109) (7,096,196) (1,758,894)
Increase (Decrease) in deferred income taxes -- liability 315,892 1,309 (143,385)
----------- ------------ ------------
Net cash (used) provided by operating activities 2,500,620 (341,856) 4,621,302
----------- ------------ ------------
Cash flows from investing activities:
Capital expenditures (3,649,284) (6,279,387) (1,938,013)
Acquisition of LSP -- Net of cash acquired -- -- (15,082,719)
Acquisition of HSI -- Net of cash acquired -- -- (1,970,914)
Acquisition of B&F -- Net of cash acquired -- (11,208,000) --
Acquisition of Bear -- Net of cash acquired -- (15,191,193) --
Acquisition of BiCore -- Net of cash acquired -- (4,699,102) --
Acquisition of DPI -- Net of cash acquired -- (600,000) --
Acquisition of Omni-Tech -- Net of cash acquired (1,557,000) -- --
Acquisition of operating rights and licenses -- (100,000) --
----------- ------------ ------------
Net cash used in investing activities (5,206,284) (38,077,682) (18,991,646)
----------- ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 16,600,000 61,750,000 18,150,000
Payment of long-term debt (63,192,220) (26,515,878) (6,586,125)
Borrowings under revolving credit agreement 56,100,000 26,088,000 19,898,000
Payments under revolving credit agreement (28,100,000) (22,798,000) (16,486,000)
Proceeds from issuance of common stock 25,755,993 171,985 20,000
Debt issuance costs (1,186,351) -- --
Dividends paid on common stock (1,957,577) (1,566,729) (1,325,163)
Proceeds from payments on stock subscriptions receivable -- 70,627 40,077
----------- ------------ ------------
Net cash provided by financing activities 4,019,845 37,200,005 13,710,789
----------- ------------ ------------
Net increase (decrease) in cash and equivalents 1,314,181 (1,219,533) (659,555)
Cash and equivalents at beginning of period 174,952 1,394,485 2,054,040
----------- ------------ ------------
Cash and equivalents at end of period $ 1,489,133 $ 174,952 $ 1,394,485
=========== ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,142,070 $ 3,964,112 $ 1,224,129
Income taxes $ 2,587,091 $ 1,082,290 $ 5,115,230
Supplemental schedule of noncash investing and
financing activities:
Equipment acquired through capital leases $ 2,452,565 -- --
Issuance of common stock in the acquisition of
B&F Medical Products, Inc. -- $ 10,003,200 --
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
20 Allied Healthcare Products, Inc.
<PAGE>
Notes to Consolidated Financial Statements
NOTE 1 Organization
Allied Healthcare Products, Inc. (the Company or Allied) is a manufacturer of
respiratory products used in the health care industry in a wide range of
hospital and alternate site settings, including post-acute care facilities, home
health care and trauma care. The Company's product lines include respiratory
therapy equipment, medical gas equipment and emergency medical products.
NOTE 2 Acquisitions
The following table summarizes certain information regarding the Company's
acquisitions during the previous three years:
<TABLE>
<CAPTION>
(Dollars in Millions)
Date Business Products Purchase Price
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
December 1993 Life Support Products, Inc. ("LSP") Emergency medical equipment $15.7
March 1994 Hospital Systems, Inc. ("HSI") Headwall products 2.2
September 1994 B&F Medical Products, Inc. ("B&F") Home health care and respiratory 21.5
therapy products
February 1995 Bear Medical Systems, Inc. ("Bear") Critical care ventilators 15.4
May 1995 BiCore Monitoring Systems, Inc. Monitoring systems and equipment 4.7
("BiCore") for ventilators
June 1995 Design Principles, Inc. ("DPI") Emergency medical equipment 0.6
November 1995 Omni-Tech Medical, Inc. ("Omni-Tech") Transport ventilators 1.6
</TABLE>
The above acquisitions were each accounted for under the purchase method of
accounting. Such acquisitions were primarily financed through bank borrowings,
except B&F which included the issuance of 640,000 shares of Allied common stock.
The purchase price of each acquisition has been allocated to the assets acquired
and liabilities assumed, based on their estimated fair values at the date of
acquisition. The excess of purchase price over the estimated fair value of net
assets acquired is recorded as goodwill. Results of operations of each acquired
company have been included in Allied's consolidated statement of income from the
date of acquisition.
The following table sets forth pro forma information for Allied as if each
of the previously discussed acquisitions had taken place on July 1, 1993. This
information is unaudited and does not purport to represent actual revenue, net
income and earnings per share had the acquisitions actually occurred on July 1,
1993.
<TABLE>
<CAPTION>
(Dollars in thousands)
Pro Forma Information (unaudited)
Year ended June 30, 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $120,324 $133,873 $138,608
Net income $ 1,951 $ 8,902 $ 8,752
Earnings per share $ .26 $ 1.44 $ 1.42
Weighted average shares
outstanding 7,378,478 6,177,054 6,161,658
</TABLE>
NOTE 3 Summary of Significant Accounting Policies
The significant accounting policies followed by Allied are described below. The
policies utilized by the Company in the preparation of the financial statements
conform to generally accepted accounting principles, and require management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual amounts could differ
from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany transactions and
balances are eliminated.
Revenue Recognition
Revenue from the sale of the Company's products is recognized upon shipment to
the customer. Costs and related expenses to manufacture the Company's products
are recorded as cost of sales when the related revenue is recognized.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less when acquired to be
cash equivalents. Book cash overdrafts on the Company's disbursement accounts
totaling $1,270,385 and $2,212,305 at June 30, 1996 and 1995, respectively, are
included in accounts payable.
1996 Annual Report to Shareholders 21
<PAGE>
Notes to Consolidated Financial Statements continued
Concentrations of Credit
At June 30, 1996 and 1995, the Company's trade receivables were comprised as
follows:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
Medical equipment distributors 75% 69%
Construction contractors 15% 13%
Health care institutions 10% 18%
</TABLE>
The Company maintains reserves for potential credit losses and historically
such losses have been within management's expectations. At June 30, 1996, the
Company had no significant concentration of credit risk.
Inventories
Inventories are stated at the lower of cost, determined using the last-in,
first-out (LIFO) method, or market. If the first-in, first-out (FIFO) method
(which approximates replacement cost) had been used in determining cost,
inventories would have been $253,996 and $532,249 higher at June 30, 1996 and
1995, respectively. Inventories include the cost of materials, direct labor and
manufacturing overhead.
Obsolete or unsalable inventories are reflected at their estimated
realizable values.
Property, Plant and Equipment
Property, plant and equipment is carried at cost and is depreciated using the
straight-line method over the estimated useful lives of the assets which range
from three to 36 years. Properties held under capital leases are recorded at the
present value of the noncancelable lease payments over the term of the lease and
are amortized over the shorter of the lease term or the estimated useful lives
of the assets. Expenditures for repairs, maintenance and renewals are charged to
income as incurred. Expenditures which improve an asset or extend its estimated
useful life are capitalized. When properties are retired or otherwise disposed
of, the related cost and accumulated depreciation are removed from the accounts
and any gain or loss is included in income.
Goodwill
The excess of the purchase price over the fair value of net assets acquired in
business combinations is capitalized and amortized on a straight-line basis over
the estimated period benefited, not to exceed 40 years. The amortization period
for all acquisitions to date range from 20 to 40 years. Amortization expense for
the years ended June 30, 1996, 1995 and 1994 was $1,446,756, $1,065,733 and
$394,765, respectively. Accumulated amortization at June 30, 1996 and 1995 was
$3,874,679 and $2,427,923, respectively. The carrying value of goodwill is
assessed for recoverability by management based on an analysis of future
expected cash flows from the underlying operations of the Company. Management
believes that there has been no impairment at June 30, 1996.
Other Assets
Other assets are primarily comprised of debt issuance costs. Such costs are
being amortized on a straight-line basis over the life of the related
obligations.
Income Taxes
The Company files a consolidated federal income tax return which includes its
wholly-owned subsidiaries. The provision for income taxes is based on
consolidated income and expenses of the Company for financial reporting
purposes.
During the first quarter of 1994, the Company adopted Statement of
Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes."
The adoption of FAS 109 changed the Company's method of accounting for income
taxes from the deferred method (APB 11) to an asset and liability approach. The
asset and liability approach requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and
liabilities.
The Company adopted FAS 109 by restating prior years' financial statements.
Application of FAS 109 increased the net deferred tax liability recognized for
future taxable temporary differences by approximately $2,100,000 at June 30,
1993. This increase was largely offset by increases to property, plant and
equipment, inventory and goodwill. This restatement did not have a material
impact on the results of operations for the years ended June 30, 1993 and 1992.
The cumulative effect of this accounting change did not materially impact
retained earnings at June 30, 1993 and there was no impact on cash flows.
Research and Development Costs
Research and development costs are charged to income in the year incurred and
are included in selling, general and administrative expenses. Research and
development expense for the years ended June 30, 1996, 1995 and 1994 was
$3,255,067, $2,486,622 and $1,492,197, respectively.
Earnings per Share
Earnings per share is computed by dividing net income available to common
shareholders by the weighted average number of shares and share equivalents
outstanding during the period, as adjusted for stock splits. The weighted
average number of shares outstanding for the years ended June 30, 1996, 1995 and
1994 was 7,378,478, 6,066,588 and 5,521,659 shares, respectively.
22 Allied Healthcare Products, Inc.
<PAGE>
NOTE 4 Financing
Long-term debt consisted of the following at June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Unsubordinated Debt
Notes payable to bank under a term
loan, revolving credit facility and an
acquisition line, secured by virtually
all assets of the Company:
Term Loan -- principal due in
quarterly installments of $750,000
through September 30, 2000 $12,750,000 $ --
Revolving credit facility --
aggregate revolving commitment
of $40,000,000, principal due at
maturity on October 13, 2000 35,000,000 --
Acquisition line -- aggregate
acquisition commitment of
$70,000,000; principal on current
borrowing due in quarterly install-
ments of $64,000 commencing on
August 31, 1996 and each calendar
quarter thereafter through
March 31, 1997; $80,000 through
September 30, 2000; $224,000 due
at maturity on October 13, 2000 1,600,000 --
Note payable to bank --
paid in 1996 -- 37,050,000
Note payable to bank --
paid in 1996 -- 22,750,000
Other 76,135 528,671
----------- -----------
$49,426,135 $60,328,671
----------- -----------
Subordinated Debt
Industrial Development Revenue
Bonds -- principal due in annual
installments of $200,000 through
March 1, 1998; $250,000 through
March 1, 2000; $255,000 at
maturity on March 1, 2001;
interest due monthly at variable
rates (4.2% at June 30, 1996) 1,155,000 1,355,000
Capital lease obligations 2,301,190 338,309
----------- -----------
3,456,190 1,693,309
----------- -----------
52,882,325 62,021,980
Less -- Short term debt expected
to be refinanced -- (22,750,000)
Less -- Current portion of long-
term debt, including $635,336
and $117,424 of capital lease
obligations (3,848,780) (4,669,959)
----------- -----------
$49,033,545 $34,602,021
=========== ===========
</TABLE>
On October 13, 1995, the Company refinanced notes payable to a bank in
conjunction with the sale of 1,610,000 shares of its common stock in a public
offering which yielded net proceeds of $25.7 million. Such proceeds were used to
reduce the outstanding balance of the Company's notes payable to a bank.
The new credit agreement (Credit Agreement) provided for borrowings of
$15,000,000 under a term loan, $70,000,000 under a term loan available for
acquisitions and $40,000,000 under a revolving loan, subject to certain
limitations based on eligible accounts receivable, eligible inventory and
outstanding letters of credit. Such loans bear interest at the London Interbank
Offered Rate (LIBOR) or at a base rate plus a specified percentage as set forth
within the loan agreement. The interest rate under each option is determined by
the Company's ratio of total indebtedness to cash flow. As of June 30, 1996,
interest on the facilities ranged from approximately 7.0% to 8.5%.
The revolving agreement and acquisition line require a commitment fee of
0.25% to 0.375% per annum, depending on the Company's ratio of total
indebtedness to cash flow, payable quarterly on the unused portions of the
loans.
The Credit Agreement contains restrictions and requirements, including
limitations on capital expenditures, new indebtedness (including lease
agreements) and the maintenance of certain minimum operating cash flow and net
worth levels, among others. At June 30, 1996, the Company was in violation of
certain of these covenants for which waivers have been received.
At June 30, 1996 the minimum principal payments of long-term debt,
excluding capital lease obligations, for the five subsequent fiscal years are as
follows:
<TABLE>
<S> <C>
1997 $ 3,213,444
1998 3,534,415
1999 3,585,457
2000 3,586,575
2001 36,661,244
-----------
$50,581,135
===========
</TABLE>
The book value of long-term debt at June 30, 1996 approximates fair value.
See Note 14 for discussion of subsequent amendments to the Credit
Agreement.
NOTE 5 Lease Commitments
The Company leases certain of its electronic data processing equipment under
noncancelable lease agreements. These agreements extend for a period of up to 60
months and contain purchase or renewal options on a month-to-month basis. The
leases are reflected in the consolidated financial statements as capitalized
leases in accordance with the requirements of Statement of Financial
1996 Annual Report to Shareholders 23
<PAGE>
Notes to Consolidated Financial Statements continued
Accounting Standards No. 13 (FAS 13), "Accounting for Leases." In addition,
the Company leases certain manufacturing facilities under noncancelable
operating leases. These leases are reflected in the consolidated financial
statements as operating leases in accordance with FAS 13.
Minimum lease payments under long-term capital leases and the operating
leases at June 30, 1996 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
- ------------------------------------------------------------------
<S> <C> <C>
1997 $ 803,110 $ 695,007
1998 782,220 906,390
1999 545,823 528,534
2000 478,392 69,120
2001 65,438 57,600
Thereafter -- --
---------- ----------
Total minimum lease payments 2,674,983 $2,256,651
==========
Less amount representing interest (373,793)
----------
Present value of net minimum
lease payments, including
current portion of $635,336 $2,301,190
==========
</TABLE>
Rental expense incurred on the operating leases in
fiscal 1996, 1995 and 1994 totaled $881,318, $558,910 and $116,815,
respectively.
NOTE 6 Income Taxes
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current payable:
Federal $ 40,240 $3,335,097 $3,439,878
State -- 488,608 412,798
---------- ---------- ----------
Total current 40,240 3,823,705 3,852,676
---------- ---------- ----------
Deferred:
Federal 1,217,979 1,767,979 613,538
State 214,937 262,051 72,181
---------- ---------- ----------
Total deferred 1,432,916 2,030,030 685,719
---------- ---------- ----------
$1,473,156 $5,853,735 $4,538,395
========== ========== ==========
</TABLE>
Income taxes were 44.6%, 39.9% and 38.5% of pre-tax earnings in 1996, 1995
and 1994, respectively. A reconciliation of income taxes, with the amounts
computed at the statutory federal rate, follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed tax at federal
statutory rate $1,121,915 $5,036,880 $4,027,775
State income taxes, net of
federal tax benefit 169,770 498,653 368,303
Goodwill 482,876 366,010 128,304
Other, net (301,405) (47,808) 14,013
---------- ---------- ----------
Total $1,473,156 $5,853,735 $4,538,395
========== ========== ==========
</TABLE>
The deferred tax assets and deferred tax liabilities recorded on the balance
sheet as of June 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
June 30, 1996
----------------------------------------
Deferred Deferred
Tax Assets Tax Liabilities
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Current:
Bad debts $ 165,933 $ --
Accrued liabilities 990,360 --
Inventory -- 731,879
Net operating loss carryforward 698,377 --
Other 237,420 --
---------- ----------
2,092,090 731,879
---------- ----------
Noncurrent:
Depreciation -- 411,969
Other property basis -- 449,083
Intangible assets 118,250 --
Other -- 306,127
---------- ----------
118,250 1,167,179
---------- ----------
Valuation allowance (322,720) --
---------- ----------
Total deferred taxes $1,887,620 $1,899,058
========== ==========
<CAPTION>
June 30, 1995
----------------------------------------
Deferred Deferred
Tax Assets Tax Liabilities
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Current:
Bad debts $ 295,229 $ --
Accrued liabilities 361,282 --
Inventory 57,749 --
Stock option compensation 189,892 --
---------- ----------
904,152 --
---------- ----------
Noncurrent:
Depreciation -- 463,629
Other property basis -- 332,141
Intangible assets 414,618 --
Other -- 301,387
---------- ----------
414,618 1,097,157
---------- ----------
Valuation allowance (314,445) --
---------- ----------
Total deferred taxes $1,004,325 $1,097,157
========== ==========
</TABLE>
24 Allied Healthcare Products, Inc.
<PAGE>
Income taxes receivable at June 30, 1996 reflect approximately $2.3 million
of federal and state tax refunds to be received relative to estimated tax
payments made by the Company in fiscal 1996. At June 30, 1996, the Company has
approximately $698,377 of net operating loss carryforwards available to offset
future regular taxable income. The carryforwards expire in 2011.
NOTE 7 Retirement Plan
The Company offers several retirement savings plans under Section 401(k) of the
Internal Revenue Code to certain eligible salaried employees. Each employee may
elect to enter a written salary deferral agreement under which a portion of such
employee's pre-tax earnings may be contributed to the plan.
During the fiscal years ended June 30, 1996, 1995 and 1994, the Company
made contributions of $535,017, $439,427 and $252,612, respectively.
NOTE 8 Related Parties
In 1994, Allied entered into an agreement with entities controlled by a
significant shareholder of the Company for such entities to provide certain
corporate development, consulting and advisory services to the Company. Charges
under this agreement for direct management and administrative services provided
to the Company for the years ended June 30, 1996 and 1995 were $180,821 and
$138,693, respectively. Payments under this agreement in fiscal 1995 also
included $408,310 for corporate development services provided in connection with
the B&F, Bear and BiCore acquisitions.
NOTE 9 Shareholders' Equity
On October 4, 1995, the Company completed the sale of 1,610,000 shares of its
common stock in a public offering which yielded net proceeds to the Company of
$25.7 million. The proceeds were used to reduce debt and to provide financing
for future growth. As of June 30, 1996, the number of outstanding shares is
7,796,682.
The Company has established a 1991 Employee Non-Qualified Stock Option Plan
as well as a 1994 Employee Stock Option Plan (Employee Plans). The Employee
Plans provide for the granting of options to the Company's executive officers
and key employees to purchase shares of common stock at prices equal to the fair
market value of the stock on the date of grant. Options to purchase up to
575,000 shares of common stock may be granted under the Employee Plans. Options
currently outstanding entitle the holders to purchase common stock at prices
ranging between $8.00 and $18.25, subject to adjustment. Options become
exercisable with respect to one-fourth of the shares covered thereby on each
anniversary of the date of grant, commencing on the second anniversary of the
date granted. The right to exercise the options expires 10 years from the date
of grant, or earlier if an option holder ceases to be employed by the Company.
In addition, the Company has established a 1991 Directors Non-Qualified
Stock Option Plan and a 1995 Directors Non-Qualified Stock Option Plan
(Directors Plans). The Directors Plans provide for the granting of options to
the Company's Directors who are not employees of the Company to purchase shares
of common stock at prices equal to the fair market value of the stock on the
date of grant. Options to purchase up to 250,000 shares of common stock may be
granted under the Directors Plans. Options currently outstanding entitle the
holders to purchase common stock at prices ranging between $8.00 and $18.25,
subject to adjustment. Options become exercisable with respect to one-fourth of
the shares covered thereby on each anniversary of the date of grant, commencing
on the second anniversary of the date granted, except for certain options
granted under the 1995 Directors Non-Qualified Stock Option Plan which become
exercisable with respect to all of the shares covered thereby six months or one
year after the grant date. The right to exercise the options expires 10 years
from the date of grant, or earlier if an option holder ceases to be a Director
of the Company.
A summary of stock option transactions in 1996 and 1995, respectively,
pursuant to the Employee Plans and the Directors Plans follows:
<TABLE>
<CAPTION>
Shares
Average Subject to
Price Option
- ---------------------------------------------------------------------------------
<S> <C> <C>
Summary of Stock Options
June 30, 1994 $10.01 239,300
Options granted 16.06 217,000
Options exercised 8.00 (14,000)
Options canceled 10.75 (54,300)
-------
June 30, 1995 $13.36 388,000
=======
Exercisable at June 30, 1995 53,180
=======
June 30, 1995 $13.36 388,000
Options granted 17.58 63,500
Options exercised 8.00 (1,174)
Options canceled 15.96 (36,726)
-------
June 30, 1996 $13.79 413,600
=======
Exercisable at June 30, 1996 118,875
=======
</TABLE>
1996 Annual Report to Shareholders 25
<PAGE>
Notes to Consolidated Financial Statements continued
NOTE 10 Export Sales
Export sales for the years ended June 30, 1996, 1995 and 1994 are comprised
as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Europe $ 7,500 $ 5,100 $ 3,400
Canada 2,300 2,900 1,800
Latin America 5,600 4,600 3,000
Middle East 2,900 2,100 300
Far East 9,000 7,200 3,500
Other 3,500 2,300 1,600
------- ------- -------
$30,800 $24,200 $13,600
======= ======= =======
</TABLE>
NOTE 11 Supplemental Balance Sheet Information
<TABLE>
<CAPTION>
June 30,
-----------------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Inventories
Raw materials $ 179,042 $ 187,260
Work in progress 2,563,773 2,003,313
Component parts 18,428,851 14,899,495
Finished goods 6,874,824 6,799,769
----------- -----------
$28,046,490 $23,889,837
=========== ===========
Property, Plant and Equipment
Machinery and equipment $15,167,835 $11,485,425
Buildings 13,476,157 13,718,476
Land and land improvements 989,516 989,516
Property held under capital leases 3,224,563 578,185
----------- -----------
Total property, plant and
equipment at cost 32,858,071 26,771,602
----------- -----------
Less accumulated depreciation
and amortization, including
$281,499 and $170,496,
respectively, related to property
held under capital leases (10,889,567) (8,671,912)
----------- -----------
$21,968,504 $18,099,690
=========== ===========
Other Accrued Liabilities
Accrued compensation expense $ 1,777,669 $ 2,098,152
Acquisition reserves 2,192,758 4,217,322
Accrued interest expense 332,246 --
Accrued income taxes -- 186,202
Other 1,213,372 1,438,094
----------- -----------
$ 5,516,045 $ 7,939,770
=========== ===========
</TABLE>
The Company reduced its reserves recorded in connection with the
acquisitions discussed in Note 2 by approximately $2 million in fiscal 1996.
These reductions primarily related to cash payments of various costs directly
attributable to these acquisitions, including severance, facility
rationalization and related matters, and legal, accounting and consulting fees.
The remaining acquisition reserves of approximately $2 million at June 30, 1996
are expected to be liquidated over the next two years.
NOTE 12 Commitments and Contingencies
From time to time, the Company becomes party to various claims and legal actions
arising during the ordinary course of business. Management believes that the
Company's costs and any potential judgments resulting from such claims and
actions would be covered by the Company's product liability insurance, except
for deductible limits and self-insured retention. The Company intends to defend
such claims and actions in cooperation with its insurers. It is management's
opinion that, in any event, their outcome would not have a material effect on
the Company's financial position or results of operations.
NOTE 13 Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for fiscal 1996 and 1995 appear below (all
amounts in thousands except per share data):
<TABLE>
<CAPTION>
Net Sales
-----------------------
1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
First quarter $ 31,189 $ 19,846
Second quarter 28,439 26,391
Third quarter 30,334 31,643
Fourth quarter 30,161 33,759
--------- ---------
Total year $ 120,123 $ 111,639
========= =========
<CAPTION>
Gross Profit
-----------------------
1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
First quarter $ 12,338 $ 8,005
Second quarter 9,889 10,164
Third quarter 9,772 11,980
Fourth quarter 7,574 13,060
--------- ---------
Total year $ 39,573 $ 43,209
========= =========
<CAPTION>
Net Income
-----------------------
1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
First quarter $ 1,995.8 $ 1,738.5
Second quarter 1,011.7 2,235.5
Third quarter 977.8 2,087.5
Fourth quarter (2,158.7) 2,761.6
--------- ---------
Total year $ 1,826.6 $ 8,823.1
========= =========
26 Allied Healthcare Products, Inc.
<PAGE>
<CAPTION>
Earnings per Share
-----------------------
1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
First quarter $ .32 $ .30
Second quarter .11 .37
Third quarter .12 .34
Fourth quarter (.30) .44
--------- ---------
Total year $ .25 $ 1.45
========= =========
</TABLE>
The fiscal 1996 fourth quarter results of operations represented a
particularly difficult quarter for the Company. Core domestic markets, which had
experienced softness since the second quarter of fiscal 1996, continued to be
adversely impacted by numerous external and internal factors. The ongoing
consolidation of the Company's health care provider customers and the continued
uncertainty in their marketplace caused by health care reform adversely impacted
operating results. In addition, the integration of the Company's recent
complementary acquisitions has been more difficult than anticipated and had
particularly negative ramifications on the fourth quarter of fiscal 1996. During
the fourth quarter of fiscal 1996, the Company made significant investments in
financial and human resources to position itself to realize the potential
synergies of these acquisitions, Specifically, during the fourth quarter, the
Company significantly invested in recruiting and training its ventilation
product line field sales force which had experienced high turnover levels.
Further, the decline in manufacturing volumes in certain product lines in the
fourth quarter of fiscal 1996 resulted in the expensing of a portion of fixed
plant overhead costs or period costs, further adversely impacting margins and
operating results. As a result of these factors, fourth quarter fiscal 1996 net
sales were $30.2 million while the net loss was $2.2 million compared to fourth
quarter sales of $33.8 million and net income of $2.8 million in the prior year.
NOTE 14 Subsequent Event -- Debt Amendment
On September 20, 1996 the Company amended its existing $125.0 million credit
facilities with its commercial bank syndicate. The credit facilities were
amended such that the $68.4 million unused portion of the $70.0 million
acquisition term loan facility is no longer available and the remaining credit
facilities' maturity dates were reset to July 31, 1998. In addition, the
amendments were made to reset certain covenants and to increase the advance
rates on the revolving credit facility borrowing base. Further, in connection
with the amended credit facilities, the Company entered into an additional $5.0
million term loan, also maturing July 31, 1998, to provide the Company with
credit facilities totalling $60.0 million which can be utilized to finance
operations and future growth. The Company believes that cash flow from
operations and available borrowings from its amended credit facilities will be
sufficient to finance fixed debt service and planned capital expenditures.
1996 Annual Report to Shareholders 27
<PAGE>
Report of Independent Public Accountants
August 21, 1996, except as to Note 14, which is as of September 20, 1996
To the Board of Directors and Shareholders of Allied Healthcare Products, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in shareholders' equity, and of
cash flows present fairly, in all material respects, the financial position of
Allied Healthcare Products, Inc. and its subsidiaries at June 30, 1996 and 1995
and the results of their operations and their cash flows for each of the three
years in the period ended June 30, 1996, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 3 to the financial statements, the Company changed its
method of accounting for income taxes in 1994.
/s/ Price Waterhouse LLP
St. Louis, Missouri
Statement of Management's Responsibility for Financial Reporting
The accompanying consolidated financial statements of Allied Healthcare
Products, Inc. have been prepared by management, which is responsible for their
integrity and objectivity. The statements have been prepared in conformity with
generally accepted accounting principles and include amounts based on
management's best estimates and judgments. Financial information elsewhere in
this annual report is consistent with that in the financial statements.
Management has established and maintains a system of internal control
designed to provide reasonable assurance that assets are safeguarded and that
the financial records reflect the authorized transactions of the Company. The
system of internal control includes widely communicated statements of policies
and business practices that are designed to require all employees to maintain
high ethical standards in the conduct of Company affairs. The internal controls
are augmented by organizational arrangements that provide for appropriate
delegation of authority and division of responsibility.
The financial statements have been audited by Price Waterhouse LLP,
independent accountants. As part of their audit of the Company's 1996 financial
statements, Price Waterhouse LLP considered the Company's system of internal
control to the extent they deemed necessary to determine the nature, timing and
extent of their audit tests.
The Board of Directors pursues its responsibility for the Company's
financial reporting through its Audit Committee, which is composed entirely of
outside directors. The Audit Committee meets periodically with the independent
accountants and management. The independent accountants have direct access to
the Audit Committee, with and without the presence of management
representatives, to discuss the results of their audit work and their comments
on the adequacy of internal accounting controls and the quality of financial
reporting.
/s/ James C. Janning
James C. Janning
President
Chief Executive Officer
/s/ Barry F. Baker
Barry F. Baker
Vice President, Finance
Chief Financial Officer
28 Allied Healthcare Products, Inc.
<PAGE>
Selected Consolidated Financial Data
<TABLE>
<CAPTION>
(In thousands, except per share data)
Year ended June 30, 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data
Net sales $120,123 $111,639 $74,129 $61,230 $58,603
Cost of sales 80,550 68,430 44,172 36,213 35,498
Gross profit 39,573 43,209 29,957 25,017 23,105
Selling, general and administrative expenses 31,449 24,849 16,824 13,879 13,363
Income from operations 8,124 18,360 13,133 11,138 9,742
Interest expense 4,474 3,704 1,338 210 948
Other, net 350 (21) 1 276 149
Income before provision for income taxes 3,300 14,677 11,794 10,652 8,645
Provision for income taxes 1,473 5,854 4,539 3,967 3,194
Net income $ 1,827 $ 8,823 $ 7,255 $ 6,685 $ 5,451
Earnings per share $ 0.25 $ 1.45 $ 1.31 $ 0.93 $ 0.76
Weighted average common shares outstanding 7,378 6,067 5,522 7,207 7,179
<CAPTION>
(In thousands)
June 30, 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Working capital $ 38,030 $ 2,810 $ 5,018 $10,527 $16,605
Total assets 136,760 126,192 64,593 36,926 38,167
Short-term debt 3,849 34,420 13,108 4,110 333
Long-term debt (net of current portion) 49,033 34,602 16,513 10,511 1,964
Shareholders' equity 63,886 38,374 20,034 13,498 27,921
</TABLE>
Common Stock Information
<TABLE>
<CAPTION>
1996 High Low
- ---------------------------------------------------------------------------------
<S> <C> <C>
September quarter $18 3/4 $15 1/4
December quarter 19 1/2 15 1/2
March quarter 16 3/4 10 1/2
June quarter 13 1/4 8 7/16
<CAPTION>
1995 High Low
- ---------------------------------------------------------------------------------
<S> <C> <C>
September quarter $16 1/4 $13 1/2
December quarter 17 1/2 15
March quarter 17 1/4 14 1/2
June quarter 16 1/4 14 1/4
</TABLE>
Allied Healthcare Products, Inc. began trading on the Nasdaq National Market
under the symbol AHPI on January 14, 1992, following its initial public
offering. As of September 12, 1996, there were 244 shareholders of record.
Dividends Declared Per Share
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
September quarter $0.07 $0.06
December quarter 0.07 0.07
March quarter 0.07 0.07
June quarter 0.07 0.07
----- -----
$0.28 $0.27
===== =====
</TABLE>
1996 Annual Report to Shareholders 29
<PAGE>
Directors and Officers
Directors
Dennis W. Sheehan
Chairman of the Board, Allied Healthcare Products, Inc.
Chairman, President and Chief Executive Officer
AXIA Incorporated, Oak Brook, Illinois
James C. Janning
President and Chief Executive Officer, Allied Healthcare Products, Inc.
St. Louis, Missouri
David A. Gee
President -- Emeritus, The Jewish Hospital
St. Louis, Missouri
Samuel A. Hamacher
Executive Vice President, Harbour Group Industries, Inc.
St. Louis, Missouri
Robert E. Lefton, Ph.D.
President and Chief Executive Officer, Psychological Associates
St. Louis, Missouri
Donald E. Nickelson
Vice Chairman, Harbour Group Industries, Inc.
St. Louis, Missouri
William A. Peck, M.D.
Vice Chancellor of Medical Affairs, Washington University
St. Louis, Missouri
Officers
Front row left to right:
James C. Janning
President and Chief Executive Officer
Richard P. Kuntz
Vice President, Operations
Back row left to right:
Alan G. Coe
Vice President, Sales and Marketing
F.H. "Ted" Atwood
Vice President, Human Resources
Gabriel S. Kohn
Vice President, Engineering
Barry F. Baker
Vice President, Finance and Chief Financial Officer
[photo]
30 Allied Healthcare Products, Inc.
<PAGE>
Corporate Information
Annual Meeting
The Annual Meeting of Shareholders of Allied Healthcare Products, Inc. will take
place on Thursday, November 14, 1996, at 10 a.m. Pacific Time, at the Mission
Inn, 3649 Seventh Street, Riverside, California 92501.
Common Stock Information
The common stock is traded on the Nasdaq National Market under the symbol AHPI.
For more information, please contact:
Barry F. Baker
Vice President, Finance and Chief Financial Officer
Allied Healthcare Products, Inc.
1720 Sublette Avenue
St. Louis, Missouri 63110
(314) 771-2400
fax (314) 771-0650
Form 10-K
A copy of the annual report on Form 10-K for the year ended June 30, 1996, which
was submitted by Allied Healthcare Products, Inc. to the Securities and Exchange
Commission, can be obtained by any shareholder of the company at no charge upon
request in writing to:
Barry F. Baker
Vice President, Finance and Chief Financial Officer
Allied Healthcare Products, Inc.
1720 Sublette Avenue
St. Louis, Missouri 63110
(314) 771-2400
fax (314) 771-0650
Transfer and Dividend Disbursing Agent
The Boatmen's National Bank of St. Louis
St. Louis, Missouri
Independent Accountants
Price Waterhouse LLP
St. Louis, Missouri
Legal Counsel
Dickstein Shapiro Morin & Oshinsky LLP
Washington, D.C.
Investor Relations
Gary S. Maier, Managing Director
Pondel Parsons & Wilkinson
Los Angeles, California
(310) 207-9300
1996 Annual Report to Shareholders 31
<PAGE>
Allied
HEALTHCARE PRODUCTS INC.
1720 Sublette Avenue
St. Louis, MO 63110
(314) 771-2400
fax (314) 771-0650
SUBSIDIARIES
Bear Medical Systems, Inc. (California)
1. BiCore Monitoring Systems, Inc. (California)
2. Bear Medical Systems AG - 50 shares outstanding of which Bear owns 47
shares
3. Bear Medical Systems FSC (U.S. Virgin Islands)
Hospital Systems, Inc. (California)
Life Support Products, Inc. (California)
B&F Medical Products, Inc. (Delaware)
Allied Healthcare Products Foreign Sales Corporation (Barbados)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (No. 33-99960, No. 33-86019, No. 33-45147 and No.
33-45145) of Allied Healthcare Products, Inc. of our report dated August 21,
1996, except as to Note 14, which is as of September 20, 1996 appearing on page
28 of the Annual Report to Shareholders of Allied Healthcare Products, Inc.
(which report and consolidated financial statements are incorporated by
reference in this Annual Report on Form 10-K). We also consent to the
incorporation by reference of our report on the Financial Statement Schedule,
which appears on page S-1 of this Form 10-K.
PRICE WATERHOUSE LLP
St. Louis, Missouri
September 26, 1996
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints each of James C. Janning and Barry F.
Baker as his true and lawful attorney-in-fact and agent, each with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the 1996 Annual Report on Form 10-K of Allied Healthcare
Products, Inc., and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto each said attorney-in-fact and agent full power and authority to
do and perform each and every act and thing requisite as fully to all intents
and purposes as he might or could do in person, and ratifying and confirming all
that said attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
/s/ Dennis W. Sheehan
____________________________________
Dennis W. Sheehan
Date: August 12, 1996
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints each of James C. Janning and Barry F.
Baker as his true and lawful attorney-in-fact and agent, each with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the 1996 Annual Report on Form 10-K of Allied Healthcare
Products, Inc., and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto each said attorney-in-fact and agent full power and authority to
do and perform each and every act and thing requisite as fully to all intents
and purposes as he might or could do in person, and ratifying and confirming all
that said attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
/s/ James C. Janning
____________________________________
James C. Janning
Date: August 19, 1996
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints each of James C. Janning and Barry F.
Baker as his true and lawful attorney-in-fact and agent, each with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the 1996 Annual Report on Form 10-K of Allied Healthcare
Products, Inc., and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto each said attorney-in-fact and agent full power and authority to
do and perform each and every act and thing requisite as fully to all intents
and purposes as he might or could do in person, and ratifying and confirming all
that said attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
/s/ David A. Gee
____________________________________
David A. Gee
Date: August 5, 1996
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints each of James C. Janning and Barry F.
Baker as his true and lawful attorney-in-fact and agent, each with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the 1996 Annual Report on Form 10-K of Allied Healthcare
Products, Inc., and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto each said attorney-in-fact and agent full power and authority to
do and perform each and every act and thing requisite as fully to all intents
and purposes as he might or could do in person, and ratifying and confirming all
that said attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
/s/ Samuel A. Hamcher
____________________________________
Samuel A. Hamacher
Date: September 1, 1996
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints each of James C. Janning and Barry F.
Baker as his true and lawful attorney-in-fact and agent, each with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the 1996 Annual Report on Form 10-K of Allied Healthcare
Products, Inc., and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto each said attorney-in-fact and agent full power and authority to
do and perform each and every act and thing requisite as fully to all intents
and purposes as he might or could do in person, and ratifying and confirming all
that said attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
/s/ Robert E. Lefton
____________________________________
Robert E. Lefton
Date: August 12, 1996
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints each of James C. Janning and Barry F.
Baker as his true and lawful attorney-in-fact and agent, each with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the 1996 Annual Report on Form 10-K of Allied Healthcare
Products, Inc., and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto each said attorney-in-fact and agent full power and authority to
do and perform each and every act and thing requisite as fully to all intents
and purposes as he might or could do in person, and ratifying and confirming all
that said attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
/s/ Donald E. Nickelson
____________________________________
Donald E. Nickelson
Date: August 8, 1996
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints each of James C. Janning and Barry F.
Baker as his true and lawful attorney-in-fact and agent, each with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the 1996 Annual Report on Form 10-K of Allied Healthcare
Products, Inc., and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto each said attorney-in-fact and agent full power and authority to
do and perform each and every act and thing requisite as fully to all intents
and purposes as he might or could do in person, and ratifying and confirming all
that said attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
/s/ William A. Peck
____________________________________
William A. Peck
Date: August 7, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ATTACHED
ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,489
<SECURITIES> 0
<RECEIVABLES> 26,387
<ALLOWANCES> 423
<INVENTORY> 28,046
<CURRENT-ASSETS> 60,499
<PP&E> 32,858
<DEPRECIATION> 10,890
<TOTAL-ASSETS> 136,760
<CURRENT-LIABILITIES> 22,469
<BONDS> 0
0
0
<COMMON> 101
<OTHER-SE> 63,785
<TOTAL-LIABILITY-AND-EQUITY> 136,760
<SALES> 120,123
<TOTAL-REVENUES> 120,123
<CGS> 80,550
<TOTAL-COSTS> 80,550
<OTHER-EXPENSES> 4,824
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,474
<INCOME-PRETAX> 3,300
<INCOME-TAX> 1,473
<INCOME-CONTINUING> 1,827
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,827
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
