SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- ---- Exchange Act of 1934
For the quarterly period ended December 31, 1996
- ---- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________________ to ____________________
Commission File Number 0-19266
ALLIED HEALTHCARE PRODUCTS, INC.
1720 Sublette Avenue
St. Louis, Missouri 63110
314/771-2400
I.R.S. Employment I.D. 25-1370721
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 twelve months (or for such shorter periods that the
registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past ninety days.
Yes X No
_____________ _____________
The number of shares of common stock outstanding at February 14, 1997 is
7,796,682 shares.
<PAGE>
INDEX
Page
Number
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statement
of Operations - three months and six months 3
ended December 31,
1996 and 1995 (Unaudited)
Consolidated Balance Sheets -
December 31, 1996 (Unaudited) and 4 - 5
June 30, 1996
Consolidated Statements of Cash
Flow - six months ended 6 - 7
December 31, 1996 and 1995 (Unaudited)
Consolidated Statement of Changes
in Stockholders' Equity for six months 8
ended December 31, 1996 (Unaudited)
Notes to Consolidated
Financial Statements 9 - 10
Item 2. Management's Discussion and
Analysis of Financial Condition 11 - 18
and Results of Operations
Part II - Other Information 19
Signature 20
<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
-------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net sales $28,388,652 $28,438,914 $57,522,375 $59,627,946
Cost of sales 19,663,935 18,549,738 39,557,557 37,400,762
------------ ------------ ------------- -------------
Gross profit 8,724,717 9,889,176 17,964,818 22,227,184
Selling, general and
administrative expenses 8,233,434 7,184,626 16,611,268 14,823,471
------------ ------------ ------------- -------------
Income from operations 491,283 2,704,550 1,353,550 7,403,713
Other expenses:
Interest expense 1,408,745 984,919 2,524,175 2,358,801
Other, net 28,980 32,661 54,936 32,639
------------ ------------ ------------- -------------
1,437,725 1,017,580 2,579,111 2,391,440
------------ ------------ ------------- -------------
Income/(loss) before
provision/(benefit) for
income taxes (946,442) 1,686,970 (1,225,561) 5,012,273
Provision/(benefit) for
income taxes (390,000) 675,261 (491,850) 2,004,752
------------ ------------ ------------- -------------
Net income/(loss) ($556,442) $1,011,709 ($733,711) $3,007,521
============ ============ ============= =============
Earnings/(loss) per share ($0.07) $0.11 ($0.09) $0.43
============ ============ ============= =============
Weighted average shares 7,796,682 7,744,095 7,796,682 6,964,825
============ ============ ============= =============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $1,406,212 $1,489,133
Accounts receivable, net of allowance for doubtful
accounts of $411,987 and $422,517, respectively 26,507,962 25,964,658
Inventories 28,040,052 28,046,490
Income taxes receivable 1,017,433 2,285,224
Other current assets 3,365,865 2,713,497
------------ ------------
Total current assets 60,337,524 60,499,002
------------ ------------
Property, plant and equipment, net 21,656,763 21,968,504
Goodwill, net 52,070,949 52,821,411
Other assets, net 1,723,027 1,471,541
------------ ------------
Total assets $135,788,263 $136,760,458
============ ============
</TABLE>
See Accompanying Notes To Consolidated Financial Statements.
<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $12,219,539 $13,104,299
Current portion of long-term debt 3,863,644 3,848,780
Other current liabilities 5,113,191 5,516,045
------------ ------------
Total current liabilities 21,196,374 22,469,124
------------ ------------
Long-term debt 50,067,811 49,033,545
Deferred income tax liability-noncurrent 1,371,649 1,371,649
Commitments and contingencies
Stockholders' equity:
Preferred stock; $.01 par value; 1,500,000 shares
authorized; no shares issued and outstanding
Series A preferred stock; $.01 par value; 200,000
shares authorized; no shares issued and outstanding
Common stock; $.01 par value; 30,000,000 shares
authorized; 7,796,682 and 7,796,682 shares
issued and outstanding at December 31, 1996
and June 30, 1996, respectively 101,002 101,002
Additional paid-in capital 46,945,971 46,945,971
Common stock in treasury, at cost (20,731,428) (20,731,428)
Retained earnings 36,836,884 37,570,595
------------ ------------
63,152,429 63,886,140
Total stockholders' equity ------------ ------------
$135,788,263 $136,760,458
Total liabilities and stockholders' equity ============ ============
See Accompanying Notes To Consolidated Financial Statements.
</TABLE>
<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months ended
December 31,
-----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($733,711) $3,007,521
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 2,662,639 1,926,034
Decrease (increase) in accounts receivable, net (543,304) 1,484,356
Decrease (increase) in inventories 6,438 (7,629,945)
Decrease in income taxes receivable 1,267,791 0
Increase in other current assets (652,368) (299,350)
Increase (decrease) in accounts pay (884,760) 2,074,694
Decrease in accrued income taxes 0 (350,318)
Decrease in other current liabilities 142,914 (2,778,477)
------------- -------------
Net cash provided by (used in) operating activities 1,265,639 (2,565,485)
------------- -------------
Cash flows from investing activities:
Capital expenditures (1,300,761) (1,571,527)
Acquisition of Omni-Tech 0 (1,556,336)
------------- -------------
Net cash used in investing activities (1,300,761) (3,127,863)
------------- -------------
</TABLE>
(CONTINUED)
<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Six Months ended
December 31,
-----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of long-term debt 5,000,000 42,000,000
Payments of long-term debt (839,791) (60,835,912)
Borrowings under revolving credit agreement 12,609,715 17,304,800
Payments under revolving credit agreement (15,720,794) (15,204,800)
Issuance of common stock 0 25,696,230
Debt issuance costs (551,161) (1,063,048)
Dividends paid on common stock (545,768) (866,047)
------------- -------------
Net cash provided by (used in) financing activities (47,799) 7,031,223
------------- -------------
Net increase (decrease) in cash and equivalents (82,921) 1,337,875
Cash and equivalents at beginning of period 1,489,133 174,952
------------- -------------
Cash and equivalents at end of period $1,406,212 $1,512,827
============= =============
</TABLE>
See Accompanying Notes To Consolidated Financial Statements.
<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Additional
Preferred Common paid-in Treasury Retained
stock stock capital stock earnings
---------- ---------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1996 $0 $101,002 $46,945,971 ($20,731,428) $37,570,595
Net income for the
Six Months ended
December 31, 1996 (733,711)
---------- ---------- ------------ ------------- ------------
Balance,
December 31, 1996 $0 $101,002 $46,945,971 ($20,731,428) $36,836,884
========== ========== ============ ============= ============
</TABLE>
<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Unaudited Financial Statements
The accompanying unaudited financial statements have been
prepared in accordance with the instructions for Form 10-Q and do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments considered
necessary for a fair presentation, have been included. Operating results for any
quarter are not necessarily indicative of the results for any other quarter or
for the full year. These statements should be read in conjunction with the
financial statements and notes to the consolidated financial statements thereto
included in the Company's Form 10-K for the year ended June 30, 1996.
2. Inventories
Inventories are comprised as follows:
December 31, June 30,
1996 1996
(Unaudited)
Raw Material $ 214,865 $ 179,042
Work-in-progress 2,510,401 2,563,773
Component Parts 16,848,184 18,428,851
Finished Goods 8,466,602 6,874,824
----------- -----------
$28,040,052 $28,046,490
=========== ===========
The above amounts are net of a reserve for obsolete and excess inventory of
approximately $1.7 million and $1.8 million at December 31, 1996 and June 30,
1996, respectively.
<PAGE>
3. 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 addition $5.0
million term loan, also maturing July 31, 1998. The amended credit facilities
provides the Company with credit facilities totaling $60.0 million which can be
utilized to finance operations and future growth. At December 31, 1996, the
Company had total borrowings of $49.6 million on these credit facilities and was
in compliance with all covenants or had received waivers of all covenants in
which it was not in compliance. In connection with the receipt of covenant
waivers, the Company agreed to pay its commercial bank syndicate a fee of
$450,000, plus $85,000 per month. In addition, the Company agreed that if it did
not reduce its aggregate borrowings with the commercial bank syndicate by $20
million by May 15, 1997 or otherwise obtain a commitment which would result in
proceeds to the Company of at least $20 million by May 15, 1997, it would pay
the commercial bank syndicate an additional fee of $450,000 on May 15, 1997.
Finally, the Company and the agent for the commercial bank syndicate have agreed
to negotiate mutually satisfactory revisions to the covenants contained in the
credit facilities by May 1, 1997.
The notes payable and the revolving credit agreement contain
restrictions on the pledging of assets and various covenants regarding financial
ratios and are secured by property, plant and equipment, accounts receivable and
inventory.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
GENERAL
The following discussion summarizes the significant factors affecting the
consolidated operating results and financial condition of Allied Healthcare
Products, Inc. ("Allied" or the "Company") for the three month and six month
periods ended December 31, 1996 compared to the three month and six month
periods ended December 31, 1995. This discussion should be read in conjunction
with the December 31, 1996 consolidated financial statements and accompanying
notes thereto included in this Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996.
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 or to increase prices of certain products, difficulties or
delays in the introduction of new products or disruptions in manufacturing,
selling and/or shipping 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 operations 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 will incur approximately $1.5 million in
annual goodwill amortization expense. The following table summarizes the seven
acquisitions:
<TABLE>
<CAPTION>
DATE BUSINESS PRODUCTS PURCHASE PRICE
(DOLLARS IN MILLIONS)
<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 seven acquisitions have strategically placed the Company in the growing
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, the integration and rationalization of the acquired businesses are
still in progress. Accordingly, the Company continued to undertake numerous
activities towards the implementation of these integration and rationalization
objectives during the second quarter of fiscal
<PAGE>
1997. Included in these activities are field sales force consolidation and
training, information system enhancements, and capital expenditure projects.
Progress made by the Company during the second quarter of fiscal 1997 is as
follows:
FIELD SALES FORCE CONSOLIDATION AND TRAINING
In the first quarter of fiscal 1997, the Company consolidated its 21 patient
care specialists with its 21 ventilator specialists to create a 34 person
respiratory products specialists field sales force. The training required for
this consolidation was completed in September 1996 for half of the field sales
force and was completed in November 1996 for the remaining half of the field
sales force. Benefits expected from this consolidation include optimization of
selling expenses through increased sales coverage, broadening product offerings
for each sales call, significantly reducing the geographic territory each sales
specialist must cover, and leveraging the strength of these complementary
product lines while enabling the sales specialists to enhance their
relationships with customers.
INFORMATION SYSTEMS ENHANCEMENTS
In October 1996 the Company converted its Corporate Offices and its St. Louis
manufacturing operations to a new fully integrated software system. This
computer conversion, which should provide a strategic long-term benefit to the
Company, caused short-term disruptions in manufacturing and shipping of
products. The Company was unable to meet the challenges of this disruption
during the fiscal 1997 second quarter, and accordingly ended the quarter with
past due shipments. These past due shipments are expected to be shipped in the
third quarter of fiscal 1997. The Company has continued to make advances in the
computer conversion process but has not yet fully completed these activities in
St. Louis. The Company also plans to convert its Toledo, Ohio and Riverside,
California operations. Preliminary work has begun in these other operations but
the conversion at these locations will take place only after the St. Louis
systems are process proven. When fully implemented, the information technology
systems enhancement should enable the Company to realize potential synergies of
acquisitions through an efficient integrated data base, enhanced management
reporting systems and through consolidation of certain operational functions.
CAPITAL EXPENDITURE PROJECTS
The Company made significant progress in modernizing two of its primary
manufacturing facilities during the fiscal 1997 second quarter. In May and June
of 1996, the Company purchased five computer controlled machining centers and,
in the second quarter of fiscal 1997 substantially completed the programming and
installation process for this machinery in its St. Louis, Missouri facility.
This $1.5 million investment will modernize the Company's metal machining
capabilities and has begun to provide significant opportunities to reduce
product costs from shorter set-up times, elimination of secondary operations in
component manufacturing, and in the future should provide the opportunity for
reduced inventory levels, reductions in scrap and improvements in quality.
In addition, the Company is in the process of investing up to $2.0 million in
molds and injection molding machinery to expand the production capacity and gain
efficiencies at its Toledo, Ohio facility. Manufacturing inefficiencies and
capacity constraints caused by old, outdated injection mold machinery has
prevented the Company from shipping to the level of demand for certain products.
This investment in enhanced injection molding capabilities is expected, when
complete, to increase annual disposable product production up to 20%, and to
provide significant cost reduction opportunities, including reduced
<PAGE>
product material content, labor and utility costs, while improving overall
quality. Six injection molding machines and three molds have been installed as
of December 31, 1996. An additional 14 molds are scheduled for delivery through
April 1997 while plans to order four additional molding machines and four
additional molds are under evaluation. The installation of equipment delivered
to date has been in accordance with management's expectations.
While the Company has expended both monetary and human resources on these
projects in the second quarter of fiscal 1997 and intends to continue
emphasizing these and other internally controlled projects, there can be no
assurance that the Company will be successful in implementing these projects and
realizing these potential synergies.
FINANCIAL INFORMATION:
The following table sets forth, for the fiscal period indicated, the percentage
of net sales represented by certain items reflected in the Company's
consolidated statement of operations.
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 69.3 65.2 68.8 62.7
----- ----- ----- -----
Gross profit 30.7 34.8 31.2 37.3
Total SG&A expenses 29.0 25.3 28.8 24.9
----- ----- ----- -----
Income from operations 1.7 9.5 2.4 12.4
Interest expense 5.1 3.6 4.5 4.1
----- ----- ----- -----
Income (loss) before provision
(benefit) for income taxes (3.4) 5.9 (2.1) 8.3
Provision (benefit) for income taxes (1.4) 2.3 (0.8) 3.3
----- ----- ----- -----
Net income (loss) (2.0)% 3.6% (1.3)% 5.0%
===== ===== ===== =====
<PAGE>
RESULTS OF OPERATIONS
Allied manufactures and markets respiratory therapy equipment, medical gas
equipment and emergency medical products. Set forth below is certain information
with respect to amounts (dollars in thousands) and percentages of net sales
attributable to respiratory therapy equipment, medical gas equipment and
emergency medical products for the three months and six months ended December
31, 1996 compared to the three months and six months ended December 31, 1995.
Three Months Ended
December 31, 1996 December 31, 1995
% of % of
total total
Net net Net net
sales sales sales sales
_____ _____ _____ _____
Respiratory Therapy Equipment $15,627 55.1% $15,438 54.3%
Medical Gas Equipment 10,144 35.7% 10,219 35.9%
Emergency Medical Products 2,617 9.2% 2,782 9.8%
------- ------ ------- ------
Total $28,388 100.0% $28,439 100.0%
====== ===== ====== =====
Six Months Ended
December 31, 1996 December 31, 1995
%of % of
total total
Net net Net net
sales sales sales sales
_____ _____ _____ _____
Respiratory Therapy Equipment $31,559 54.9% $31,776 53.3%
Medical Gas Equipment $20,240 35.2% 21,480 36.0%
Emergency Medical Products 5,723 9.9% 6,372 10.7%
------- ------ ------- ------
Total $57,522 100.0% $59,628 100.0%
======= ====== ====== =====
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1995
Net sales for the three months ended December 31, 1996 of $28.4 million were
unchanged from net sales of $28.4 million for the same period in the prior year.
Internal and, to a lesser extent, external factors continued to adversely impact
the Company's operations in the second quarter of fiscal 1997. The primary
operational issue that impacted the Company during the second quarter was the
inability to meet the challenges caused by the conversion to a new computer
system in the St. Louis facility. This conversion caused a disruption in
shipping activity and accordingly, the Company had past due shipments at
December 31, 1996. These past due shipments are expected to be made in the third
quarter of fiscal 1997. Other internal issues included capacity constraints at
the
<PAGE>
Company's Toledo, Ohio facility, field sales force training activities, and the
integration of recent acquisitions. In response to these internal operational
issues the Company has put in place additional injection mold equipment in
Toledo, Ohio, completed its field sales force training activities, and has made
progress on its computer conversion process. All of these activities have been
previously discussed. Certain external issues continued to impact the Company's
second quarter operations. In the home health care market, consolidation of
dealers has continued to put pressure on prices and corresponding margins. In
addition, Congress has not yet set policy on reimbursement guidelines for oxygen
therapy reimbursements. The effects of consolidation of acute health care
providers appears to be improving as the orders from and sales to these markets
are up in the second quarter of fiscal 1997 compared to the same period in the
prior year. Orders, or the pace of incoming business, for the three months ended
December 31, 1996, were $31.9 million, an increase of $2.5 million, or 8.6%,
over orders of $29.4 million in the prior year comparable period. Fiscal 1997
second quarter orders in all three of the Company's product lines were in excess
of prior year comparable orders. While the Company can not predict when the full
ramifications of its internal and external issues will be resolved, the Company
believes that over a long term horizon it is positioned through a broad product
offering and continued internal operational improvements to meet the demands of
respiratory health care caused by an aging population, an increase in the
occurrence and treatment of lung disease, and other respiratory illnesses
treated in the home, hospital, and sub-acute care facilities.
Respiratory Therapy Equipment sales in the second quarter of fiscal 1997 of
$15.6 million were $0.2 million, or 1.2%, over prior year second quarter sales
of $15.4 million. Sales of ventilation products have increased due to the strong
world wide acceptance of the Smart Trigger technology for the Company's adult
critical care ventilator and due to the introduction of the new infant
ventilator, the Bear Cub 750R . In addition, the Company has recently hired
field sales force personnel to address the high turnover rates experienced
during fiscal 1996. Training of these new field sales force personnel and the
combination of the ventilation field sales force with the patient care field
sales force has been an ongoing project of the Company to increase sales
coverage for this demonstration-based, sales-intensive product line. Sales of
home health care products were down from the prior year as a result of pricing
pressures caused by the ongoing consolidation of home health care dealers
combined with renewed concerns over potential reductions in home oxygen therapy
reimbursement rates. While the Company is unable to predict when these factors
will be resolved and the impact of potential reimbursement policy decisions, it
believes that until there is a resolution, current customer purchase patterns
are likely to continue. The home health care sales were additionally impacted by
capacity constraints at the Company's Toledo, Ohio facility. The Company is
currently installing new injection mold equipment and new molds. Additional
molds are scheduled for delivery through April 1997. While the installation of
equipment and molds previously delivered have been in accordance with
management's expectations, there can be no assurance that remaining
installations will fully alleviate the Company's capacity issues or that market
demand will remain at current levels.
Medical Gas Equipment sales in the second quarter of fiscal 1997 of $10.1
million were $0.1 million, or 0.7%, below prior year sales of $10.2 million.
Medical gas suction and regulation devices and headwall sales experienced an
increase over the second quarter sales in the prior year, which were offset by a
decline in inwall construction product sales. The order pattern for medical gas
suction and regulation devices has strengthened as it appears that the impact of
consolidation of health care providers is slowing and their rationalization
process of consolidation inventory levels is nearing completion. Management can
not predict when the full ramifications of such consolidation will be complete,
however, fiscal 1997
<PAGE>
second quarter orders for these products are 25.4% over the comparable prior
year period. Inwall construction product orders are unchanged from year to year
while head wall orders are down in the fiscal 1997 second quarter by 38.9%
compared to the same period in the prior year. This decrease is attributable to
a one time order in excess of $1.1 million received in the prior year. In
addition, in April 1996, Congress deferred resolution of policy for capital
reimbursement guidelines. Management expects sales of medical gas equipment
products to continue to be adversely impacted until policy issues are resolved.
Emergency medical product sales in the second quarter of fiscal 1997 of $2.6
million were $0.2 million, or 5.9% below prior year sales of $2.8 million. This
sales trend is a continuation of fiscal 1997 first quarter sales patterns as the
sales decline is attributable to problems the Company had in the relocation of
production of emergency products to the St. Louis facility and the absence of a
large stocking order that occurred in the prior year. Orders in the second
quarter of fiscal 1997 for emergency products, however, are 31.4% over orders in
the comparable prior year. This is attributable to several large orders received
late in the second quarter which will be shipped primarily throughout the
remainder of fiscal 1997.
The Company continued to increase its presence in world wide markets during the
second quarter of fiscal 1997. International sales, which are included in the
product line sales discussion above, increased $0.4 million, or 5.1%, to $7.9
million in the second quarter of fiscal 1997 compared to sales of $7.5 million
in the second quarter of fiscal 1996. The world wide market acceptance of the
Smart TriggerR technology for the Company's adult critical care ventilator
combined with the recent introduction of the new Bear Cub 750R infant ventilator
has fueled the growth of international sales. Partially offsetting the increase
in international ventilator product sales was a decline in international medical
gas equipment and head wall sales which was attributable to a large order in the
prior year.
Gross profit for the second quarter of fiscal 1997 was $8.7 million, or 30.7% of
net sales, compared to $9.9 million, or 34.8% of net sales in the second quarter
of fiscal 1996. An unfavorable product line sales mix, the increase in lower
margin international sales, and pricing pressures brought on by the
consolidation of health care providers all adversely impacted margins from year
to year. In addition, the gross profit margin percentage was impacted by a
planned decline in manufacturing volume. The Company continued to focus on
working capital management and did not significantly build inventory levels as
in the prior year. As a result, the decline in manufacturing volume in fiscal
1997 increased per unit costs of manufacturing and lowered margins as a percent
of sales. The Company anticipates continued pressures on margins caused by the
previously discussed external and internal factors. In response to declining
margins, the Company has its focused its resources on two previously described
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 improve productivity, reduce costs, and initiate vendor programs to
obtain price concessions. The Company may also implement additional strategic
manufacturing programs in the future to improve profitability.
Selling, General and Administrative expenses for the six months ended December
31, 1996 were $8.2 million, an increase of $1.0 million over prior year
comparable period SG&A expenses of $7.2 million. The Company continued to make
strategic investments in SG&A expenses in the second quarter of fiscal 1997.
Included in the second quarter SG&A spending are non-recurring consulting
expenses of approximately $0.4 million. Other SG&A spending includes investments
in advertising and marketing literature, investments in information technology,
and continued
<PAGE>
investments in research and development, all expenditures that potentially could
benefit future periods. As a percent of net sales, SG&A expenses increased to
29.0% in the second quarter of fiscal 1997 compared to 25.3% in second quarter
of fiscal 1996. This increase is attributable to the combined factors of certain
non-recurring expenditures, and the strategic investments in training,
technology and new product development and essentially flat Company sales as
discussed above.
Income from operations in the second quarter of fiscal 1997 of $0.5 million was
$2.2 million, or 81.8%, below the second quarter of fiscal 1996 income from
operations of $2.7 million. As a percentage of net sales, income from operations
decreased to 1.7% from 9.5% for these periods. This decrease is attributable to
reduced gross margins and the increase in SG&A expenses discussed above.
Interest expense for the second quarter of fiscal 1997 of $1.4 million was $0.4
million above interest expense of $1.0 million in the prior year comparable
period. This increase is attributable to an additional $0.2 million amortization
of loan origination fees, (caused by the accelerated maturity date of our
commercial bank syndicate credit facilities), $0.1 million attributable to a
higher average debt level, and $0.1 million attributable to a higher effective
interest rate. Interest expense is expected to increase substantially as a
result of the modifications to the Company's credit facilities described below.
Allied had a loss before provision for taxes in the second quarter of fiscal
1997. The loss of $0.9 million was partially offset by a tax benefit of $0.4
million, resulting in an effective tax rate of 41.2%. The net loss after taxes
was $0.5 million or $0.07 per share. Results for the second quarter of fiscal
1996 were income before taxes of $1.7 million, a tax provision of $0.7 million,
an effective tax rate of 40.0%, net income of $1.0 million, and earnings per
share of $0.11. The weighted average number of common shares outstanding used in
the calculation of earnings per share was 7,796,682 and 7,744,095 for the second
quarter of fiscal 1997 and fiscal 1996, respectively. The increase in the
weighted average number of common shares outstanding was primarily the result of
the effects of the October 1995 sale of 1,610,000 shares of common stock.
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1995
Net sales for the six months ended December 31, 1996 were $57.5 million, a
decrease of $2.1 million, or 3.5%, from sales of $59.6 million in the same
period in the prior year. The decline in net sales for the six months ended
December 31, 1996 compared to the same period in the prior year occurred during
the first quarter. Numerous external and internal factors which adversely
impacted the Company's sales in fiscal 1996 continued to impact the Company
during the first quarter of fiscal 1997. The macroeconomic factors which
impacted the Company's sales included the renewed concerns over potential
reductions in home oxygen therapy reimbursement levels by Medicare and Medicaid.
Policy decision on this home oxygen therapy reimbursement issue was deferred by
Congress in April 1996 but debates renewed during the first quarter of fiscal
1997. The Company is unable to predict the impact of health care reimbursement
policy decisions but believes that until reimbursement issues are resolved,
current customer purchase patterns are likely to continue. The ramifications of
consolidation of healthcare providers continued to impact certain segments of
the Company's product offerings in the first quarter of fiscal 1997, but
appeared to stabilize in the second quarter of fiscal 1997. In the acute care
market, the continued rationalization of inventory levels of medical gas
regulation devices caused first quarter softness in this market, however, there
have been improvements in second quarter sales of certain medical gas system
products. In the home health care market, consolidation of dealers has continued
to put pressure on prices and corresponding margins. Internal operational issues
have also continued to
<PAGE>
impact the Company's operations. As previously discussed, the Company has made
progress to address the integration and management of its recent acquisitions.
The Company devoted considerable time and resources during the first six months
of Fiscal 1997 to address these issues. Included in these internal issues are
previous high turnover rates in the ventilation field sales force for which the
Company had to recruit and train replacements. Manufacturing constraints and
capacity issues also impacted the Company's operations. In response thereto, the
Company is engaged in two significant capital expenditure projects discussed
above. Finally, as previously discussed, the Company is continuing the process
of integrating the businesses which have recently been acquired, including
actively upgrading its information technology systems. While the Company is
unable to predict when the ramifications of macroeconomic conditions will be
resolved or unable to provide assurance that internal issues will be
successfully resolved, improvements in orders have been made. Orders for the six
months ended December 31, 1996 were $61.8 million, an increase of $3.7 million,
or 6.4%, from orders of $58.1 million in the comparable prior year period and
have increased from year to year in all three of the Company's product lines.
Respiratory therapy equipment sales were $31.6 million for the six months ended
December 31, 1996 compared to sales of $31.7 million for the six months ended
December 31, 1995, a decline of $0.1 million, or 0.7%. This decline in sales is
attributable to a 9.6% decline in homecare sales caused by pricing pressures and
operational difficulties previously discussed. Partially offsetting this decline
is an 8.1% increase in sales to hospital markets. This increase in sales to
hospital markets is primarily attributable to the strong worldwide market
acceptance of recent technology improvements in the Company's adult critical
care ventilator and the new infant ventilator.
Medical Gas Equipment sales for the six months ended December 31, 1996 of $20.2
million were $1.3 million, or 5.8% below comparable prior year sales of $21.5
million. Medical gas system and inwall systems construction products experienced
a decline in sales, while an increase in headwall sales partially offset these
declines. Orders of medical gas products have increased by over $1.9 million in
the first six months of fiscal 1997 compared to the prior year comparable period
as acute care facilities refurbishing projects appear to be increasing.
Although, the consolidation of acute care facilities and the resultant combining
of their regulation and suction device inventories appears to be slowing,
medical gas regulation and suction device sales continue to be below prior year
levels. Orders for these products have increased by 18.8% during the six months
ended December 31, 1996 compared to the comparable prior year period. However,
management cannot predict when the full ramifications of such consolidation will
be complete.
Emergency Medical Products sales for the six months ended December 31, 1996 of
$5.7 million were $0.7 million, or 10.2%, below comparable period prior year
sales of $6.4 million. This decline was due to difficulties experienced in the
relocation of production of emergency products to the St. Louis facility and a
large non-recurring stocking order that occurred in the prior year.
International sales, which are included in the above discussion of sales by
product lines, increased $0.9 million, or 6.3%, to $16.0 million for the six
months ended December 31, 1996 compared to sales of $15.1 million for the six
months ended December 31, 1995. This increase in sales is attributable to the
strong worldwide acceptance of the Company's ventilation products combined with
strong sales of the Company's medical gas equipment. International sales were
27.8% of total sales during the six months ended December 31, 1996 compared to
25.3% of total sales for the six months ended December 31, 1995.
<PAGE>
Gross profit of $18.0 million for the six months ended December 31, 1996
declined by $4.2 million, or 19.2%, from $22.2 million for the six months ended
December 31, 1995. The gross profit margin as a percentage of sales decreased to
31.2% from 37.3% as a result of a change in product line sales mix, the change
in the mix of domestic versus international sales, pricing pressures on sales to
national accounts, and manufacturing inefficiencies experienced at one of the
Company's plants.
SG&A expenses for the six months ended December 31, 1996, increased $1.8 million
to $16.6 million, or 12.1%, from $14.8 million for the six months ended December
31, 1995. The Company has made significant investments in field sales force
training, promotional literature and advertisements, and in information
technology throughout the first six months of Fiscal 1997. As a result of
decreased net sales combined with an increase in spending, SG&A expenses as a
percentage of net sales increased to 28.8% for the six months ended December 31,
1996 compared to 24.9% for the six months ended December 31, 1995.
Income from operations was $1.4 million for the six months ended December 31,
1996 compared to $7.4 million for the prior year. As a percentage of net sales,
income from operations decreased to 2.4% from 12.4% for the same period in the
prior year. This percentage decrease in income from operations is attributable
to reduced sales, reduced gross margins, and increased SG&A expenses discussed
above.
Interest expense was $2.5 million for the six months ended December 31, 1996
compared to $2.4 million for the six months ended December 31, 1995. The
increase in interest expense of $0.1 million is attributable to increased
amortization of prepaid loan costs and an increase in the effective interest
rate which were partially offset by a lower average debt balance during the six
months ended December 31, 1996 compared to the same period in the prior year.
Interest expense is expected to increase substantially as a result of the
modifications to the Company's credit facilities described below.
Allied had a loss before provision for taxes for the six months ended December
31, 1996. The loss of $1.2 million was partially offset by a tax benefit of $0.5
million, resulting in an effective tax rate of 40.1%. The net loss after taxes
was $0.7 million, or $0.09 per share. Results for the six months ended December
31, 1995 were income before taxes of $5.0 million, a tax provision of $2.0
million, an effective tax rate of 40.0%, net income of $3.0 million, and
earnings per share of $0.43. The weighted average number of common shares
outstanding used in the calculation of earnings per share was 7,796,682 and
6,964,825 for the first six months of fiscal 1997 and fiscal 1996, respectively.
The increase in the weighted average number of common shares outstanding was
primarily the result of the October 1995 sale of 1,610,000 shares of common
stock.
FINANCIAL CONDITION
The following table sets forth selected information concerning Allied's
financial condition:
Dollars in thousands December 31, 1996 June 30, 1996
____________________ _________________ _____________
Cash $1,406 $1,489
Working Capital 39,141 38,030
Total Debt 53,931 52,882
Current Ratio 2.85 :1 2.69 :1
<PAGE>
The Company's working capital was $39.1 million at December 31, 1996, compared
to $38.0 million at June 30, 1996. Accounts receivable increased to $26.5
million from $26.0 million while inventories were unchanged at a level of $28.0
million at December 31, 1996 and at June 30, 1996. The increase in accounts
receivable is primarily the result of an increase in the average time that a
receivable is outstanding, as Days Sales Outstanding ("DSO") increased by seven
days, and the late in the quarter sales caused by the disruption in shipments
early in the quarter.
Net cash used for the six months ended December 31, 1996 was $0.1 million. The
net cash used resulted from capital expenditures and dividends, which were
partially offset by income from operations (a net after tax loss plus non-cash
operating charges), and a net increase in borrowings under a revolving credit
facility. The Company believes that cash flow from operations and available
borrowings under its amended revolving credit facility will be sufficient to
finance fixed debt service and planned capital expenditures in fiscal 1997.
At December 31, 1996, the Company had aggregate indebtedness of $53.9 million,
which included short-term debt of $3.8 million and long-term debt of $50.1
million. During the first half of fiscal 1997, the Company's debt increased by
$1.0 million from the June 30, 1996 aggregate indebtedness of $52.9 million. 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, 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. The amended credit facilities provides
the Company with credit facilities totaling $60.0 million which can be utilized
to finance operations and future growth. At December 31, 1996 the Company had
total borrowings of $49.6 million on these credit facilities and was in
compliance with all covenants or had received waivers of all covenants in which
it was not in compliance. In connection with the receipt of covenant waivers,
the Company agreed to pay its commercial bank syndicate a fee of $450,000, plus
$85,000 per month. In addition, the Company agreed that if it did not reduce its
aggregate borrowings with the commercial bank syndicate by $20 million by May
15, 1997 or otherwise obtain a commitment which would result in proceeds to the
Company of at least $20 million by May 15, 1997, it would pay the commercial
bank syndicate an additional fee of $450,000 on May 15, 1997. Finally, the
Company and the agent for the commercial bank syndicate have agreed to negotiate
mutually satisfactory revisions to the covenants contained in the credit
facilities by May 1, 1997. In December 1996 the Company entered into a $1.1
million capital lease agreement to partially finance the St. Louis and Toledo
capital expenditure projects.
As of December 31, 1996, the Company had a backlog of $25.4 million compared to
a backlog of $21.9 million at September 30, 1996. The backlog increase during
the second quarter of fiscal 1997 of $3.5 million consists of an increase in
Respiratory Therapy Equipment of $1.6 million, an increase in Medical Gas
Equipment of $0.5 million, and an increase in Emergency Medical Products of $1.4
million. The Company's backlog consists of firm customer purchase orders which
are subject to cancellation by the customer upon notification. A portion of the
backlog at December 31, 1996 is past due as a result of the shipping disruption
previously discussed. There have been no significant cancellations, if any, of
these orders. The backlog is expected to be shipped within the next twelve
months.
Inflation has not had a material effect on the Company's business or results of
operations.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10(1) Employment Agreement dated as of November 19, 1996 between Allied
Healthcare Products, Inc. and Uma Nandan Aggarwal
10(2) Option Agreement dated November 19, 1996 between Allied
Healthcare Products, Inc. and Uma N. Aggarwal
10(3) Option Agreement dated November 19, 1996 between Allied
Healthcare Products, Inc. and Uma N. Aggarwal
10(4) Letter Agreement dated December 16, 1996 between Allied
Healthcare Products, Inc. and Barry F. Baker
10(5) Letter Agreement dated December 16, 1996 between Allied
Healthcare Products, Inc. and Gabriel S. Kohn
10(6) Letter Agreement dated December 16, 1996 between Allied
Healthcare Products, Inc. and David Grabowski
10(7) Letter Agreement dated December 16, 1996 between Allied
Healthcare Products, Inc. and Theodore H. Atwood
27 Financial Data Schedule
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLIED HEALTHCARE PRODUCTS, INC.
Date: February 14, 1997 /s/ Barry F. Baker
____________________________________
Barry F. Baker
Vice President - Finance and
Chief Financial Officer
(Principal Accounting and
Financial Officer)
EMPLOYMENT AGREEMENT
THIS AGREEMENT (this "Agreement") made as of the 19th day of
November, 1996 between Allied Healthcare Products, Inc., a Delaware corporation
(the "Company") and Uma N. Aggarwal (the "Executive").
WHEREAS, the Executive has been elected the President and Chief
Executive Officer of the Company and is expected to make major contributions to
the profitability, growth and financial strength of the Company and its
subsidiaries;
WHEREAS, the Company desires to retain the benefit of the Executive's
services to facilitate the conduct of the business, assuring that the
Executive's skills, knowledge and experience will be available to the Company
and its subsidiaries;
WHEREAS, the Company also desires to secure the Executive's agreement
not to compete with the Company and its Affiliates and to keep confidential and
secret all information the Executive has regarding the operations of the Company
and its Affiliates, all upon the terms and conditions set forth herein;
WHEREAS, the Executive understands the necessity of keeping the
aforementioned information confidential and secret, recognizees the proprietary
nature of such information and agrees not to compete with the Company and its
Affiliates under the circumstances and for the periods specified in the
Agreement;
<PAGE>
WHEREAS, the Company is willing to compensate the Executive for his
services in the capacity of President and Chief Executive Officer of the
Company, such compensation to include the concurrent grant of options to
purchase the Company's Common Stock, (copies of such option agreements being
attached hereto as Exhibit A), together with his noncompetition and
nondisclosure covenants, all upon the terms, covenants and conditions
hereinafter set forth;
WHEREAS, the Executive is desirous of committing himself to serve the
Company on the terms herein provided:
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants, agreements and promises hereinafter set forth and other good valuable
consideration the receipt of which is hereby acknowledged and agreed, the
parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive,
and the Executive hereby agrees to serve the Company, on the terms and
conditions set forth herein for the period commencing on the date hereof and
expiring on November 19, 1998, unless sooner terminated as hereinafter set forth
(the "Term of Employment").
2. POSITION AND DUTIES. The Executive shall serve as the Chief
Executive Officer and President of the Company, reporting only to the Board of
Directors of the Company (the "Board"), and shall have supervision and control
over, and responsibility for, the general management and operation of the
Company, and shall have such other
<PAGE>
powers and duties as may from time to time be prescribed by the Board provided
that such duties are consistent with his present duties and with the Executive's
position as the senior executive officer in charge of the general management of
the company. The Executive shall devote his full time and efforts to the
business and affairs of the Company during the Term of Employment. Without
limiting the generality of the foregoing, during the Term of Employment, the
Executive shall not, without the prior written approval of the Board, render
services of a business, professional or commercial nature for compensation or
otherwise to any other Person.
3. PLACE OF PERFORMANCE. In connection with his employment by the
Company, the Executive shall be based at the Company's principal executive
offices at 1720 Sublette Avenue, St. Louis, Missouri (the "Principal Executive
Offices"), and, except for required business travel to an extent substantially
consistent with the present business travel obligations of senior level
executives of the Company, the Executive shall not be required to relocate to a
new principal place of business which is more than thirty (30) miles from the
Principal Executive Offices. Not later than six (6) months after the date
hereof, the Executive shall relocate his principal residence to St. Louis,
Missouri or the suburbs surrounding such city (the "St. Louis Area").
<PAGE>
4. COMPENSATION.
(a) BASE SALARY. The Executive shall receive a base salary at
the annual rate of $225,000, or at such greater rate as the Board shall from
time to time determine (the "Base Salary") payable biweekly on the Company's
regular scheduled payroll dates. The Board may from time to time, direct such
upward adjustments in the Base Salary as the board deems necessary or desirable,
including without limitation adjustments in order to reflect increases in the
cost of living. Any increase in Base Salary or other compensation shall in no
way limit or reduce any other obligation of the Company hereunder and, once
established at an increased specified rate, the Executive's Base Salary
hereunder shall not thereafter be reduced.
(b) INCENTIVE COMPENSATION. In addition to Base Salary, the
Executive shall be entitled to receive such incentive compensation payments as
the Board may determine pursuant to the Company's incentive compensation plan
for the Company President (the "Plan") in accordance with the Company's past
practice, or otherwise. For any period less than a full fiscal year during the
term of this agreement, the Executive shall receive an amount equal to the
prorated portion of the incentive compensation payable pursuant to the Plan. The
amount of any additional compensation payable to the Executive pursuant to this
paragraph in respect of any full fiscal year or part thereof will be determined
as promptly as practicable after the determination of the Company's earnings for
the year, but such payment will be made not later than thirty (30) days after
the Company's receipt of audited consolidated financial statements.
<PAGE>
(c) EXPENSES. During the term of his employment hereunder, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by him (in accordance with the policies and procedures
presently established by the Board for its senior executive officers) in
performing services hereunder, provided that the Executive properly accounts
therefor in accordance with Company policy.
(d) MOVING EXPENSES. (i) The Company shall reimburse the
Executive for (x) all moving expenses reasonably incurred by the Executive in
relocating his furniture and other household goods from his present principal
residence in the Chicago, Illinois area (his "Principal Residence") to his new
residence as contemplated by Section 3 hereof, (y) the commissions paid to any
real estate broker in connection with the sale of his Principal Residence and
(z) the reasonable closing costs associated with the purchase of the Executive's
new permanent residence in the St. Louis Area. The Company shall make such
payments to the Executive promptly upon receipt of a reasonably detailed invoice
therefor; provided, however, that such reimbursement shall not include
reimbursement for any loss sustained in connection with the sale of the
Executive's Principal Residence.
(ii) The Executive shall be entitled to reimbursement from
the Company for the actual reasonable expenses incurred for temporary housing in
the St. Louis Area and a reasonable number of trips between St. Louis and
Chicago for him and his spouse for the shorter of six (6) months or such time as
he has moved into a new primary residence in the St. Louis Area. The Company
shall make such payments to the Executive promptly upon receipt of a reasonably
detailed invoice therefor.
<PAGE>
(e) FRINGE BENEFITS. The Executive shall be entitled to receive
benefits under all the Company's employee benefits plans, including life, health
and accidental death and dismemberment insurance, and arrangements in effect on
the date hereof or plans or arrangements providing the Executive with at least
equivalent benefits thereunder. The Executive shall be entitled to participate
in or receive benefits under any pension plan, profit-sharing plan, savings
plan, stock option plan, life insurance, health-and-accident plan or arrangement
made available by the Company in the future to its executives and key management
employees, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements. Nothing paid to the
Executive under any plan or arrangement presently in effect or made available in
the future (other than under the incentive compensation referred to in Section
(b) hereof), shall be deemed to be in lieu of compensation to the Executive
hereunder.
(f) VACATIONS. The Executive shall be entitled to the number of
paid vacation days in each calendar year determined by the Company from time to
time for its senior executive officers, but not less than four (4) weeks in any
calendar year (prorated in any calendar year during which the Executive is
employed hereunder for less than the entire such year in accordance with the
number of days in such calendar year during which he is so employed). The
Executive shall also be entitled to all paid holidays given by the Company to
its senior executive officers.
(g) PERQUISITES. During the Term of Employment and for so long
as the Executive is employed by the Company, the Executive shall be entitled to
receive the
<PAGE>
following fringe benefits: (i) the Company shall furnish to the Executive an
automobile selected by the Executive and shall pay all of the related expenses
for gasoline, insurance, maintenance and repairs, or otherwise in accordance
with present Company practices and (ii) the Company shall pay the initiation fee
and the annual dues, assessments and other membership charges of the Executive
for membership in a country club or luncheon club selected by the Executive. In
addition, the Executive shall be entitled to receive such other fringe benefits
in accordance with the plans, practices, programs and policies of the Company
from time to time in effect, commensurate with his position and at least
comparable to those received by other senior executives of Company.
5. OFFICES. The Executive agrees to serve without additional
compensation, if elected or appointed thereto, in one or more offices or as a
director of any of the Company's subsidiaries, provided, however, that the
Executive shall not be required to serve as an officer or director of any
subsidiary if such service would expose him to adverse financial consequences.
6. AGREEMENT NOT TO DISCLOSE.
(a) The Executive covenants and agrees that, at all times from
and after the date hereof, except as required by law or by order of any court or
government agency, he shall keep completely confidential and retain in strictest
confidence and shall not, except with the express prior written consent of the
Company, directly or indirectly disclose, communicate or divulge to any Person
(as defined in Section 18), or use for the
<PAGE>
benefit of any Person, any Proprietary Information. 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 of public knowledge after the date of this Agreement from a source other
than the Executive, or (iii) is later lawfully acquired by the Executive from
sources other than the Company.
(b) All 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,
including without limitation any and all written information which may be or has
been furnished to the Executive or which may be produced, prepared or designed
by the Executive in connection with his employment with the Company or its
Affiliates, shall be, become and remain the exclusive property of the Company,
as the case may be. Upon the termination of the Executive's employment with the
Company or its Affiliates, all originals, copies and reprints in the Executive's
possession, custody, or control shall be promptly surrendered and/or delivered
to the Company, and the Executive shall thereafter make no further use, 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, provided that the Executive shall not be obligated to
deliver to the Company or prohibited from using such written information as a
matter of public knowledge on or prior to the date of the termination of his
employment with the Company or its Affiliates.
<PAGE>
7. AGREEMENT TO DISCLOSE.
(a) The Executive agrees to disclose in writing to the Company
or its designee promptly and fully all works and property related to the
Business of the Company, including but not limited to all intellectual
properties, ideas, inventions, discoveries, concepts, computer systems or
programs, works, techniques, programs or any components or associated products
thereof and all hardware and software inventions, products, improvements,
innovations, discoveries and writings which are made, conceived, reduced to
practice, developed, written, contributed to or prepared by the Executive
during, or related in any manner whatsoever to, his employment with the Company
or any of its Affiliates following the date hereof or which result from or are
suggested by any work the Executive may do in connection with his employment
with the Company or any of its Affiliates following the date hereof, whether or
not patentable or copyrightable and whether made solely by the Executive or
jointly with others, all of such works and property being hereinafter referred
to in this Agreement as "Works and Property." The Executive acknowledges that he
does not claim any interest in Works and Property (defined for purposes of this
sentence to include matters arising at any time during his employment by the
Company).
(b) If the Executive includes in any written disclosure required
by Section 7(a) a request that ownership of any Works and Property be
transferred to him, the Company or the relevant Affiliate shall promptly
determine, in its sole discretion, whether it elects to transfer its ownership
of such Works and Property to the Executive and the terms
<PAGE>
and conditions, if any, of such transfer. If the Company or the relevant
Affiliate elects in writing to transfer its ownership of any such Works and
Property to the Executive and if the Executive complies with any terms and
conditions specified by the Company or the relevant Affiliate in connection with
such transfer, the Executive shall thereafter have all right, title and interest
to such transferred Works and Property.
(c) In the event that the Executive fails to disclose to the
Company or the relevant Affiliate in writing any Works and Property, the Company
or the relevant Affiliate shall retain complete right, title and interest in
Works and Property as specified in Section 8(a).
8. OWNERSHIP OF WORKS AND PROPERTY.
The Executive hereby agrees that:
(a) Except as provided in Section 7, all Works and Property
shall unconditionally be, become and remain the sole and exclusive property of
the Company or the relevant Affiliate forever;
(b) Pursuant to Sections 101 and 201 of the United States
Copyright Law, all Works and Property shall be "works made for hire," and all
rights in such Works and Property shall belong entirely and exclusively to the
Company or the relevant Affiliate and their
<PAGE>
successors and assigns forever, and the Company or the relevant Affiliate and
their successors and assigns may make any use or nonuse of such Works and
Property throughout the world without any further obligation to the Executive;
(c) All Works and Property shall belong entirely and exclusively
to the Company or the relevant Affiliate and their successors and assigns
forever, and the Executive hereby grants and assigns forever to the Company or
the relevant Affiliate all rights whatsoever that the Executive might have
therein, and the Company or the relevant Affiliate may make any use or nonuse of
such Works and Property throughout the world without any further obligation to
the Executive;
(d) The Executive will promptly execute, acknowledge and deliver
all applications, oaths, declarations, and further documents and will provide
such additional assistance as the Company or the relevant Affiliate or their
counsel may deem necessary or desirable to evidence the Company's or the
relevant Affiliate's title to such Works and Property; and
(e) In performing duties or services for the Company or the
relevant Affiliate regarding Works and Property, the Executive will not
knowingly infringe upon the rights, including but not limited to patent,
copyright, trade secret or other proprietary rights, of any third party
whatsoever.
<PAGE>
9. TERMINATION.
(a) DEATH. The Executive's employment shall be deemed
terminated automatically upon his death.
(b) DISABILITY. The Company shall have the right to terminate
the employment of the Executive upon his Disability (as defined below).
"Disability" means any impairment of mind or body that renders the Executive
unable to perform his normal duties and functions hereunder for a period of at
least three (3) months during any twelve (12) month period, as determined in
good faith by a physician selected by the Company. Any refusal by the Executive
to submit to a medical examination for the purpose of certifying Disability
under this Paragraph 9(b) shall be deemed conclusively to constitute evidence of
the Executive's Disability. The Executive's Base Salary shall continue to be
paid until his Disability is established in accordance with the preceding
sentence.
(c) FOR CAUSE. The Company shall have the right to terminate
this Agreement for Cause (as defined below). For purposes of this Agreement,
"Cause" shall be defined as: (i) the commission of any act by the Executive
constituting financial dishonesty against the Company; (ii) the commission of a
felony; (iii) the commission of an act by the Executive involving moral
turpitude that brings the Company or any of its Affiliates into public disrepute
or disgrace or causes harm to the customer relations, operations or business
prospects of the Company; (iv) incompetence of the Executive due to the use or
reporting to work under the influence of alcohol, narcotics, other unlawful
<PAGE>
drugs or controlled substances; or (v) breach of this Agreement or the failure
of the Executive to perform his duties as contemplated hereunder. Upon such
termination, the Executive shall be entitled to receive his Base Salary and
other benefits through the date of termination. The Company shall have no
obligation to continue to pay the Base Salary or other incentive compensation,
including incentive compensation under the Plan following such termination.
(d) WITHOUT CAUSE. The Company shall also have the right to
terminate the Executive's employment at any time during the term of this
Agreement without Cause.
(e) TERMINATION BY THE EXECUTIVE. The Executive may elect to
terminate this Agreement by notice in writing not less than thirty (30) days in
advance of the termination date. Upon such termination, the Executive shall be
entitled to receive his Base Salary and other benefits (including expense
reimbursements but excluding any unpaid incentive compensation, whether or not
accrued) through the date of termination, and the Company shall have no further
liability for compensation or other benefits to the Executive under this
Agreement.
(f) In the event that the Executive's employment shall terminate
in accordance with subsections (a), (b) or (d) above, the Company agrees to pay
to the Executive or, in the case of termination by reason of death, the
Executive's designated beneficiary, or if no beneficiary has been designated in
writing to the Company, the
<PAGE>
Executive's estate, the Base Salary and Incentive Compensation provided for
hereunder for the remaining term of this Agreement. For purposes of computing
the amount of Incentive Compensation payable hereunder, the Executive shall be
entitled to receive, for each remaining year the greater of such amount of
Incentive Compensation as was established by the Board as the target amount of
Incentive Compensation for such year or the amount of Incentive Compensation
actually earned for the fiscal year preceding the date of termination.
10. SUCCESSORS. This agreement and all rights of the Executive
hereunder shall inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts would still be payable to him hereunder if he had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this agreement to the Executive's devisee, legatee, or other
designee or, if there be no such designee, to the Executive's estate.
11. NON-COMPETITION.
(a) The Executive covenants and agrees on behalf of himself and
his Affiliates that he will not at any time during the term of this Agreement
and, except as set forth in Section 11(c) below, for two (2) years after
termination of the Agreement, except with the express prior written consent of
the Company: (i) directly or indirectly, whether as executive, owner, partner,
agent, director, officer, consultant, shareholder (except as the
<PAGE>
holder of not more than one percent (1%) of the outstanding shares of a company
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, establish, engage in, or be connection with in any manner any Person
which engages in, the Business or proposes to engage in the Business within the
Area; (ii) with respect to the Business heretofore engaged in by the Executive,
and to be engaged in by the Company or its Affiliates, directly or indirectly
solicit, divert or accept business from or otherwise take away or interfere with
any customer, supplier, distributor or manufacturer of the Company or its
Affiliates or (iii) induce or attempt to induce any Person who is an executive
of, or consultant to, the Company, to perform work or services for any Person
other than the Company.
(b) The Executive will not during the term of this Agreement and
except as set forth in Section 11(c) below, for two (2) years after termination
of the Agreement, directly or indirectly, accept employment, be employed by or
be a principal of any business or enterprise operating within the Area which
then employs or has as a principal or holder of any interest therein (except as
the holder of not more than one percent (1%) of the outstanding shares of a
company whose shares are publicly traded) any individual who was previously
employed in a managerial or executive position with the Company or any of its
Affiliates, provided, however, that this prohibition shall not be applicable if
such business or enterprise does not engage in the Business within the Area, or
if such business or enterprise engages in activities which do constitute
engaging in the Business within the Area and other activities which do not
constitute engaging in the
<PAGE>
Business within the Area and the Executive and/or the other individual who was
previously employed by the Company or any of its Affiliates, neither being a
principal of such business or enterprise, are employed by such business or
enterprise in connection with activities which in no way constitute engaging in
the Business within the Area.
(c) If the Executive's employment with the Company shall be
terminated by the Company in accordance with Section 9(c), the covenants
contained in this Section 11 shall terminate.
12. ACKNOWLEDGMENTS OF THE EXECUTIVE; INJUNCTIVE RELIEF.
(a) The Executive acknowledges that the term, the geographical
areas of this Agreement and the scope of the restraints imposed by Sections 6
and 11 of this Agreement are fair and reasonably required for the protection of
the Company. Therefore, in addition to any other remedies which the Company may
have under this Agreement or otherwise, the Company shall be entitled to apply
to any court of competent jurisdiction for an injunction restraining the
Executive from committing or continuing any violation of Sections 6 and 11 of
this Agreement, and the Executive shall not object to such application except to
litigate whether, in fact, he has violated Sections 6 and 11 of this Agreement.
(b) The parties agree that it is impossible to measure in money
the damages that will accrue to the Company by reason of the Executive's failure
to perform his respective obligations under this Agreement, that such failure to
perform will result in irreparable damage to the Company, and that specific
performance of the Executive's
<PAGE>
obligations may therefore be obtained by suit in equity. Without limiting the
generality of the foregoing sentence, the Company shall be entitled to an
injunction from any court of competent jurisdiction restraining the Executive
from committing or continuing any violations of Sections 6 and/or 11. The
Executive will neither assert any claim nor any defense in any action or
proceeding to enforce any provision hereof that the Company has or had an
adequate remedy at law.
13. NOTICE. For the purposes of this agreement, notices and all
other communications provided for in the agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Mr. Uma N. Aggarwal
[ ]
[ ]
If to the Company:
Allied Healthcare Products, Inc.
1720 Sublette Avenue
St. Louis, MO 63110
Attn: Chairman of the Board
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
<PAGE>
14. MISCELLANEOUS. No provision of this agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this agreement. The validity,
interpretation, construction and performance of this agreement shall be governed
by the laws of the State of Missouri.
15. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this agreement shall not affect the validity or enforceability of
any other provision of this agreement, which shall remain in full force and
effect.
16. COUNTERPARTS. This agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
17. ARBITRATION. Any dispute or controversy arising under or in
connection with this agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the
<PAGE>
arbitrator's award in any court having jurisdiction; provided, however, that the
Company shall be entitled to seek a restraining order or injunction in any court
of competent jurisdiction to prevent any continuation of any violation of
Section 6 or 11 hereof.
18. CERTAIN DEFINITIONS.
(a) "Affiliate" means any Person now or hereafter controlling,
controlled by, or under common control with another Person.
(b) "Area" means the State of Missouri, the states adjacent
thereto, the Midwestern states, elsewhere in the United States, North America
and the world.
(c) "Business" means the businesses engaged in by the Company
and its Affiliates on the date hereof and during the period of the Executive's
employment with the Company subsequent to the date hereof.
(d) "Person" means any individual, company, firm, partnership or
other business entity.
(e) "Proprietary Information" means all information with respect
to the conduct or details of the business and operations of the Company
including, without limitation, methods of operation, customers and customer
lists, details of contracts with customers, consultants, suppliers or employees,
products, proposed products, former products, proposed, pending or completed
acquisitions of any company, division, product line or other business unit,
prices and pricing policies, fees, costs, plans, designs,
<PAGE>
technology, inventions, trade secrets, know-how, software, marketing methods,
policies, plans, personnel, suppliers, competitors, markets or other specialized
information or proprietary matters of the Company or any of its Affiliates.
[THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this agreement on the
date and year as first above written.
ALLIED HEALTHCARE PRODUCTS, INC.
By: /s/ Dennis W. Sheehan
------------------------------------
Dennis W. Sheehan
Chairman of the Board
/s/ Uma N. Aggarwal
------------------------------------
Uma N. Aggarwal
ALLIED HEALTHCARE PRODUCTS, INC.
1994 EMPLOYEE STOCK OPTION PLAN
November 19, 1996
Mr. Uma N. Aggarwal
Allied Healthcare Products, Inc.
1720 Sublette Avenue
St. Louis, Missouri 63110-
Dear Mr. Aggarwal:
I am pleased to inform you that Allied Healthcare Products, Inc.
(the "Company") has granted you a non-qualified stock option under the Allied
Healthcare Products, Inc. 1994 Employee Stock Option Plan, as amended (the
"Plan") to purchase 100,000 shares of Common Stock, par value $0.01 per share,
of the Company at a price of $6.875 per share.
This option is granted to you as part of the Company's compensation
program for key employees. The purpose of the Plan is to allow certain key
employees, upon whose efforts the Company is dependent for the successful
conduct of its business, to derive financial benefit from appreciation in the
value of the Company's stock and to encourage them to take a proprietary
interest in the Company and remain in its employ. You are under no obligation to
exercise this option.
It is important to note that when you exercise your option you will
be taxed (including withholding taxes) on the difference between the fair market
value and the exercise price. Further, when you dispose of the stock, you will
also be taxed to the extent the sales proceeds exceed the sum of the price you
paid for the shares and the gain you paid tax on at the time of exercise.
Subject to compliance with the terms and conditions of this letter
and the Plan, you will become entitled to exercise your option with respect to
the number of shares and as of the dates indicated below:
DATE OPTION BECOMES EXERCISABLE NUMBER OF SHARES
November 19, 1998 25,000
November 19, 1999 25,000
November 19, 2000 25,000
November 19, 2001 25,000
The option may be exercised in whole or in part at any time or from
time to time after the date it becomes exercisable, but the option shall not be
exercised after November 19, 2006.
<PAGE>
The procedure for exercise of this option is set forth in the Plan.
Please note that, although you must return a signed copy of this letter in order
to validate your option, that act does not constitute the exercise of this
option nor does it in any way obligate you to exercise the option.
This letter constitutes a Non-Qualified Stock Option Agreement
between you and the Company and incorporates the Plan by reference. Please
indicate your agreement to the terms and conditions set forth in this letter and
in the Plan by signing the accompanying copy of this letter in the space
indicated below and returning it to the Company, Attention: Frederick H. Atwood,
by December 15, 1996. No part of this option is exercisable until a signed copy
of this letter is received by the Company.
Very truly yours,
/s/ Dennis W. Sheehan
Dennis W. Sheehan
Chairman of the Board
Enclosure: Copy of the Employee Stock Option Plan
The undersigned hereby acknowledges receipt of the foregoing letter
and Plan and agrees to be bound by all of the terms and conditions set forth in
this letter and in the Plan.
- ---------------------- ----------------------
(Date) (Signature)
<PAGE>
EXHIBIT
Allied Healthcare Products, Inc.
1720 Sublette Avenue
St. Louis, Missouri 63110
Re: EXERCISE OF NON-QUALIFIED STOCK OPTION
Gentlemen:
I hereby exercise the Option granted to me under the Non-Qualified
Stock Option Agreement dated ___________________, to purchase ______ shares of
Allied Healthcare Products, Inc. common stock, $0.01 par value per share (the
"Common Stock"), with respect to _______ shares of Common Stock for an aggregate
purchase price of $_________. As consideration for such shares, I have enclosed
payment in the amount of $__________.
Please issue in my name and send the certificates representing the
shares purchased by my exercise of this Non-Qualified Stock Option to me at the
address indicated below.
Date:_________________ _______________________________
Optionee, _____________________
_______________________________
_______________________________
_______________________________
Address
ALLIED HEALTHCARE PRODUCTS, INC.
1994 EMPLOYEE STOCK OPTION PLAN
November 19, 1996
Mr. Uma N. Aggarwal
Allied Healthcare Products, Inc.
1720 Sublette Avenue
St. Louis, Missouri 63110-
Dear Mr. Aggarwal:
I am pleased to inform you that Allied Healthcare Products, Inc.
(the "Company") has granted you a non-qualified stock option under the Allied
Healthcare Products, Inc. 1994 Employee Stock Option Plan, as amended (the
"Plan") to purchase 100,000 shares of Common Stock, par value $0.01 per share,
of the Company at a price of $6.875 per share.
This option is granted to you as part of the Company's compensation
program for key employees. The purpose of the Plan is to allow certain key
employees, upon whose efforts the Company is dependent for the successful
conduct of its business, to derive financial benefit from appreciation in the
value of the Company's stock and to encourage them to take a proprietary
interest in the Company and remain in its employ. You are under no obligation to
exercise this option.
It is important to note that when you exercise your option you will
be taxed (including withholding taxes) on the difference between the fair market
value and the exercise price. Further, when you dispose of the stock, you will
also be taxed to the extent the sales proceeds exceed the sum of the price you
paid for the shares and the gain you paid tax on at the time of exercise.
Subject to compliance with the terms and conditions of this letter
and the Plan, you will become entitled to exercise your option with respect to
the number of shares set forth below when the Fair Market Value (hereinafter
defined) of the Common Stock equals or exceeds the required level for twenty
(20) consecutive trading days:
<PAGE>
NUMBER OF SHARES FAIR MARKET VALUE
---------------- -----------------
10,000 7.91
10,000 9.09
10,000 10.46
10,000 12.02
10,000 13.83
10,000 15.90
10,000 18.29
10,000 21.03
10,000 24.19
10,000 27.81
As used herein, the term "Fair Market Value" means, if the shares
are listed on a national securities exchange, the closing sales price of a share
as reported by such national securities exchange on which the shares are traded
on such date or, if there is no sale of the shares on such date, the average of
the bid and asked prices on such exchange at the close of trading on such date
or, if shares are not listed on a national securities exchange but are
authorized for quotation in the National Association of Securities Dealers
Automated Quotation System National Market (the "Nasdaq National Market"), the
last transaction price per share as reported by the Nasdaq National Market on
such date or, if there is no sale of the shares on such date, the average of the
bid and asked prices as reported by the Nasdaq National Market on such date or,
if shares are not authorized for quotation on the Nasdaq National Market on such
date, the average of the bid and asked prices as reported in the over the
counter market or, if the shares are not listed on a national securities
exchange, quoted on the Nasdaq National Market or quoted in the over the counter
market, the fair market value of a share on such date as shall be determined by
the majority vote of the Board of Directors. For purposes of the Plan, the Board
of Directors' determination of the Fair Market Value of a share shall be
conclusive.
The option may be exercised in whole or in part at any time or from
time to time after the date it becomes exercisable, but the option shall not be
exercised after November 19, 2006.
The procedure for exercise of this option is set forth in the Plan.
Please note that, although you must return a signed copy of this letter in order
to validate your option, that act does not constitute the exercise of this
option nor does it in any way obligate you to exercise the option.
This letter constitutes a Non-Qualified Stock Option Agreement
between you and the Company and incorporates the Plan by reference. Please
indicate your agreement to the terms and conditions set forth in this letter and
in the Plan by signing the accompanying copy of this letter in the space
indicated below and returning it to the Company, Attention: Frederick H. Atwood,
<PAGE>
by December 15, 1996. No part of this option is exercisable until a signed copy
of this letter is received by the Company.
Very truly yours,
/s/ Dennis W. Sheehan
Dennis W. Sheehan
Enclosure: Copy of the Employee Stock Option Plan
The undersigned hereby acknowledges receipt of the foregoing letter
and Plan and agrees to be bound by all of the terms and conditions set forth in
this letter and in the Plan.
- ---------------------- ----------------------
(Date) (Signature)
<PAGE>
EXHIBIT
Allied Healthcare Products, Inc.
1720 Sublette Avenue
St. Louis, Missouri 63110
Re: EXERCISE OF NON-QUALIFIED STOCK OPTION
Gentlemen:
I hereby exercise the Option granted to me under the Non-Qualified
Stock Option Agreement dated ___________________, to purchase ______ shares of
Allied Healthcare Products, Inc. common stock, $0.01 par value per share (the
"Common Stock"), with respect to _______ shares of Common Stock for an aggregate
purchase price of $_________. As consideration for such shares, I have enclosed
payment in the amount of $__________.
Please issue in my name and send the certificates representing the
shares purchased by my exercise of this Non-Qualified Stock Option to me at the
address indicated below.
Date:_________________ _______________________________
Optionee, _____________________
_______________________________
_______________________________
_______________________________
Address
ALLIED HEALTHCARE PRODUCTS, INC.
1720 Sublette Avenue
St. Louis, Missouri 63110
December 16, 1996
Mr. Barry Baker
1343 Remington Oak Terrace
Fenton, MO 63028
Dear Mr. Baker:
Allied Healthcare Products, Inc. (the "Company") considers the
establishment and maintenance of a sound and vital management to be essential to
protecting and enhancing the best interests of the Company and its shareholders.
In this connection, the Company recognizes that, as is the case with many
publicly held corporations, the possibility of a change in control may exist and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders. Accordingly, the
Company's Board of Directors has determined that appropriate steps should be
taken, to reinforce and encourage the continued attention and dedication of
members of the Company's management, including yourself, to their assigned
duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company.
In order to induce you to remain in the employ of the company, this
letter agreement sets forth the severance benefits which the Company agrees will
be provided to you in the event your employment with the Company is terminated
subsequent to a "change in control of the Company" (as defined in Section 2
hereof) under the circumstances described below.
1. TERM. This Agreement shall commence on the date hereof and shall
continue until December 31, 1998; provided, however, that commencing on January
1, 1998 and each January 1st thereafter, the term of this Agreement shall
automatically be extended for one additional year unless at least 30 days prior
to such January 1st date, the Company shall have given notice that it does not
wish to extend this Agreement, and provided, further, that following a change in
control of the Company (as hereinafter defined) the term of this Agreement shall
automatically extend to the date which is two years following such change in
control.
<PAGE>
2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless
there shall have been a change in control of the Company, as set forth below,
and your employment by the Company shall thereafter have been terminated in
accordance with Section 3 below. For purposes of this Agreement, a "change in
control of the Company" shall mean a change in control of a nature that would be
required to be reported in response to Item 5(f) of Schedule 14A promulgated
under the Securities Exchange Act of 1934, as amended ("Exchange Act"); provided
that, without limitation, such a change in control shall be deemed to have
occurred if (i) any "person" (as such term is used in Section 13(d) and 14(d)(2)
of the Exchange Act) is or becomes the beneficial owner, directly or indirectly,
of securities of the Company representing a majority of the combined voting
power of the Company's then outstanding securities; or (ii) during any period of
two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company (the "Board") cease for any
reason to constitute at least a majority thereof unless the election, or the
nomination for election by the Company's shareholders, of each new director was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period.
3. TERMINATION FOLLOWING CHANGE OF CONTROL. If any of the events
described in Section 2 hereof constituting a change in control of the Company
shall have occurred, you shall be entitled to the benefits provided in Section 4
hereof upon the subsequent termination of your employment within a period of two
(2) years following such change in control unless such termination is (a)
because of your death or Retirement, (b) by the Company for Cause or Disability
or (c) by you other than for Good Reason.
(i) DISABILITY; RETIREMENT.
(A) If, as a result of your incapacity due to physical or mental
illness, you shall have been absent from your duties with the Company on a full
time basis for 130 consecutive business days, and within thirty (30) days after
written notice of termination is given you shall not have returned to the full
time performance of your duties, the Company may terminate this Agreement for
"Disability."
(B) Termination by the Company or you of your employment based
on "Retirement" shall mean termination in accordance with the Company's
retirement policy, including early retirement, generally applicable to its
salaried employees or in accordance with any retirement arrangement established
with your consent with respect to you.
(ii) CAUSE. The Company may terminate your employment for Cause.
For the purposes of this Agreement, the Company shall have "Cause" to terminate
your employment hereunder upon (A) the willful and continued failure by you to
substantially perform your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness), after a
demand for substantial performance is delivered to you by the Board which
specifically identifies the manner in
<PAGE>
which the Board believes that you have not substantially performed you duties,
or (B) the willful engaging by you in gross misconduct materially and
demonstrably injurious to the Company. For purposes of this paragraph, no act,
or failure to act, on your part shall be considered "willful" unless done, or
omitted to be done, by you not in good faith and without reasonable belief that
your action or omission was in the best interest of the Company. Notwithstanding
the foregoing, you shall not be deemed to have been terminated for Cause unless
and until there shall have been delivered to you a copy of a resolution duly
adopted by the affirmative vote of not less than two-thirds of the entire
membership of the Board at a meeting of the Board called and held for the
purpose (after reasonable notice to you and an opportunity for you, together
with your counsel, to be heard before the Board), finding that in the good faith
opinion of the Board you were guilty of conduct set forth above in clauses (A)
or (B) of the first sentence of this paragraph and specifying the particulars
thereof in detail.
(iii) GOOD REASON. You may terminate your employment for Good
Reason. For purposes of this Agreement "Good Reason" shall mean:
(A) without your express written consent, the assignment to you
of any duties materially inconsistent with your positions, duties,
responsibilities and status with the Company immediately prior to a change in
control;
(B) a reduction by the Company in your base salary as in effect
on the date hereof or as the same may be increased from time to time;
(C) the Company's requiring you to be based anywhere other than
the Company's facility where you performed your duties for the Company
immediately prior to a change in control; and
(D) the failure by the Company to continue in effect any benefit
or compensation plan, pension plan, life insurance plan, health and accident
plan or disability plan in which you are participating at the time of a change
in control of the Company (or plans providing you with substantially similar
benefits), the taking of any action by the Company which would adversely affect
your participation in or materially reduce your benefits under any of such plans
or deprive you of any material fringe benefit enjoyed by you at the time of the
change in control, or the failure by the Company to provide you with the number
of paid vacation days to which you are then entitled on the basis of years of
service with the Company in accordance with the Company's normal vacation policy
in effect on the date hereof;
(E) the failure of the Company to obtain the assumption of the
agreement to perform this Agreement by any successor as contemplated in
paragraph 5 hereof; or
<PAGE>
(F) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of
subparagraph (iv) below (and, if applicable, subparagraph (ii) above); and for
purposes of this Agreement, no such purported termination shall be effective.
(iv) NOTICE OF TERMINATION. Any termination by the Company
pursuant to subparagraphs (i) or (ii) above or by you pursuant to subparagraph
(iii) above shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(v) DATE OF TERMINATION. "Date of Termination" shall mean
(A) if this Agreement is terminated for Disability, thirty (30) days after
Notice of Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such thirty (30) day
period), (b) if your employment is terminated pursuant to subparagraph (iii)
above, the date specified in the Notice of Termination, and (C) if your
employment is terminated for any other reason, the date on which a Notice of
Termination is given; provided that if within thirty (30) days after any Notice
of Termination one party notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the date on which
the dispute is finally determined, either by mutual written agreement of the
parties, by a binding and final arbitration award or by a final judgment, order
or decree of a court of competent jurisdiction (the time for appeal therefrom
having expired and no appeal having been perfected).
4. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(i) During any period that you fail to perform your duties
hereunder as a result of incapacity due to physical or mental illness, you shall
continue to receive your full base salary at the rate then in effect until this
Agreement is terminated pursuant to paragraph 3(i) hereof. Thereafter, your
benefits shall be determined in accordance with the Company's long term
disability plan, or a substitute plan then in effect.
(ii) If your employment shall be terminated for Cause, the
Company shall pay you your full base salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given and the Company
shall have no further obligations to you under this Agreement.
(iii) If the Company shall terminate your employment other than
pursuant to paragraph 3(i) or 3(ii) hereof or if you shall terminate your
employment for
<PAGE>
Good Reason, then the Company shall pay to you as severance pay in a lump sum on
the fifth day following the Date of Termination, the following amounts:
(A) your full base salary through the Date of Termination at the
rate in effect at the time Notice of Termination is given;
(B) in lieu of any further salary payments to you for periods
subsequent to the Date of Termination, an amount equal to the product of (a) the
sum of your annual base salary at the rate in effect as of the Date of
Termination multiplied by (b) the number one (1);
(C) the Company shall also pay all legal fees and expenses
incurred by you as a result of such termination (including all such fees and
expenses, if any, incurred in contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit provided by this Agreement).
(iv) Unless you are terminated for Cause, the Company shall
maintain in full force and effect, for the continued benefit of you for one year
after the Date of Termination, all employee benefit plans and programs or
arrangements in which you were entitled to participate immediately prior to the
Date of Termination provided that your continued participation is possible under
the general terms and provisions of such plans and programs. In the event that
your participation in any such plan or program is barred, the Company shall
arrange to provide you with benefits substantially similar to those which you
are entitled to receive under such plans and programs. At the end of the period
of coverage, you shall have the option to have assigned to you at no cost and
with no apportionment of prepaid premiums, any assignable insurance policy owned
by the Company and relating specifically to you.
(v) You shall not be required to mitigate the amount of any
payment provided for in this paragraph 4 by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this paragraph 4
be reduced by any compensation earned by you as the result of employment by
another employer after the Date of Termination, or otherwise.
5. SUCCESSORS, BINDING AGREEMENT.
(i) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to you, to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle you to
compensation from the Company in the same amount and on the same terms as you
<PAGE>
would be entitled hereunder if you terminated your employment for Good Reason,
except that for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of Termination. As
used in this Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this paragraph 5 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amounts would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee, or
other designee or, if there be no such designee, to your estate.
6. NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Chief
Executive Officer of the Company with a copy to the Secretary of the Company, or
to such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
7. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by you and such officer as may be specifically designated by
the Board of Directors of the Company. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Missouri.
8. VALIDITY. The invalidity or unenforceability of any provisions
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
<PAGE>
10. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
St. Louis, Missouri in accordance with the rules of the American Arbitration
Association then in effect. Notwithstanding the pendency of any such dispute or
controversy, the Company will continue to pay you your full compensation in
effect when the notice giving rise to the dispute was given (including, but not
limited to, base salary) and continue you as a participant in all compensation,
benefit and insurance plans in which you were participating when the notice
giving rise to the dispute was given, until the dispute is finally resolved in
accordance with paragraph 3(v) hereof. Amounts paid under this paragraph are in
addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that you shall be entitled to seek specific performance of your right
to be paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
If this letter correctly sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.
Sincerely,
ALLIED HEALTHCARE PRODUCTS, INC.
By /s/ Richard P. Kuntz
-------------------------------------
Richard P. Kuntz
Vice President - Operations
AGREED TO THIS _____ DAY
OF DECEMBER, 1996.
- ----------------------------
ALLIED HEALTHCARE PRODUCTS, INC.
1720 Sublette Avenue
St. Louis, Missouri 63110
December 16, 1996
Mr. Gabe Kohn
488 Graywood Drive
Ballwin, MO 63011
Dear Mr. Kohn:
Allied Healthcare Products, Inc. (the "Company") considers the
establishment and maintenance of a sound and vital management to be essential to
protecting and enhancing the best interests of the Company and its shareholders.
In this connection, the Company recognizes that, as is the case with many
publicly held corporations, the possibility of a change in control may exist and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders. Accordingly, the
Company's Board of Directors has determined that appropriate steps should be
taken, to reinforce and encourage the continued attention and dedication of
members of the Company's management, including yourself, to their assigned
duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company.
In order to induce you to remain in the employ of the company, this
letter agreement sets forth the severance benefits which the Company agrees will
be provided to you in the event your employment with the Company is terminated
subsequent to a "change in control of the Company" (as defined in Section 2
hereof) under the circumstances described below.
1. TERM. This Agreement shall commence on the date hereof and shall
continue until December 31, 1998; provided, however, that commencing on January
1, 1998 and each January 1st thereafter, the term of this Agreement shall
automatically be extended for one additional year unless at least 30 days prior
to such January 1st date, the Company shall have given notice that it does not
wish to extend this Agreement, and provided, further, that following a change in
control of the Company (as hereinafter defined) the term of this Agreement shall
automatically extend to the date which is two years following such change in
control.
<PAGE>
2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless
there shall have been a change in control of the Company, as set forth below,
and your employment by the Company shall thereafter have been terminated in
accordance with Section 3 below. For purposes of this Agreement, a "change in
control of the Company" shall mean a change in control of a nature that would be
required to be reported in response to Item 5(f) of Schedule 14A promulgated
under the Securities Exchange Act of 1934, as amended ("Exchange Act"); provided
that, without limitation, such a change in control shall be deemed to have
occurred if (i) any "person" (as such term is used in Section 13(d) and 14(d)(2)
of the Exchange Act) is or becomes the beneficial owner, directly or indirectly,
of securities of the Company representing a majority of the combined voting
power of the Company's then outstanding securities; or (ii) during any period of
two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company (the "Board") cease for any
reason to constitute at least a majority thereof unless the election, or the
nomination for election by the Company's shareholders, of each new director was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period.
3. TERMINATION FOLLOWING CHANGE OF CONTROL. If any of the events
described in Section 2 hereof constituting a change in control of the Company
shall have occurred, you shall be entitled to the benefits provided in Section 4
hereof upon the subsequent termination of your employment within a period of two
(2) years following such change in control unless such termination is (a)
because of your death or Retirement, (b) by the Company for Cause or Disability
or (c) by you other than for Good Reason.
(i) DISABILITY; RETIREMENT.
(A) If, as a result of your incapacity due to physical or mental
illness, you shall have been absent from your duties with the Company on a full
time basis for 130 consecutive business days, and within thirty (30) days after
written notice of termination is given you shall not have returned to the full
time performance of your duties, the Company may terminate this Agreement for
"Disability."
(B) Termination by the Company or you of your employment based
on "Retirement" shall mean termination in accordance with the Company's
retirement policy, including early retirement, generally applicable to its
salaried employees or in accordance with any retirement arrangement established
with your consent with respect to you.
(ii) CAUSE. The Company may terminate your employment for Cause.
For the purposes of this Agreement, the Company shall have "Cause" to terminate
your employment hereunder upon (A) the willful and continued failure by you to
substantially perform your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness), after a
demand for substantial performance is delivered to you by the Board which
specifically identifies the manner in
<PAGE>
which the Board believes that you have not substantially performed you duties,
or (B) the willful engaging by you in gross misconduct materially and
demonstrably injurious to the Company. For purposes of this paragraph, no act,
or failure to act, on your part shall be considered "willful" unless done, or
omitted to be done, by you not in good faith and without reasonable belief that
your action or omission was in the best interest of the Company. Notwithstanding
the foregoing, you shall not be deemed to have been terminated for Cause unless
and until there shall have been delivered to you a copy of a resolution duly
adopted by the affirmative vote of not less than two-thirds of the entire
membership of the Board at a meeting of the Board called and held for the
purpose (after reasonable notice to you and an opportunity for you, together
with your counsel, to be heard before the Board), finding that in the good faith
opinion of the Board you were guilty of conduct set forth above in clauses (A)
or (B) of the first sentence of this paragraph and specifying the particulars
thereof in detail.
(iii) GOOD REASON. You may terminate your employment for Good
Reason. For purposes of this Agreement "Good Reason" shall mean:
(A) without your express written consent, the assignment to you
of any duties materially inconsistent with your positions, duties,
responsibilities and status with the Company immediately prior to a change in
control;
(B) a reduction by the Company in your base salary as in effect
on the date hereof or as the same may be increased from time to time;
(C) the Company's requiring you to be based anywhere other than
the Company's facility where you performed your duties for the Company
immediately prior to a change in control; and
(D) the failure by the Company to continue in effect any benefit
or compensation plan, pension plan, life insurance plan, health and accident
plan or disability plan in which you are participating at the time of a change
in control of the Company (or plans providing you with substantially similar
benefits), the taking of any action by the Company which would adversely affect
your participation in or materially reduce your benefits under any of such plans
or deprive you of any material fringe benefit enjoyed by you at the time of the
change in control, or the failure by the Company to provide you with the number
of paid vacation days to which you are then entitled on the basis of years of
service with the Company in accordance with the Company's normal vacation policy
in effect on the date hereof;
(E) the failure of the Company to obtain the assumption of the
agreement to perform this Agreement by any successor as contemplated in
paragraph 5 hereof; or
<PAGE>
(F) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of
subparagraph (iv) below (and, if applicable, subparagraph (ii) above); and for
purposes of this Agreement, no such purported termination shall be effective.
(iv) NOTICE OF TERMINATION. Any termination by the Company
pursuant to subparagraphs (i) or (ii) above or by you pursuant to subparagraph
(iii) above shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(v) DATE OF TERMINATION. "Date of Termination" shall mean
(A) if this Agreement is terminated for Disability, thirty (30) days after
Notice of Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such thirty (30) day
period), (b) if your employment is terminated pursuant to subparagraph (iii)
above, the date specified in the Notice of Termination, and (C) if your
employment is terminated for any other reason, the date on which a Notice of
Termination is given; provided that if within thirty (30) days after any Notice
of Termination one party notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the date on which
the dispute is finally determined, either by mutual written agreement of the
parties, by a binding and final arbitration award or by a final judgment, order
or decree of a court of competent jurisdiction (the time for appeal therefrom
having expired and no appeal having been perfected).
4. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(i) During any period that you fail to perform your duties
hereunder as a result of incapacity due to physical or mental illness, you shall
continue to receive your full base salary at the rate then in effect until this
Agreement is terminated pursuant to paragraph 3(i) hereof. Thereafter, your
benefits shall be determined in accordance with the Company's long term
disability plan, or a substitute plan then in effect.
(ii) If your employment shall be terminated for Cause, the
Company shall pay you your full base salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given and the Company
shall have no further obligations to you under this Agreement.
(iii) If the Company shall terminate your employment other than
pursuant to paragraph 3(i) or 3(ii) hereof or if you shall terminate your
employment for
<PAGE>
Good Reason, then the Company shall pay to you as severance pay in a lump sum on
the fifth day following the Date of Termination, the following amounts:
(A) your full base salary through the Date of Termination at the
rate in effect at the time Notice of Termination is given;
(B) in lieu of any further salary payments to you for periods
subsequent to the Date of Termination, an amount equal to the product of (a) the
sum of your annual base salary at the rate in effect as of the Date of
Termination multiplied by (b) the number one (1);
(C) the Company shall also pay all legal fees and expenses
incurred by you as a result of such termination (including all such fees and
expenses, if any, incurred in contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit provided by this Agreement).
(iv) Unless you are terminated for Cause, the Company shall
maintain in full force and effect, for the continued benefit of you for one year
after the Date of Termination, all employee benefit plans and programs or
arrangements in which you were entitled to participate immediately prior to the
Date of Termination provided that your continued participation is possible under
the general terms and provisions of such plans and programs. In the event that
your participation in any such plan or program is barred, the Company shall
arrange to provide you with benefits substantially similar to those which you
are entitled to receive under such plans and programs. At the end of the period
of coverage, you shall have the option to have assigned to you at no cost and
with no apportionment of prepaid premiums, any assignable insurance policy owned
by the Company and relating specifically to you.
(v) You shall not be required to mitigate the amount of any
payment provided for in this paragraph 4 by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this paragraph 4
be reduced by any compensation earned by you as the result of employment by
another employer after the Date of Termination, or otherwise.
5. SUCCESSORS, BINDING AGREEMENT.
(i) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to you, to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle you to
compensation from the Company in the same amount and on the same terms as you
<PAGE>
would be entitled hereunder if you terminated your employment for Good Reason,
except that for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of Termination. As
used in this Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this paragraph 5 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amounts would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee, or
other designee or, if there be no such designee, to your estate.
6. NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Chief
Executive Officer of the Company with a copy to the Secretary of the Company, or
to such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
7. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by you and such officer as may be specifically designated by
the Board of Directors of the Company. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Missouri.
8. VALIDITY. The invalidity or unenforceability of any provisions
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
<PAGE>
10. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
St. Louis, Missouri in accordance with the rules of the American Arbitration
Association then in effect. Notwithstanding the pendency of any such dispute or
controversy, the Company will continue to pay you your full compensation in
effect when the notice giving rise to the dispute was given (including, but not
limited to, base salary) and continue you as a participant in all compensation,
benefit and insurance plans in which you were participating when the notice
giving rise to the dispute was given, until the dispute is finally resolved in
accordance with paragraph 3(v) hereof. Amounts paid under this paragraph are in
addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that you shall be entitled to seek specific performance of your right
to be paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
If this letter correctly sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.
Sincerely,
ALLIED HEALTHCARE PRODUCTS, INC.
By /s/ Barry F. Baker
--------------------------------------
Barry F. Baker
Vice President - Finance and Chief
Financial Officer
AGREED TO THIS _____ DAY
OF DECEMBER, 1996.
- ----------------------------
ALLIED HEALTHCARE PRODUCTS, INC.
1720 Sublette Avenue
St. Louis, Missouri 63110
December 16, 1996
Mr. Dave Grabowski
4 Lantana Court
St. Peters, MO 63376
Dear Mr. Grabowski:
Allied Healthcare Products, Inc. (the "Company") considers the
establishment and maintenance of a sound and vital management to be essential to
protecting and enhancing the best interests of the Company and its shareholders.
In this connection, the Company recognizes that, as is the case with many
publicly held corporations, the possibility of a change in control may exist and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders. Accordingly, the
Company's Board of Directors has determined that appropriate steps should be
taken, to reinforce and encourage the continued attention and dedication of
members of the Company's management, including yourself, to their assigned
duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company.
In order to induce you to remain in the employ of the company, this
letter agreement sets forth the severance benefits which the Company agrees will
be provided to you in the event your employment with the Company is terminated
subsequent to a "change in control of the Company" (as defined in Section 2
hereof) under the circumstances described below.
1. TERM. This Agreement shall commence on the date hereof and shall
continue until December 31, 1998; provided, however, that commencing on January
1, 1998 and each January 1st thereafter, the term of this Agreement shall
automatically be extended for one additional year unless at least 30 days prior
to such January 1st date, the Company shall have given notice that it does not
wish to extend this Agreement, and provided, further, that following a change in
control of the Company (as hereinafter defined) the term of this Agreement shall
automatically extend to the date which is two years following such change in
control.
<PAGE>
2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless
there shall have been a change in control of the Company, as set forth below,
and your employment by the Company shall thereafter have been terminated in
accordance with Section 3 below. For purposes of this Agreement, a "change in
control of the Company" shall mean a change in control of a nature that would be
required to be reported in response to Item 5(f) of Schedule 14A promulgated
under the Securities Exchange Act of 1934, as amended ("Exchange Act"); provided
that, without limitation, such a change in control shall be deemed to have
occurred if (i) any "person" (as such term is used in Section 13(d) and 14(d)(2)
of the Exchange Act) is or becomes the beneficial owner, directly or indirectly,
of securities of the Company representing a majority of the combined voting
power of the Company's then outstanding securities; or (ii) during any period of
two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company (the "Board") cease for any
reason to constitute at least a majority thereof unless the election, or the
nomination for election by the Company's shareholders, of each new director was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period.
3. TERMINATION FOLLOWING CHANGE OF CONTROL. If any of the events
described in Section 2 hereof constituting a change in control of the Company
shall have occurred, you shall be entitled to the benefits provided in Section 4
hereof upon the subsequent termination of your employment within a period of two
(2) years following such change in control unless such termination is (a)
because of your death or Retirement, (b) by the Company for Cause or Disability
or (c) by you other than for Good Reason.
(i) DISABILITY; RETIREMENT.
(A) If, as a result of your incapacity due to physical or mental
illness, you shall have been absent from your duties with the Company on a full
time basis for 130 consecutive business days, and within thirty (30) days after
written notice of termination is given you shall not have returned to the full
time performance of your duties, the Company may terminate this Agreement for
"Disability."
(B) Termination by the Company or you of your employment based
on "Retirement" shall mean termination in accordance with the Company's
retirement policy, including early retirement, generally applicable to its
salaried employees or in accordance with any retirement arrangement established
with your consent with respect to you.
(ii) CAUSE. The Company may terminate your employment for Cause.
For the purposes of this Agreement, the Company shall have "Cause" to terminate
your employment hereunder upon (A) the willful and continued failure by you to
substantially perform your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness), after a
demand for substantial performance is delivered to you by the Board which
specifically identifies the manner in
<PAGE>
which the Board believes that you have not substantially performed you duties,
or (B) the willful engaging by you in gross misconduct materially and
demonstrably injurious to the Company. For purposes of this paragraph, no act,
or failure to act, on your part shall be considered "willful" unless done, or
omitted to be done, by you not in good faith and without reasonable belief that
your action or omission was in the best interest of the Company. Notwithstanding
the foregoing, you shall not be deemed to have been terminated for Cause unless
and until there shall have been delivered to you a copy of a resolution duly
adopted by the affirmative vote of not less than two-thirds of the entire
membership of the Board at a meeting of the Board called and held for the
purpose (after reasonable notice to you and an opportunity for you, together
with your counsel, to be heard before the Board), finding that in the good faith
opinion of the Board you were guilty of conduct set forth above in clauses (A)
or (B) of the first sentence of this paragraph and specifying the particulars
thereof in detail.
(iii) GOOD REASON. You may terminate your employment for Good
Reason. For purposes of this Agreement "Good Reason" shall mean:
(A) without your express written consent, the assignment to you
of any duties materially inconsistent with your positions, duties,
responsibilities and status with the Company immediately prior to a change in
control;
(B) a reduction by the Company in your base salary as in effect
on the date hereof or as the same may be increased from time to time;
(C) the Company's requiring you to be based anywhere other than
the Company's facility where you performed your duties for the Company
immediately prior to a change in control; and
(D) the failure by the Company to continue in effect any benefit
or compensation plan, pension plan, life insurance plan, health and accident
plan or disability plan in which you are participating at the time of a change
in control of the Company (or plans providing you with substantially similar
benefits), the taking of any action by the Company which would adversely affect
your participation in or materially reduce your benefits under any of such plans
or deprive you of any material fringe benefit enjoyed by you at the time of the
change in control, or the failure by the Company to provide you with the number
of paid vacation days to which you are then entitled on the basis of years of
service with the Company in accordance with the Company's normal vacation policy
in effect on the date hereof;
(E) the failure of the Company to obtain the assumption of the
agreement to perform this Agreement by any successor as contemplated in
paragraph 5 hereof; or
<PAGE>
(F) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of
subparagraph (iv) below (and, if applicable, subparagraph (ii) above); and for
purposes of this Agreement, no such purported termination shall be effective.
(iv) NOTICE OF TERMINATION. Any termination by the Company
pursuant to subparagraphs (i) or (ii) above or by you pursuant to subparagraph
(iii) above shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(v) DATE OF TERMINATION. "Date of Termination" shall mean
(A) if this Agreement is terminated for Disability, thirty (30) days after
Notice of Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such thirty (30) day
period), (b) if your employment is terminated pursuant to subparagraph (iii)
above, the date specified in the Notice of Termination, and (C) if your
employment is terminated for any other reason, the date on which a Notice of
Termination is given; provided that if within thirty (30) days after any Notice
of Termination one party notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the date on which
the dispute is finally determined, either by mutual written agreement of the
parties, by a binding and final arbitration award or by a final judgment, order
or decree of a court of competent jurisdiction (the time for appeal therefrom
having expired and no appeal having been perfected).
4. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(i) During any period that you fail to perform your duties
hereunder as a result of incapacity due to physical or mental illness, you shall
continue to receive your full base salary at the rate then in effect until this
Agreement is terminated pursuant to paragraph 3(i) hereof. Thereafter, your
benefits shall be determined in accordance with the Company's long term
disability plan, or a substitute plan then in effect.
(ii) If your employment shall be terminated for Cause, the
Company shall pay you your full base salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given and the Company
shall have no further obligations to you under this Agreement.
(iii) If the Company shall terminate your employment other than
pursuant to paragraph 3(i) or 3(ii) hereof or if you shall terminate your
employment for
<PAGE>
Good Reason, then the Company shall pay to you as severance pay in a lump sum on
the fifth day following the Date of Termination, the following amounts:
(A) your full base salary through the Date of Termination at the
rate in effect at the time Notice of Termination is given;
(B) in lieu of any further salary payments to you for periods
subsequent to the Date of Termination, an amount equal to the product of (a) the
sum of your annual base salary at the rate in effect as of the Date of
Termination multiplied by (b) the number one (1);
(C) the Company shall also pay all legal fees and expenses
incurred by you as a result of such termination (including all such fees and
expenses, if any, incurred in contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit provided by this Agreement).
(iv) Unless you are terminated for Cause, the Company shall
maintain in full force and effect, for the continued benefit of you for one year
after the Date of Termination, all employee benefit plans and programs or
arrangements in which you were entitled to participate immediately prior to the
Date of Termination provided that your continued participation is possible under
the general terms and provisions of such plans and programs. In the event that
your participation in any such plan or program is barred, the Company shall
arrange to provide you with benefits substantially similar to those which you
are entitled to receive under such plans and programs. At the end of the period
of coverage, you shall have the option to have assigned to you at no cost and
with no apportionment of prepaid premiums, any assignable insurance policy owned
by the Company and relating specifically to you.
(v) You shall not be required to mitigate the amount of any
payment provided for in this paragraph 4 by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this paragraph 4
be reduced by any compensation earned by you as the result of employment by
another employer after the Date of Termination, or otherwise.
5. SUCCESSORS, BINDING AGREEMENT.
(i) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to you, to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle you to
compensation from the Company in the same amount and on the same terms as you
<PAGE>
would be entitled hereunder if you terminated your employment for Good Reason,
except that for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of Termination. As
used in this Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this paragraph 5 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amounts would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee, or
other designee or, if there be no such designee, to your estate.
6. NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Chief
Executive Officer of the Company with a copy to the Secretary of the Company, or
to such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
7. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by you and such officer as may be specifically designated by
the Board of Directors of the Company. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Missouri.
8. VALIDITY. The invalidity or unenforceability of any provisions
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
<PAGE>
10. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
St. Louis, Missouri in accordance with the rules of the American Arbitration
Association then in effect. Notwithstanding the pendency of any such dispute or
controversy, the Company will continue to pay you your full compensation in
effect when the notice giving rise to the dispute was given (including, but not
limited to, base salary) and continue you as a participant in all compensation,
benefit and insurance plans in which you were participating when the notice
giving rise to the dispute was given, until the dispute is finally resolved in
accordance with paragraph 3(v) hereof. Amounts paid under this paragraph are in
addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that you shall be entitled to seek specific performance of your right
to be paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
If this letter correctly sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.
Sincerely,
ALLIED HEALTHCARE PRODUCTS, INC.
By /s/ Barry F. Baker
--------------------------------------
Barry F. Baker
Vice President - Finance and Chief
Financial Officer
AGREED TO THIS _____ DAY
OF DECEMBER, 1996.
- ----------------------------
ALLIED HEALTHCARE PRODUCTS, INC.
1720 Sublette Avenue
St. Louis, Missouri 63110
December 16, 1996
Mr. Ted Atwood
124 South Price Road
St. Louis, MO 63124
Dear Mr. Atwood:
Allied Healthcare Products, Inc. (the "Company") considers the
establishment and maintenance of a sound and vital management to be essential to
protecting and enhancing the best interests of the Company and its shareholders.
In this connection, the Company recognizes that, as is the case with many
publicly held corporations, the possibility of a change in control may exist and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders. Accordingly, the
Company's Board of Directors has determined that appropriate steps should be
taken, to reinforce and encourage the continued attention and dedication of
members of the Company's management, including yourself, to their assigned
duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company.
In order to induce you to remain in the employ of the company, this
letter agreement sets forth the severance benefits which the Company agrees will
be provided to you in the event your employment with the Company is terminated
subsequent to a "change in control of the Company" (as defined in Section 2
hereof) under the circumstances described below.
1. TERM. This Agreement shall commence on the date hereof and shall
continue until December 31, 1998; provided, however, that commencing on January
1, 1998 and each January 1st thereafter, the term of this Agreement shall
automatically be extended for one additional year unless at least 30 days prior
to such January 1st date, the Company shall have given notice that it does not
wish to extend this Agreement, and provided, further, that following a change in
control of the Company (as hereinafter defined) the term of this Agreement shall
automatically extend to the date which is two years following such change in
control.
<PAGE>
2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless
there shall have been a change in control of the Company, as set forth below,
and your employment by the Company shall thereafter have been terminated in
accordance with Section 3 below. For purposes of this Agreement, a "change in
control of the Company" shall mean a change in control of a nature that would be
required to be reported in response to Item 5(f) of Schedule 14A promulgated
under the Securities Exchange Act of 1934, as amended ("Exchange Act"); provided
that, without limitation, such a change in control shall be deemed to have
occurred if (i) any "person" (as such term is used in Section 13(d) and 14(d)(2)
of the Exchange Act) is or becomes the beneficial owner, directly or indirectly,
of securities of the Company representing a majority of the combined voting
power of the Company's then outstanding securities; or (ii) during any period of
two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company (the "Board") cease for any
reason to constitute at least a majority thereof unless the election, or the
nomination for election by the Company's shareholders, of each new director was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period.
3. TERMINATION FOLLOWING CHANGE OF CONTROL. If any of the events
described in Section 2 hereof constituting a change in control of the Company
shall have occurred, you shall be entitled to the benefits provided in Section 4
hereof upon the subsequent termination of your employment within a period of two
(2) years following such change in control unless such termination is (a)
because of your death or Retirement, (b) by the Company for Cause or Disability
or (c) by you other than for Good Reason.
(i) DISABILITY; RETIREMENT.
(A) If, as a result of your incapacity due to physical or mental
illness, you shall have been absent from your duties with the Company on a full
time basis for 130 consecutive business days, and within thirty (30) days after
written notice of termination is given you shall not have returned to the full
time performance of your duties, the Company may terminate this Agreement for
"Disability."
(B) Termination by the Company or you of your employment based
on "Retirement" shall mean termination in accordance with the Company's
retirement policy, including early retirement, generally applicable to its
salaried employees or in accordance with any retirement arrangement established
with your consent with respect to you.
(ii) CAUSE. The Company may terminate your employment for Cause.
For the purposes of this Agreement, the Company shall have "Cause" to terminate
your employment hereunder upon (A) the willful and continued failure by you to
substantially perform your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness), after a
demand for substantial performance is delivered to you by the Board which
specifically identifies the manner in
<PAGE>
which the Board believes that you have not substantially performed you duties,
or (B) the willful engaging by you in gross misconduct materially and
demonstrably injurious to the Company. For purposes of this paragraph, no act,
or failure to act, on your part shall be considered "willful" unless done, or
omitted to be done, by you not in good faith and without reasonable belief that
your action or omission was in the best interest of the Company. Notwithstanding
the foregoing, you shall not be deemed to have been terminated for Cause unless
and until there shall have been delivered to you a copy of a resolution duly
adopted by the affirmative vote of not less than two-thirds of the entire
membership of the Board at a meeting of the Board called and held for the
purpose (after reasonable notice to you and an opportunity for you, together
with your counsel, to be heard before the Board), finding that in the good faith
opinion of the Board you were guilty of conduct set forth above in clauses (A)
or (B) of the first sentence of this paragraph and specifying the particulars
thereof in detail.
(iii) GOOD REASON. You may terminate your employment for Good
Reason. For purposes of this Agreement "Good Reason" shall mean:
(A) without your express written consent, the assignment to you
of any duties materially inconsistent with your positions, duties,
responsibilities and status with the Company immediately prior to a change in
control;
(B) a reduction by the Company in your base salary as in effect
on the date hereof or as the same may be increased from time to time;
(C) the Company's requiring you to be based anywhere other than
the Company's facility where you performed your duties for the Company
immediately prior to a change in control; and
(D) the failure by the Company to continue in effect any benefit
or compensation plan, pension plan, life insurance plan, health and accident
plan or disability plan in which you are participating at the time of a change
in control of the Company (or plans providing you with substantially similar
benefits), the taking of any action by the Company which would adversely affect
your participation in or materially reduce your benefits under any of such plans
or deprive you of any material fringe benefit enjoyed by you at the time of the
change in control, or the failure by the Company to provide you with the number
of paid vacation days to which you are then entitled on the basis of years of
service with the Company in accordance with the Company's normal vacation policy
in effect on the date hereof;
(E) the failure of the Company to obtain the assumption of the
agreement to perform this Agreement by any successor as contemplated in
paragraph 5 hereof; or
<PAGE>
(F) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of
subparagraph (iv) below (and, if applicable, subparagraph (ii) above); and for
purposes of this Agreement, no such purported termination shall be effective.
(iv) NOTICE OF TERMINATION. Any termination by the Company
pursuant to subparagraphs (i) or (ii) above or by you pursuant to subparagraph
(iii) above shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(v) DATE OF TERMINATION. "Date of Termination" shall mean
(A) if this Agreement is terminated for Disability, thirty (30) days after
Notice of Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such thirty (30) day
period), (b) if your employment is terminated pursuant to subparagraph (iii)
above, the date specified in the Notice of Termination, and (C) if your
employment is terminated for any other reason, the date on which a Notice of
Termination is given; provided that if within thirty (30) days after any Notice
of Termination one party notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the date on which
the dispute is finally determined, either by mutual written agreement of the
parties, by a binding and final arbitration award or by a final judgment, order
or decree of a court of competent jurisdiction (the time for appeal therefrom
having expired and no appeal having been perfected).
4. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(i) During any period that you fail to perform your duties
hereunder as a result of incapacity due to physical or mental illness, you shall
continue to receive your full base salary at the rate then in effect until this
Agreement is terminated pursuant to paragraph 3(i) hereof. Thereafter, your
benefits shall be determined in accordance with the Company's long term
disability plan, or a substitute plan then in effect.
(ii) If your employment shall be terminated for Cause, the
Company shall pay you your full base salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given and the Company
shall have no further obligations to you under this Agreement.
(iii) If the Company shall terminate your employment other than
pursuant to paragraph 3(i) or 3(ii) hereof or if you shall terminate your
employment for
<PAGE>
Good Reason, then the Company shall pay to you as severance pay in a lump sum on
the fifth day following the Date of Termination, the following amounts:
(A) your full base salary through the Date of Termination at the
rate in effect at the time Notice of Termination is given;
(B) in lieu of any further salary payments to you for periods
subsequent to the Date of Termination, an amount equal to the product of (a) the
sum of your annual base salary at the rate in effect as of the Date of
Termination multiplied by (b) the number one (1);
(C) the Company shall also pay all legal fees and expenses
incurred by you as a result of such termination (including all such fees and
expenses, if any, incurred in contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit provided by this Agreement).
(iv) Unless you are terminated for Cause, the Company shall
maintain in full force and effect, for the continued benefit of you for one year
after the Date of Termination, all employee benefit plans and programs or
arrangements in which you were entitled to participate immediately prior to the
Date of Termination provided that your continued participation is possible under
the general terms and provisions of such plans and programs. In the event that
your participation in any such plan or program is barred, the Company shall
arrange to provide you with benefits substantially similar to those which you
are entitled to receive under such plans and programs. At the end of the period
of coverage, you shall have the option to have assigned to you at no cost and
with no apportionment of prepaid premiums, any assignable insurance policy owned
by the Company and relating specifically to you.
(v) You shall not be required to mitigate the amount of any
payment provided for in this paragraph 4 by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this paragraph 4
be reduced by any compensation earned by you as the result of employment by
another employer after the Date of Termination, or otherwise.
5. SUCCESSORS, BINDING AGREEMENT.
(i) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to you, to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle you to
compensation from the Company in the same amount and on the same terms as you
<PAGE>
would be entitled hereunder if you terminated your employment for Good Reason,
except that for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of Termination. As
used in this Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this paragraph 5 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amounts would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee, or
other designee or, if there be no such designee, to your estate.
6. NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Chief
Executive Officer of the Company with a copy to the Secretary of the Company, or
to such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
7. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by you and such officer as may be specifically designated by
the Board of Directors of the Company. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Missouri.
8. VALIDITY. The invalidity or unenforceability of any provisions
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
<PAGE>
10. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
St. Louis, Missouri in accordance with the rules of the American Arbitration
Association then in effect. Notwithstanding the pendency of any such dispute or
controversy, the Company will continue to pay you your full compensation in
effect when the notice giving rise to the dispute was given (including, but not
limited to, base salary) and continue you as a participant in all compensation,
benefit and insurance plans in which you were participating when the notice
giving rise to the dispute was given, until the dispute is finally resolved in
accordance with paragraph 3(v) hereof. Amounts paid under this paragraph are in
addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that you shall be entitled to seek specific performance of your right
to be paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
If this letter correctly sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.
Sincerely,
ALLIED HEALTHCARE PRODUCTS, INC.
By /s/ Barry F. Baker
--------------------------------------
Barry F. Baker
Vice President - Finance and Chief
Financial Officer
AGREED TO THIS _____ DAY
OF DECEMBER, 1996.
- ----------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ALLIED HEALTHCARE PRODUCTS, INC.
Financial Data Schedule for Second Quarter
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,406
<SECURITIES> 0
<RECEIVABLES> 26,920
<ALLOWANCES> 412
<INVENTORY> 28,040
<CURRENT-ASSETS> 60,338
<PP&E> 21,657
<DEPRECIATION> 2,663
<TOTAL-ASSETS> 135,788
<CURRENT-LIABILITIES> 21,196
<BONDS> 50,068
0
0
<COMMON> 101
<OTHER-SE> 63,051
<TOTAL-LIABILITY-AND-EQUITY> 135,788
<SALES> 28,389
<TOTAL-REVENUES> 28,389
<CGS> 19,664
<TOTAL-COSTS> 19,664
<OTHER-EXPENSES> 8,233
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,409
<INCOME-PRETAX> (946)
<INCOME-TAX> (390)
<INCOME-CONTINUING> (556)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (556)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> 0
</TABLE>
