FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year June 30, 1998
OR
[ ] 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.
[EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER]
DELAWARE 25-1370721
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1720 SUBLETTE AVENUE
ST. LOUIS, MISSOURI 63110
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (314) 771-2400
____________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock
Preferred Stock
Preferred Stock Purchase Rights
(Title of class)
_______________________
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes. X No.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
As of September 18, 1998, the aggregate market value of the voting stock
held by non-affiliates (4,565,441 shares) of the Registrant was $11,698,942
(based on the closing price, on such date, of $2.5625 per share).
As of September 18, 1998, there were 7,806,682 shares of common stock,
$0.01 par value (the "Common Stock"), outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement dated October 9, 1998 (portion) (Part III)
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ALLIED HEALTHCARE PRODUCTS, INC.
INDEX TO FORM 10-K
PART I
<S> <C> <C>
Item 1. Business . 1
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II
Item 5. Market for Registrant's Common Stock and Related 11
Stockholder Matters
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 43
PART III
Item 10. Directors and Executive Officers of the Registrant . 43
Item 11. Executive Compensation 43
Item 12. Security Ownership of Certain Beneficial Owners and
Management 43
Item 13. Certain Relationships and Related Transactions 43
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 43
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PART I
Item 1. Business
GENERAL
Allied Healthcare Products, Inc. ("Allied" or the "Company") manufactures a
variety of respiratory products used in the health care industry in a wide
range of hospital and alternate site settings, including sub-acute care
facilities, home health care and emergency medical care. The Company's product
lines include respiratory care products, medical gas construction equipment and
emergency medical products. The Company believes that it maintains significant
market shares in selected product lines.
The Company's products are marketed under well-recognized and respected
brand names to hospitals, hospital equipment dealers, hospital construction
contractors, home health care dealers, emergency medical products dealers and
others. Allied's product lines include:
RESPIRATORY CARE PRODUCTS
-respiratory care/anesthesia products
-home respiratory care products
MEDICAL GAS EQUIPMENT
-medical gas system construction products
-medical gas system regulation devices
-disposable oxygen and specialty gas cylinders
-portable suction equipment
EMERGENCY MEDICAL PRODUCTS
-respiratory/resuscitation products
-trauma and patient handling products
SIGNIFICANT 1998/RECENT EVENTS
The following list includes significant events which are further discussed
in the Management Discussion and Analysis (MDA) section and in the Consolidated
Financial Statements in this 10-K report:
-Refinancing of bank debt with Foothill Capital Corporation in August 1997
-Sale of Bear Medical and BiCore to ThermoElectron Corporation in October
1997 and use of proceeds to significantly pay down outstanding debt.
-Non-recurring charges during second quarter of fiscal year 1998
principally due to write-down of goodwill.
-Amendment to Foothill agreement in September 1998 to separately finance
the mortgage on the St. Louis facility and to reduce interest costs and
fees.
-August 1998 announcement by the Company to close its B&F facility in
Toledo and consolidation of those operations in St. Louis.
The Company's principal executive offices are located at 1720 Sublette
Avenue, St. Louis, Missouri 63110, and its telephone number is (314) 771-2400.
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MARKETS AND PRODUCTS
In fiscal 1998, respiratory care products, medical gas equipment and
emergency medical products represented approximately 41%, 47% and 12%
respectively, of the Company's net sales. The Company operates in a single
industry segment and its principal products are described in the following
table:
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PRINCIPAL
PRODUCT DESCRIPTION BRAND NAMES PRIMARY USERS
- - ---------------------------------------- --------------------------------------- -------------------- -------------------
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RESPIRATORY CARE PRODUCTS
Respiratory Care/Anesthesia Large volume compressors; ventilator Timeter Hospitals and sub-
Products calibrators; humidifiers and mist tents acute facilities
Home Respiratory Care Oxygen concentrators; O2 cylinders; Timeter; B&F; Patients at home
Products pressure regulators; nebulizers; Schuco
portable large volume compressors;
portable suction equipment and disp.
respiratory products
MEDICAL GAS EQUIPMENT
Construction Products In-wall medical gas system Chemetron; Hospitals and sub-
components; central suction pumps Oxequip; acute facilities
and compressors and headwalls Hospital
Systems
Regulation Devices Flowmeters; vacuum regulators; Chemetron; Hospitals and sub-
pressure regulators and related Oxequip; acute facilities
products Timeter
Disposable Cylinders Disposable oxygen and gas cylinders Lif-O-Gen First aid providers
and specialty gas
distributors
Suction Equipment Portable suction equipment and Gomco; Allied; Hospitals; sub-
disposable suction canisters Schuco acute facilities and
home care
products
EMERGENCY MEDICAL PRODUCTS
Respiratory/Resuscitation Demand resuscitation valves; bag LSP; Omni-Tech Emergency service
mask resuscitators; emergency providers
transport ventilators and oxygen
regulators
Trauma and Patient Handling Spine immobilization products; LSP; Design Emergency service
Products pneumatic anti-shock garments and Principles providers
trauma burn kits
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RESPIRATORY CARE PRODUCTS
MARKET. Respiratory care products are used in the treatment of acute and
chronic respiratory disorders such as asthma, emphysema, bronchitis and
pneumonia. The Company believes that the sales of respiratory care products
will increase due to the growth in the aging population, increase in acute and
chronic respiratory disorders and improved technology for the early diagnosis
and treatment of these disorders.
Respiratory care products are used in both hospitals and alternate care
settings. Sales of respiratory care products are made through distribution
channels focusing on hospitals and other sub-acute facilities. Sales of home
respiratory care products are made through durable medical equipment dealers
through telemarketing, independent sales representatives, and by contract sales
with national chains. The Company holds a significant share of the U.S. market
and selected foreign markets for certain respiratory care products.
RESPIRATORY CARE/ANESTHESIA PRODUCTS. The Company manufactures and sells a
broad range of products for use in respiratory care and anesthesia delivery.
These products include large volume air compressors, calibration equipment,
humidifiers, croup tents, equipment dryers, CO2 absorbent and a complete line of
respiratory disposable products such as oxygen tubing, face masks, cannulas and
ventilator circuits.
HOME RESPIRATORY CARE PRODUCTS. Home respiratory care products represent
one of Allied's potential growth areas. Allied's broad line of home respiratory
care products include oxygen concentrators, aluminum oxygen cylinders, oxygen
regulators, pneumatic nebulizers, portable suction equipment and the full line
of respiratory disposable products.
MEDICAL GAS EQUIPMENT
MARKET. The market for the medical gas equipment consists of hospitals,
alternate care settings and surgery centers. The medical gas equipment group is
broken down into three separate categories; construction products, regulation
devices and suction equipment, and disposable cylinders.
CONSTRUCTION PRODUCTS. Allied's medical gas system construction products
consist of in-wall medical system components, central station pumps and
compressors and headwalls. These products are typically installed during
construction or renovation of a health care facility and are built in as an
integral part of the facility's physical plant. Typically, the contractor for
the facility's construction or renovation purchases medical gas system
components from manufacturers and ensures that the design specifications of the
health care facility are met.
Allied's in-wall components, including outlets, manifolds, alarms, ceiling
columns and zone valves, serve a fundamental role in medical gas delivery
systems.
Central station pumps and compressors are individually engineered systems
consisting of compressors, reservoirs, valves and controls designed to drive a
hospital's medical gas and suction systems. Each system is designed
specifically for a given hospital or facility by the Company, which purchases
pumps and compressors from suppliers. The Company's sales of pumps and
compressors are driven, in large part, by its share of the in-wall components
market.
Headwalls are prefabricated wall units for installation in patient rooms
and intensive care areas which house medical gas, suction and electrical
outlets, and fixtures for monitoring equipment. These prefabricated walls also
incorporate designs for lighting and nurse call systems. Headwalls are built to
customer design specifications and eliminate the need for time-consuming
installation of fixtures, and outlets and related piping and wiring directly
into the hospital wall. During fiscal 1995, the Company introduced the Trio
headwall, which includes a detachable face plate that permits a health care
provider to switch among one of three gases, thus providing greater flexibility
to a hospital or sub-acute care facility.
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The Company's construction products are sold primarily to hospitals,
alternate care settings and hospital construction contractors. The Company
believes that it holds a major share of the U.S. market for its construction
products, that these products are installed in more than three thousand
hospitals in the United States and that its installed base of equipment in this
market will continue to generate follow-on sales. Since hospitals typically do
not have more than one medical gas system, the manufacturer of the existing
installed system has a competitive advantage in follow-on sales of such products
to a hospital in which its systems are installed. The Company believes that
most hospitals and sub-acute care facility construction spending is for
expansion or renovation of existing facilities. Many hospital systems and
individual hospitals undertake major renovations to upgrade their operations to
improve the quality of care they provide, reduce costs and attract patients and
personnel. The Company expects its installed equipment base to continue to
provide the Company with a significant competitive advantage in the hospital
renovation market.
REGULATION DEVICES AND SUCTION EQUIPMENT. The Company's medical gas system
regulation products include flowmeters, vacuum regulators and pressure
regulators, as well as related adapters, fittings and hoses which measure,
regulate, monitor and help transfer medical gases from walled piping or
equipment to patients in hospital rooms, operating theaters or intensive care
areas. The Company's leadership position in the in-wall components market
provides a competitive advantage in marketing medical gas system regulation
devices that are compatible with those components. Hospitals that procure
medical gas system regulation devices from the Company's competitors were
previously required to utilize adapters in order to use Allied's in-wall
components. However, in August 1996, the Company introduced its patented
Connect II universal outlet, the first such outlet to allow a hospital to
utilize medical gas system regulation devices and in-wall components produced by
different manufacturers.
Portable suction equipment is typically used when in-wall suction is not
available or when medical protocol specifically requires portable suction. The
Company also manufactures disposable suction canisters, which are clear
containers used to collect the fluids suctioned by in-wall or portable suction
systems. The containers have volume calibrations which allow the medical
practitioner to measure the volume of fluids suctioned.
The market for regulation devices and suction equipment is the hospital and
sub-acute care facilities. Sales of these products are made through the same
distribution channel that our respiratory care products go through. The Company
believes that it holds a significant share of the U.S. market in both the
regulation devices and the suction equipment.
DISPOSABLE CYLINDERS. Disposable oxygen cylinders are designed to provide
oxygen supplied for short periods in emergency situations. Since they are not
subjected to the same pressurization as standard containers, they are much
lighter and less expensive than standard gas cylinders. The Company markets
filled disposable oxygen cylinders through industrial safety distributors and
similar customers, principally to first aid providers, restaurants, industrial
plants and other customers that require oxygen for infrequent emergencies. The
Company also markets disposable cylinders to specialty gas manufacturers for use
by substance abuse compliance personnel.
EMERGENCY MEDICAL PRODUCTS
Emergency medical products are used in the treatment of trauma-induced
injuries. The Company's emergency medical products provide patients
resuscitation or ventilation during cardiopulmonary resuscitation or respiratory
distress as well as immobilization and treatment for burns. The Company
believes that the trauma care venue for health care services is positioned for
growth in light of the continuing trend towards providing health care outside
the traditional hospital setting. The Company also expects that other countries
will develop trauma care systems in the future, although no assurance can be
given that such systems will develop or that they will have a favorable impact
on the Company. Sales of emergency medical products are made through
specialized emergency medical products distributors.
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The Company believes it is a market share leader with respect to certain of
its emergency medical products, including demand resuscitation systems, bag
masks and related products, emergency transport ventilators, precision oxygen
regulators, minilators and multilators and humidifiers. The emergency medical
products are broken down into two account groups: respiratory/resuscitator
products and trauma patient handling products.
RESPIRATORY/RESUSCITATION PRODUCTS. The Company's
respiratory/resuscitation products include demand resuscitation valves, portable
resuscitation systems, bag masks and related products, emergency transport
ventilators, precision oxygen regulators, minilators and multilators and
humidifiers.
Demand resuscitation valves are designed to provide 100% oxygen to
breathing or non-breathing patients. In an emergency situation, they can be
used with a mask or tracheotomy tubes and operate from a standard regulated
oxygen system. The Company's portable resuscitation systems provide fast,
simple and effective means of ventilating a non-breathing patient during
cardiopulmonary resuscitation and 100% oxygen to breathing patients on demand
with minimal inspiratory effort. The Company also markets a full line of
disposable and reusable bag mask resuscitators, which are available in a variety
of adult and child-size configurations. Disposable mouth-to-mask resuscitation
systems have the added advantage of reducing the risk of transmission of
communicable diseases.
In 1988 the Company introduced the first domestic line of emergency
transport ventilators, or autovents, which are small and compact in design. The
Company's autovent can meet a variety of needs in different applications ranging
from typical emergency medical situations to more sophisticated air and ground
transport. Each autovent is accompanied by a patient valve which provides for
effective ventilation during cardiopulmonary resuscitation or respiratory
distress. When administration of oxygen is required at the scene of a disaster,
in military field hospitals or in a multiple-victim incident, Allied's
minilators and multilators are capable of providing oxygen to one or a large
number of patients.
To complement the family of respiratory/resuscitation products, the Company
offers a full line of oxygen products accessories. This line of accessory
products includes reusable aspirators, tru-fit masks, disposable cuffed masks
and related accessories.
TRAUMA AND PATIENT HANDLING PRODUCTS. The Company's trauma and patient
handling products include spine immobilization products, pneumatic anti-shock
garments and trauma burn kits. Spine immobilization products include a
backboard which are designed for safe immobilization of injury victims and
provides a durable and cost effective means of emergency patient transportation
and extrication. The infant/pediatric immobilization board is durable and scaled
for children. The half back extractor/rescue vest is useful for both suspected
cervical/spinal injuries and for mountain and air rescues. The Company's
pneumatic anti-shock garments are used to treat victims experiencing hypovolemic
shock. Allied's trauma burn kits contain a comprehensive line of products for
the treatment of trauma and burns.
SALES AND MARKETING
Allied sells its products primarily to respiratory care/anesthesia product
distributors, hospital construction contractors, emergency medical equipment
dealers and directly to hospitals. The Company maintains a sales force of 49
sales professionals, all of whom are full-time employees of the Company. The
sales force includes 19 respiratory products/homecare specialists, 17 hospital
construction specialists, 5 emergency specialists and 8 international sales
representatives. In addition, a director of corporate and national accounts is
responsible for pursuing business with large national group purchasing
organizations and large homecare national chains in OEM business. Five product
managers are responsible for the marketing activities of these product lines.
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Respiratory products specialists are responsible for sales of medical gas
system regulation devices, portable suction equipment and respiratory
care/anesthesia products. These products are principally sold to approximately
5,700 hospitals in the United States through specialized respiratory
care/anesthesia product distributors. Many of these suppliers have had
experience with the Company's products as hospital respiratory therapists. The
Company hopes to capitalize on its brand name recognition and the familiarity of
its products and their reputations among these former hospital therapists as a
means of increasing its share of the respiratory care products market.
Respiratory products specialists are also responsible for sales into the
homecare market. These products are sold through durable medical equipment
suppliers, who then rent or sell the products directly to the patient for use in
the home.
Emergency medical specialists are responsible for sales of
respiratory/resuscitation products, trauma and patient handling products. These
products are principally sold to ambulance companies, fire departments and
emergency medical systems volunteer organizations through specialized emergency
medical products distributors.
The Company's director of national accounts is responsible for marketing
Allied's products to national hospital groups, managed care organizations and
other health care providers and to national chains of durable medical equipment
suppliers through sales efforts at the executive level. Generally, the national
account representatives secure a commitment from the purchaser to buy a
specified quantity of Allied's products over a defined time period at a
discounted price based on volume.
INTERNATIONAL
Allied's international business represents a growth area which the Company
has been emphasizing. The recent Asian situation has slowed incoming orders
from Korea, Thailand and Taiwan. However, our efforts into China are now
beginning to yield results in the construction products area.
Allied's net sales to foreign markets totaled 25% of the Company's net
sales in fiscal 1998. International sales are made through a network of
doctors, agents and U.S. exporters who distribute the Company's products
throughout the world. Allied has market presence in Canada, Mexico, Central and
South America, Europe, the Middle East and the Far East.
MANUFACTURING
Allied's manufacturing processes include fabrication, electro-mechanical
assembly operations and plastics manufacturing. A significant part of Allied's
manufacturing operations involves electro-mechanical assembly of proprietary
products and the Company is vertically integrated in most elements of metal
machining and fabrication. Most of Allied's hourly employees are involved in
machining, metal fabrication, plastics manufacturing and product assembly.
Allied manufactures small metal components from bar stock in a machine shop
which includes automatic screw machines, horizontal lathes and drill presses.
Additionally, five computer controlled machining centers were purchased and
installed during fiscal 1997 in the Company's St. Louis, Missouri facility.
This $1.5 million investment has substantially modernized the Company's metal
machining capabilities and will result in significant opportunities to reduce
product costs from shorter set-up times, elimination of secondary operations in
component manufacturing, reduced inventory levels, reductions in scrap and
improvements in quality. The Company makes larger metal components from sheet
metal using computerized punch presses, brake presses and shears. In its
plastics manufacturing processes, the Company utilizes both extrusion and
injection molding. The Company believes that its production facilities and
equipment are in good condition and sufficient to meet planned increases in
volume over the next few years and that conditions in local labor markets should
permit the implementation of additional shifts and days operated to meet any
future increased production capacity requirements.
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During fiscal 1996 and 1997, manufacturing inefficiencies and capacity
constraints prevented the Company from shipping to the level of demand for
certain products from B&F Medicals' Toledo, Ohio facility. Accordingly, the
Company invested $1.1 million in molds and injection molding machinery to expand
the production capacity and gain efficiencies at its Toledo, Ohio facility.
This investment in enhanced injection molding capabilities is expected to
increase production throughput, and to provide significant cost reduction
opportunities, including reduced product material content, labor and utility
costs, while improving overall quality and yields. Allied has recently
announced the consolidation of its Toledo operations into the St. Louis
facility. This move will be completed during the second quarter of fiscal 1999.
The Company anticipates the expected production improvements at Toledo to carry
over to the relocated operations in St. Louis. See further discussion of the
relocation of the Toledo operation in the following MDA section of this Form
10-K.
RESEARCH AND DEVELOPMENT
In 1998 the Company expended $1.7 million in research and development
activities. Of that amount, $0.6 million was utilized by the ventilation
products division, that has since been sold. See further discussion of the sale
of the ventilation products division in the following MDA section of this Form
10-K. Excluding the ventilation products division, research and development
expenditures in 1997 and 1998 were approximately $1.7 million and $1.1 million,
respectively.
The Company has recently increased its research and development efforts in
Order to keep pace with technological advances and expects to continue these
activities into the future.
In the past several months, the Company has introduced several new products
which resulted from its research and development programs. These products
include the new Handi Vac II disposable suction canister that features improved
flow and a new shut off mechanism. The Respical, a second generation ventilator
calibrator, is a modernized version of the RT-200 ventilator calibrator with
improved computer interfacing capabilities. In addition, the Company introduced
into the emergency medical market a CO2 monitor that helps confirm proper
patient intubation, and a new line of bag mask resuscitators, used to revive
nonbreathing patients.
GOVERNMENT REGULATION
The Company's products and its manufacturing activities are subject to
extensive and rigorous government regulation by federal and state authorities in
the United States and other countries. In the United States, medical devices
for human use are subject to comprehensive review by the United States Food and
Drug Administration (the "FDA"). The Federal Food, Drug, and Cosmetic Act ("FDC
Act"), and other federal statutes and regulations, govern or influence the
research, testing, manufacture, safety, labeling, storage, record keeping,
approval, advertising and promotion of such products. Noncompliance with
applicable requirements can result in Warning Letters, fines, recall or seizure
of products, injunction, refusal to permit products to be imported into or
exported out of the United States, refusal of the government to clear or approve
marketing applications or to allow the Company to enter the government supply
contracts, or withdrawal of previously approved marketing applications and
criminal prosecution.
The Company is required to file a premarket notification in the form of a
premarket approval ("PMA") with the FDA before it begins marketing a new medical
device that offers new technology that is currently not on the market. The
Company also must file a premarket notification in the form of a 510(k) with the
FDA before it begins marketing a new medical device that utilizes existing
technology for devices that are currently on the market. The 510(k) submission
process is also required when the Company makes a change or modifies an existing
device in a manner that could significantly affect the device's safety or
effectiveness.
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Compliance with the regulatory approval process in order to market a new or
modified medical device can be uncertain, lengthy and, in some cases, expensive.
There can be no assurance that necessary regulatory approvals will be obtained
on a timely basis, or at all. Delays in receipt or failure to receive such
approvals, the loss of previously received approvals, or failure to comply with
existing or future regulatory requirements could have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company manufactures and distributes a broad spectrum of respiratory
therapy equipment, emergency medical equipment and medical gas equipment. To
date, all of the Company's FDA clearances have been obtained through the 510(k)
clearance process. These determinations are very fact specific and the FDA has
stated that, initially, the manufacturer is best qualified to make these
determinations, which should be based on adequate supporting data and
documentation. The FDA however, may disagree with a manufacturer's determination
not to file a 510(k) and require the submission of a new 510(k) notification for
the changed or modified device. Where the FDA believes that the change or
modification raises significant new questions of safety or effectiveness, the
agency may require a manufacturer to cease distribution of the device pending
clearance of a new 510(k) notification. Certain of the Company's medical devices
have been changed or modified subsequent to 510(k) marketing clearance of the
original device by the FDA. Certain of the Company's medical devices, which were
first marketed prior to May 28, 1976, and therefore, grandfathered and exempt
from the 510(k) notification process, also have been subsequently changed or
modified. The Company believes that these changes or modifications do not
significantly affect the device's safety or effectiveness or make a major change
or modification in the device's intended uses and, accordingly, that submission
of new 510(k) notification to FDA is not required. There can be no assurance,
however, that FDA would agree with the Company's determinations.
In addition, commercial distribution in certain foreign countries is
subject to additional regulatory requirements and receipt of approvals that vary
widely from country to country. The Company believes it is in compliance with
regulatory requirements of the countries in which it sells its products.
The Company's medical device manufacturing facilities are registered with
the FDA, and recently received ISO 9001 Certification for the St. Louis facility
and certification per the Medical Device Directive (MDD - European) for certain
products. As such, the Company will be audited by FDA, ISO, and European
auditors for compliance with the GMP, ISO and MDD regulations for medical
devices. These regulations require the Company to manufacture its products and
maintain its products and documentation in a prescribed manner with respect to
design, manufacturing, testing and control activities. The Company also is
subject to the registration and inspection requirements of state regulatory
agencies.
The Medical Device Reporting regulation requires that the Company provide
information to FDA on deaths or serious injuries alleged to have been associated
with the use of its devices, as well as product malfunctions that would likely
cause or contribute to death or serious injury if the malfunction were to recur.
The Medical Device Tracking regulation requires the Company to adopt a method of
device tracking of certain devices, such as ventilators, which are
life-supporting or life-sustaining devices used outside of a device user
facility of which are permanently implantable devices. The regulation requires
that the method adopted by the Company ensures that the tracked device can be
traced from the device manufacturer to the person for whom the device is
indicated (i.e., the patient). In addition, FDA prohibits a company from
promoting an approved device for unapproved applications and reviews a company's
labeling for accuracy. Labeling and promotional activities also are in certain
instances, subject to scrutiny by the Federal Trade Commission.
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There can be no assurance that any required FDA or other governmental
approval will be granted, or, if granted, will not be withdrawn. Governmental
regulation may prevent or substantially delay the marketing of the Company's
proposed products and cause the Company to undertake costly procedures. In
addition, the extent of potentially adverse government regulation that might
arise from future administrative action or legislation cannot be predicted. Any
failure to obtain, or delay in obtaining, such approvals could adversely affect
the Company's ability to market its proposed products.
Sales of medical devices outside the United States are subject to foreign
regulatory requirements that vary widely from country to country. Medical
products shipped to the European Community require CE certification. Whether or
not FDA approval has been obtained, approval of a device by a comparable
regulatory authority of a foreign country generally must be obtained prior to
the commencement of Marketing in those countries. The time required to obtain
such approvals may be longer or shorter than that required for FDA approval. In
addition, FDA approval may be required under certain circumstances to export
certain medical devices.
The Company also is subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protections, fire hazard control and disposal of hazardous or
potentially hazardous substances.
THIRD PARTY REIMBURSEMENT
The cost of a majority of medical care in the United States is funded by
the U.S. Government through the Medicare and Medicaid programs and by private
insurance programs, such as corporate health insurance plans. Although the
Company does not receive payments for its products directly from these programs,
home respiratory care providers and durable medical equipment suppliers, who are
the primary customers for several of the Company's products, depend heavily on
payments from Medicare, Medicaid and private insurers as a major source of
revenues. In addition, sales of certain of the Company's products are affected
by the extent of hospital and health care facility construction and renovation
at any given time. The federal government indirectly funds a significant
percentage of such construction and renovations costs through Medicare and
Medicaid reimbursements. In recent years, governmentally imposed limits on
reimbursement of hospitals and other health care providers have impacted
spending for services, consumables and capital goods. In addition the Balanced
Budget Act was signed into law in 1997 which reduced reimbursements by 25% for
oxygen and oxygen equipment. An additional 5% reduction will take place in
1999. A material decrease from current reimbursement levels or a material
change in the method or basis of reimbursing health care providers is likely to
adversely affect future sales of the Company's products.
PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY
The Company owns and maintains patents on several products which it
believes are useful to the business and provide the Company with an advantage
over its competitors.
The Company owns and maintains U.S. trademark registrations for Chemetron,
Gomco, Oxequip, Lif-O-Gen, Life Support Products, Timeter, Vacutron and Schuco,
its principal trademarks. Registrations for these trademarks are also owned and
maintained in countries where such products are sold and such registrations are
considered necessary to preserve the Company's proprietary rights therein.
COMPETITION
The Company has different competitors within each of its product lines.
Many of the Company's principal competitors are larger than Allied and the
Company believes that most of these competitors have greater financial and other
resources than the Company. The Company competes primarily on the basis of
price, quality and service. The Company believes that it is well positioned
with respect to product cost, brand recognition, product reliability and
customer service to compete effectively in each of its markets
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<PAGE>
EMPLOYEES
At June 30, 1998, the Company has 603 full-time employees and 79 part-time
employees. Approximately 215 employees in the Company's principal manufacturing
facility located in St. Louis, Missouri, are covered by a collective bargaining
agreement which expires in May, 2000. An aggregate of approximately 146
employees at the Company's facilities in Oakland, California, Toledo, Ohio and
Stuyvesant Falls, New York are also covered by collective bargaining agreements
which will expire in 2001 for the Oakland and Stuyvesant Falls facilities and in
2000 for the Toledo facility. As indicated elsewhere in this Form 10-K,
Allied's facility in Toledo will be shut down and the operations consolidated
into St. Louis during the second quarter of fiscal 1999.
ENVIRONMENTAL AND SAFETY REGULATION
The Company is subject to federal, state and local environmental laws and
regulations that impose limitations on the discharge of pollutants into the
environment and establish standards for the treatment, storage and disposal of
toxic and hazardous wastes. The Company is also subject to the federal
Occupational Safety and Health Act and similar state statutes. From time to
time the Company has been involved in environmental proceedings involving
clean-up of hazardous waste. There are no such material proceedings currently
pending. Costs of compliance with environmental, health and safety requirements
have not been material to the Company. The Company believes it is in material
compliance with all applicable environmental laws and regulations.
ITEM 2. PROPERTIES
The Company's headquarters are located in St. Louis, Missouri and the
Company maintains manufacturing facilities in Missouri, California, Ohio and New
York. Set forth below is certain information with respect to the Company's
manufacturing facilities.
<TABLE>
<CAPTION>
SQUARE FOOTAGE OWNED/
LOCATION (APPROXIMATE) LEASED ACTIVITIES/PRODUCTS
- - -------------------------- --------------- ------ -------------------------
<S> <C> <C> <C>
St. Louis, Missouri 270,000 Owned Headquarters; medical gas
equipment; respiratory
therapy equipment;
emergency medical products
Toledo, Ohio 56,700 Owned Home healthcare products
Stuyvesant Falls, New York 30,000 Owned CO2 absorbent
Oakland, California 12,500 Leased Headwalls
</TABLE>
In the event of the expiration, cancellation or termination of a lease
relating to Company's leased property, the Company anticipates no significant
difficulty in connection with leasing alternate space at reasonable rates. The
Company leases a facility in Mt. Vernon, Ohio, which is currently unused as its
operations were consolidated into the Toledo facility as a part of its plant
consolidation strategy for its disposable products operations. In addition, the
Company also owns an additional 16.8 acre parcel of undeveloped land in
Stuyvesant Falls, New York. As indicated elsewhere in this Form 10-K, the
Company's facility in Toledo will be shut down and the operations consolidated
into St. Louis during the second quarter of fiscal 1999.
10
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Product liability lawsuits are filed against the Company from time to time
for various injuries alleged to have resulted from defects in the manufacture
and/or design of the Company's products. Several such proceedings are currently
pending, which are not expected to have a material adverse effect on the
Company. The Company maintains comprehensive general liability insurance
coverage which it believes to be adequate for the continued operation of its
business, including coverage of product liability claims.
In addition, from time to time the Company's products may be subject to
product recalls in order to correct design or manufacturing flaws in such
products. To date, no such recalls have been material to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Allied Healthcare Products, Inc. began trading on the NASDAQ National
market under the symbol AHPI on January 14, 1992, following its initial public
offering. As of September 18, 1998, there were 266 record owners of the
Company's Common Stock. The following tables summarize information with respect
to the high and low closing prices for the Company's Common Stock as listed on
the NASDAQ National market for each quarter of fiscal 1998 and 1997,
respectively. The Company currently does not pay any dividend on its Common
Stock.
<TABLE>
<CAPTION>
COMMON STOCK INFORMATION
1998 HIGH LOW 1997 HIGH LOW
- - ----------------- ------ ------- ----------------- ------- ------
<S> <C> <C> <C> <C> <C>
September quarter $7-7/8 $ 6-3/8 September quarter $10-1/4 $6-1/4
December quarter 8-1/2 7-1/4 December quarter 7-3/4 6-3/8
March quarter 8 6-7/16 March quarter 9-1/4 7
June quarter 6-1/2 4-1/4 June quarter 7-1/8 5-3/8
</TABLE>
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In thousands, except per share data)
Year ended June 30, 1998 1997 1996 1995 1994
- - ------------------------------------------------ --------- --------- -------- --------- -------
STATEMENT OF OPERATIONS DATA
<S> <C> <C> <C> <C> <C>
Net sales $ 96,467 $118,118 $120,123 $111,639 $74,129
Cost of sales 69,110 82,365 80,550 68,430 44,172
Gross profit 27,357 35,753 39,573 43,209 29,957
Selling, general and administrative expenses 23,889 33,910 31,449 24,849 16,824
Gain on sale of business (1) (12,813) -- -- -- --
Non-recurring impairment losses (2) 9,778 -- -- -- --
Income from operations 6,503 1,843 8,124 18,360 13,133
Interest expense 4,152 7,606 4,474 3,704 1,338
Other, net 198 186 350 (21) 1
Income (loss) before provision (benefit) for
income taxes and extraordinary loss 2,153 (5,949) 3,300 14,677 11,794
Provision (benefit) for income taxes (3) 9,019 (1,428) 1,473 5,854 4,539
Income (loss) before extraordinary loss (6,866) (4,521) 1,827 8,823 7,255
Extraordinary loss on early extinguishment of
debt, net of income tax benefit 530 -- -- -- --
Net income (loss) $ (7,396) $ (4,521) $ 1,827 $ 8,823 $ 7,255
Basic and diluted earnings (loss) per share (4) $ (0.95) $ (0.58) $ 0.25 $ 1.45 $ 1.31
Weighted average common shares outstanding 7,805 7,797 7,378 6,067 5,522
(In thousands)
June 30, 1998 1997 1996 1995 1994
- - ------------------------------------------------ --------- --------- -------- --------- -------
BALANCE SHEET DATA
Working capital $ 21,308 $ 18,743 $ 38,030 $ 2,810 $ 5,018
Total assets 80,180 126,343 136,760 126,192 64,593
Short-term debt 3,443 12,891 3,849 34,420 13,108
Long-term debt (net of current portion) 14,972 34,041 49,033 34,602 16,513
Stockholders' equity 52,037 59,365 63,886 38,374 20,034
<FN>
(1) See Note 3 to the June 30, 1998 Consolidated Financial Statements for further discussion.
(2) See Note 4 to the June 30, 1998 Consolidated Financial Statements for further discussion.
(3) See Note 7 to the June 30, 1998 Consolidated Financial Statements for further discussion of the
Company's 1998 effective tax rate.
(4) See Note 2 to the June 30, 1998 Consolidated Financial Statements for adoption of FAS 128.
</TABLE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion summarizes the significant factors affecting the
consolidated operating results and financial condition of the Company for the
three fiscal years ended June 30, 1998. This discussion should be read in
conjunction with the consolidated financial statements, notes to the
consolidated financial statements and selected consolidated financial data
included elsewhere herein.
12
<PAGE>
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 effect of currency
devaluations and recessionary conditions in certain Asian markets, the effects
of federal and state legislation on health care reform, including Medicare and
Medicaid financing, the inability to realize the full benefit of recent capital
expenditures or consolidation and rationalization activities, difficulties or
delays in the introduction of new products or disruptions in selling,
manufacturing and/or shipping efforts.
The results of operations for fiscal 1998 were affected by several one
time, non-recurring items, which are discussed further below. On October 31,
1997, the Company sold the assets of its ventilation products division for a
gain. The proceeds from this sale were used to significantly pay down debt and
to provide additional liquidity. The Company also recorded several
non-recurring items and other charges to operations in the second quarter of
fiscal 1998. Such non-recurring items reflect changes in business conditions
resulting from the sale of the ventilation products division and other changes
in market conditions. In addition, reserves for inventories and bad debts were
increased throughout the fiscal year. As a result, the Company has strengthened
its balance sheet by reducing debt, reducing intangible assets, and increasing
reserves. Subsequent to June 30, 1998, the Company has further refinanced its
debt and announced the relocation of its Toledo operation to St. Louis.
The review of and comparability of year to year operating results is
complicated by the sale of the ventilation products division on October 31,
1997. The fiscal 1998 results include ventilation products division operations
for four months in the year ended June 30, 1998, while the fiscal 1997 results
include ventilation products division operations for the full year ended June
30, 1997.
The specific transactions and events impacting 1998 operating results,
which make meaningful comparisons to prior years more difficult, are summarized
below:
SALE OF VENTILATION PRODUCTS DIVISION
On October 31, 1997, the Company sold the assets of Bear Medical Systems,
Inc. ("Bear") and its subsidiary BiCore Monitoring Systems, Inc. ("BiCore"),
collectively referred to as the ventilation products division, to ThermoElectron
Corporation for $36.6 million plus the assumption of certain liabilities. The
net proceeds of $29.5 million, after expenses including federal and state taxes,
were utilized to repay a significant portion of the Company's term notes and to
repay all of its subordinated debt, $15.8 million of which had a coupon rate of
14.0% per annum.
The sale of these assets resulted in a gain before taxes for financial
reporting purposes of $12.8 million, which was recorded in the Company's results
of operations in the second quarter of fiscal 1998. The gain on sale of the
ventilation products division, as a discrete item, resulted in a tax provision
of $9.3 million. The relatively higher effective tax rate on this transaction
reflected the fact that approximately $12.7 million of goodwill associated with
these businesses is not deductible for income tax purposes. The net income
effect of the gain on sale was approximately $3.5 million, or $0.45 per share.
DEBT REDUCTION/REFINANCING
In August 1997, the Company refinanced its existing debt through a $46
million credit facility with Foothill Capital Corporation. In conjunction with
these new credit facilities, Allied placed an additional $5.0 million in
subordinated debt with several related parties to the Company. The Foothill
Credit facility, which was amended in November 1997 to reflect the effects of
the sale of the ventilation products division, has allowed the Company to
improve its liquidity and reduce interest expense in comparison to prior years.
See the following "Financial Condition, Liquidity and Capital Resources" section
for further detail discussion of the Company's debt situation. See the
following "Subsequent Events" section for discussion of further post-June 30,
1998 debt refinancing matters.
During fiscal 1998, the Company reduced its aggregate indebtedness from
$46.9 million at June 30, 1997 to $18.4 million at June 30, 1998. As noted, a
substantial portion of this reduction related to the application of proceeds
from the sale of the ventilation products division on October 31, 1997.
13
<PAGE>
Specifically, on November 3, 1997, the Company repaid two term notes totaling
$10.8 million, which had a coupon rate of 14.0% per annum, and significantly
reduced the outstanding balance of its revolving line of credit, and on November
4, 1997 repaid $5.0 million of 14.0% subordinated debt.
NON-RECURRING CHARGES
During the second quarter of fiscal 1998, the Company reevaluated the
carrying value of its various businesses and recorded $9.8 million of
non-recurring charges to reflect the changes in business conditions resulting
from the sale of the ventilation products division and due to other changes in
market conditions discussed below, which culminated during the second quarter of
fiscal 1998. The elements comprising the $9.8 million of non-recurring charges,
which are included in the results of operations for the year ended June 30,
1998, are as follows:
Goodwill writedowns, which were determined pursuant to the Company's
impairment policy as described in Note 2 to the June 30, 1998 financial
statements, totaled $8.9 million for the four following businesses:
$4.4 million associated with the partial goodwill writedown related to the
B&F disposable products business. Continuing weakness in financial results of
the business due to various operational issues, market condition changes in the
home healthcare market including pressures on pricing due to reductions in
Medicare reimbursements and overall weakness in financial results of the
national home healthcare chains caused Allied to reevaluate and adjust the
carrying value of this business.
$2.4 million associated with the writedown of goodwill for Allied's
headwall business which continues to experience weak financial results due to
market conditions.
$1.6 million associated with the writedown of Omni-Tech Medical, Inc.
goodwill. This transportation ventilator business is directly related to the
divested ventilation products division and is not anticipated to contribute to
the ongoing operations of the Company.
$0.5 million associated with the writedown of goodwill for the Design
Principles Inc. backboard business. Increased costs have significantly eroded
the margins of this business necessitating a re-evaluation of the carrying value
of its goodwill.
In addition to the non-cash goodwill write-downs, other non-recurring items
include:
$0.5 million of consulting fees related to a cooperative purchasing study.
$0.4 million for the writedown of leasehold improvements and a reserve for
the remaining lease payments for B&F's Mt. Vernon, Ohio facility which was
closed as part of the Company's rationalization initiatives. The tenant
subletting this facility is operating under Chapter 11 reorganization
protection.
The combined tax impact of these non-recurring charges resulted in a
minimal $0.4 million tax benefit, due to the non-deductibility for tax purposes
of the $8.9 million of goodwill writedowns. The non-recurring charges, as a
discrete item, resulted in a net loss of approximately $9.4 million or $1.21 per
share.
As a result of the writedown of the carrying value of goodwill for certain
businesses described above, the Company expects to reduce its annual
amortization charges by $0.3 million or $0.04 per share.
14
<PAGE>
SUBSEQUENT EVENTS
On August 10, 1998, the Company announced its intention to close its
disposable products division in Toledo, Ohio, and relocate the B&F product line
of home care products to its St. Louis manufacturing facility. The Company
anticipates that the move will be completed in the second quarter of fiscal 1999
and that it will generate annual savings of nearly $1 million. In connection
with the shutdown of the facility, the Company will record a one-time, after tax
charge of approximately $0.6 million or $.08 cents per share during the first
quarter of fiscal 1999. A significant portion of the pre-tax costs of
approximately $1 million associated with the shutdown are expected to be paid
prior to January 1, 1999. The Company continues to evaluate its business with
an intent to streamline operations, improve productivity and reduce costs.
Accordingly, the Company may implement other strategic rationalization programs
in the future.
In August 1998, to further lower Allied's effective interest rate, the
Company obtained a $5.0 million mortgage loan on its St. Louis facility and used
the proceeds to pay down its obligations under the Foothill Credit facility.
That facility was also amended in September 1998 to eliminate the term loan
feature and reduce the interest rate on the remaining revolving credit facility.
See the following "Financial Condition, Liquidity, and Capital Resources"
section for further detail discussion.
FISCAL 1998 FOURTH QUARTER RESULTS OF OPERATIONS
During the fourth quarter of 1998, the Company continued to experience
reduced sales. Net sales for the three months ended June 30, 1998 were $19.5
million compared to sales of $30.1 million for the three months ended June 30,
1997. Of the $10.6 million decline in sales, $8.5 million of the decline was
attributable to sales associated with the disposal of the ventilation products
division, while the base business sales declined by $2.1 million or 10.1%. The
net loss for the fourth quarter of 1998 declined to $0.3 million or $0.04 per
share from $3.5 million or $0.45 per share in 1997. In 1997, a number of
factors adversely impacted fourth quarter results. A nineteen day work stoppage
at the Company's St. Louis, Missouri facility in June, 1997 resulted in a
permanent loss in sales, margin declines, and plant inefficiencies. Also, in the
fourth quarter of 1997, the Company increased certain reserves and recorded
other charges to operations which totaled $2.0 million. Included in these
charges were adjustments to the carrying value of certain of the Company's
inventories of $1.0 million, an increase to the allowance for doubtful accounts
of $0.6 million, $0.3 million for the settlement of a lawsuit related to a
pre-acquisition matter at one of the Company's acquired subsidiaries, and $0.1
million for a new product licensing agreement. Interest expense for the fourth
quarter of 1998 was reduced by $2.8 million compared to the fourth quarter of
1997 as a result of the August 1997 debt refinancing and the application of the
proceeds from the sale of the ventilation products division to reduce
outstanding debt. See also the following "Fiscal 1998 Compared to Fiscal 1997"
section for a discussion of various other internal and external factors
affecting operations.
Sales of respiratory care products for the fourth quarter were $6.6
million, a decrease of $8.7 million, compared to sales of $16.3 million in the
prior year period. $8.5 million of this decline was attributable to the sale of
the ventilation products division. Included herein are sales to the homecare
market which declined from $6.0 million during the fourth quarter of fiscal
1997 to $4.3 million during fourth quarter of fiscal 1998, or 28.3% due to
continuing pricing pressures and Company's unwillingness to take marginal
business for aluminum cylinders. Sales of respiratory therapy equipment to the
hospital market increased in the fourth quarter of fiscal 1998 compared to the
fourth quarter of 1997 by $0.5 million or 28.8%. This increase primarily
reflected the effects of lower sales in the fourth quarter of 1997 due to the
work stoppage in the St. Louis facility.
15
<PAGE>
Sales of medical gas equipment for the fourth quarter of fiscal 1998 of
$10.0 million were 8.2% under sales of $10.9 million in the prior year period.
Sales of medical gas suction and regulation devices decreased from $5.2 million
in the prior year to $5.0 million in the current fiscal year. Headwall sales,
the smallest segment of medical gas equipment, increased 48.2% over the prior
year sales on the strength of orders booked in prior periods. The largest
decrease in medical gas sales for the quarter related to the sales of medical
gas construction products. Medical gas construction sales in the fourth quarter
of fiscal 1998 of $3.4 million were $1.3 million or 27.1% lower than in the
prior year, primarily due to fewer large hospital construction projects. Sales
of emergency medical products were relatively unchanged from the prior year.
Gross profit for the fourth quarter of fiscal 1998 was $4.9 million, or
25.0% of sales, compared to $8.1 million or 26.8% of net sales in the fourth
quarter of fiscal 1997 due primarily to the divestiture of the higher margin
ventilation products division and continued pricing pressures. See also the
following "Fiscal 1998 compared to Fiscal 1997" section for further discussion.
Selling, General and Administrative ("SG&A") expenses were $4.9 million in
the fourth quarter of 1998, a decrease of $4.3 million from the fourth quarter
of 1997. SG&A decreased from 30.4% in the fourth quarter of fiscal 1997 to
25.2% of sales in the fourth quarter of fiscal 1998 primarily due to the sale of
the ventilation products division. The fourth quarter of 1998 also benefited
from various cost containment initiatives over the past year, including the
elimination of several sales management, sales and marketing, and other
administrative positions. The fiscal 1997 fourth quarter included an increase
to the allowance for doubtful accounts, a lawsuit settlement charge, and a new
product licensing fee which aggregated approximately $1.0 million.
The loss from operations for the fourth quarter of fiscal 1998 was less
than $0.1 million compared to $1.1 million in the prior year reflecting the
factors described above.
Interest expense for the fourth quarter of fiscal 1998 was $0.6 million, a
decrease of $2.8 million from the fourth quarter of fiscal 1997. In 1997, under
the Company's previous credit facility, interest expense included fees paid to
the commercial bank group to obtain waivers for covenant violations at March 31,
1997, fees paid for not obtaining a commitment to reduce the bank groups
indebtedness by $20.0 million by May 15, 1997, fees paid for professional
services related to credit negotiations and related audits and the amortization
of prepaid loan costs. On August 8, 1997, as previously discussed, the Company
refinanced its existing bank debt through a new credit facility with Foothill
Capital Corporation, and a $5.0 million subordinated debt arrangement. The new
financial agreements are discussed further below. In addition, interest expense
was significantly reduced due to the reduction in debt, caused by the sale of
the ventilation products division. At June 30, 1998, commercial debt is $18.4
million, a decrease of $28.5 million from the June 30, 1997 debt level of $46.9
million.
The Company incurred a loss before income taxes of $0.7 million in the
fourth quarter of fiscal 1998 compared to a loss of $4.5 million in the same
period for the prior year. The Company recorded a tax benefit of $0.3 million
in the fourth quarter of fiscal 1998 compared to a tax benefit of $1.0 million
in the fourth quarter of fiscal 1997. Results of operations in the fourth
quarter of fiscal 1998 were a net loss of $0.3 million, or $0.04 per share,
compared to a net loss of $3.5 million, or $0.45 per share, in the fourth
quarter of fiscal 1997.
16
<PAGE>
RESULTS OF OPERATIONS
Allied manufactures and markets respiratory products, including respiratory
care products, medical gas equipment and emergency medical products. Set forth
below is certain information with respect to amounts and percentages of net
sales attributable to respiratory care products, medical gas equipment and
emergency medical products for the fiscal years ended June 30, 1998, 1997 and
1996.
<TABLE>
<CAPTION>
1998
(Dollars in thousands) -----------------------
Year ended June 30, Net % of Total
Sales Net Sales
---------- -----------
<S> <C> <C>
Respiratory care products $ 40,105 41.6%
Medical gas equipment 45,033 46.7%
Emergency medical products 11,329 11.7%
---------- -----------
Total $ 96,467 100.0%
========== ===========
1997
(Dollars in thousands) -----------------------
Year ended June 30, Net % of Total
Sales Net Sales
---------- -----------
Respiratory care products $ 63,935 54.1%
Medical gas equipment 42,566 36.1%
Emergency medical products 11,617 9.8%
---------- -----------
Total $ 118,118 100.0%
========== ===========
1996
(Dollars in thousands) -----------------------
Year ended June 30, Net % of Total
Sales Net Sales
---------- -----------
Respiratory care products $ 63,889 53.2%
Medical gas equipment 43,084 35.9%
Emergency medical products 13,150 10.9%
---------- -----------
Total $ 120,123 100.0%
========== ===========
</TABLE>
The following table sets forth, for the fiscal periods indicated, the
percentage of net sales represented by certain items reflected in the Company's
consolidated statement of operations.
<TABLE>
<CAPTION>
Year ended June 30, 1998 1997 1996
- - ---------------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 71.6 69.7 67.1
------ ------ ------
Gross profit 28.4 30.3 32.9
Selling, general and administrative expenses 24.8 28.7 26.2
Gain on sale of business -13.3 -- --
Non-recurring impairment losses 10.2 -- --
------ ------ ------
Income from operations 6.7 1.6 6.7
Interest expense 4.3 6.4 3.7
Other, net 0.2 0.2 0.3
------ ------ ------
17
<PAGE>
Income (loss) before provision (benefit) for
income taxes and extraordinary loss 2.2 -5.0 2.7
Provision (benefit) for income taxes 9.3 -1.2 1.2
------ ------ ------
Income (loss) before extraordinary loss -7.1 -3.8 1.5
Extraordinary loss on early extinguishment of debt,
net of income tax benefit 0.6 -- --
------ ------ ------
Net income (loss) -7.7 -3.8 1.5
====== ====== ======
</TABLE>
FISCAL 1998 COMPARED TO FISCAL 1997
Net sales for fiscal 1998 of $96.5 million were $21.6 million, or 18.3%,
less than net sales of $118.1 million in fiscal 1997. $19.0 million of this
decline relates to sales associated with the disposal of the ventilation
products division and $2.6 million relates to a decline in sales of core
products. The decline in sales of core products reflected various internal and
external factors.
A large part of this decrease was caused by the Company's insistence for
better margins on sales of distributed products, such as aluminum cylinders. In
addition, sales force disruption caused by the ventilation products division
sale, a decrease in large hospital construction projects and inefficiencies at
the Company's Toledo facility negatively impacted revenues. This facility will
be closed during the second quarter of fiscal 1999.
Certain external issues first experienced in fiscal 1996 have continued to
impact the Company's operations, both in fiscal 1997 and fiscal 1998. The
emphasis of healthcare providers on cost containment has resulted in significant
consolidation in the healthcare environment and pricing pressures in recent
years. Homecare sales have been adversely affected by reductions in Medicare
reimbursements. Asian currency valuations, and economic uncertainty in other
areas, have decreased international orders. New orders, excluding the
ventilation products division, decreased from $92.6 million in fiscal 1997 to
$85.0 million in fiscal 1998, or 8.2%, for the reasons discussed above.
While the Company is unable to predict when these macro-economic issues
will be resolved, management believes that over a long-term horizon, Allied is
well positioned to capitalize on the need for its respiratory products and meet
the demands for these products caused by an aging population, an increase in the
occurrence of lung disease, advances in treatment of other respiratory illnesses
in the home, hospital, and sub-acute care facilities and upgrading of medical
treatment around the world.
Medical gas equipment sales of $45.0 million in fiscal 1998 were $2.4
million, or 5.8%, over prior year sales of $42.6 million. Medical gas system
construction sales, headwall sales, and medical gas suction and regulation
device sales experienced increases of 0.7%, 48.0% and 2.2%, respectively, in
fiscal 1998 compared to fiscal 1997. The increase in sales of these products in
fiscal 1998 primarily related to shipment of orders from backlog which had
accumulated prior to June 30, 1997.
Respiratory care products sales in fiscal 1998 of $40.1 million were $23.8
million, or 37.2%, under sales of $63.9 million in the prior year. Of the
decline, $19.0 million was attributable to the disposal of the ventilation
products division and $4.8 million relates to the Company's remaining product
lines. Sales to the home healthcare market declined by 20.7%, primarily in
distributed products as discussed above. In addition, pricing pressures caused
by the consolidation of home healthcare dealers and continued concern over
potential reductions in Medicare and Medicaid reimbursement rates continued to
impact sales of home healthcare products. The Company has continued to
experience capacity constraints at the Toledo, Ohio facility, and as previously
noted, has announced plans to move its production to the St. Louis, Missouri
facility in the second quarter of fiscal 1999. This is expected to reduce
manufacturing costs while improving available capacity, and customer service.
18
<PAGE>
Emergency medical products sales in fiscal 1998 of $11.3 million were $0.3
million, or 2.5%, less than fiscal 1997 sales of $11.6 million. Business in
this market is driven by both replacement business, and the occurrence of
natural disasters. Management expects sales for the near future to primarily
reflect demand driven by the replacement segment of the business. Orders for
emergency medical products in fiscal 1998 of $12.6 million were $0.6 million or
5.5% above orders of $12.0 million in the prior year.
International sales, which are included in the product lines discussed
above decreased $10.5 million, or 30.4%, to $24.0 million in fiscal 1998
compared to sales of $34.5 million in fiscal 1997. International sales
declined $11.3 million due to the sale of the ventilation products division
while international sales of the remaining business increased by $0.8 million.
The Company continues to emphasize the importance of worldwide markets.
Advances in medical protocol in various countries throughout the world combined
with the Company's strong international dealer network have enabled the Company
to respond to increased worldwide demand for medical products. International
sales are affected by international economic conditions and the relative value
of currencies. In 1998 the continued devaluation of Asian currency has reduced
international orders.
Gross profit in fiscal 1998 was $27.4 million, or 28.4% of net sales,
compared to a gross profit of $35.8 million, or 30.3% of net sales in fiscal
1997. The sale of the high margin ventilation products division adversely
impacted gross profit and the gross margin in fiscal 1998 since these products
were part of the Company's business for only four months of fiscal 1998 compared
to the full twelve months in fiscal 1997. Continued pricing pressures brought
on by the consolidations and cost containment initiatives of healthcare
providers and the Company's planned reductions in inventories, which resulted in
reduced manufacturing throughput and lower absorption of plant overhead, further
served to reduce margins as a percent to net sales. Finally, the Company
increased inventory reserves by over $1.0 million in fiscal 1998. In the fourth
quarter of fiscal 1997, the Company recorded certain adjustments, approximating
$1 million, to the carrying value of its inventories.
The Company anticipates continued pressures on margins due to the mix of
domestic versus international sales and anticipates continued pricing pressures
from its customer base.
Selling, General and Administrative ("SG&A") expenses for fiscal 1998 were
$23.9 million, a decrease of $10.0 million over SG&A expenses of $33.9 million
in fiscal 1997. Fiscal 1998 SG&A expenses were lower than the prior year due to
several non-recurring fiscal 1997 expenditures. In fiscal 1997, the Company
made strategic investments in certain SG&A activities and recorded certain
non-recurring SG&A expenses. SG&A spending included investments in advertising
and marketing literature, investments in information technology, and continued
investments in research and development. In addition, the Company completed the
recruiting, training and consolidation of its respiratory products salesforce
and incurred duplicate costs for sales efforts to the Durable Medical Equipment
Dealers (DME) in the home health care market during the transition period of
shifting to telemarketing from field sales representatives. As a percentage of
net sales, fiscal 1998 SG&A expenses were 24.8% compared to 28.7% in fiscal
1997. This decrease was attributable to lower SG&A expenses in fiscal 1998, as
discussed above.
As discussed previously in the preceding Overview section, financial
results for fiscal 1998 were impacted by certain one-time, nonrecurring
transactions and events which make meaningful comparisons to prior years more
difficult. These specific transactions and events include the following items.
19
<PAGE>
On October 31, 1997 the Company sold the assets of Bear Medical Systems,
Inc. ("Bear") and its subsidiary BiCore Monitoring Systems, Inc. ("BiCore") to
ThermoElectron Corporation for $36.6 million plus the assumption of certain
liabilities. The sale of these assets resulted in a gain before taxes for
financial reporting purposes of $12.8 million and a tax provision of $9.3
million, due to non-deductibility of approximately $12.7 million goodwill
associated with these businesses. The net income effect on the gain on sale of
business was approximately $3.5 million or $0.45 per share.
During the second quarter of fiscal 1998, the Company reevaluated the
carrying value of its various businesses and recorded $9.8 million of
non-recurring charges to reflect the changes in business conditions resulting
from the sale of the ventilation products division and due to other changes in
market conditions, which culminated during the second quarter of fiscal 1998.
The elements comprising the $9.8 million of non-recurring charges consist of
goodwill write-downs and other non-recurring items. See the preceding Overview
section for further discussion. These non-recurring charges resulted in a
minimal $0.4 million tax benefit, due to the non-deductibility for tax purposes
of the $8.9 million of goodwill write-downs. The non-recurring charges, as a
discrete item, resulted in a net loss of approximately $9.4 million or $1.21 per
share.
Income from operations in fiscal 1998 of $6.5 million was $4.7 million, or
261%, above fiscal 1997 income from operations of $1.8 million. As a percentage
of net sales, income from operations increased to 6.7% from 1.6% in fiscal 1997,
due to the factors discussed above.
Interest expense decreased $3.5 million or 44.6%, to $4.2 million in fiscal
1998 from $7.6 million in fiscal 1997. In 1997, interest expense included fees
paid to the Company's previous commercial bank group to obtain waivers for
covenant violations, fees paid for not obtaining a commitment to reduce the bank
groups indebtedness by $20.0 million by May 15, 1997, fees paid for professional
services related to credit negotiations and related audits, and the amortization
of prepaid loan costs. On August 8, 1997, as previously discussed, the Company
refinanced its existing bank debt through a new credit facility with Foothill
Capital Corporation, and $5.0 million subordinated debt arrangement. The new
financial agreements are discussed further below. The Company did not incur
fees similar to the prior year in fiscal 1998. In addition, interest expense
was significantly reduced due to the reduction in debt, which primarily
reflected application of the proceeds from the sale of the ventilation products
division. At June 30, 1998, commercial debt is $18.4 million, a decrease of
$28.5 million from the June 30, 1997 debt level of $46.9 million.
The Company had income before taxes of $2.2 million, compared to a loss
before taxes of $5.9 million in fiscal 1997. The Company recorded a provision
for income taxes of $9.0 million for fiscal 1998 for an effective tax rate of
418.9%, compared to a tax benefit of $1.4 million in fiscal 1997 and an
effective rate of 24.0%. As previously discussed, the gain on the sale of the
ventilation products division resulted in a tax provision of $9.3 million. In
addition, the non-recurring charge of $9.8 million was principally goodwill, and
therefore non-deductible for income tax purposes.
Net loss in fiscal 1998 was $7.4 million, or $0.95 per diluted share, an
increase of $2.9 million from net loss of $4.5 million or $0.58 per diluted
share in fiscal 1997. Net loss in fiscal 1998 included a $0.5 million
extraordinary loss on early extinguishment of debt.
Exclusive of the extraordinary items discussed above, the net loss for
fiscal 1998 would have been $2.5 million or $0.32 per diluted share. Earnings
per share amounts are diluted earnings per share, which are substantially the
same as basic earnings per share. The weighted number of shares used in the
calculation of the diluted per share loss was 7,805,021 in fiscal 1998 compared
to 7,796,682 in fiscal 1997.
20
<PAGE>
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales for fiscal 1997 of $118.1 million were $2.0 million, or 1.7%,
less than net sales of $120.1 million in fiscal 1996. Certain internal and
external factors impacted the Company's sales during fiscal 1997. Included in
the internal operating issues which impacted the Company were the nineteen day
work stoppage in the St. Louis, Missouri facility in June 1997, disruptions to
manufacturing, scheduling and shipping created by the computer conversion in
October 1996, also in the St. Louis facility, capacity constraints at the
Toledo, Ohio facility and changes in the field sales force. The work stoppage
resulted in permanently lost sales, margin declines, and manufacturing
disruptions during the work stoppage as well as during the pre- and post-work
stoppage periods. In October 1996, the Company converted its St. Louis
manufacturing and corporate office operations to a new, fully-integrated
software system. The Toledo facility has been capacity constrained by outdated
injection molding machinery and molds. During fiscal 1997 the Company installed
six new injection mold machines and eleven molds, and the Company added to its
direct assembly force in Toledo. In addition, the Company consolidated its
respiratory field salesforce with its ventilation sales force and invested in
their joint training. These initiatives created short term sales disruptions in
addition to the Company's occurrence of recruiting, training and marketing costs
in fiscal 1997.
Certain external issues first experienced in fiscal 1996 continued to
impact the Company's fiscal 1997 operations. These matters were described in
the preceding section "Fiscal 1998 Compared to Fiscal 1997."
Medical gas equipment sales of $42.6 million in fiscal 1997 were $0.5
million, or 1.2% , under prior year sales of $43.1 million. Medical gas
equipment sales in fiscal 1997 were adversely impacted by the previously noted
June 1997 work stoppage and the effects of the computer conversion. However,
strong market demand for medical gas equipment generated new orders for fiscal
1997 of $45.8 million, which was $4.4 million, or 10.6% over new orders in the
prior fiscal year.
Respiratory care products sales in fiscal 1997 of $63.9 million were
unchanged from the prior year. Sales to the hospital market increased 11.1% as
sales of ventilation products increased due to the strong world-wide acceptance
of the Company's ventilators. Offsetting this increase in ventilation product
sales was an 11.5% decline in sales of home health care products due to
manufacturing constraints in the Company's Toledo, Ohio facility, combined with
pricing pressures caused by the ongoing consolidation of home health care
dealers.
Emergency medical products sales in fiscal 1997 of $11.6 million were $1.5
million, or 11.7%, under sales of $13.1 million in the prior year. This sales
decline was attributable to difficulties the Company had in the relocation of
production of emergency products to the St. Louis, Missouri facility, the impact
of the June 1997 work stoppage and the absence of a large stocking order that
occurred in the prior year. The emergency medical products business has two
elements. One is steady replacement sales and the other element is driven by
events, such as a natural disaster or change in emergency protocol in a
particular country. Management expects sales for the near future to primarily
reflect demand driven by the replacement segment of the business.
The Company continued to increase its presence in worldwide markets during
fiscal 1997. International sales, which are included in the product line sales
discussed above, increased $3.7 million, or 11.9%, to $34.5 million in fiscal
1997 compared to sales of $30.8 million in fiscal 1996. Advances in medical
protocol in various countries throughout the world combined with the Company's
strong international dealer network has enabled the Company to respond to the
increased worldwide demand for respiratory products. In addition, the strong
worldwide market acceptance of the Company's ventilators has fueled the growth
of international sales. Note that the ventilation products division was sold on
October 31, 1997.
21
<PAGE>
Gross profit in fiscal 1997 was $35.8 million, or 30.3% of net sales,
compared to gross profit of $39.6 million, or 32.9% of net sales in fiscal 1996.
The impact of the nineteen day work stoppage and the computer conversion in the
St. Louis, Missouri facility during fiscal 1997 reduced manufacturing output and
margins. In addition, the increase in international sales, which have lower
margins than domestic sales due to the large quantity, bid-based nature of these
sales, combined with pricing pressures brought on by consolidations which
occurred in the Company's customer base, particularly in the hospital and home
health care markets, resulted in reduced margins. In fiscal 1997, as previously
described, the Company recorded certain adjustments to the carrying value of its
inventories in the fourth quarter of approximately $1.0 million. In fiscal
1996, the Company charged a portion of fixed plant costs as period costs due to
a decline in manufacturing throughput. This fiscal 1996 charge primarily
related to the fourth quarter.
Selling, General and Administrative ("SG&A") expenses for fiscal 1997 were
$33.9 million, an increase of $2.5 million over SG&A expenses of $31.4 million
in fiscal 1996. The Company made strategic investments in certain SG&A
activities and recorded certain non-recurring SG&A expenses in fiscal 1997.
SG&A spending included investments in advertising and marketing literature,
investments in information technology, and continued investments in research and
development. In addition, the Company completed the recruiting, training and
consolidation of its respiratory products sales force. Fiscal 1996 SG&A
expenses were affected by a research grant of $0.3 million which did not repeat
in fiscal 1997. SG&A expenses represent 28.7% of sales in fiscal 1997, versus
26.2% in fiscal 1996. The year over year increase was attributable to higher
SG&A expenses in fiscal 1997, as discussed above, combined with lower sales
during the year.
Income from operations in fiscal 1997 of $1.8 million was $6.3 million, or
77.3%, below fiscal 1996 income from operations of $8.1 million. As a
percentage of net sales, income from operations decreased to 1.6% in fiscal 1997
from 6.7% in fiscal 1996.
Interest expense increased $3.1 million, or 70.0%, to $7.6 million in
fiscal 1997 from $4.5 million in fiscal 1996. This increase in interest expense
in fiscal 1997 consisted of approximately $2.2 million of fees and other
professional costs incurred in connection with debt amendments under its credit
facilities, $0.5 million related to increased amortization of prepaid loan
costs, $0.3 million related to increased interest costs for the capital
expenditure projects previously discussed, and $0.1 million, reflecting
increases in effective interest rates which were partially offset by lower
average debt levels. On August 8, 1997, as previously discussed, subsequent to
fiscal year end, the Company entered into a $46.0 million credit facility with
Foothill Capital Corporation and obtained $5.0 million in subordinated debt in a
private placement arrangement.
The Company had a loss before income taxes of $5.9 million, a decrease of
$9.2 million from the income before provision for taxes of $3.3 million in
fiscal 1996. The Company recorded a tax benefit of $1.4 million in fiscal 1997
for an effective tax rate of 24.0%, compared to a provision for income taxes of
$1.4 million in fiscal 1996 and an effective tax rate of 44.6%. The fiscal 1997
effective tax rate was impacted by the loss from operations, the
non-deductibility of certain goodwill amortization, and the expected lack of
availability of the Company's foreign sales tax credit in fiscal 1997.
Net loss in fiscal 1997 was $4.5 million, or $0.58 per diluted share, a
decrease of $6.3 million from net income of $1.8 million or earnings per diluted
share of $0.25 in fiscal 1996. The weighted average number of common shares
outstanding used in calculation of per share loss or earnings was 7,796,682 in
fiscal 1997 compared to 7,378,478 in fiscal 1996. The increase in the weighted
average number of common shares reflected the effects of the October 1995 sale
of 1,610,000 shares of common stock in a public offering.
22
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Dollars in thousands 1998 1997 1996
- - ---------------------- ------- ------- -------
<S> <C> <C> <C>
Cash $ 1,195 $ 988 $ 1,489
Working Capital $21,308 $18,743 $38,030
Total Debt $18,415 $46,932 $52,882
Current Ratio 2.67:1 1.57:1 2.69:1
</TABLE>
The Company's working capital was $21.3 million at June 30, 1998 compared
to $18.7 million at June 30,1997. Inventories, other current assets, and
accounts payable all decreased as a result of the previously discussed sale of
the ventilation products division. Proceeds from such sale were utilized to
significantly reduce debt during the second quarter of fiscal 1998. Accounts
receivable declined to $14.2 million at June 30, 1998, down $8.9 million from
$23.1 million at June 30, 1997. Of this decrease, $7.2 million is attributable
to the ventilation business while receivables attributable to the Company's core
business declined $1.7 million. Accounts receivable as measured in days sales
outstanding ("DSO") decreased to 69 DSO from 71 DSO in this period. Inventories
declined to $18.3 million at June 30, 1998, or $7.7 million, from $26.0 million
at June 30, 1997. Of this decline, $3.0 million is related to the core
business. The Company has focused on improving the mix of inventories and has
been increasing stocking levels of high volume products while simultaneously
reducing the stocking levels of low volume products. Inventories, as measured
in days on hand ("DOH"), increased to 129 DOH at June 30, 1998 from 124 DOH at
June 30, 1997, due to lower sales in the fourth quarter of fiscal year 1998.
Accounts payable decreased to $5.8 million at June 30, 1998, down $8.2 million
from June 30, 1997 balance of $14.0 million. Of this decline, $1.2 million of
payables related to the ventilation products division. The Company experienced
limited liquidity during fiscal 1997 due to a reduction in borrowing
availability caused by principal payments made on its term loans combined with
the high level of fees paid to the Company's previous commercial bank group.
Consequently, payments to vendors and other obligations were extended. This
situation was alleviated with the completion of debt refinancing on August 8,
1997. The Company is current on all its obligations. The current portion of
long term debt at June 30, 1998 was $3.4 million compared to $12.9 million at
June 30, 1997. The June 30, 1997 current portion of long term debt included
$4.0 million of term notes and $5.0 million of subordinated debt which were due
to mature on February 1, 1998, but were repaid on November 3, 1997 and November
4, 1997, respectively, with proceeds from the sale of the ventilation products
division.
The net increase/(decrease) in cash for the fiscal years ended June 30,
1998, June 30, 1997, and June 30, 1996 was $0.2 million, $(0.5) million, and
$1.3 million respectively. Net cash provided by (used by) operations was $(5.2)
million, $8.9 million, and $2.5 million for the same periods. Cash used by
operations for the fiscal year ended June 30, 1998 consisted of a net loss of
$7.4 million, which was offset by $4.9 million in non-cash charges to operations
for amortization and depreciation, a non-cash loss on refinancing charges of
$0.9 million and changes in working capital and deferred tax accounts of $9.2
million. The Company reported a $12.8 million gain on sale of the ventilation
products division and also recorded non-recurring impairment charges, for which
the non-cash portion is $9.5 million, in the fiscal year ended June 30, 1998.
The Company received pre-tax proceeds of $35.4 million on the sale of the
ventilation products division, reduced total debt by a net $28.5 million, and
made capital expenditures of $0.6 million in the fiscal year ended June 30,
1998. Cash provided by operations for the comparable prior year period
consisted of a net loss of $4.5 million which was offset by the non-cash charges
of $5.6 million for depreciation and amortization, as well as cash generated by
changes in working capital accounts and deferred tax accounts, of $7.8 million.
The cash provided by operations for the fiscal year ended June 30, 1997 was used
for net debt reduction of $8.1 million, dividends of $0.5 million and debt
issuance cost of $0.7 million. The adverse results of operations during the
latter half of fiscal 1996 and during fiscal 1997 impacted the Company's
liquidity and the ability of the Company to continue historical levels of fixed
payments. Accordingly, on August 21, 1996 the Company's Board of Directors
voted to suspend quarterly dividends effective immediately subsequent to the
payment of dividends for the fourth quarter of fiscal 1996. In addition, to
improve the liquidity of the Company and to reduce interest expense, on August
8, 1997, the Company refinanced its existing debt.
23
<PAGE>
At June 30, 1998 the Company had aggregate indebtedness of $18.4 million,
including $3.4 million of short-term debt and $15.0 million of long-term debt.
At June 30, 1997, the Company had aggregate indebtedness of $46.9 million,
including $12.9 million of short-term debt and $34.0 million of long-term debt.
Throughout fiscal 1996, the Company entered into a series of amendments and
waiver negotiations with its previous bank syndicate. During fiscal 1997, the
Company paid waiver fees totaling approximately $2.2 million for the September
1996 amendment to its credit facilities, to obtain waivers for technical
covenant violations at December 31, 1996 and March 31, 1997 and paid additional
fees of $0.4 million in the first quarter of fiscal 1998. The Company was
unsuccessful in its attempts to negotiate a long-term agreement with its
previous bank syndicate. Accordingly, on August 8, 1997 the Company refinanced
its existing debt through a new $46.0 million credit facility with Foothill
Capital Corporation. The new credit facility, with a blended average interest
rate of 10.2%, was comprised of a $25.0 million three-year revolving line of
credit, three-year term loans of $10.0 million and $7.0 million, respectively,
and a $4.0 million term loan maturing in February 1998. In conjunction with its
new credit facilities, Allied placed an additional $5.0 million in subordinated
debt, with several related parties to the Company maturing in February 1998. In
addition, the Company issued 112,500 warrants at an exercise price of $7.025 per
share, 62,500 of which were issued to subordinated debt holders with the balance
issued to Foothill Capital Corporation. Such warrants are exerciseable at the
option of the holder. The proceeds from the August 8, 1997 refinancing were
used to replace the Company's outstanding debt with the previous commercial bank
syndicate, and to provide additional liquidity. On October 31, 1997 the Company
completed the sale of its ventilation products division. On November 3, 1997
the Company repaid two term notes and a significant portion of its revolving
credit facility to Foothill. On November 4, 1997 the Company repaid its $5.0
million subordinated debt. Amendments to the Foothill credit facility were
completed in the fiscal 1998 third quarter to reflect the impact of the
significant reductions in the Company's outstanding debt and the sale of the
ventilation products division. Available borrowings at June 30, 1998 under the
Foothill credit facility were $6.5 million.
On August 7, 1998, the Company obtained a $5.0 million mortgage loan on its
principal facility in St. Louis, Missouri with LaSalle National Bank. Under
terms of this agreement the Company will make monthly principal and interest
payments, with a balloon payment in 2003. Proceeds of the loan were used to
reduce the obligation under the revolving credit agreement with Foothill Capital
Corporation. The mortgage loan carries a fixed rate of interest of 7.75%,
compared to a current rate of 9.0% under the revolving credit agreement.
On September 8, 1998, the Company's credit facilities with Foothill Capital
Corporation were amended. The Company's existing term loan was eliminated and
replaced with an amended revolving credit facility. As amended, the revolving
credit facility remained at $25.0 million. The interest rate on the facility
has been reduced from the floating reference rate (8.5% at September 8, 1998)
plus 0.50% to the floating reference rate plus 0.25%. The reference rate as
defined in the credit agreement, is the variable rate of interest, per annum,
most recently announced by Norwest Bank Minnesota, National Association, or any
successor thereto, as its "base rate". This amendment also provides the Company
with a rate of LIBOR +2.5%. Amounts outstanding under this revolving credit
facility, which expires on August 8, 2000, totaled $9.5 million at September 8,
1998. At September 8, 1998, $4.5 million was available under the revolving
facility for additional borrowings.
The rates noted above will drop by 0.25% at the end of fiscal 1999 and 2000
if the Company is profitable. In addition, the fees charged to the Company are
also reduced.
In 1998, the Company limited its investment to tooling to improve
production efficiencies and produce higher quality products. The Company
concentrated efforts on maximizing utilization of the machines acquired in
fiscal 1997. These machines included $1.5 million for five computer controlled
machining centers and $1.1 million for six injection molding machines and eleven
molds acquired, in large part through capital leases.
Capital expenditures, net of capital leases, were $0.6 million, $0.1
million and $3.6 million in fiscal 1998, 1997 and 1996, respectively. The
Company completed two separate plant consolidations in fiscal 1996. The
Company's headwall construction manufacturing operation was consolidated into
its Hospital Systems, Inc. operations in Oakland, California, and its disposable
24
<PAGE>
medical products operation in Mt. Vernon, Ohio was closed and consolidated into
its Toledo, Ohio facility operation. In addition, the Company acquired $2.6
million of computer equipment and software under capital leases to improve
information technology systems. The Company believes that cash flow from
operations and available borrowings under its credit facilities will be
sufficient to finance fixed payments and planned capital expenditures of
approximately $2.6 million in fiscal 1999.
As of June 30, 1998, the Company had a backlog of $17.4 million compared to
a backlog of $23.9 million at June 30, 1997. The sale of the ventilation
products division reduced the Company's backlog by $3.7 million as compared to
June 30, 1997. The Company's backlog, a significant portion of which is
attributable to the Company's medical gas equipment products, consists of firm
customer purchase orders which may be subject to cancellation by the customer.
The Company's backlog increased in emergency medical products in the fiscal year
ended June 30, 1998. The increase was more than offset by a decline in backlog
for medical gas equipment products. Orders for medical gas construction
products are subject to major swings from year to year depending on hospital
construction. The Company booked more such orders in fiscal 1997 than in fiscal
1998.
Inflation has not had a material effect on the Company's business or
results of operations. The Company makes its foreign sales in dollars and,
accordingly, sales proceeds are not affected by exchange rate fluctuations,
although the effect on its customers does impact the pace of incoming orders.
SEASONALITY AND QUARTERLY RESULTS
In past fiscal years, the Company has experienced seasonal increases in net
sales during its second and third fiscal quarter (October 1 through March 31)
which, in turn, affected net income. Such seasonal variations were likely
attributable to an increase in hospital equipment purchases at the beginning of
each calendar year (which coincides with many hospitals' fiscal years) and an
increase in the severity of influenza during winter months. As the Company has
expanded its sales into the home health care, emergency medical and
international markets, these seasonal variations have diminished, but have not
disappeared.
The following table sets forth selected operating results for the eight
quarters ended June 30, 1998. The information for each of these quarters is
unaudited, but includes all normal recurring adjustments which the Company
considers necessary for a fair presentation thereof. These operating results,
however, are not necessarily indicative of results for any future period.
Further, operating results may fluctuate as a result of the timing of orders,
the Company's product and customer mix, the introduction of new products by the
Company and its competitors, and overall trends in the health care industry and
the economy. While these patterns have an impact on the Company's quarterly
operations, the Company is unable to predict the extent of this impact in any
particular period.
<TABLE>
<CAPTION>
(Dollars In thousands,
except per share data) June 30, March 31, Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
Three months ended 1998 1998 1997 1997 1997 1997 1996 1996
- - ------------------------------ ---------- ---------- ---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 19,476 $ 22,785 $ 24,033 $ 30,173 $ 30,129 $ 30,466 $ 28,389 $ 29,134
Gross profit 4,878 6,507 6,743 9,229 8,063 9,725 8,725 9,240
Income (loss) from operations (29) 1,100 3,455 1,977 (1,091) 1,582 491 862
Net income (loss) (315) 241 (6,684) (638) (3,485) (302) (557) (177)
Basic and diluted earnings (0.04) 0.03 (0.86) (0.08) (0.45) (0.04) (0.07) (0.02)
(loss) per share
</TABLE>
25
<PAGE>
ACCOUNTING PRONOUNCEMENTS
In June 1997 the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (FAS 131), which is effective for the Company in fiscal
1999. FAS 131 requires that companies report certain information if specific
requirements are met about the Company's operating segments including
information about services, geographic areas of operation, and major customers.
The Company is reviewing the applicability of FAS 131 on its future reporting
requirements.
YEAR 2000
The Company utilizes software and related computer technologies essential
to its operations. The Company has established a plan, utilizing internal
resources, to assess the potential impact of the year 2000 on the Company's
systems and operations and to implement solutions to address this issue. In
October 1996, the Company converted its corporate offices and its manufacturing
operation to a new fully-integrated software system. The Company plans to
install the most recent version of this software, which the vendor has certified
as year 2000 compliant, in June, 1999. The Company expects that all critical
systems will be year 2000 compliant by June 1999. The cost of upgrading to a
year 2000 compliant version of the existing system is not expected to be
significant. The Company is dependent on various third parties, to conduct its
business operations. The Company does not anticipate that the failure of
mission critical third parties to achieve year 2000 compliance would have a
material effect on the Company's operations. However, there can be no assurance
that the Company will not experience unanticipated costs and/or business
interruptions due to year 2000 problems in its internal systems, or that such
costs and/or interruptions will not have a material adverse effect on the
Company's consolidated results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Allied Healthcare Products, Inc.
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of changes in stockholders'
equity, and of cash flows present fairly, in all material respects, the
financial position of Allied Healthcare Products, Inc. and its subsidiaries at
June 30, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
St. Louis, Missouri
August 7, 1998, except for Note 14 which is
as of September 8, 1998
26
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
Year ended June 30, 1998 1997 1996
- - ---------------------------------------------------- ------------- ------------- ------------
<S> <C> <C> <C>
Net sales $ 96,466,860 $118,117,518 $120,122,502
------------- ------------- ------------
Cost of sales 69,110,274 82,364,405 80,549,685
Gross profit 27,356,586 35,753,113 39,572,817
Selling, general and administrative expenses 23,888,131 33,909,510 31,449,306
Gain on sale of business (12,812,927) -- --
Non-recurring impairment losses 9,778,259 -- --
------------- ------------- ------------
Income from operations 6,503,123 1,843,603 8,123,511
------------- ------------- ------------
Other expenses:
Interest expense 4,151,986 7,606,129 4,474,316
Other, net 198,329 186,291 349,445
------------- ------------- ------------
4,350,315 7,792,420 4,823,761
------------- ------------- ------------
Income (loss) before provision (benefit) for
income taxes and extraordinary loss 2,152,808 (5,948,817) 3,299,750
Provision (benefit) for income taxes 9,018,488 (1,427,716) 1,473,156
------------- ------------- ------------
Income (loss) before extraordinary loss (6,865,680) (4,521,101) 1,826,594
Extraordinary loss on early extinguishment of debt,
net of income tax benefit of $373,191 530,632 -- --
------------- ------------- ------------
Net income (loss) $ (7,396,312) $ (4,521,101) $ 1,826,594
============= ============= ============
Basic and diluted earnings (loss) per share:
Earnings (loss) before extraordinary loss $ (0.88) $ (0.58) $ 0.25
Extraordinary loss $ (0.07) -- --
------------- ------------- ------------
Earnings (loss) per share $ (0.95) $ (0.58) $ 0.25
============= ============= ============
<FN>
See accompanying Notes to Consolidated Financial Statements
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
June 30, 1998 1997
- - ------------------------------------------------------------ ------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,194,813 $ 988,436
Accounts receivable, net of allowance for doubtful
accounts of $1,035,833 and $1,225,326, respectively 14,227,314 23,093,037
Inventories 18,341,340 26,052,991
Other current assets 273,832 1,544,811
------------- -------------
Total current assets 34,037,299 51,679,275
------------- -------------
Property, plant and equipment, net 17,525,906 20,848,870
Goodwill, net 28,026,064 50,763,511
Deferred tax asset-noncurrent, net -- 1,665,069
Other assets, net 590,933 1,386,291
------------- -------------
Total assets $ 80,180,202 $126,343,016
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,807,349 $ 14,048,235
Current portion of long-term debt 3,442,797 12,890,772
Other accrued liabilities 3,479,215 5,997,670
------------- -------------
Total current liabilities 12,729,361 32,936,677
------------- -------------
Long-term debt 14,971,775 34,041,300
Deferred tax liability-noncurrent, net 441,589 --
Commitments and contingencies (Notes 5 and 12)
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; 7,806,682 and 7,796,682 shares issued and
outstanding at June 30, 1998 and 1997, respectively 101,102 101,002
Additional paid-in capital 47,014,621 46,945,971
Retained earnings 25,653,182 33,049,494
Common stock in treasury, at cost (20,731,428) (20,731,428)
------------- -------------
Total stockholders' equity 52,037,477 59,365,039
------------- -------------
Total liabilities and stockholders' equity $ 80,180,202 $126,343,016
============= =============
<FN>
See accompanying Notes to Consolidated Financial Statements
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Additional
Preferred Common paid-in Retained Treasury
stock stock capital earnings Stock
----------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1995 $ - $ 84,890 $21,206,090 $37,814,360 $(20,731,428)
Issuance of common stock -- 16,112 25,739,881 -- --
Dividends declared --
($.28 per common share) -- -- -- (2,070,359) --
Net income for the year ended -- -- -- --
June 30, 1996 -- -- -- 1,826,594 --
----------- -------- ----------- ------------ -------------
Balance, June 30, 1996 -- 101,002 46,945,971 37,570,595 (20,731,428)
Net loss for the year ended
June 30, 1997 -- -- -- (4,521,101) --
----------- -------- ----------- ------------ -------------
Balance, June 30, 1997 -- 101,002 46,945,971 33,049,494 (20,731,428)
Issuance of common stock -- 100 68,650 -- --
Net loss for the year ended
June 30, 1998 -- -- -- (7,396,312) --
----------- -------- ----------- ------------ -------------
Balance, June 30, 1998 $ - $101,102 $47,014,621 $25,653,182 $(20,731,428)
=========== ======== =========== ============ =============
<FN>
See accompanying Notes to Consolidated Financial Statements
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended June 30, 1998 1997 1996
- - --------------------------------------------------------------------- -------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (7,396,312) $ (4,521,101) $ 1,826,594
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities,
excluding the effects of acquisitions:
Depreciation and amortization 4,881,890 5,572,188 3,954,989
Gain on sale of Bear Medical (12,812,927) -- --
Loss on refinancing of long-term debt 903,823 -- --
Noncash portion of non-recurring impairment losses 9,496,452 -- --
Decrease in accounts receivable, net 2,887,344 2,871,621 1,702,297
Decrease (increase) in inventories 2,412,551 1,993,499 (4,156,653)
Decrease (increase) in income taxes receivable -- 2,285,224 (2,285,224)
Decrease in other current assets 696,056 1,168,686 2,276,486
Increase (decrease) in accounts payable (6,671,539) 943,936 3,191,348
Increase (decrease) in other accrued liabilities (1,688,283) 1,027,393 (4,325,109)
Increase (decrease) in deferred income taxes - noncurrent 2,106,658 (2,451,982) 315,892
-------------- ------------- -------------
Net cash provided by (used in) operating activities (5,184,287) 8,889,464 2,500,620
Cash flows from investing activities:
Capital expenditures, net (644,080) (58,610) (3,649,284)
Acquisition of Omni-Tech - Net of cash acquired -- -- (1,557,000)
Proceeds on sale of Bear Medical - Net of disposal costs 35,362,286 -- --
-------------- ------------- -------------
Net cash provided by (used in) investing activities 34,718,206 (58,610) (5,206,284)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 26,000,000 5,000,000 16,600,000
Payment of long-term debt (37,267,757) (4,662,785) (63,192,220)
Borrowings under revolving credit agreement 128,862,400 27,365,170 56,100,000
Payments under revolving credit agreement (146,033,153) (35,810,605) (28,100,000)
Proceeds from issuance of common stock 68,750 -- 25,755,993
Debt issuance costs (957,782) (677,563) (1,186,351)
Dividends paid on common stock -- (545,768) (1,957,577)
-------------- ------------- -------------
Net cash provided by (used in) financing activities (29,327,542) (9,331,551) 4,019,845
Net increase (decrease) in cash and equivalents 206,377 (500,697) 1,314,181
Cash and equivalents at beginning of period 988,436 1,489,133 174,952
-------------- ------------- -------------
Cash and equivalents at end of period $ 1,194,813 $ 988,436 $ 1,489,133
============== ============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 5,256,981 $ 6,614,365 $ 4,142,070
Income taxes $ 5,380,817 $ 138,339 $ 2,587,091
Supplemental schedule of noncash investing and financing activities:
Equipment acquired through capital leases -- $ 2,157,967 $ 2,452,565
<FN>
See accompanying Notes to Consolidated Financial Statements
</TABLE>
30
<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Allied Healthcare Products, Inc. (the Company or Allied) is a manufacturer
of respiratory products used in the health care industry in a wide range of
hospital and alternate site settings, including post-acute care facilities, home
health care and trauma care. The Company's product lines include respiratory
care products, medical gas equipment and emergency medical products. See Note
3 regarding sale of the Company's ventilation products division on October 31,
1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by Allied are described below.
The policies utilized by the Company in the preparation of the financial
statements conform to generally accepted accounting principles, and require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual amounts
could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions
and balances are eliminated.
REVENUE RECOGNITION
Revenue from the sale of the Company's products is recognized upon shipment
to the customer. Costs and related expenses to manufacture the Company's
products are recorded as cost of sales when the related revenue is recognized.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less when acquired
to be cash equivalents. Book cash overdrafts on the Company's disbursement
accounts totaling $2,012,427 and $3,867,477 at June 30, 1998 and 1997,
respectively, are included in accounts payable.
CONCENTRATIONS OF CREDIT RISK
At June 30, 1998 and 1997, the Company's trade receivables are comprised as
follows:
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
Medical equipment distributors 71% 74%
Construction contractors 25% 16%
Health care institutions 4% 10%
</TABLE>
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains reserves for
potential credit losses and historically such losses have been within
management's expectations. At June 30, 1998 the Company believes that it has no
significant concentration of credit risk.
31
<PAGE>
INVENTORIES
Inventories are stated at the lower of cost, determined using the last-in,
first-out (LIFO) method, or market. If the first-in, first-out (FIFO) method
(which approximates replacement cost) had been used in determining cost,
inventories would have been $2,066,220 and $511,626 higher at June 30, 1998 and
1997, respectively. Inventories include the cost of materials, direct labor and
manufacturing overhead.
Inventory amounts are net of a reserve for obsolete and excess inventory of
$2,189,000 and $1,689,000 at June 30, 1998 and 1997, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost and is depreciated using
the straight-line method over the estimated useful lives of the assets which
range from 3 to 36 years. Properties held under capital leases are recorded at
the present value of the non-cancelable lease payments over the term of the
lease and are amortized over the shorter of the lease term or the estimated
useful lives of the assets. Expenditures for repairs, maintenance and renewals
are charged to income as incurred. Expenditures which improve an asset or
extend its estimated useful life are capitalized. When properties are retired
or otherwise disposed of, the related cost and accumulated depreciation are
removed from the accounts and any gain or loss is included in income.
GOODWILL
The excess of the purchase price over the fair value of net assets acquired
in business combinations is capitalized and amortized on a straight-line basis
over the estimated period benefited, not to exceed 40 years. The amortization
period for all acquisitions to date ranges from 20 to 40 years. Amortization
expense for the years ended June 30, 1998, 1997 and 1996 was $1,077,959,
$1,473,164, and $1,446,756 respectively. Accumulated amortization at June 30,
1998 and 1997 was $5,499,276 and $5,347,843 respectively. The carrying value of
goodwill is assessed for recoverability by management based on an analysis of
future expected cash flows from the underlying operations of the Company. See
Note 4 regarding goodwill impairment and related non-recurring charges recorded
in the second quarter of the year ended June 30, 1998. Management believes that
there has been no further impairment at June 30, 1998 to the remaining carrying
value of goodwill.
OTHER ASSETS
Other assets are primarily comprised of debt issuance costs. Such costs
are being amortized on a straight-line basis over the life of the related
obligations.
INCOME TAXES
The Company files a consolidated federal income tax return which includes
its wholly-owned subsidiaries. The Company accounts for income taxes under
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (FAS 109). Under FAS 109, the deferred tax provision is determined using
the liability method, whereby deferred tax assets and liabilities are recognized
based upon temporary differences between the financial statement and income tax
bases of assets and liabilities using presently enacted tax rates.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to income in the year incurred
and are included in selling, general and administrative expenses. Research and
development expense for the years ended June 30, 1998, 1997 and 1996 was
$1,688,071, $3,684,702 and $3,255,067, respectively.
32
<PAGE>
EARNINGS PER SHARE
Basic earnings per share are based on the weighted average number of shares
of common stock outstanding during the year. Diluted earnings per share are
based on weighted averaged number of shares of common stock and common stock
equivalents outstanding during the year. The number of basic and diluted shares
outstanding for the years ended June 30, 1998, 1997 and 1996 was 7,805,021,
7,796,682 and 7,378,478 shares, respectively. Options under the Company's
employee's and director's stock option plans are not included as common stock
equivalents for earnings per share purposes since they did not have material
dilutive effect.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (FAS 128), which
requires public entities to present both basic and diluted earnings per share
amounts on the face of their financial statements, replacing the former
calculations of primary and fully diluted earnings per share. The Company
adopted FAS 128 effective with its fiscal 1998 second quarter. All prior period
earnings per share amounts have been restated. The adoption of FAS 128 did not
have a material effect on current or previously reported earnings per common
share.
EMPLOYEE STOCK-BASED COMPENSATION
The Company accounts for employee stock options and variable stock awards
in accordance with Accounting Principles Board No. 25, "Accounting for Stock
Issued to Employees" (APB 25). Under APB 25, the Company applies the intrinsic
value method of accounting. For employee stock options accounted for using the
intrinsic value method, no compensation expense is recognized because the
options are granted with an exercise price equal to the market value of the
stock on the date of grant. For variable stock awards accounted for using the
intrinsic value method, compensation cost is estimated and recorded each period
from the date of grant to the measurement date based on the market value of the
stock at the end of each period.
During fiscal 1996, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (FAS 123), became effective for the
Company. FAS 123 prescribes the recognition of compensation expense based on
the fair value of options or stock awards determined on the date of grant.
However, FAS 123 allows companies to continue to apply the valuation methods set
forth in APB 25. For companies that continue to apply the valuation methods set
forth in APB 25, FAS 123 mandates certain pro forma disclosures as if the fair
value method had been utilized. See Note 9 for additional discussion.
3. SALE OF BEAR VENTILATION PRODUCTS DIVISION
On October 31, 1997, the Company sold the assets of Bear Medical Systems,
Inc. (Bear) and its subsidiary BiCore Monitoring Systems, Inc. (BiCore) to
Thermo-Electron Corporation for $36.6 million, plus the assumption of certain
liabilities. The net proceeds of $29.5 million, after expenses, including
federal and state taxes paid, were utilized to repay a significant portion of
its term notes and to repay all of its subordinated debt. The sale of the Bear
ventilation products division resulted in a gain before taxes for financial
reporting purposes of $12.8 million. This gain, as a discrete item, resulted in
a tax provision of $9.3 million. The relatively higher effective tax rate on
this transaction resulted because approximately $12.7 million of goodwill
associated with these businesses was not deductible for income tax purposes.
Had the divestiture occurred on July 1, 1997, consolidated pro forma net
sales, net loss and loss per share for the year ended June 30, 1998 would have
been $86.0 million, $(12.1) million and $(1.55), respectively.
33
<PAGE>
The unaudited pro forma information is based on assumptions deemed
appropriate by Allied Healthcare Products, Inc. and is not intended to reflect
what the Company's net sales, net loss, or loss per share would have been had
the sale occurred on July 1, 1997 or to project the Company's results of
operations for the future.
4. GOODWILL IMPAIRMENT
In the second quarter of fiscal 1998, the Company reevaluated the carrying
value of its various businesses and recorded $9.8 million of non-recurring
charges to reflect the changes in business conditions resulting from the sale of
the ventilation product division and due to other changes in market conditions
discussed below, which culminated during the second quarter of fiscal 1998.
Goodwill writedowns, which were determined pursuant to the Company's
impairment policy as described in Note 2, approximating $8.9 million, were
comprised of the following:
$4.4 million associated with the partial goodwill writedown related to the
B&F disposable products business. Continuing weakness in financial results of
the business due to various continuing operational issues, market condition
changes in the home healthcare market including pressures on pricing, and
overall weakness in financial results of the national home healthcare chains
caused Allied to reevaluate and adjust the carrying value of this business.
$2.4 million associated with the writedown of goodwill for Allied's
headwall business which continues to experience weakness in financial results
due to market conditions.
$1.6 million associated with the writedown of Omni-Tech Medical, Inc.
goodwill. This transportation ventilator business is directly related to the
divested Bear ventilation products division and is not anticipated to contribute
to the ongoing operations of the Company.
$0.5 million associated with the write-down of goodwill for the Design
Principles Inc. backboard business. Increased costs have significantly eroded
the margins of this business necessitating a reevaluation of the carrying value
of its goodwill.
Management believes that there has been no further impairment at June 30,
1998 to the remaining carrying value of goodwill.
In addition to the non-cash goodwill write-downs, the other non-recurring
items include:
$0.5 million of consulting fees related to a cooperative purchasing study.
$0.4 million for the writedown of leasehold improvements and a reserve for
the remaining lease payments for B&F's Mt. Vernon, Ohio facility which was
closed as part of the Company's rationalization initiatives. The tenant
subletting this facility is operating under Chapter 11 reorganization
protection.
34
<PAGE>
5. FINANCING
Long-term debt consisted of the following at June 30, 1998 and 1997:
<TABLE>
<CAPTION>
UNSUBORDINATED DEBT
Notes payable to bank or other financial lending institution, secured
by virtually all assets of the Company
<S> <C> <C>
Term Loan - principal due in varying monthly maturities
ranging from $150,000 to $1,541,667 with remaining balances
due August 8, 2000 $ 5,800,000
Revolving credit facility - aggregate revolving commitment of
25,000,000; principal due at Maturity on August 8, 2000 9,383,812
Term Loan Payable to Bank - Paid in 1998 $ 5,000,000
Term Loan Payable to Bank - Paid in 1998 9,750,000
Revolving credit facility - Paid in 1998 26,554,565
Acquisition Term Loan to Bank - Paid in 1998 1,344,000
Other 45,840 62,690
------------ -------------
15,229,652 42,711,255
------------ -------------
SUBORDINATED DEBT
Industrial Development Revenue Bonds - principal due in annual
installments of $250,000 through March 1, 2000; $255,000 at
maturity on March 1, 2001; interest payable monthly at
variable rate (4.6% at June 30, 1998) 755,000 955,000
Capital lease obligations 2,429,920 3,265,817
------------ -------------
3,184,920 4,220,817
------------ -------------
18,414,572 46,932,072
Less-Current portion of long-term debt, including $478,382 and
676,357 of capital lease obligations at June 30, 1998 and June 30,
1997 respectively. (3,442,797) (12,890,772)
------------ -------------
$14,971,775 $ 34,041,300
============ =============
</TABLE>
On August 8, 1997, the Company refinanced its existing credit facility with
a financial institution. The new credit agreement provided for borrowings of
$25 million under a revolving credit facility and $21 million under three term
loan facilities, including $4 million due in February 1998. In conjunction with
the new Credit Agreement, Allied placed an additional $5.0 million in
subordinated debt due in February 1998 with certain shareholders of the Company.
The Company used the funds provided by the new credit agreements to extinguish
amounts outstanding under the revolving credit facility and term loans with its
existing commercial bank.
35
<PAGE>
In connection with the sale of the Bear ventilation products division in
October 1997, the Company repaid two term notes including $4 million due in
February 1998, a portion of the third term note, a significant portion of its
revolving credit facility and the subordinated note with certain shareholders in
the amount of $5.0 million.
The revolving credit facility provides for borrowings of up to the lesser
of $25,000,000 or the borrowing base, less any outstanding letter of credit
obligations. The borrowing base is defined by the Credit Agreement as (a) 85%
of eligible domestic receivables plus (b) 85% of eligible foreign receivables
not to exceed $8,000,000 plus (c) 45% of eligible inventories not to exceed
$10,000,000. Such amounts are reduced by various reserves as defined in the
Credit Agreement. The revolving credit facility bears interest at the floating
Reference Rate (8.5% at June 30, 1998) plus 0.50% and is payable monthly. The
Reference Rate, as defined in the Credit Agreement, is the variable rate of
interest, per annum, most recently announced by Norwest Bank Minnesota, National
Association, or any successor thereto, as its "base rate". The Credit Agreement
requires an underutilization fee of 0.25% per annum, payable monthly, on any
unused portion of the revolving credit facility. Amounts outstanding under this
revolving credit facility, which expires on August 8, 2000, totaled $9,383,812
at June 30, 1998. At June 30, 1998, $6.5 million was available under the
revolving credit facility for additional borrowings.
The Credit Agreement provided term loan facilities in the amounts of
$10,000,000 (Term Loan A), $7,000,000 (Term Loan B), and $4,000,000 (Term Loan
C), respectively. Term Loan A was partially paid down with proceeds from the
aforementioned sale of Bear and is due in varying monthly maturities ranging
from $150,000 to $1,541,667, commencing October 1, 1997 with final payment due
on August 8, 2000. As discussed above, term loans B and C were fully repaid in
connection with the sale of the Bear ventilation products division.
The Credit Agreement also provides for the issuance of letters of credit on
behalf of the Company in amounts up to $3,000,000 in the aggregate. The Company
is required to pay a fee of 1.0% per annum on the outstanding balance.
The above described agreements contain restrictions and requirements,
including limitations on capital expenditures, new indebtedness, and dividend
payments, and the achievement of certain earning levels and the maintenance of
minimum net worth, among others, for which the Company was in compliance at June
30, 1998.
Aggregate maturities of long-term debt, excluding capital leases, for each
of the fiscal years subsequent to June 30, 1998 are as follows:
<TABLE>
<CAPTION>
REVOLVING INDUSTRIAL
CREDIT FACILITY DEVELOPMENT
TERM A REVENUE BONDS OTHER TOTAL
<S> <C> <C> <C> <C> <C>
1999 $ 2,700,000 - $250,000 $13,021 $ 2,963,021
2000 3,000,000 - 250,000 16,575 3,266,575
2001 100,000 $ 9,383,812 255,000 16,244 9,755,056
- - ---- ---------------- -------------- -------- ------- -----------
$ 5,800,000 $ 9,383,812 $755,000 $45,840 $15,984,652
- - ---- ---------------- -------------- -------- ------- -----------
</TABLE>
Debt issuance costs approximating $700,000 were incurred in the August 1997
refinancing and are being deferred and amortized over the term of the new Credit
Agreement. Unamortized costs incurred in conjunction with the original credit
facilities with the Company's previous bank syndicate totaled $980,000. These
costs, net of applicable income tax benefits of $392,000, were written off
during the first quarter of fiscal 1998 and were accounted for as an
extraordinary loss.
Subsequent to June 30, 1998, the Company obtained mortgage financing on its
St. Louis facility and further amended its credit facilities. See Note 14 for
further detail discussion.
36
<PAGE>
6. LEASE COMMITMENTS
The Company leases certain of its electronic data processing equipment
under non-cancelable lease agreements. These agreements extend for a period of
up to 60 months and contain purchase or renewal options on a month-to-month
basis. The leases are reflected in the consolidated financial statements as
capitalized leases in accordance with the requirements of Statement of Financial
Accounting Standards No. 13 (FAS 13), "Accounting for Leases". In addition, the
Company leases certain manufacturing facilities under noncancelable operating
leases. These leases are reflected in the consolidated financial statements as
operating leases in accordance with FAS 13.
Minimum lease payments under long-term capital leases and the operating
leases at June 30, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- ----------
<S> <C> <C>
1999 $ 832,567 $ 114,120
2000 762,533 69,120
2001 762,533 57,600
2002 803,432
-----------
Total minimum lease payments $3,161,065 $ 240,840
==========
Less amount representing interest (731,145)
-----------
Present value of net minimum lease payments,
including current portion of $478,382 $2,429,920
===========
</TABLE>
Rental expense incurred on the operating leases in fiscal 1998, 1997 and
1996 totaled $381,024, $686,168, and $881,318, respectively.
7. INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ------------ ----------
<S> <C> <C> <C>
Current Payable:
Federal $4,249,382 $ 40,240
State 1,957,403 -
---------- ----------
Total Current 6,206,785 40,240
---------- ----------
Deferred:
Federal 2,451,228 $(1,214,731) 1,271,979
State 360,475 (212,985) 214,937
---------- ----------
Total Deferred 2,811,703 (1,427,716) 1,432,916
---------- ------------ ----------
$9,018,488 $(1,427,716) $1,473,156
========== ============ ==========
</TABLE>
37
<PAGE>
Income taxes were 418.9% (24.0)% and 44.6% of pre-tax earnings (losses) in
1998, 1997 and 1996, respectively. A reconciliation of income taxes, with the
amounts computed at the statutory federal rate follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Computed tax at federal statutory rate $ 731,955 $(2,022,597) $1,121,915
State income taxes, net of federal tax benefit 1,611,155 (160,989) 169,770
Non deductible goodwill 7,925,827 491,854 482,876
Other, net (1,250,449) 264,016 (301,405)
------------ ------------ -----------
Total $ 9,018,488 $(1,427,716) $1,473,156
============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1998 At June 30, 1997
Deferred Deferred Tax Deferred Deferred Tax
Tax Assets Liabilities Tax Assets Liabilities
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Current:
Bad Debts $ 403,975 $ 479,175
Accrued Liabilities 103,369 635,160
Inventory $ 876,444 $ 698,390
Other 80,000
------------ ------------- ------------ -------------
507,344 876,444 1,114,335 778,390
------------ ------------- ------------ -------------
Non Current:
Depreciation 65,685 319,066
Other property basis 399,611 451,918
Intangible assets 363,331 438,678
Net operating loss carryforward 2,703,228
Other -- 14,233 -- 383,133
------------ ------------- ------------ -------------
363,331 479,529 3,141,906 1,154,117
------------ ------------- ------------ -------------
Valuation allowance (325,391) -- (322,720) --
------------ ------------- ------------ -------------
Total deferred taxes $ 545,284 $ 1,355,973 $ 3,933,521 $ 1,932,507
============ ============= ============ =============
</TABLE>
At June 30, 1997, the Company had approximately $2,703,228 of net operating
loss carryforwards available to offset future regular taxable income. Such
carryforwards and the net operating losses generated through October 31, 1997
were fully utilized to offset the gain on the sale of the ventilation products
division.
8. RETIREMENT PLAN
The Company offered several retirement savings plans under Section 401(k)
of the Internal Revenue Code to certain eligible salaried employees. Each
employee may elect to enter a written salary deferral agreement under which a
portion of such employee's pre-tax earnings may be contributed to the plan.
38
<PAGE>
During the fiscal years ended June 30, 1998, 1997 and 1996, the Company
made contributions of $464,227, $601,338 and $535,017, respectively.
9. SHAREHOLDERS EQUITY
On October 4, 1995, the Company completed the sale of 1,610,000 shares of
its common stock in a public offering which yielded net proceeds to the Company
of $25.7 million. The proceeds were used to reduce debt and to provide
financing for future growth.
The Company has established a 1991 Employee Non-Qualified Stock Option Plan
as well as a 1994 Employee Stock Option Plan (Employee Plans). The Employee
Plans provide for the granting of options to the Company's executive officers
and key employees to purchase shares of common stock at prices equal to the fair
market value of the stock on the date of grant. Options to purchase up to
800,000 shares of common stock may be granted under the Employee Plans. Options
currently outstanding entitle the holders to purchase common stock at prices
ranging between $6.75 and $16.13, subject to adjustment. Options shall become
exercisable with respect to one-fourth of the shares covered thereby on each
anniversary of the date of grant, commencing on the second anniversary of the
date granted, except certain options granted under the 1994 Employee Stock
Option Plan which become exercisable when the fair market value of common stock
exceeds required levels. The right to exercise the options expires in ten
years, from the date of grant, or earlier if an option holder ceases to be
employed by the Company.
In addition, the Company has established a 1991 Directors Non-Qualified
Stock Option Plan and a 1995 Directors Non-Qualified Stock Option Plan
(Directors Plans). The Directors Plan provides for the granting of options to
the Company's Directors who are not employees of the Company to purchase shares
of common stock at prices equal to the fair market value of the stock on the
date of grant. Options to purchase up to 250,000 shares of common stock may be
granted under the Directors Plans. Options currently outstanding entitle the
holders to purchase common stock at prices ranging between $7.00 and $18.25,
subject to adjustment. Options shall become exercisable with respect to
one-fourth of the shares covered thereby on each anniversary of the date of
grant, commencing on the second anniversary of the date granted, except for
certain options granted under the 1995 Directors Non-Qualified Stock Option Plan
which become exercisable with respect to all of the shares covered thereby six
months after the grant date. The right to exercise the options expires in ten
years from the date of grant, or earlier if an option holder ceases to be a
Director of the Company.
A summary of stock option transactions in 1998, 1997 and 1996,
respectively, pursuant to the Employee Plans and the Directors Plans follows:
<TABLE>
<CAPTION>
Summary of Stock Options
------------------------
Average Shares Subject
Price To Option
-------- ---------------
<S> <C> <C>
June 30, 1995 $ 13.36 388,000
Options Granted 17.58 63,500
Options Exercised 8.00 (1,174)
Options Canceled 15.96 (36,726)
---------------
June 30, 1996 $ 13.79 413,600
---------------
Exercisable at June 30, 1996 118,875
===============
June 30, 1996 $ 13.79 413,600
Options Granted 6.90 358,000
Options Exercised -0- -0-
Options Canceled 11.47 (177,100)
---------------
June 30, 1997 $ 9.22 594,500
---------------
39
<PAGE>
Exercisable at June 30, 1997 163,700
===============
June 30, 1997 9.22 594,500
Options Granted 7.63 173,500
Options Exercised 6.88 (10,000)
Options Canceled 11.23 (132,550)
June 30, 1998 $ 8.39 625,450
Exercisable at June 30, 1998 160,138
===============
</TABLE>
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," requires companies to measure employee stock
compensation plans based on the fair value method of accounting. However, the
Statement allows the alternative of continued use of Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees," with pro-forma
disclosure of net income and earnings per share determined as if the fair value
based method had been applied in measuring compensation cost. The Company
adopted the new standard in the fiscal year ending June 30, 1997, and elected
the continued use of APB Opinion No. 25. Pro forma disclosures have not been
provided, as the effect on fiscal year 1998, 1997 and 1996 net earnings was
immaterial.
In conjunction with the refinancing, 62,500 warrants were issued to the
holders of the subordinated notes payable and 50,000 warrants were issued to the
commercial lender providing the revolving credit facilities and the term loan
facilities. Each warrant entitles the holder to purchase one share of common
stock at $7.025 per share through August 7, 2002.
10. EXPORT SALES
Export sales for the years ended June 30, 1998, 1997 and 1996 are comprised
as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Europe $ 5,700 $ 9,300 $ 7,500
Canada 1,900 2,600 2,300
Latin America 5,900 6,300 5,600
Middle East 1,600 3,200 2,900
Far East 6,000 9,400 9,000
Other 2,900 3,700 3,500
------- ------- -------
$24,000 $34,500 $30,800
======= ======= =======
</TABLE>
11. SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
June 30,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
INVENTORIES
Work in Progress $ 2,424,041 $ 2,726,585
Component parts 14,820,526 18,679,482
Finished goods 1,096,773 4,646,924
------------- -------------
$ 18,341,340 $ 26,052,991
============= =============
PROPERTY, PLANT AND EQUIPMENT
Machinery and equipment $ 13,836,067 $ 14,880,513
Buildings 13,442,979 13,508,251
Land and land improvements 989,516 989,516
Property held under capital leases 5,220,926 5,382,529
------------- -------------
Total property, plant and equipment at cost $ 33,489,488 $ 34,760,809
40
<PAGE>
Less accumulated depreciation and amortization,
including $2,551,105 and $1,610,867 respectively,
related to property held under capital leases (15,963,582) (13,911,939)
------------- -------------
$ 17,525,906 $ 20,848,870
============= =============
OTHER ACCRUED LIABILITIES
Accrued compensation expense $ 1,295,354 $ 2,215,548
Acquisition reserve 948,639
Accrued interest expense 219,015 1,324,010
Accrued income tax 942,036 376,910
Other 1,022,810 1,132,563
------------- -------------
$ 3,479,215 $ 5,997,670
============= =============
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
From time to time, the Company becomes party to various claims and legal
actions arising during the ordinary course of business. Management believes
that the Company's costs and any potential judgments resulting from such claims
and actions would be covered by the Company's product liability insurance,
except for deductible limits and self-insured retention. The Company intends to
defend such claims and actions in cooperation with its insurers. It is
management's opinion that, in any event, their outcome would not have a material
effect on the Company's financial position, cash flows or results of operations.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal 1998 and 1997 appears below
(all amounts in thousands except per share data):
<TABLE>
<CAPTION>
Net Sales
-------------------
1998 1997
-------- ---------
<S> <C> <C>
First Quarter $30,173 $ 29,134
Second Quarter 24,033 28,389
Third Quarter 22,785 30,466
Fourth Quarter 19,476 30,129
-------- ---------
Total Year $96,467 $118,118
======== =========
Gross Profit
------------------
1998 1997
-------- ---------
First Quarter $ 9,229 $ 9,240
Second Quarter 6,743 8,725
Third Quarter 6,507 9,725
41
<PAGE>
Fourth Quarter 4,878 8,063
-------- ---------
Total Year $27,357 $ 35,753
======== =========
Net Income (Loss)
--------------------
1998 1997
-------- ---------
First Quarter (638) $ (177)
Second Quarter (6,684) (557)
Third Quarter 241 (302)
Fourth Quarter (315) (3,485)
-------- ---------
Total Year $(7,396) $ (4,521)
======== =========
Earnings (Loss) Per Share
--------------------------
1998 1997
-------- ---------
First Quarter $ (.08) $ (.02)
Second Quarter (.86) (.07)
Third Quarter .03 (.04)
Fourth Quarter (.04) (.45)
-------- ---------
Total Year $ (.95) $ (.58)
======== =========
</TABLE>
14. SUBSEQUENT EVENTS
On August 5, 1998 the Company's board of directors voted to close its
disposable products division (DPD) located in Toledo, Ohio and relocate
production of the B&F line of home care products to its manufacturing facility
in St. Louis, Missouri. The move is expected to be completed during the second
quarter of fiscal 1999 and is expected to generate annual savings of nearly $1.0
million. In connection with the shutdown of the facility, Allied will record a
one-time, after tax charge of approximately $0.6 million or $.08 per share
during the first quarter fiscal 1999. Pre-tax costs of approximately $1.0
million are expected to be paid by January 1, 1999.
On August 7, 1998, the Company borrowed approximately $5.0 million from a
financial institution. The borrowing was secured by a first security interest
in the Company's St. Louis facility. The loan requires monthly principal and
interest payments of $60,005, with a final payment of all principal and interest
remaining unpaid due at maturity on August 1, 2003. Interest is fixed at 7.75%
per annum. Proceeds from the borrowing were used to pay down existing debt,
which bore a higher interest rate. The loan agreement includes certain debt
covenants which the Company must comply with over the term of the loan.
On September 8, 1998, the Company's credit facilities with Foothill Capital
Corporation were amended. The Company's existing term loan was eliminated and
replaced with an amended revolving credit facility. As amended, the revolving
credit facility remains at $25.0 million. The interest rate on the facility has
been reduced from the floating reference rate (8.5% at September 8, 1998) plus
0.50% to the floating reference rate plus 0.25%. The reference rate as defined
42
<PAGE>
in the credit agreement, is the variable rate of interest, per annum, most
recently announced by Norwest Bank Minnesota, National Association, or any
successor thereto, as its "base rate". Amounts outstanding under this revolving
credit facility, which expires on August 8, 2000, totaled $9.5 million at
September 8, 1998. At September 8, 1998, $4.5 million was available under the
revolving facility for additional borrowings.
This amendment also provides the Company with a rate of LIBOR +2.5%. This
rate will drop by 0.25% at the end of fiscal 1999 and 2000 if the Company is
profitable. In addition, the fees charged to the Company are also reduced.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A definitive proxy statement is expected to be filed with the Securities
and Exchange Commission on or about October 9, 1998. The information required
by this item is set forth under the caption "Election of Directors" on pages 2
through 4, under the caption "Executive Officers" on page 8 and under the
caption Section 16(a) Beneficial Ownership Reporting Compliance" on page 18 of
the definitive proxy statement, which information is incorporated herein by
reference thereto.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth under the caption
"Executive Compensation" on pages 9 through 15 of the definitive proxy
statement, which information is incorporated herein by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" on pages 5
through 7 of the definitive proxy statement, which information is incorporated
herein by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
1. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company and its
subsidiaries are included in response to Item 8:
Consolidated Statement of Operations for the years ended
June 30, 1998, 1997 and 1996
Consolidated Balance Sheet at June 30, 1998 and 1997
Consolidated Statement of Changes in Stockholders' Equity
for the years ended June 30, 1998, 1997 and 1996
Consolidated Statement of Cash Flows for the years ended June 30,
1998, 1997 and 1996
43
<PAGE>
Notes to Consolidated Financial Statements
Report of Independent Accountants
2. FINANCIAL STATEMENT SCHEDULES
Report of Independent Accountants on Financial Statement Schedule
Valuation and Qualifying Accounts and Reserves for the Years
Ended June 30, 1998, 1997 and 1996
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
3. EXHIBITS
The exhibits listed on the accompanying Index to Exhibits are filed as part
of this Report.
4. REPORTS ON FORM 8-K
Form 8-K dated as of October 7, 1997 (announcing that the Company had
entered into a definitive agreement with Thermo-Electron Corporation
regarding the sale of substantially all of the assets of the Company's
ventilation products division).
Form 8-K dated as of October 31, 1997 (reporting the disposition of
substantially all of the assets of the Company's ventilation products
division).
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ALLIED HEALTHCARE PRODUCTS, INC.
By:
/s/ Uma Nandan Aggarwal
-----------------------------------------
Uma Nandan Aggarwal
President and Chief Executive Officer
Dated : September 24, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on September 24, 1998.
<TABLE>
<CAPTION>
SIGNATURES TITLE
<S> <C>
*
- - --------------------
Dennis W. Sheehan Chairman of the Board
/s/ Uma N. Aggarwal
- - --------------------
Uma N. Aggarwal President, Chief Executive Officer and Director
(principal Executive Officer)
*
- - --------------------
David A. Gee Director
*
- - --------------------
Robert E. Lefton Director
*
- - --------------------
William A. Peck Director
*
- - --------------------
John D. Weil Director
*
- - --------------------
James B. Hickey, Jr. Director
</TABLE>
45
<PAGE>
* By: /s/ Uma Nandan Aggarwal
--------------------------
Uma Nandan Aggarwal
Attorney-in-Fact
* Such signature has been affixed pursuant to the following Power of Attorney.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Uma N. Aggarwal as his true and lawful
attorney-in fact and agent, each with full power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign the 1998
Annual Report on Form 10-K of Allied Healthcare Products, Inc., and to file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto each said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite as fully to all intents and purposes as he might
or could do in person, and ratifying and confirming all that said
attorney-in-fact and agent or his substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
46
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Allied Healthcare Products, Inc.
Our audits of the consolidated financial statements referred to in our report
dated August 7, 1998, except for Note 14 which is as of September 8, 1998,
appearing in the 1998 Annual Report to Shareholders of Allied Healthcare
Products, Inc. on Form 10-K (which report and consolidated financial statements
are included herein) also included an audit of the Financial Statement Schedule
listed in item 14(2) of this Form 10-K. In our opinion, this Financial Statement
Schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PricewaterhouseCoopers LLP
St. Louis, Missouri
August 7, 1998, except for Note 14,
which is as of September 8, 1998
S-1
<PAGE>
<TABLE>
<CAPTION>
ALLIED HEALTHCARE PRODUCTS, INC.
RULE 12-09 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- - -------------------------------- -------------- -------------- ----------------- -------------- ----------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS OTHER ACCOUNTS - DEDUCTIONS - BALANCE AT END
DESCRIPTION PERIOD AND EXPENSES DESCRIBE DESCRIBE OF PERIOD
- - -------------------------------- -------------- -------------- ----------------- -------------- ----------------
FOR THE YEAR ENDED JUNE 30, 1998
<S> <C> <C> <C> <C> <C>
Reserve For
Doubtful Accounts $ (1,225,326) $ (264,165) $ 453,658 (1) $ (1,035,833)
Inventory Allowance
For Obsolescence
and Excess Quantities $ (1,689,000) (1,112,000) $ 612,000 (2) $ (2,189,000)
- - -------------------------------- -------------- -------------- ----------------- -------------- ----------------
FOR THE YEAR ENDED JUNE 30, 1997
Reserve For
Doubtful Accounts $ (422,517) $ (1,058,999) $ 256,190 (3) $ (1,225,326)
Inventory Allowance
For Obsolescence
and Excess Quantities $ (1,812,542) $ (154,357) $ 277,899 (4) $ (1,689,000)
- - -------------------------------- -------------- -------------- ----------------- -------------- ----------------
FOR THE YEAR ENDED JUNE 30, 1996
Reserve For
Doubtful Accounts $ (590,459) $ (107,871) $ 275,813 (5) $ (422,517)
Inventory Allowance
For Obsolescence
and Excess Quantities $ (4,349,467) $ 83,700 $2,453,225 (6) $ (1,812,542)
- - -------------------------------- -------------- -------------- ----------------- -------------- ----------------
<FN>
(1) Decrease due to bad debt write-offs, bad debt recoveries and changes in estimate. Additional decrease of
$129,814 due to the sale of Bear Medical Systems, Inc.
(2) Decrease of $612,000 due to the sale of Bear Medical Systems, Inc.
(3) Decrease due to bad debt write-offs, bad debt recoveries and changes in estimate.
(4) Decrease due to inventory disposed of and changes in estimate.
(5) Decrease due to bad debt write-offs, bad debt recoveries and changes in estimate. Offsetting increase of
$80,000 due to the acquisition of Omni-Tech Medical, Inc.
(6) Decrease due to inventory disposed of and changes in estimate. Offsetting increase of $105,470 due to the
acquisition of Omni-Tech Medical, Inc.
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- - ------- -----------------------------------------------------------------------------------------------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3(1)
to the Company's Registration Statement on Form S-1, as amended, Registration No. 33-40128,
filed with the Commission on May 8, 1991 (the "Registration Statement") and incorporated
herein by reference)
3.2 By-Laws of the Registrant (filed as Exhibit 3(2) to the Registration Statement and incorporated
herein by reference)
4.1 Certificate of Designations, Preferences and Rights of Series A Preferred Stock of Allied
Healthcare Products, Inc. dated August 21, 1996 (filed with the Commission as Exhibit 4(1) to
the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997 (the "1997
Form 10-K") and incorporated herein by reference)
10.1 NCG Trademark License Agreement, dated April 16, 1982, between Liquid Air Corporation
and Allied Healthcare Products, Inc. (filed as Exhibit 10(24) to the Registration Statement and
incorporated herein by reference)
10.2 Allied Healthcare Products, Inc. 1991 Employee Non-Qualified Stock Option Plan (filed as
Exhibit 10(26) to the Registration Statement and incorporated herein by reference)
10.3 Employee Stock Purchase Plan
10.4 Allied Healthcare Products, Inc. 1994 Employee Stock Option Plan (filed with the Commission
as Exhibit 10(39) to the 1994 Form 10-K and incorporated herein by reference)
10.5 Allied Healthcare Products, Inc. 1995 Directors Non-Qualified Stock Option Plan (filed with
the Commission as Exhibit 10(25) to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1995 (the "1995 Form 10-K" and incorporated herein by reference)
10.6 Lease dated as of November 4, 1993 between Essup Part and B&F Medical Products, Inc. (filed
with the Commission as Exhibit 10(43) to the 1994 Form 10-K and incorporated herein by
reference)
10.7 Consulting and Severance Agreement dated as of September 1, 1996 between Allied Healthcare
Products, Inc. and David V. LaRusso (filed with the Commission as Exhibit 10(31) to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 (the "1996
Form 10-K") and incorporated herein by reference)
10.8 Allied Healthcare Products, Inc. Amended 1994 Employee Stock Option Plan (filed with the
Commission as Exhibit 10(28) to the 1996 Form 10-K and incorporated herein by reference)
10.9 Employment Agreement dated November 19, 1996 by and between Allied Healthcare Products,
Inc. and Uma N. Aggarwal (filed as Exhibit 10(1) to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1996 and incorporated herein by reference)
10.10 Option Agreement dated November 19, 1996 by and between Allied Healthcare Products, Inc.
and Uma N. Aggarwal (filed as Exhibit 10(2) to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1996 and incorporated herein by reference)
<PAGE>
EXHIBIT
NO. DESCRIPTION
- - ------- -----------------------------------------------------------------------------------------------
10.11 Option Agreement dated November 19, 1996 between Allied Healthcare Products, Inc. and
Uma N. Aggarwal (filed as Exhibit 10(3) to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1996 and incorporated herein by reference)
10.12 Letter Agreement dated December 16, 1997 between Allied Healthcare Products, Inc. and Barry
F. Baker (filed as Exhibit 10(4) to the Company's Quarterly Report on Form 10-Q for the
Quarter ended December 31, 1996 and incorporated herein by reference)
10.13 Letter Agreement dated December 16, 1997 between Allied Healthcare Products, Inc. and
Gabriel S. Kohn (filed as Exhibit 10(5) to the Company's Quarterly Report on Form 10-Q for
The quarter ended December 31, 1996 and incorporated herein by reference.)
10.14 Letter Agreement dated December 16, 1997 between Allied Healthcare Products, Inc. and
David A. Grabowski (filed as Exhibit 10(6) to the Company's Quarterly Report for the quarter
ended December 31, 1996 and incorporated herein by reference)
10.15 Loan and Security Agreement, dated as of August 7, 1997 by and among Allied Healthcare
Products, Inc., B&F Medical Products, Inc., Bear Medical Systems, Inc., Hospital Systems, Inc.,
Life Support Products, Inc., and BiCore Monitoring Systems, Inc., as Borrowers, and Foothill
Capital Corporation (filed with the Commission as Exhibit 10(31) to the 1997 Form 10-K and
incorporated herein by reference)
10.16 Warrant dated August 7, 1997 issued by Allied Healthcare Products, Inc. in favor of
Woodbourne Partners, L.P. (filed with the Commission as Exhibit 10(36) to the 1997 Form 10-K
and incorporated herein by reference)
10.17 Warrant dated August 7, 1997 issued by Allied Healthcare Products, Inc. in favor of Donald E.
Nickelson (filed with the Commission as Exhibit 10(37) to the 1997 Form 10-K and
Incorporated herein by reference)
10.18 Warrant dated August 7, 1997 issued by Allied Healthcare Products, Inc. in favor of Dennis W.
Sheehan (filed with the Commission as Exhibit 10(38) to the 1997 form 10-K and incorporated
herein by reference)
10.19 Agreement effective as of June 1, 1997 between Allied Healthcare Products, Inc. and District
No. 9 International Association of Machinists and Aerospace Workers (filed with the
Commission as Exhibit 10(39) to the 1997 Form 10-K and incorporated herein by reference)
10.20 Agreement dated June 10, 1998 between Hospital Systems, Inc. and Local Union No. 2131 of
the International Brotherhood of Electrical Workers covering the period from May 1, 1998 to
April 30, 2001
10.21 Full-Time Employment Policy Agreement dated July 3, 1997 between B&F Medical Products,
Inc. and B&F Employee Committee (filed with the Commission as Exhibit 10(41) to the 1997
Form 10-K and incorporated herein by reference)
10.22 Asset Purchase Agreement by and between BM Acquisition Corp., ThermoElectron
Corporation, Bear Medical Systems, Inc. BiCore Monitoring Systems, Inc., Allied Healthcare
Products AG, Bear Medical Systems Foreign Sales Corporation and Allied Healthcare Products,
Inc. (filed with the Commission as Exhibit 2.1 to the Form 8-K filed on November 14, 1997 and
Incorporated herein by reference)
<PAGE>
EXHIBIT
NO. DESCRIPTION
- - ------- -----------------------------------------------------------------------------------------------
10.23 Amendment Number One to Loan and Security Agreement dated as of March 3, 1998 among
Allied Healthcare Products, Inc., B&F Medical Products, Inc., Hospital Systems, Inc. and Life
Support Products, Inc. as Borrowers, and Foothill Capital Corporation (filed with the
Commission as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
Ended March 31, 1998 and incorporated herein by reference)
10.24 Loan and Security Agreement, dated as of August 7, 1998 by and between Allied Healthcare
Products, Inc. and LaSalle National Bank.
10.25 Amendment Number Two to Loan and Security Agreement dated as of September 10, 1998
among Allied Healthcare Products, Inc., B&F Medical Products, Inc. , Hospital Systems, Inc.
and Life Support Products, Inc. as Borrowers, and Foothill Capital Corporation.
13 Annual Report to Stockholders
21 Subsidiaries of the Registrant
23 Consent of PricewaterhouseCoopers, LLP
24 Powers of Attorney
27 Financial Data Schedule
</TABLE>
Exhibit A
ALLIED HEALTHCARE PRODUCTS, INC.
EMPLOYEE STOCK PURCHASE PLAN
ADOPTED AUGUST 5, 1992
-
ARTICLE I. PURPOSE
------------------
Section 1.1. The Allied Healthcare Products, Inc. Employee Stock Purchase
-------------
Plan (hereinafter referred to as the "Plan") is intended to provide a method
whereby employees of Allied Healthcare Products, Inc. (hereinafter referred to
as the "Company") will have an opportunity to acquire a proprietary interest in
the Company through the purchase of shares of the Common Stock of the Company.
ARTICLE II. DEFINITIONS
-----------------------
Section 2.1. Unless otherwise required by the context, the following
-------------
definitions shall be controlling:
a. "Board of Directors" means the Board of Directors of Allied
Healthcare Products, Inc., a Delaware corporation.
b. "Committee" means the Compensation Committee of Company.
C. "Custodian" means the Custodian designated by the Board of
Directors as provided in Section 10.1.
d. "Employee" means a person who is and continues to be employed by a
Participating Corporation for not less than thirty-five (35) hours per week,
provided, however, that a person on an authorized leave of absence from
the Participating Corporation, paid or non-paid, shall not cease to be an
Employee nor be deemed to have terminated employment for purposes of the Plan.
In computing hours of employment per week for the purpose of determining whether
a person is an employee, there shall be included each hour for which a person is
directly paid or entitled to payment by the Participating Corporation for the
performance of duties and each hour for which a person is paid or entitled to
payment by the Participating Corporation on account of a period of time during
which no duties are performed, such as vacation, holiday or illness.
e. "Participant" means an eligible Employee who has indicated his
acceptances of the provisions of the Plan and authorized an allotment out of his
Regular Compensation in accordance with Section 4.1, and whose participation in
the Plan has actually commenced.
f. "Participating Corporation" means the Company or any subsidiary of
Company and, when required by the context, refers to the particular corporation,
whether the Company or a subsidiary, by which a Participant is employed.
g. "Permanent and Total Disability" means inability to engage in a
substantial, gainful activity in the employee of a Participating Corporation by
reason of any medically determinable physical or mental impairment which can be
expected to result in death or which is expected to last for a continuous period
of not less than twelve (12) full months. The Committee's determination of
Permanent and Total Disability shall be conclusive-
2
<PAGE>
h. "Plan" means the Allied Healthcare Productions, Inc. Employee
Stock Purchase Plan, as adopted August , 1992, and as amended from time to
time.
i. "Regular Compensation" means the total compensation or
remuneration received by or credited to a person, whether on a weekly or
semi-monthly basis, for services as an Employee from a Participating
Corporation, except any director's fees, living or other allowances, expenses
paid or reimbursed, bonuses and contributions by the Participating Corporation
to any retirement plan or any other benefit plan of the Participating
Corporation now in effect or later established-
j. "Subsidiary" means a corporation, fifty (50%) percent or more of
the voting stock of which is owned by the Company, directly or indirectly, whose
participation in the Plan has been approved by the Board of Directors.
Section 2.2. Whenever the singular or plural number, or masculine,
-------------
feminine or neuter gender is used herein, it shall equally include the others.
ARTICLE III. ELIGIBILITY
------------------------
Section 3.1. Each Employee, other than those Employees described in
-------------
Sections 3.7 or 10.3 below, shall be eligible to participate in the Plan
beginning on the January 1 or July 1 coincident with or immediately following
the date on which he completes one (1) year of continuous service with the
Participating Corporation. For purposes of computing the period during which an
Employee has been employed continuously, the period of any military leave of
absence or other federal public service creating a right to re-employment under
federal law, or any other authorized leave of absence, including sick,
maternity, or disability leaves of absence, will be included, but any other
absence from the service of a Participating Corporation will be deemed to have
interrupted the continuity of his employment.
3
<PAGE>
Section 3.2. The transfer of Employee from one Participating Corporation
-------------
to another will not be deemed to have interrupted the continuity of his
employment so long as there has been no intervening employment by Employee,
other than with a Participating Corporation. Computation of the period during
which an Employee has been employed continuously will include the aggregate of
the periods during which he has been employed by any Participating Corporation.
Section 3.3. The continuous employment of an Employee whose employment has
------------
been interrupted will be computed from his latest return to the service of a
Participating Corporation following such interruption.
Section 3.4. A determination by the Committee that a person is not an
-------------
Employee or is ineligible to participate in the Plan shall be conclusive.
Section 3.5. An eligible Employee who elects to commence participation in
-------------
the Plan beginning on any January 1 or July 1 shall make an allotment from his
Regular Compensation in the manner provided in Section 4.1 at least thirty (30)
days prior to such beginning date.
4
<PAGE>
Section 3.6. Participation in the Plan is voluntary.
-------------
Section 3.7. No Employee who is an officer, director or 10% or more
-------------
shareholder in the Company or a Participating Company, shall be eligible to
participate in this Plan.
ARTICLE IV. PARTICIPANT ALLOTMENTS
----------------------------------
Section 4.1. Each Employee who elects to participate in the Plan shall
-------------
make an allotment from his Regular Compensation, such allotment shall be either:
a. In whole percents of not less than 2% nor more than 10% of the
Employee's then current Regular Compensation; or
b. A fixed dollar amount of the Employee's then current Regular
Compensation, provided, however, that such allotment shall not exceed Ten
Thousand Dollars ($10,000.00) for any Participant in any calendar year.
Section 4.2. If at any time during the calendar year the allotment for any
------------
Participant shall reach Ten Thousand Dollars ($10,000.00), the Participant's
allotment will automatically be suspended for the remainder of that calendar
year. The allotment will automatically be reinstated on the following January 1.
Section 4.3. Allotments will be effected by payroll deductions by the
-------------
Participating Corporation. The amount of each such deduction shall be paid
promptly to the Custodian by the Participating Corporation.
Section 4.4. The Participant's allotment, whether designated by a
-------------
percentage or a fixed dollar amount of the Participant's Regular Compensation,
will continue in effect, notwithstanding any change in the Participant's Regular
Compensation, until the Participant changes the allotment percentage or fixed
dollar amount, subject to a maximum annual allotment of Ten Thousand Dollars
($10,000.00) for any calendar year. A Participant may change his allotment
percentage or amount twice in any single calendar year effective as of January 1
and July 1 of each year by giving the Company written notice not less than
thirty (30) days prior to the effective date of such change on a form prescribed
by the Committee. No change of a Participant's allotment may be made to take
effect retroactively.
5
<PAGE>
ARTICLE V. CONTRIBUTIONS BY PARTICIPATING CORPORATION
-----------------------------------------------------
Section 5.1. The Participating Corporation may, but shall not be required,
------------
to contribute to the Plan on a monthly basis an amount as determined from time
to time by the Company's Board of Director (the "Contribution").
Section 5.2. Any Contribution made by a Participating Corporation shall be
------------
paid over promptly to the Custodian by the Participating Corporation.
ARTICLE VI. INVESTMENT AND ALLOCATION
----------- -------------------------
Section 6.1. The Custodian will maintain for each Participant an account
-------------
to record the Participant's interest resulting from allotments, Contributions,
and investments and the income earned thereon. The Custodian also will maintain
a separate unallocated cash account in the Custodian's name to record the amount
of cash held by the Custodian which at any time is not credited to the
Participants' accounts, and such other accounts as may be deemed necessary to
record accurately any transactions undertaken pursuant to the terms of the Plan.
6
<PAGE>
Section 6.2. No interest will be paid to any Participant on the funds held
------------
in his account.
Section 6.3. All monies paid over to the Custodian, less any amounts
-------------
needed to provide cash in lieu of fractional shares, uninvested allotments and
Contributions paid to terminating Participants under Section 7.3, and subject to
the provisions of Section 6.6, shall be invested in whole shares of the Common
Stock of the Company (the "Common Stock") as of the first trading day for
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
National Market System ("NMS") market makers on or after the tenth (10) calendar
day of the month in which the Custodian receives the funds, but under no
circumstances more than thirty (30) days after allotment (the "Investment
Date").
Section 6.4. The Company shall, at its sole option, direct that the Common
------------
Stock be purchased from time to time from the Company, in the market and/or in
private transactions. The price of the shares purchased from the Company will be
the closing trade price for Common Stock on the applicable Investment Date as
reported on the NASDAQ NMS or such other system as may supersede it. No shares
will be sold by the Company under the Plan at a price less than their par value.
Section 6.5. If Company, at its option, directs the Custodian to purchase
-------------
part or all of the shares of the Common Stock in the market or in private
transactions instead of from the Company, the price of the shares purchased
shall be the actual purchase price, exclusive of brokerage commissions and
expenses. Any remaining monies will be retained by the Custodian and added to
the funds available on the Investment Date.
7
<PAGE>
Section 6.6. If at any time the Committee determines that it is
-------------
impracticable or inadvisable for the Custodian to invest in Common Stock all or
any part of any funds in the Custodian's custody, the Committee may, in its
discretion, direct the Custodian to hold all or any part of the funds without
interest for a period not in excess of thirty (30) days after allotment.
Section 6.7. All shares acquired by the Custodian shall be held by and
-------------
registered in the name of the Custodian or its nominee. The Custodian shall
credit the shares purchased by it on each Investment Date among the accounts of
Participants, as whole or fractional shares (such fractional shares to be
determined to the fourth decimal place) or both, in the proportions which the
allotment by and Contribution for each Participant prior to the purchase of the
Common Stock therewith bore to the sum of the allotments by and Contributions
for all Participants.
Section 6.8. Cash dividends received by the Custodian for shares held by
-------------
it for the accounts of the Participants shall be reinvested automatically on the
next Investment Date in additional shares of Common Stock in the same manner as
Participant allotments and Contributions are used to purchase shares, and these
additional shares shall be credited to the accounts of the Participants in the
proportions that the shares credited to the account of each Participant on the
dividend payment date bore to the sum of the shares in the accounts of all
Participants. Stock dividends and shares received as a result of stock splits on
shares held by the Custodian shall be credited to Participant's accounts in
similar fashion.
Section 6.9. The maximum aggregate number of shares which shall be
-------------
purchased under this Plan shall not exceed One Thousand Five Hundred (1,500)
Shares.
8
<PAGE>
Section 6.10. If there is any change in the shares of Company by reason of
-------------
stock dividends, split-ups or consolidations of shares, recapitalizations,
mergers, consolidations, reorganizations, combinations or exchange of shares,
the number and class of shares available for purchase pursuant to the Plan shall
be appropriately adjusted by the Committee, provided, however, that if the
Company shall issue additional capital stock of any class for a consideration,
no such adjustment shall be made to the number and class of shares available for
purchase pursuant to the Plan.
ARTICLE VII. TERMINATION AND WITHDRAWAL
---------------------------------------
Section 7.1. A Participant's death, retirement, Permanent and Total
-------------
Disability, or other termination of employment shall operate as a termination of
the Participant's right to further allotment and shall constitute a withdrawal
by the Participant from the Plan, such termination and withdrawal being
effective as of the end of the last pay period of the Participant.
Section 7.2. A Participant may voluntarily withdraw from the Plan and
-------------
terminate his allotment by submitting a request for withdrawal on a form
prescribed by the Committee. The submission of a request for withdrawal will
operate as a termination of deductions of Participant allotments and of
Contributions, if any, effective on the next date on which the Participant is
paid following at least five (5) work days from the receipt of said request by
the Participating Corporation. A Participant who withdraws from the Plan may not
re-enter the Plan until the January 1 or July 1 immediately following six (6)
full months from the date on which his withdrawal became effective.
Section 7.3. Settlement of a Participant's account will be made within
-------------
forty-five (45) days after the effective date of withdrawal from the Plan as
provided in Sections 7.1 and 7.2; and within forty-five (45) days after the
termination of the Plan. Upon such settlement, the Participant or his personal
9
<PAGE>
representative shall receive a certificate for the whole shares of stock which
are credited to the Participant's account and an amount in cash equal to any
uninvested allotments by and Contributions for the Participant's account. The
Participant or his personal representative shall also receive, upon such
settlement, cash in lieu of any fractional shares credited to the Participant's
account, based upon the closing trade price for the Common Stock on the first
Investment Date following the effective date of withdrawal at such prices
reported on the NASDAQ NMS or such other system as may supersede it, and such
fractional share shall be added to the shares to be credited among the accounts
of the Participants on that Investment Date as provided in Section 6.7.
ARTICLE VIII. ANNUAL STOCK WITHDRAWAL OPTION
--------------------------------------------
Section 8.1. Each year a Participant may elect, on a form to be provided
-------------
by the Committee each January for that purpose, to withdraw all of the whole
shares accumulated in his account as of January 15 of that year.
Section 8.2. The Participant's election to exercise said withdrawal option
------------
must be delivered in the proper form on or before February 15 and will not
constitute a termination of his participation and/or withdrawal from the Plan.
ARTICLE IX. CUSTODY, REGISTRATION AND VOTING OF STOCK
----------- -----------------------------------------
Section 9.1. All shares of Common Stock acquired by the Custodian will be
-------------
held in the possession of the Custodian and registered in the name of the
Custodian, or its nominee, until delivered pursuant to the provisions of the
Plan. The Company will provide each Participant with a copy of the Company's
Notices of Annual Meetings of the Shareholders, proxy statements, annual reports
and forms relating to the voting of shares credited to each
10
<PAGE>
Participant's account. Each Participant, by use of such forms, may then direct
the Custodian to vote the shares credited to his account. In the absence of such
direction, the shares will not be voted.
ARTICLE X. ADMINISTRATION
-------------------------
Section 10.1. The Board of Directors have appointed Boatmen's Trust
--------------
Company as Custodian under the Plan. The Board of Directors may from time to
time and in its sole discretion designate a successor custodian or successor
custodians.
Section 10.2. The Custodian will perform such duties on behalf of the
--------------
Participants as are specifically set forth in this Plan or any subsequent
modification or amendment hereto, subject to the terms and conditions also set
forth herein. Notwithstanding any other provisions contained herein, in the
event conflicting demands are made upon the Custodian arising from or relating
to the Plan, the Custodian has the absolute right at its discretion to file a
suit in interpleader and obtain an order from any court of competent
jurisdiction requiring all persons making any adverse claims to interplead and
litigate in such court their several claims and rights. In the event such suit
is brought, the Company agrees to pay the Custodian all costs, expenses and
reasonable attorney's fees which it may expend or incur in such interpleader
suit, the amount thereof to be fixed and a judgment thereof to be rendered by
the court in such suit. Upon filing such suit and tendering all contested funds
and/or shares held to the court, the Custodian will be fully released and
discharged from all further obligations to perform any and all duties or
obligations imposed upon it by the Plan with respect to such funds and/or
shares. The Custodian will not be liable for any error or judgment or for any
thing that it may in good faith do or refrain from doing in connection herewith;
nor will any liability be incurred by the Custodian in the event it acts upon
any document which it reasonably believes to be genuine and to be signed by the
proper party or parties.
11
<PAGE>
Section 10.3. The Plan shall be administered by the Committee. The
--------------
Committee will perform on behalf of the Company such duties as are assigned to
it by the terms of the Plan. The Committee will have all powers necessary to
carry out the provisions of the Plan (except such powers as are reserved by the
Plan to the Board of Directors) whether or not such powers are specifically
enumerated herein. No member of the Committee shall be eligible to purchase
stock under the Plan.
Section 10.4. The Committee may from time to time prescribe regulations
--------------
for the administration of the Plan consistent with its provisions.
Interpretation and construction by the Committee of any provisions of the Plan
and any other action, determination or decision whatsoever taken by the
Committee shall be final, conclusive and binding on all parties.
Section 10.5. The Custodian shall render regular quarterly reports to each
-------------
Participant, showing for the period of each report the allotments,
Contributions, dividends, if any, and the number of shares and fractional shares
credited to each Participant's account and the purchase prices for such shares.
Section 10.6. All notices, reports and statements given, made, delivered
--------------
or transmitted to a Participant will be deemed duly given, made, delivered, or
transmitted when mailed with postage prepaid and addressed to the Participant at
the address last appearing on the books of the Custodian. A Participant may
change his address from time to time by written notice in form acceptable to the
Committee.
Section 10.7. Written directions, notices and other communications from
--------------
Participants to the Company (including a Participating Corporation) or the
Committee must be mailed by first
12
<PAGE>
class mail to Allied Healthcare Products, Inc., 1720 Sublette Avenue, St. Louis,
Missouri 63110, Attention: Vice President, Human Resources, or to such other
locations as may be specified by notice to the Participants. Any written
directions, notices or other communications will be deemed to have been given
when received at such location.
Section 10.8. The Custodian or the Committee need not recognize the agency
-------------
of, or representation by, any person for or of a Participant unless it receives
to its satisfaction documentary evidence of such agency or representative
relationship and; thereafter, from time to time, as the Custodian or the
Committee may request, additional documentary evidence showing the continuance
of such agency or representation. Until such time as the Custodian or the
Committee receives documentary evidence satisfactory to it of the cessation or
modification of any agency or representation, it will be entitled to rely up the
continuance of such agency or representation and to deal with the agent or
representative as if he or it were the Participant.
Section 10.9. The Plan shall be governed by and construed in accordance
--------------
with the laws of the State of Missouri.
Section 10.10. The records of the Custodian, the Committee and the Company
--------------
shall be conclusive with respect to all matters involved in the administration
of the Plan.
Section 10.11. Neither the Company, the Committee, the Board of Directors,
--------------
the Boards of Directors of the Participating Corporations, nor the Custodian
shall have any responsibility or liability, other than liabilities arising out
of any applicable Securities Acts for any interpretation or construction of the
Plan or any act or thing done or left undone, including, without limiting the
generality of the foregoing, any action taken with respect to price, time,
quantity, or other conditions and circumstances of the purchase or sale of
shares under the terms of the Plan.
13
<PAGE>
ARTICLE XI. MODIFICATION AND TERMINATION
----------- ----------------------------
Section 11.1. The Committee may terminate the Plan at any time or may at
--------------
any time or from time to time modify it in whole or in part. The Committee may
at any time or from time to time suspend operation of the plan for a period not
in excess of six (6) months.
Section 11.2. Any such termination, modification, or suspension will be
--------------
effective as to the Company and all Participants at such date as the Committee
may determine, and all Participants shall be promptly notified thereof. Under no
circumstances shall a modification affect or diminish the account for any
Participant as of the effective date of such modification.
ARTICLE XII. EXPENSES AND TAXES
-------------------------------
Section 12.1. All costs and expenses incurred in administering the
--------------
Plan, including the expenses of the Committee, the fees and expenses of the
Custodian, the fees of counsel, and other administrative expenses, shall be paid
by the Company. No part of such cost shall be charged against any Participant's
accounts.
Section 12.2. The Participating Corporation shall withhold from each
--------------
Participant's gross salary such amount as is necessary for purposes of state and
federal income and other taxes due from a Participant as a result of
Contributions to his account by the Participating Corporation.
14
<PAGE>
ARTICLE XIII. NON-ASSIGNABILITY
------------- -----------------
Section 13.1. No right or interest of any Participant in this Plan shall
--------------
be assignable or transferrable in whole or in part including, but without
limitation, by way of execution, levy, garnishment, attachment, pledge, or in
any other manner except by way of devolution by death or the Participant's
mental incompetency. Each Participant's account shall be registered in his name
alone.
ARTICLE XIV. EMPLOYMENT NON-CONTRACTUAL
------------ --------------------------
Section 14.1. The Company may terminate the employment of any Participant
--------------
as fully and with the same effect as if this Plan were not in operation.
ARTICLE XV. EFFECTIVE DATE
----------- --------------
Section 15.1. The Plan shall be effective as of September 1, 1992;
--------------
however, effectiveness of the Plan may be withheld with respect to Employees
residing in any state or states if, in the Judgment of the Committee, compliance
with the laws of such state or states would involve disproportionate
inconvenience and expense to the Company.
Section 15.2. The Company may deny or impose conditions on the
--------------
participation in the Plan by any class or classes of Employees to the extent it
deems it advisable in order the facilitate compliance with applicable laws and
regulations.
15
<PAGE>
AGREEMENT
Between
HOSPITAL SYSTEMS, INC.
And
INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS
LOCAL 2131
[LOGO OF INTERNATIONAL BROTHERHOOD [LOGO OF HOSPITAL
OF ELECTRICAL WORKERS] SYSTEMS, INC.]
May 1, 1998
to
April 30, 2001
<PAGE>
INDEX
<TABLE>
<CAPTION>
<S> <C>
FUNERAL LEAVE 8
GRIEVANCE PROCEDURE 10
HEALTH AND WELFARE 8
HOLIDAYS 6
HOURS OF WORK AND OVERTIME 4
JURY DUTY 8
LEAVE OF ABSENCE 9
LIFE INSURANCE 9
MANAGEMENT
NO DISCRIMINATION 12
NO STRIKE - NO LOCKOUT 11
PENSION 8
SAFETY 9
SAVINGS CLAUSE 12
SCHEDULE "B" l7
SCHEDULE "A" 14
SENIORITY 3
SHIFTS 5
SIDE LETTER 19
TERM OF AGREEMENT 12
TERMINATION 10
TRAVEL 10
UNION RECOGNITION AND"SECURITY 1
VACATIONS 6
WAGES 5
</TABLE>
<PAGE>
1998 - 2001 AGREEMENT
THIS AGREEMENT between tile HOSPITAL SYSTEMS, INC., whose names are affixed to
the final sheet of this Agreement, hereinafter called the "Employer", and LOCAL
UNION NO. 2131 of the' INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS,
hereinafter called the "Union".
WITNESSETH
WHEREAS, a majority of the employees of the Employer in the collective
bargaining unit to be covered by the terms of this Agreement have designated the
Union as the collective bargaining agent, the Employer herewith recognizes the
Union as the sole and exclusive collective bargaining representative for all
employees in the unit in all matters pertaining to wages, hours and working
conditions, and
WHEREAS, the parties hereto desire to establish a standard of conditions and
procedure under which employees shall work for the Employer during the term of
this Agreement and desire to regulate the mutual employment relations between
the parties for the purpose of securing harmonious cooperation and settling of
all disputes by peaceful means that may arise in the employee/Employer
relationship.
NOW, THEREFORE, in consideration of the mutual promises and agreements herein
contained, the parties agree as follows:
SECTION 1. MANAGEMENT
The parties hereto have a mutual interest in securing efficient business
operation and desire to cooperate to that end. It is the duty and right of the
Employer to manage the business and direct the working forces, subject to the
conditions herein set forth. This includes, but is not limited to, the right to
hire, reassign, promote, demote, layoff and discharge, but each employee covered
by this Agreement shall possess the right of appeal through the grievance
procedure as provided by the terms of this Agreement.
SECTION 2. UNION RECOGNITION AND SECURITY
The Employer recognizes the Union as the sole and exclusive bargaining agency
for all employees in the unit consisting of classifications as defined in
Schedule "A", attached hereto and made a part of this Agreement. All employees
shall become members of this bargaining unit upon completion of their probation
and remain members of the union, as a condition of their employment, during the
life of this Agreement, and the Union shall notify the Employer promptly in
writing of the failure of any such employee to become or remain a member of the
Union; provided, however, that the Union shall not request the Employer to
discriminate against any employee for non-membership in the Union, if such
membership is not available to the employee on the same terms and conditions
generally applicable to other members, or if membership is denied or terminated
for reasons other than the failure of the employee to tender the periodic dues
or initiation fee uniformly required by the Union as a condition of acquiring or
maintaining membership.
For the duration of this Agreement, the Employer shall deduct from the first pay
period of each month, Union dues and remit same to the Local Union within ten
(10) days, upon receipt of a Dues Authorization Card signed by the employee.
Initiation fees shall be deducted within the first two (2) paychecks after
completion of the probationary period and upon receipt of an authorization card
signed by the employee. This authorization shall continue until revoked by the
employee giving written notice to the Employer, by registered mail postmarked or
Page 1 of 19
<PAGE>
received by the Employer either (a) during the period from the first June 24th
to the first July 1st, both inclusive, after the effective date of this
authorization, or (b) during the same period of each year thereafter, or (c)
after the termination of the Agreement between the Employer and the Union.
Through tile representation of the Union, employees shall have the right to a
hearing on any differences of opinion as to the competency of any employee to
fill a new position or vacancy of promotion or demotion, or discipline
administered, or layoffs, or discharges or of discrimination. Such hearings
shall follow the established grievance procedure.
In the matter of suspension, demotion or discharge, if after hearing witnesses
the charges are not sustained, the employee may have his record cleared of such
charges and in case of loss of wages, may receive reimbursement of such loss. No
discipline by temporary suspension shall be administered to any employee which
shall permanently impair his seniority rights. The shop steward shall be
notified in writing of any of the above action.
The Employer agrees that he will not sublet, assign or transfer any work in
connection with electrical work to any other person, firm or corporation if such
subletting, assigning or transfer will cause the loss of work opportunities to
employees in the individual Employer's establishment covered by this Agreement.
Any such subletting, assigning or transfer shall be allowable after a mutual
determination has been made by the representatives of the parties that such
action is not in conflict with the preceding sentence.
The business of the representatives of the Union, pertaining to this Agreement,
is with the office of the Employer but he shall be permitted to enter the plant
at any time the plant is operating after obtaining clearance from management,
which shall not be unreasonably denied. It is understood that upon entering the
plant, the representative of the Union will not interfere with the normal
operations of the business.
The Employer will recognize shop stewards, selected in accord with the Union
rules and regulations, as representatives of the employees in the respective
groups or departments for which they are chosen. There shall be one shop steward
for each twenty-five (25) members or fraction thereof in any one building. The
Union will notify the Employer as to the identity of stewards and steward
groups. Stewards shall be free to conduct their Union duties at any time within
their regularly scheduled working hours and for one (1) hour before and after
such working hours, within the Employer's grounds. They shall not leave their
working station on Union business without the expressed permission of the
section supervisor, which shall not be unreasonably denied.
The Employer and employees agree that duly chosen stewards shall not be
restricted by-seniority during their term of office and that they shall be given
opportunity for employment at any time that three (3) or more employees are
working.
The Employer understands that the choice of, and removal from office, of
stewards is a function of the Union. The Union will notify the Employer within
forty-eight (48) hours of any change in steward status.
Union meetings shall not be held on the Employer's property or the Employer's
time without the Employer's permission.
The Union shall hold the Employer harmless for any and all claims, demands,
suits or other action that may arise out of this Section.
Page 2 of 19
<PAGE>
SECTION 3. SENIORITY
A.- New hires shall have a probationary period of sixty-five (65) worked days.
During such probationary period, the employee may be discharged for any reason
without recourse to the grievance procedure.
B. Seniority shall commence upon completion of the probationary period and
shall be defined as total length of service with the Employer, credited from the
date of hire.
With regard to layoffs and recalls, the principle of seniority shall govern and
it is understood that no employee who has rendered long and faithful service
shall be laid off as long as any work, which he can reasonably be expected to
perform satisfactorily, is being performed by a person junior in seniority.
Additionally, shill preference will be by seniority insofar as the needs of the
Employer will permit.
Overtime Monday through Friday will be by job continuation. Overtime on
Saturdays, Sundays and Holidays will be by seniority provided the employee can
properly perform file work required.
Promotions within the unit or to the first stage beyond the unit shall be based
upon seniority, ability and qualifications. Ability and qualifications being
sufficient, seniority shall prevail.
C. Job Posting When the Employer elects to fill on a permanent basis a vacancy
in a classification above Line Assembler then notice of such vacancy shall be
posted for a period of three (3) working days.
Employees desiring a promotion who meet the qualifications and have signed the
posting shall be given consideration in accordance with the seniority provisions
of this Agreement.
Employees who are promoted shall undergo an evaluation period of up to thirty
(30) worked days. should the employee fail to perform to the satisfaction of the
Employer during this evaluation period then the employee will be returned to his
former classification.
The foregoing shall not apply to the classification of Leadman.
D. Seniority shall be broken for:
1. Discharge for cause.
2. Resignation - A three (3) day unreported absence from work shall be
considered a resignation.
3. Illness, accident or layoff in excess of six (6) consecutive months.
4. Failure to return to work from a leave of absence or vacation.
5. Failure to return to work when recalled within four (4) days of the mailing
of a registered letter of a notice to report to work to the last known address.
Page 3 of 19
<PAGE>
E. Any employee of the Employer covered by this Agreement who is injured while
on duty shall continue to accumulate seniority during his absence due to such
injury and shall be reinstated upon recovery to his former position with full
seniority rights, provided he is physically and mentally qualified to do the
work, and provided that his job has not been abolished in the meantime or filled
by an employee with greater seniority. If, by reason of the circumstances noted
above, such employee cannot be reinstated to his old job, he will be returned to
such job as is available and for which he is qualified by reason of fitness and
ability, giving full consideration to his seniority, and if the new job is a
lower-paid job, he shall be paid the highest rate of pay for that job
classification. It is understood that when such a man returns to work, the
regular rules of seniority will prevail for those men below him on the seniority
list unless otherwise mutually agreed between the Union and the Employer.
SECTION 4. HOURS OF WORK AND OVERTIME
A. A maximum of ten (10) hours between 6:00 a.m. and 5:00 p.m. shall constitute
a work day, and maximum of five (5) such days, namely Monday to Friday
inclusive, shall be a work week. An employee may clock in up to six (6) minutes
late three (3) times per month without pay and without disciplinary action.
Nothing in this Agreement shall prohibit the Employer from establishing
staggered starting times for an employee or group of employees.
B. Overtime shall be paid as follows:
1. One and one-half (1 1/2) times the straight time hourly rate for all
work in excess of ten (10) hours in a work day.
2. Double (2) time the straight time hourly rate for all work in excess of
twelve (12) hours in a work
3. One and one-half (1 1/2) times the straight time hourly rate for the
first eight (8) hours on Saturday.
4. Double (2) time the straight time hourly rate for all work in excess of
eight (8) on Saturday.
5. Double (2) time the straight time hourly rate for all work performed on
Sundays and Holidays.
C. Employees shall not be required to take time off for the purpose of
off-setting overtime worked.
D. Regular employees shall be guaranteed four (4) hours' work or four (4) hours'
pay in lieu thereof for each day they report to work. Regular employees shall be
guaranteed four (4) hours' work or four (4) hours' pay in lieu thereof if
required by the Employer to report to work on Saturdays, Sundays or Holidays or
if business conditions warrant less hours for all employees.
The above guaranteed hours shall be waived in case of fire, flood or
similar causes beyond the Employer's control.
Page4 of 19
<PAGE>
E. The employees shall be granted a ten (10) minute break mid-morning and a ten
(10) minute break at midafternoon.
F. The Employer will provide three (3) minutes at the end of the shift for
personnel to clean themselves up.
G. It is agreed that where an employee is required to work at a point other
than his assigned reporting place, he shall proceed to the location of the job
and return from such job to the reporting place on the Employer's time.
H. Hours worked shall include time actually at work or on duty, including the
time required by management to stand by prepared to go to Work at a specific
place.
SECTION 5. SHIFTS
A. The Employer may establish additional work shifts other than the shift
provided for in Section 4. But no shift shall be established for a period of
less than one (1) week, and not less than three (3) men shall be employed on
each shift. Otherwise, the time so worked, outside of the hours scheduled in
Section 4, shall be considered and paid as overtime. Employees shall be notified
not less than three (3) work days prior to any change in their work schedule.
B. No shift shall be scheduled to work more then .ten (10) hours in any
twenty-four (24) hour period or longer than forty (40) hours in any one (1)
week. Regular starting and stopping times shall be posted for each shift
established' and all time worked outside of the posed hours shall be paid for as
overtime.
Where three (3) shifts are worked, each shift shall consist of eight (8)
hours (including an unpaid thirty (30) minute lunch period), the first or day
shift to start at 8:00 a.m. The second shift shall start immediately after the
first shift terminates, and the third shift shall start immediately after the
second shift terminates.
Fifty cents ($.50) per hour additional over the day shift shall be paid on
the second shift and seventy-five cents ($.75) per hour additional over the day
shift shall be paid on the third shift.
The shift which commences Friday at 12 Midnight and ends Saturday at 8:00
a.m. will be considered as a normal third shift and shall therefore be paid for
at the rate of seventy-five cents ($.75) per hour additional over the day shift
rate, according to the classification involved.
SECTION 6. WAGES
A. The wage rate to be paid under the terms of this Agreement to employees in
each occupational classification are those appearing in Schedule "A", attached
hereto and made a part hereof.
B. Wages shall be paid weekly on the Employer's time. Not more than three (3)
days' pay shall be withheld. Wages shall be computed from shop check-in to shop
check-out or its equivalent. Employees being laid off shall receive their wages
at time of layoff.
C. Effective May 1, 1997, an additional $0.30 will be added to ail rates and
progressions.
Page 5 of 19
<PAGE>
SECTION 7. HOLIDAYS
A. Employees covered by this Agreement shall receive with pay at the rate of
straight time the following holidays when not worked:
New Year's Day Day after Thanksgiving
Washington's B'day Last Scheduled Work Day
Memorial Day Before Christmas
Fourth of July Christmas Day
Labor Day Day Before New Year's Day
Thanksgiving Day 2 Float Holidays (*) with 72 hours' advance notice to
Employer
*However, no more than ten percent (I0%5 of the employees will take their
floating holidays off at any one time. The granting of such requests will be by
seniority.
Holidays are paid on the basis of an eight (8) hour day
With regard to the above mentioned float holidays, at the option of the
Employer, one (I) float holiday may be observed as a paid holiday for all
eligible employees on a date fixed by the Employer, such date to be posted by
the Employer no later than May 1st of each year.
B. Holidays falling on Saturday shall be observed the preceding Friday.
Holidays falling on Sunday shall be observed on the following Monday.
C. To be eligible for holiday pay, an employee must have completed his
probationary period with the Employer and must have worked the scheduled work
day before and the scheduled work day after such holiday unless absent because
of qualified illness or otherwise excused. For employees hired after May 1,
1979, they must have been employed six months in order to be eligible for the
two (2) floating holidays.
D. Ail work performed on any one of the paid holidays shall be paid for at two
(2) times the regular rate of pay ill addition to the holiday pay which an
employee would have received had he not worked.
SECTION 8. VACATIONS
A.) Prior to March 15t of each calendar year, or as soon as possible
thereafter, Departmental heads will consult with all employees entitled to
vacation and from such consultation, the employer shall establish the working
schedule for the vacation period.
The Employer in determining vacation schedules will respect the seniority and
wishes of the employee as to the time of vacation insofar as the needs of the
employer will permit.
Page 6 of 19
<PAGE>
B1.) The Employer will grant to each employee that was hired prior to May I,
1997 one (1) week's vacation with pay after one (1) year's service; Two week's
vacation with pay after two (2) year's service and three (3) weeks of vacation
after four (4) years of service with the following progressions after the fourth
(4) year of service:
SIX (6) YEARS OF SERVICE 3 WEEKS & 1 DAY
SEVEN (7) YEARS OF SERVICE 3 WEEKS & 2 DAYS
EIGHT (8) YEARS OF SERVICE' 3 WEEKS & 3 DAYS
NINE (9) YEARS OF SERVICE 3 WEEKS & 4 DAYS
TEN (10) YEARS OF SERVICE 4 WEEKS
B2.) The employer will grant to each employee that was hired after May 1, 1997
one (1) week's vacation with pay after one (I) year's service; two week's
vacation with pay after three (3) year's service; three week's vacation with pay
after five (5) year's service and four (4) week's vacation with pay after ten
(I0) year's service.
C.) Pay for tile vacation period shall be paid in advance and at the time tile
employee starts his vacation. The vacation pay shall be computed on the existing
hourly rate at the time of the employee's vacation. Vacation pay shall be based
---------------------------
on an eight (8) hour day.
- - ------------------------------
D.) Thirteen hundred fifty (1350) working hours in the employ of the Employer
at the conclusion of a twelve (12) month period shall constitute a year's
service and qualify the employee for full vacation pay. If less than thirteen
hundred fifty (1350) hours are worked, Section "H" below shall apply.
E.) Vacations must be taken within twelve (12) months next following the date
upon which the employee becomes eligible thereto, but shall not be cumulative.
F.) The Employer shall notify each employee by posted announcement ninety (90)
days prior to a proposed plant shutdown for vacation.
G.) Where on of the paid holidays (as provided elsewhere in this Agreement)
occurs within an employee's vacation period, the employee shall receive holiday
pay as provided for in addition to that employee's vacation pay.
H.) Where an employee, eligible for vacation, is laid off because of a
curtailment of work or quits, he hail be paid pro rata for that fraction of
thirteen hundred fifty (1350) hours, which has accumulated to his credit. Two
hundred forty (240) hours shall be the required minimum for a pro rata basis.
Such proration shall be based on full years of service at the time of layoff or
quit. (paragraph "B" above) Proration of vacation shall not apply unless the
employee has completed the first year of service with the Employer.
I.) Vacation shall not take place during the first six months of employment.
Accrual shall double during the second six months of the first year of
employment.
Page7of 19
<PAGE>
SECTION 9. JURY DUTY
Upon completion of six (6) months continuous service when an employee is called
for jury duty, said employee shall be reimbursed for the difference paid to the
employee for serving on jury duty and the amount shall be equal to the basic
scheduled work hours for the period involved times the employee's hourly rate.
Such pay to be limited to fifteen (15) days each contract year. Days not used in
one contract year shall be available in the next contract year to a maximum of
forty-five (45) days.
SECTION 10. FUNERAL LEAVE
A. Upon completion of the probationary period an employee shall be entitled to
three (3) days with pay for purposes of attending the funeral for the immediate
family, with the last day being the day of the funeral. The immediate family is
spouse, parents and/or legal guardians, sister, brother, children, grandparents,
mother-in-law, and father-in-law.
Two (2) additional days, the two (2) days after the funeral, without pay will be
granted for a funeral outside the State.
B. Should there be no funeral or the employee is unable to attend because of
the distance or the cost of travel, then the employee shall be entitled to one
(1) day of Bereavement Leave with pay.
C. The Employer may require reasonable proof of death and/or relation.
SECTION 11. PENSION
A. The IRA Pension Plan instituted effective May 1, 1975 shall be continued for
the duration of this Agreement. The Employer contribution effective April 30
1991 will be twenty-five ($0.25) per hour.
In addition to the above and effective May 1, 1997, the Employer will match up
to thirty cents ($0.30) per hour contribution made by an individual employee to
the IRA account provided that such other contribution is made through payroll
deduction.
B. At the employers option, the pensions will be transferred to a 401(k) plan.
-------------------------------------------------------------------------------
There will be no loss of funds to the employee, nor reduction in payments.
- - --------------------------------------------------------------------------------
SECTION 12. HEALTH AND WELFARE
Upon completion of tile probationary period or in accordance with the Plan,
whichever is greater, the Employer shall provide and pay for the Kaiser "L"
Health and Welfare Program or its equivalent for the employees.
The above Kaiser "L" Health and Welfare Program will be provided to dependents
and spouses at the Employer's expense provided the employee has been employed
for one (1) year.
Dental coverage for all employees shall be at 80/20 percent of cost.
Page 8 of 19
<PAGE>
The dental coverage will be provided to both dependents and/or spouses at the
Employer's expense provided the employee has been employed for one (1) year.
Any increase in tile premium over tile rates in effect as of April 30, 1991 for
Kaiser "L" and the Dental Plan shall be borne by the Employer. However,
employees shall be required to contribute Twenty Dollars ($20.00) per month on a
payroll deduction basis effective May I, 1991. Effectiv6 May 1, 1993, the
employees contribution shall be increased to Twenty-five Dollars ($25.00) per
month. Effective May I, 1998, the employees contribution shall be increased to
------------------------------------------------------------------------
Thirty Dollars ($30.00). On April 30, 1999, the employee contribution will be
- - --------------------------------------------------------------------------------
re-negotiated
- - -------------
SECTION 13. LIFE INSURANCE
Upon completion of the probationary period the Employer shall provide a life
insurance policy, including AD&D, in the amount: of $10,000.00 on the life of
each employee, who shall designate the beneficiary.
SECTION 14. LEAVE OF ABSENCE
A. Upon completion of the probationary period employees shall be eligible to
request leave of absence as may be provided for in this Section 14.
B. The empI6yee may request one (1) day per quarter of unpaid time off for
personal use. During the four (4) quarters per contract year, one (1) of the
four (4) days shall be granted provided the employee gives the Employer
twenty-four (24) hours advance notice prior to taking time off. No more than ten
percent (10%) of the employees will take their day off at any one time. Three
(3) of the four (4) days shall be by mutual agreement between the Employer and
the employee. The granting of such requests will be by seniority.
C. In cases where the employee has a prolonged illness or injury, a leave of
absence of up to six (6) months will be granted. Requests for a leave of absence
for other than the foregoing may be granted by the Employer.
Employees off work for over thirty (30) days due to a leave of absence or
extended illness or injury shall not suffer a loss of seniority except as may be
provided elsewhere; however, employees shall not accrue any benefits during such
period.
D. In all cases where leaves of absence are granted by the Employer, he Union
shall be notified in writing of the effective date and the termination date of
the leave. Any Union member who does not return or overstays the leave will be
considered to have quit his employment, and if rehired, shall be considered a
new employee. Timely extensions may be requested by the employee.
SECTION 15. SAFETY
A. It is hereby agreed that the Employer, the Union and the employees recognize
the importance of maintaining safety provisions for the protection of the
health, life and limb of all employees. Adequate safety and protective devices
shall be supplied workmen by the Employer on all hazardous work in accordance
with the safety rules of the Industrial Accident Commission, and the Employer
shall make every effort to improve conditions when called to his attention.
Employees shall wear and use safety devices specified by the Employer. The
Employer agrees that such safety equipment shall be maintained in good shape and
in accessible positions. The Union
Page 9 of 19
<PAGE>
shop steward and tile Leadman shall help the Employer enforce safety and
cleanliness about the shop at all times.
The Employer shall hold the Union harmless for any and all claims, demands,
suits or other action that may arise out of this Section.
B. Adequate facilities shall be provided by the Employer for hanging employees'
clothing and also adequate washstands and toilets, Precautions to secure the
health and safety of employees shall, as far as practical, be at all times taken
by the Employer, including a supply of "First-aid Cabinets" at convenient
locations in the plant.
C. The Employer will furnish all such necessary tools and equipment to
employees as may be required or necessary to perform the work in accord with the
Employer's specifications. Suitable rain protective equipment is to be furnished
by the Employer to the employees required to work out of doors in inclement
weather. When tools and equipment are issued and signed for, the employees will
be held responsible for their return in good condition, reasonable wear and-tear
excepted.
SECTION 16. TRAVEL
Where men are sent on jobs away from the shop or other regular place of
emplo3nnent where they are regularly employed, they shall receive first-class
board and lodging and traveling time at straight time to and from such job. If
employees travel on overtime days or are required to work overtime, they shall
be paid travel at rates specified in this Agreement. Not more than eight (8)
hours' pay for travel time in any one (I) day of twenty-four (24) hours shall be
paid. The Employer shall provide covered transportation to such employee or pay
the regular fare both ways for employees while traveling.
SECTION 17. TERMINATION
The Employer shall give each employee three (3) days' notice on a layoff for any
reason, or three (3) days' pay in lieu thereof, except in an emergency which is
beyond the control of the Employer.
SECTION 18. GRIEVANCE PROCEDURE
A. Should differences arise between the Employer and the Union as to the
meaning and application or the observance and performance by either party of any
provisions of this Agreement, or as to whether the wage or working conditions of
any individual employee or group of employees in the unit is not in accordance
with the wage rate or conditions that should apply to him or them as noted in
this Agreement, the following shall be the procedure for the adjustment and
settlement thereof:
Step I. The employee and/or the shop steward shall endeavor to adjust such
dispute or grievance with the Employer's representative who has initial
responsibility for the matter at hand.
Step 2. If it is not settled, it shall be presented in writing to the
management representative within seventy-two (72) hours of the occurrence. The
management representative shall respond in writing within seventy-two (72) hours
of receipt of the grievance.
Page 10 of 19
<PAGE>
Step 3. If it is not thus settled, then within seven (7) days the Business
Representative and/or the shop steward and/or the employee shall meet with the
management representative and/or labor relations representative and endeavor to
adjust such dispute or grievance. An International Representative of the IBEW
may be present at this Step in the Grievance Procedure only to assist the Local
Union.
Step 4. If such meeting is unable to resolve tile issue, then the grieving
party may request a Board of Adjustment provided such request is presented
within seven (7) days of such meeting. The Board of Adjustment shall consist of
two (2) representatives selected by the Union and two (2) representatives
selected by the Employer. The Board shall proceed to hear the matter in question
within fourteen (14) days, each party being permitted to produce such evidence
as may be relevant.
Tile Board shall have no power to add to, subtract from, or modify any of the
terms and conditions of this Agreement. A decision by a majority of the Board
shall be final and binding upon the parties.
Step 5. If the Board is unable to resolve the issue, then the grieving party
may request arbitration, provided such request is presented in writing within
seven (7) days of the meeting of the Board. If the parties are unable to agree
upon a neutral arbitrator, then the Federal Mediation and Conciliation Service
shall be requested to submit a panel of seven (7) arbitrators. Each side shall
have the option to reject one (I) complete panel. The parties shall alternately
strike from said list one (1) name after determining the first strike by lot,
and the remaining named arbitrator shall promptly conduct a hearing on the
grievance.
B. The neutral arbitrator shall have no power to add to, subtract from, or
modify any of the terms and conditions of this Agreement. The decision of the
neutral arbitrator shall be final and binding upon the parties.
C. The Union and the Employer shall equally share the expense of the
arbitration. However, each party shall bear its own expense of representation
and witnesses. This latter provision shall also apply to Step 4 in the grievance
procedure.
D. Should the time limits above be passed by either party, the grievance shall
be forfeited to the other. However, the above time limits may be extended by
mutual agreement.
SECTION 19. NO STRIKE - NO LOCKOUT
The Union agrees not to engage in any strikes, slowdowns or Stoppages of work
during the term of this Agreement.
Any action by the employees leaving jobs for their own protection in cases of
legally declared strike by some other union directly working on the job, if such
strike is sanctioned and approved by the labor body or council having
jurisdiction, shall not constitute a violation of this Agreement.
The Employer agrees not to engage in any lockout during the term of this
Agreement.
Page 11 of 19
<PAGE>
SECTION 20. NO DISCRIMINATION
It is tile continuing policy of the Union and the Employer that the provisions
of this Agreement shall be applied to all employees without respect to age, sex,
race, religion, color, national origin or marital status.
SECTION 21. SAVINGS CLAUSE
Any provision of this Agreement adjudged to be unlawful by a court of competent
jurisdiction shall be treated for all purposes as null and void, but all other
provisions of this Agreement shall continue to be in full force and effect
except as provided herein.
SECTION 22. TERM OF AGREEMENT
A. This Agreement shall take effect as of May 1, 1998 and shall remain in
-------------------------------
effect until April 30, 2001. It shall continue in effect from year to year
----------------------------
thereafter from May 1st to April 30th of each year, unless changed or terminated
in the way later provided herein.
Either party desiring to change or terminate this Agreement must notify the
other in writing at least sixty (60) days prior to the anniversary date of the
present contract. When notice for changes is given, the nature of the changes
desired must be specified in the notice and until a satisfactory conclusion is
reached in the matter of such changes, the original provisions shall remain ill
full force and effect. The negotiation of any proposed amendments by either
party shall begin within fifteen (15) days after receipt of the written proposed
amendments.
B. This Agreement shall be subject to amendment at any time by mutual consent
of the parties hereto. Such amendment shall be reduced to writing, stating the
effective date of the amendment, to be executed in the same manner as this
Agreement, and be approved by the InternationaI Office of the Union. -
Page 12 of 19
<PAGE>
ELECTRICAL WORKERS UNION, LOCAL 2131 HOSPITAL SYSTEMS, INC.
IBEW, LOCAL 2131
BY: /s/ ROGER LANGLOIS BY: /s/ DAVID MILLER
- - ------------------------- -----------------------
ROGER LANGLOIS DAVID MILLER
BUSINESS MANAGER, PRESIDENT
IBEW, LOCAL 2131
BY: /s/ VINH PHUN
- - -------------------------
VINH PHUN
COMMITTEEPERSON
DATE June 10, 1998
Page 13 of 19
<PAGE>
SCHEDULE"A"
PROGRESSIONS - CLASSIFICATIONS - WAGES
The provisions called for in this Schedule "A" shall become part of the
Agreement made May 1, I997 between Hospital Systems, Inc. and Local 213 I,
International Brotherhood of Electrical Workers.
Nothing in this Schedule shall serve to reduce any current wage rates of
individual employees.
A. PROGRESSIONS
1. Employees hired after May 1, 1997 shall progress from starting rate of $7.50
per hour [or market rate] and shall progress to the top rate in five 18 month
steps with a step at the first nine (9) months. To compute the raise from each
full step the difference between the employee's current rate and the top rate
shall be divided by the number of steps left in the progression.
2. The following are tile progression steps for employees hired before May
1, 1997:
Step 1 - First 13 calendar weeks of employment
Step 2 - Second 13 calendar weeks of employment
Step 3 - Third 13 calendar weeks of employment
Step 4 - Fourth 13 calendar weeks of employment
Step 5 - Fifth 13 calendar weeks of empIo3/ment
Step 6 - Sixth 13 calendar weeks of employment
Step 7 - Seventh 13 calendar weeks of employment
Step 8 - Thereafter
3. An employee with less than thirty-nine (39) weeks comparable experience
in the last two (2) years shall start at Step I.
4. An employee with over thirty-nine (39) weeks comparable experience in
the last two (2) years shall start at Step 4.
5. For the purpose of this Section only, a calendar week starts the first
Wednesday an employee works within a given job classification.
6. Previous Company experience may be credited in full.
Page 14 of 19
<PAGE>
B. CLASSIFICATIONS AND WAGES
The following are job classifications and minimum wage rates:
1. LINE ASSEMBLERS
1 MAY98 1 MAY99
STEP 1 $ 9.37 9.65
STEP 2' $ 9.56 9.85
STEP 3 $10.03 10.33
STEP 4 $10.21 10.51
STEP 5 $10.77 11.10
STEP 6 $11.08 11.42
STEP 7 $11.72 12.07
STEP 8 $12.07 12.43
2. SPECIAL PRODUCTION WORKERS
1 MAY98 1 MAY99
STEP 1 $ 9.62 9.91
STEP 2 $ 9.81 10.10
STEP 3 $10.27 10.58
STEP 4 $10.45 10.77
STEP 5 $11.01 11.34
STEP 6 $11.34 l1.68
STEP 7 $12.00 12.36
STEP 8 $12.33 12.70
3. TRUCK DRIVER/YARDMAN
1 MAY98 1 MAY99
STEP 1 $ 9.62 9.91
STEP 2 $ 9.81 10.10
STEP 3 $10.27 10.58
STEP 4 $10.45 10.77
STEP 5 $11.01 11.34
STEP 6 $11.34 11.68
STEP 7 $12.00 12.36
STEP 8 $12.33 12.70
Page 15 of 19
<PAGE>
4. RECEIVING AND INVENTORY CLERK
1 MAY98 1 MAY99
STEP 1 $ 9.37 9.65
STEP 2 $ 9.56 9.85
STEP 3 $10.03 10.33
STEP 4 $10.21 10.51
STEP 5 $10.77 11.10
STEP 6 $11.08 11.42
STEP 7 $11.72 12.07
STEP 8 $12.07 12.43
5. GENERAL LABORER
1 MAY98 1 MAY99
STEP 1 $6.09 6.27
STEP 2 $6.24 6.43
STEP 3 $6.41 6.60
STEP 4 $6.56 6.76
STEP 5 $6.72 6.92
STEP 6 $6.88 7.09
STEP 7 $7.03 7.25
STEP 8 $7.19 7.41
6. SMALL PARTS ASSEMBLY / ENGRAVING
1 MAY98 1 MAY99
STEP 1 $ 9.37 9.65
STEP 2 $ 9.56 9.85
STEP 3 $10.03 10.33
STEP 4 $10.21 10.51
STEP 5 $10.77 11.10
STEP 6 $11.08 11.42
STEP 7 $11.72 12.07
STEP 8 $12.07 12.43
7. MILLING MACHINE, PUNCH PRESS & MANIFOLD
Employees assigned to operate the Milling Machine, Punch Press or Manifold
shall receive twenty-five cents ($.25) per hour above their regular hourly rate
for all hours worked while operating the Milling Machine, Punch Press or
Manifold. Shop coats will be provided for these operators.
-------------------------------------------------------
7. LEADMAN
There may be a Leadman in each classification and the wages shall be
sixty-two cents ($.62) per hour over Step 8 in the classification directed.
Page 16 of 19
<PAGE>
SCHEDULE "B"
JOB DESCRIPTIONS
A. LINE ASSEMBLERS
Duties shall consist of the assembling of all products manufactured by tile
Company such as critical care units, isolated power units, mobile units, nurses
stations, etc. Typical parts to be assembled are frames, back pans, convenience
mounting straps, end caps, receptacles, outlets, switches, transformers, circuit
breakers and supports, nurse call and code one equipment, elapsed time
indicators, line isolation monitors, dimmers, timers, sub-face plates, fascias,
plastic laminated panels and wiring therefore. Sub-assemblies shall be air
grills, panel frames, door assemblies, ground jacks, group plugs, grounding jack
assemblies, circuit break assemblies, mobile unit assemblies, etc. Included in
the assembly work will be the measuring and cutting of aluminum extrusions,
plastic laminated panels, plastic trims and steel supports. Packaging, shipping
and receiving. The above is not all inclusive, but lists typical duties to be
performed and all like assignments shaIl be performed by Line Assemblers.
B. SPECIAL PRODUCTION WORKERS
Duties shall consist of operating punch press, drill press, welding equipment,
brazing equipment and other heavy duty power operated equipment. The assemblies
to be handled are gas failure alarms, remote hazard indicators, ground fault
indicators, nurses station sub-assemblies and connections, manifolding or
medical gas outlets, and welding of aluminum sub-assemblies. The above is not
all inclusive, but lists typical duties to be performed and all like assignments
shall be performed by Special Production Workers.
Special Production Workers may be assigned duties in the Line Assemblers
category and shall perform these duties without any reduction in pay. Line
Assemblers may be requested to perform duties in the Special Production Workers
category and shall be paid at the Special Production Workers' scale while
performing those duties only.
C. TRUCK DRIVER/YARDMAN
Duties shall consist of driving a truck, or any other type of vehicle covered by
a Class 3 California Drivers License, for the purpose of delivery and pick-up of
materials, stocking and withdrawing such materials, and - daily yard and shop
cleanup and other related duties assigned by the Production Manager.
D. RECEIVING & INVENTORY CLERK
Duties shall consist of performing any one or more of the following duties:
receiving and checking incoming shipments of materials, stacking materials and
issuing materials to the factory, keeping of stock in order, operating power
and/or hand lift trucks and driving the company truck for local pickup and
delivery of material.
Receiving duties consists o f verifying correctness of shipments against
bills of lading, invoices or other records; checking for shortages and rejecting
damaged goods; routing merchandise and materials to proper departments; and
maintaining necessary records and files.
The above is not all inclusive, but lists typical duties performed by the
Receiving and Inventory Clerk
Page 17 of 19
<PAGE>
E. GENERAL LABORER
Duties shall consists of performing any one or more of the following duties;
removing turnings and oil from machines, wash and degrease parts, handle
material, cleaning, keeps in an orderly condition factory working areas,
washrooms, offices and yard. Duties may include sweeping, mopping, polishing,
window washing and other housekeeping duties that may be assigned. The above is
not all inclusive, but lists typical duties to be performed by the General
Laborer.
F. LEADMAN
Duties are to supervise and instruct, lead and guide; allocate work as directed
by tile management's representative: as well as perform necessary production
work in all job descriptions; enforce safety rules, check working conditions and
quality control.
G. SMALL PARTS ASSEMBLY / ENGRAVING
Duties shall consist of assembling small sub-assemblies [such as brackets,
- - --------------------------------------------------------------------------------
switches plugs etc], electronic soldering and assembly [such as clocks, remote
- - --------------------------------------------------------------------------------
indicators, controllers etc] and engraving. The above is not all inclusie, but
- - --------------------------------------------------------------------------------
lists typical duties to be performed and all like assignments shall be performed
- - --------------------------------------------------------------------------------
by the category.
- - ------------------
All classifications shall be full or part-time as required.
Page 18 of 19
<PAGE>
SIDE LETTER
Between
HOSPITAL SYSTEMS, INC.
and
ELECTRICAL WORKERS UNION, LOCAL 2131
It is agreed and understood by the parties that the following shall only apply
to employees who have completed the probationary period as of April 30, 1991.:
After four (4) continuous years of service, all employee shall be entitled
to ten cents ($.10) above the rate specified in #1, #2 or #3 in Schedule "A".
After eight (8) continuous years of service, all employee shall be entitled
to ten cents ($.10) above his rate.
After ten (10) continuous years of service, all employee shall be entitled
to an additional ten cents ($.10) above his rate.
IBEW, LOCAL 2131 HOSPITAL SYSTEMS, INC.
BY: /s/ ROGER LANGLOIS BY: /s/ DAVID MILLER
- - ------------------------- -----------------------
ROGER LANGLOIS DAVID MILLER
BUSINESS MANAGER, PRESIDENT
IBEW, LOCAL 2131
BY: /s/ VINH PHUN
- - -------------------------
VINH PHUN
COMMITTEEPERSON
BY: /s/ OSCAR RONQUILLO
- - --------------------------
OSCAR RONQUILLO
COMMITTEEPERSON
DATE June 10, 1998
Page 19 of 19
<PAGE>
PROMISSORY NOTE
---------------
August 7, 1998
U.S.$5,000,000.00 St. Louis, Missouri
FOR VALUE RECEIVED, the undersigned, Allied Healthcare Products, Inc., a
Delaware corporation with its chief executive office located at 1720 Sublette
Avenue, St. Louis, Missouri 63110, promises to pay to the order of LaSalle
National Bank ("Bank"), at 135 S. LaSalle St., Chicago, IL 60603, or to such
other place as Bank or the holder hereof shall designate in writing, in lawful
money of the United States of America, in immediately available funds, the
principal sum of FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) together with
interest at a per annum rate equal to Seven and 75/100 percent (7.75%) ("Fixed
Rate"), payable in Fifty-Nine (59) consecutive monthly principal and interest
payments of Sixty Thousand Five Dollars and no/100 ($60,005.00) each, commencing
on September 1, 1998 with subsequent payments due on the 1st day of each month
thereafter and a final payment of all principal and interest then remaining
unpaid due at maturity on August 1, 2003. Interest shall be payable on any
amounts not paid as provided above at a rate per annum equal to two percent
(2.0%) in excess of the Fixed Rate. Said interest rate shall be computed on the
basis of a year of 360 days and the actual days elapsed.
All payments hereunder shall be made in immediately available funds by 1:00
p.m. St. Louis, Missouri time on the day when due. If any payment of principal
or interest on this Note shall become due on a Saturday, Sunday or any day on
which the Bank is legally closed to business, such payment shall be made on the
next succeeding business day and such extension of time shall be included in
computing interest in connection with such payment.
For purposes of this Note, the following terms shall have the meanings
ascribed as follows:
"Affiliate": means, as applied to any Person, any other Person who directly
Or indirectly controls, is controlled by, is under common control with or is a
director or officer of such Person. For purposes of this definition, "control"
means the possession, directly or indirectly, of the power to vote 5 % or more
of the securities having ordinary voting power for the election of directors or
the direct or indirect power to direct the management and policies of a Person.
"Benefit Plan": means a "defined benefit plan" (as defined in Section 3(35)
of ERISA) for which the undersigned or any Subsidiary, or any ERISA Affiliate
has been an "employer" (as defined in Section 3(5) of ERISA) within the past six
years.
"Change of Control": shall be deemed to have occurred at such time as a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly,
of more than 20% of the total voting power of all classes of stock then
outstanding of the undersigned entitled to vote in the election of directors.
<PAGE>
"Deed of Trust": the Deed of Trust, Assignment of Rents and Security
Agreement of even date herewith made by and between the undersigned, the Bank
and the Trustee therein named.
"ERISA": means the Employee Retirement Income Security Act of 1974, 29
U.S.C. 1000 et seq.,amendments thereto, successor statutes, and regulations
-----
or guidance promulgated thereunder.
"ERISA Affiliate": means (a) any corporation subject to ERISA whose
employees are treated as employed by the same employer as the employees of the
undersigned or any of its Subsidiaries under IRC Section 414(b), (b) any trade
or business subject to ERISA whose employees are treated as employed by the same
employer as the employees of the undersigned or any of its Subsidiaries under
IRC Section 414(c), (c) solely for the purposes of Section 302 of ERISA and
Section 412 of the IRC, any organization subject to ERISA that is a member of an
affiliated service group of which the undersigned is a member under IRC Section
414(m), or (d) solely for the purpose of Section 302 of ERISA and Section 412 of
the IRC, any party subject to ERISA that is a party to an arrangement with the
undersigned or any of its Subsidiaries and whose employees are aggregated with
the employees of the undersigned or any of its Subsidiaries under IRC Section
414(o).
"Foothill": Foothill Capital Corporation.
"Foothill Credit Facility": the Loan or Security Agreement dated August 7,
1997, by and between the undersigned certain of its Subsidiaries and Foothill,
as amended by Amendment Number One to Loan and Security Agreement, and Amendment
Number Two to Loan and Security Agreement.
"Indebtedness": means (a) all obligations of a Person for borrowed money,
(b) all obligations of a Person evidenced by bonds, debentures, notes, or other
similar instruments and all reimbursements or other obligations of a Person in
respect of letters of credit, bankers acceptances, interest rate swaps, or other
financial products, (c) all obligations of a Person under capital leases, (d)
all obligations or liabilities of others secured by a Lien on any property or
asset of a Person, irrespective of whether such obligation or liability is
assumed, and (e) any obligation of a Person guaranteeing or intended to
guarantee (whether guaranteed, endorsed, co-made, discounted, or sold with
recourse to such Person) any indebtedness, lease, dividend, letter of credit, or
other obligation of any other Person.
"IRC": means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lien": means any interest in property securing an obligation owed to, or a
claim by, any Person other than the owner of the Property, whether such interest
shall be based on the common law, statute, or contract, whether such interest
shall be recorded or perfected, and whether such interest shall be contingent
upon the occurrence of some future event or events or the existence of some
future circumstance or circumstances, including the lien or security interest
arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation,
assignment, deposit arrangement, security agreement, adverse claim or charge,
conditional s~.le or trust receipt, or from a lease, consignment or bailment for
security purposes.
"Loan Documents": this Note, the Deed of Trust and any other instrument,
document, agreement or guaranty delivered heretofore or hereafter in connection
with any of the indebtedness evidenced by this Note, all as from time to time
amended, modified, renewed, increased or extended.
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<PAGE>
"Material Adverse Change": means (a) a material adverse change in the
business, prospects, operations, results of operations, asg'ets, liabilities or
condition (financial or otherwise) of the undersigned, (b) the material
impairment of the undersigned's ability to perform its obligations under the
Loan Documents to which it is a party or of Bank to enforce the Obligations or
realize upon the Properties, (c) a material adverse effect on the value of the
Properties or the amount that Bank would be likely to receive (after giving
consideration to delays in payment and costs of enforcement) in the liquidation
of such Properties, or (d) a material impairment of the priority of Bank's Liens
with respect to the Properties.
"Multiemployer Plan": means a "multiemployer plan" (as defined in Section
4001 (a)(3) of ERISA) to which the undersigned, or any of its Subsidiaries, or
any ERISA Affiliate has contributed, or was obligated to contribute, within the
past six years.
"Obligations": any and all amounts, indebtedness, covenants, promises,
liabilities, duties owing, now existing or hereafter arising, due, payable or
owing by the undersigned to the Bank under any of the Loan Documents.
"Permitted Liens"' means (a) Liens held by Bank and Foothill, Co) Liens for
unpaid taxes that either (i) are not yet due and payable or (ii) are the subject
of Permitted Protests, (c) Liens set forth on Schedule P-1 to the Foothill
Credit Agreement and Schedule A attached hereto, except as released pursuant to
that certain Full Deed of Release dated ~a~~2 ictq 0 ,1998 by Foothill Capital
Corporation, (d) the interests of lessors under operating leases dnd purchase
money Liens of lessors under capital leases to the extent that the acquisition
or lease of the underlying asset is permitted hereunder and so long as the Lien
only attaches to the asset purchased or acquired and only secures the purchase
price of the asset, (e) Liens arising by operation of law in favor of
warehousemen, landlords, carriers, mechanics, materialmen, laborers, or
suppliers, incurred in the ordinary course of business of the undersigned or any
of its Subsidiaries and not in connection with the borrowing of money, and which
Liens either (i) are for sums not yet due and payable, (ii) are the subject of
Permitted Protests, or (iii) removed by payment or bonded within 20 Business
Days of the undersigned or any of its Subsidiaries obtaining notice thereof, (f)
Liens arising from deposits made in connection with obtaining worker's
compensation or other unemployment insurance, (g) Liens or deposits to secure
performance bids, tenders, or leases (to the extent permitted under the Loan
Documents, incurred in the ordinary course of business or the undersigned or any
of its Subsidiaries and not in connection with the borrowing of money, (h) Liens
arising by reason of security for surety or appeal bonds in the ordinary course
of business of the undersigned or any of its Subsidiaries, (i) Liens of or
resulting from any judgment or award that would not have a Material Adverse
Effect upon the undersigned and as to which the time for the appeal or petition
for rehearing of which has not yet expired, or in respect of which the
undersigned or any of its Subsidiaries is in good faith prosecuting an appeal or
proceeding for a review, and in respect of which a stay of execution pending
such appeal or proceeding for review has been secure, (j) Liens described in
Exhibit B.to the Deed of Trust and with respect to real property other than that
-------
described in the Deed of Trust, easements, rights of way, zoning and similar
covenants and restrictions, and similar encumbrances that customarily exist on
properties of Persons engaged in similar activities and similarly situated and
that in any event do not materially interfere with or impair the use or
operation thereof.
"Permitted Protest": means the right of the undersigned or any of its
Subsidiaries to protest any Lien (other than any such Lien that secures the
Obligations), tax (other than payroll taxes or taxes that are
3
<PAGE>
the subject of a United States federal tax lien), or rental payment, provided
that (a) a reserve with respect to such obligation is established on the books
of the undersigned or any of its Subsidiaries in an amount that is reasonably
satisfactory to Bank, (b) ar~y such protest is instituted and diligently
prosecuted by the undersigned or any of its Subsidiaries in good faith, and (c)
Bank is satisfied that, while any such protest is pending, there will be no
impairment of the enforceability, validity, or priority of any of the Liens of
Bank.
"Person"' an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture, governmental authority or other entity of whatever nature.
"Properties"' any and all title, rights, interests, assets or properties,
including without limitation, contract rights, accounts, tangible and intangible
personal property, inventories, goods, facilities, machinery and equipment and
real property.
"Subsidiary": as to any Person, a corporation, pannership or other entity
of which shares of stock or other ownership interests having ordinary voting
power (other than stock or such other ownership interests having such power only
by reason of the happening of a contingency) to elect a majority of the board of
directors or other managers of such corporation, partnership or other entity are
at the time owned, or the management of which is otherwise controlled, directly
or indirectly through one or more intermediaries, or both, by such Person.
Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Note shall refer to a Subsidiary or Subsidiaries of the
undersigned.
"Tangible Net Worth"' means, as of any date of determination, the
difference of (a) a Person's total stockholder's equity, minus(b) the sum of:
-----
(i) all intangible assets of such Person, and (ii) all amounts due to such
Person from affiliates.
"Undersigned": includes each maker and each endorser, and each jointly and
severally, agrees to all the provisions hereof.
The undersigned hereby represents and warrants to the Bank that (a) it is a
corporation existing and in good standing under the laws of the State of
Delaware, (b) it as well as its Subsidiaries are duly qualified, in good
standing and authorized to do business in each jurisdiction where failure to do
so would have a material adverse affect upon the undersigned or any of its
Subsidiaries, (c) that the borrowings hereunder, the execution and delivery of
the Loan Documents by the undersigned and the performance by the undersigned of
its respective obligations under the Loan Documents are within the undersigned's
corporate and all other powers, have been authorized by all necessary respective
corporate and all other action, have received all necessary approvals and do not
and will not contravene or conflict with any provision of law or of the charter
or by-laws of the undersigned or of any agreement binding upon the undersigned,
and (d) that there has been no material adverse change in the business,
properties, assets, operations or prospects of the undersigned or any
Subsidiaries since the date of the last financial statements provided on behalf
of the undersigned to the Bank.
The undersigned agrees to deliver to Bank: (a) as soon as available, but
within 20 days after the end of each month, accounts receivable aging for the
undersigned and each of its Subsidiaries; Co) as soon as available, but in any
event within 45 days after the end of the undersigned's fiscal quarter an
internally
4
<PAGE>
prepared balance sheet, income statement, and statement of cash flow covering
the undersigned and its Subsidiaries' operations during such period; and (c) as
soon as available, but in any event within 90 days after the end of the
undersigned's fiscal years,financial statements of the undersigned and its
Subsidiaries for each such fiscal year, audited by the Borrower's current
independent certified public accountants and certified, without any
qualifications, by such accountants to have been prepared in accordance with
GAAP, together with a certificate of such accountants addressed to Bank stating
that such accountants do not have knowledge of the existence of any default or
Event of Default hereunder. Such audited financial statements t shall include a
balance sheet, income statement, and statement of cash flow and, if prepared, an
accountants' letter to management. In addition to the financial statement
referred to above, the undersigned agrees to deliver financial statements
prepared on a consolidating basis. The undersigned also shall deliver to Bank
its Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K Current
Reports, and any other filings made by the undersigned with the Securities and
Exchange Commission, if any, as soon as the same are filed, or any other
information that is provided by the undersigned to its shareholders, and any
other report reasonably requested by Bank relating to the undersigned's
financial condition.
The undersigned further covenants and agrees that it will not nor will it
permit any Subsidiary to, without Bank's prior written approval which may be
given in Bank's sole discretion, do any of the following:
(a) Create, incur, assume, permit, guarantee, or otherwise become or
remain, directly or indirectly, liable with respect to any Indebtedness, except:
(i) indebtedness evidenced by the Foothill Credit Facility, together
with Indebtedness to issuers of letters of credit that are the subject of letter
of credit guarantees therein described;
(ii) indebtedness set forth in the latest financial statements of the
undersigned submitted to Bank on or prior to this date;
(iii) indebtedness secured by Permitted Liens; and
(iv) refinancings, renewals, or extensions of Indebtedness permitted
under clauses (i) and (ii) above (and continuance or renewal of any Permitted
Liens associated therewith) so long as: (i) the terms and conditions of such
refinancings, renewals, or extensions do not materially impair the prospects of
repayment of the Obligations, (ii) the net cash proceeds of such ref'mancings,
renewals, or extensions do not result in an increase in the aggregate principal
amount of the Indebtedness so refinanced, renewed, or extended, (iii) such
refinancings, renewals, refundings, or extensions do not result in a shortening
of the average weighted maturity of the Indebtedness so refinanced, renewed, or
extended, and (iv) to the extent that Indebtedness that is refinanced was
subordinated in right of payment to the Obligations, then the subordination
terms and conditions of the refinancing Indebtedness must be at least as
favorable to Bank as those applicable to the refinanced Indebtedness.
(b) Create, incur, assume, or permit to exist, directly or indirectly, any
Lien on or with respect to any of its properly or assets, of any kind, whether
now owned or hereafter acquired, or any income or profits therefrom, except for
Permitted Liens.
5
<PAGE>
(c) Enter into any merger, consolidation, reorganization, or
recapitalization, or reclassify its capital stock, or liquidate, wind up, or
dissolve itself (or suffer any liquidation or dissolution), or convey, sell,
assign, lease, transfer, or otherwise dispose of, in one transaction or a series
of transactions, all or any substantial part of its property or assets.
(d) Sell, lease, assign, transfer, or otherwise dispose of any the
undersigned's or any of its Subsidiaries' properties or assets other than sales
of inventory to buyers in the ordinary course of the undersigned's or any of it
Subsidiaries' business as currently conducted.
(e) Guarantee or otherwise become in any way liable with respect to the
obligations of any third Person except by endorsement of instruments or items or
payment for deposit.
Make any change in the principal nature of the undersigned's or any of its
Subsidiaries'
(g) Cause, permit, or suffer, directly or indirectly, any Change of
Control.
(h) Make any distribution or declare or pay an dividends (in cash or other
property, other than capital stock) on, or purchase, acquire, redeem, or retire
any of the undersigned's or any of its Subsidiaries capital stock, of any class,
whether now or hereafter outstanding other than dividends of Subsidiaries to the
undersigned.
(i) Directly or indirectly make, acquire, or incur any liabilities
(including contingent obligations) for or in accordance with (i) the acquisition
of the securities (whether debt or equity) of, or other interests in, a Person,
(ii) loans, advances, capital contributions, or transfers of property to a
Person, or (iii) the acquisition of all or substantially all of the properties
or assets of a Person.
(j) Directly or indirectly enter into or permit to exist any material
transaction with any Affiliate of the undersigned or any of its Subsidiaries
except for transactions that are in the ordinary course of the undersigned's or
any of its Subsidiaries business, upon fair and reasonable terms, that are fully
disclosed to Bank, and that are no less favorable to the undersigned or any of
its Subsidiaries than would be obtained in an arm's length transaction with a
non-Affiliate.
(k) Suspend or go out of a substantial portion of its business.
(1) Use the proceeds of the indebtedness evidenced by this Note for any
purpose other than payment of Foothill and for general corporate purposes.
(m) Directly or indirectly:
(i) engage, or permit any Subsidiary to engage, in any prohibited
transaction which is reasonably likely to result in a civil penalty or excise
tax described in Sections 406 of ERISA or 4975 of the IRC for which a statutory
or class exemption is not available or a private exemption has not been
previously obtained from the Department of Labor;
6
<PAGE>
(ii) permit to exist with respect to any Benefit Plan any accumulated
funding deficiency (as defined in Sections 302 of ERISA and 412 of the IRC),
whether or not waived;
(iii) fail, or permit any Subsidiary to fail, to pay timely required
contributions or annual installments due with respect to any waived funding
deficiency to any Benefit Plan;
(iv) terminate, or permit any Subsidiary to terminate, any Benefit
Plan where such event would result in any liability of the undersigned, any of
its Subsidiaries or any ERISA Affiliate under Title IV of ERISA;
(v) fail, or permit any Subsidiary to fail, to make any required
contribution or payment to any Multiemployer Plan;
(vi) fail, or permit any Subsidiary to fail, to pay any required
installment or any other payment required under Section 412 of the IRC on or
before the due date for such installment or other payment;
(vii) withdraw, or permit any Subsidiary to withdraw, from any
Multiemployer Plan where such withdrawal is reasonably likely to result in any
liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of the undersigned, any of
its Subsidiaries or any ERISA Affiliate in excess of $500,000.
(n) Permit the undersigned's Tangible Net Worth to be, at any time,
less than $21,000,000.
(o) The undersigned and any of its Subsidiaries shall not, in the
aggregate, make capital expenditures in any fiscal year in excess of $3,000,000.
The undersigned shall be responsible, by prompt payment or reimbursement,
for all costs, fees and expenses (including, without limitation, reasonable
attorneys' fees) in any way related to, or in connection with, the Loan
Documents, incurred by the Bank, including, without limitation, the preparation,
negotiation, extension, modification and enforcement of the Loan Documents.
This Note may be prepaid in whole or in part by the undersigned at any time
and from time to time upon at least 5 days written notice to the Bank. If the
Fixed Rate at the time of prepayment is higher than the Base Rate, then a
make-whole amount shall be due and payable at the time of prepayment equal to
the difference between the Base Rate and the Fixed Rate, multiplied by the
number of years (or pro-rations of same) remaining on this Note, multiplied by
the amount of principal being prepaid. In the event the Fixed Rate at the time
of prepayment is equal to or less than the Base Rate, then there shall be no
prepayment premium due. "Base Rate" shall mean a per annum rate of interest
equal to the "ask yield" as published in the Wall Street Journal on the date the
Bank has received the prepayment notice in the Treasury Bonds, Notes & Bills
"Govt. Bonds & Notes" subsection for such securities that have a maturity in the
same month in which this Note is scheduled to mature plus 250 basis points. The
undersigned shall
7
<PAGE>
be required to pay the make-whole amount in the event this Note is prepaid out
of collateral proceeds or otherwise following the occurrence of an Event of
Default.
The proceeds of the loan evidenced of this Note shall not be used directly
or indirectly for the purpose of purchasing or carrying, or for the purpose of
extending credit to others for the purpose of purchasing or carrying, any
"margin stock" as that term is defined in Regulation U of the Board of Governors
of the Federal Reserve System.
The Obligations are secured by and entitled to the benefits in all respects
of the Loan Documents.
Any one of the following occurrences shall constitute an "Event of Default"
under this Note:
(a) The undersigned shall fail to make any payment of principal, interest,
make-whole amount or other amounts payable under this Note, any of the other
Loan Documents or any other obligations of the undersigned to the Bank when and
as due, or shall fail to comply with, perform or observe any agreement,
provision or undertaking contained in the Loan Documents or in any other
obligation of the undersigned to the Bank, or if any representation, warranty or
information made or provided by or on behalf of the undersigned in connection
herewith or in connection with the loan evidenced hereby is false or misleading
in any material respect as of the date made;
(b) There shall occur any default or event of default, or any event which
might become such with notice or the passage of time or both, or any similar
event, or any event which requires the prepayment of borrowed money or the
acceleration of the maturity thereof, under the terms of the Foothill Credit
Facility or any other evidence of indebtedness or other material agreement
issued or assumed or entered into by the undersigned or any of its Subsidiaries
or under the terms of any indenture, agreement or instrument under which any
such evidence of indebtedness or other agreement is issued, assumed, secured or
guaranteed, and such event shall continue beyond any applicable period of grace;
(c) Any suit, action or other proceeding (judicial or administrative) shall
be commenced against the undersigned or any of its Subsidiaries with respect to
any assets of the undersigned, or any of its Subsidiaries, a final judgment
shall be entered in any such suit, action or proceeding, which proceeding or
judgment shall have or threaten to have a material and adverse effect on the
future operations of the undersigned or any or any of its Subsidiaries;
(d) The undersigned or any of its Subsidiaries shall file a petition or
answer or consent to a petition seeking relief under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other applicable
federal, state or foreign bankruptcy law or other similar law, or the
undersigned or any of its Subsidiaries shall consent to the institution of
proceedings thereunder or the filing of any such petition or to the appointment
or taking possession of a receiver, liquidator, assignee, trustee, custodian,
sequestrator or similar official of the undersigned or any of its Subsidiaries;
(e) There shall be entered a decree or order by a court constituting an
order for relief in respect of the undersigned or any of its Subsidiaries
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other applicable federal, state or foreign bankruptcy law or
other similar law, or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator or similar official of the undersigned or any of its
Subsidiaries or of any substantial part of their respective
8
<PAGE>
properties, or ordering the winding-up of or liquidation of the affairs of the
undersigned or any of its Subsidiaries and any such decree or order shall
continue unstayed and in effect for a period of thirty consecutive days;
(f) The undersigned or any of its Subsidiaries shall become insolvent or
shall fail or be unable to pay their debts as they mature, or shall admit in
writing their inability to pay their debts as they mature, or shall make a
general assignment for the benefit of their creditors, call a meeting of its
creditors or shall enter into any composition or similar agreement, or shall
suspend the transaction of all or a substantial portion of their usual business;
(g) Any default or Event of Default shall exist or continue under any Loan
Document or any such Loan Document shall not be, or shall cease to be,
enforceable in accordance with its terms or be contested by any obligor
thereunder.
Upon the occurrence of any Event of Default hereunder: (i) the entire
unpaid principal balance of, any unpaid interest then accrued on make whole
amount, any other amounts owing under or evidenced by this Note and all other
obligations, whether contingent or otherwise, of the undersigned to the Bank
shall immediately become due and payable at the option of the Bank hereof, and
without presentment, notice, demand or protest of any kind all of which are
hereby expressly waived by the undersigned; and (ii) the Bank hereof shall have
and may exercise any and all rights and remedies available under the Loan
Documents or at law or in equity. No delay or omission on the part of the Bank
in exercising any power or right under this Note shall impair such right or
power or be construed to be a waiver of any Event of Default or any acquiescence
therein, nor shall any single or partial exercise of any power or right
hereunder preclude other or further exercise thereof, or the exercise of any
other power or right.
The Bank is authorized to charge any account of the undersigned maintained
with the Bank for any amounts due or payable hereunder and in addition to all
rights of set off available to Bank at law, the undersigned hereby grants to the
Bank a continuing security interest in such accounts, and in any deposits,
monies, securities or other property of the undersigned delivered to, or left in
the possession of, the Bank or the Bank's nominee or bailee.
The remedies of the Bank, as provided herein, shall be cumulative and
concurrent, and may be pursued singularly, successively or together, at the sole
discretion of the holder hereof, and may be exercised as often as occasion
therefor shall arise. No act or omission or commission of the Bank, including
specifically any failure to exercise any right, remedy or recourse, shall be
deemed to be a waiver or release of the same, such waiver or release to be
effected only through a written document executed by the holder and then only to
the extent specifically recited therein. A waiver or release with reference to
any one event shall not be construed as continuing, as a bar to, or as a waiver
or release of, any subsequent right, remedy or recourse as to a subsequent
event.
In the event one or more Events of Default shall occur, the undersigned
promises to pay all costs of collection of every kind, including but not limited
to all reasonable attorneys' fees, court costs, and expenses of every kind
incurred by the holder hereof in connection with such collection or the
protection or enforcement of any or all of the security for this Note including
representation of the Bank in proceedings under the Bankruptcy Code or other
insolvency proceedings and whether or not any lawsuit is ever filed with respect
thereto.
9
<PAGE>
The undersigned hereby waives presentment, protest, demand, notice of dishonor
or default and consents to any and all renewals, extensions, and/or the release
of any party directly or indirectly liable for the payment hereof, all without
notice to and without affecting the liability of any of the undersigned.
This Note shall be governed by and construed in accordance with the internal
laws of the State of Missouri. This Note shall bind the undersigned and shall
inure to the benefit of the Bank, any holder hereof, and all of the respective
parties' successors and assigns.
THE UNDERSIGNED HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY (WHICH BANK ALSO
WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT
OF OR RELATING TO THIS NOTE OR ANY OF THE LOAN DOCUMENTS,COLLATERAL, OR BANK'S
CONDUCT IN RESPECT OF ANY OF THE FOREGOING.
THE UNDERSIGNED HEREBY IRREVOCABLY AGREES THAT, SUBJECT TO THE BANK'S SOLE
AND ABSOLUTE ELECTION, ALL SUITS, ACTIONS OR OTHER PROCEEDINGS WITH RESPECT TO,
ARISING OUT OF OR IN CONNECTION WITH THIS NOTE AND THE LOAN DOCUMENTS SHALL BE
SUBJECT TO LITIGATION IN STATE OR FEDERAL COURTS HAVING SITUS WITH THE CITY OR
COUNTY OF ST. LOUIS, MISSOURI, AND HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY SUIT, ACTION OR OTHER PROCEEDINGS
BROUGHT BY THE BANK IN ACCORDANCE WITH Tills PARAGRAPH.
The following notice is given pursuant to section 432.045 of the Missouri
Revised Statutes; nothing contained in such notice shall be otherwise deemed to
limit or modify the terms of this agreement: ORAL AGREEMENTS OR COMMITMENTS TO
LOAN MONEY, EXTEND CREDIT OR TO FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT
INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT
YOU (THE UNDERSIGNED) AND US (THE BANK) FROM MISUNDERSTANDING OR DISAPPOINTMENT,
ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING,
WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US,
EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY IT.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed and
delivered by its duly authorized representative as of the date first above
written.
ALLIED HEALTHCARE PRODUCTS, INC.
Uma Nandan Aggarwal
Chief Executive 0fficer and President
<TABLE>
<CAPTION>
ALLIED HEALTHCARE PRODUCTS,JNC.
MISSOURI SECRETARY OF STATE:
UCC-11 SEARCHTO JULY1,1998'
------------- -----------
SECURED FORM OF FILING FILING FINANCIAL
DEBTOR: PARTY: UCC LOCATION DATE STATEMENT
<S> <C> <C> <C> <C> <C>
Allied Healthcare Products, Inc. Siemens Credit UCC- I Missouri 7/26/91 2026295
1720 Sublette Corporation (UCC-3 Secretary of State
St. Louis, MO 63110 continuation
filed 6/7/96)
Allied Healthcare Products, Inc. Computer Sales UCC-1 Missouri 5/19/95 2543180
1720 Subletle International, Inc. (UCC-3 Secretary of Slate
St. Louis, M 0 63110 Assignee: amendment
Commerce Bank filed 8/22/95)
N.A.
Allied Healthcare Products, Inc. Computer Sales UCC-1 Missouri 5122/95 2543342
1720 Sublette International, Inc. Secretary of State
St. Louis, MO 63110 Assignee:
Commerce Bank
N.A.
Allied Healthcare Products, Inc. Computer Sales UCC-1 Missouri 9/26/95 2586252
1720 Sublette hilernational, Inc. Secretary of State
St. Louis, MO 63110 Assignee:
Commerce Bank
N.A.
Allied Healthcare Products, Inc. Computer Sales UCC-1 Missouri 10/06/95 2589474
1720 Suble(te International, Im. (UCC-3 Secretary of Stale
St. Louis, MO 63110 Assignee: amendment
Commerce Batik filed 5/2/96)
N.A.
Allied Healthcare Products, hic. Computer Sales UCC- I Missouri 12/13/95 2611788
1720 Sublette international, hic. (UCC-3 Secretary of State
St. Louis, MO 63110 Assignee: amendment
Commerce Bank filed 4/5/96
N.A. and 6/12196)
DEBTOR: COLIATERAL
<S> <C>
Allied Healthcare Products, Inc. Equipment (te lecommunicat ions) lease no.
1720 Sublette 06200042
St. Louis, MO 63110
Allied Healthcare Products, Inc. Equipment (computer) lease no. 138575
1720 Subletle (Schedule 1)
St. Louis, M 0 63110
Allied Healthcare Products, Inc. Equipment (UrWa(a RDBMS, DataFlo)
1720 Sublette
St. Louis, MO 63110
Allied Healthcare Products, Inc. Equipment (computer accessories) lease
1720 Sublette no. 138575 (Schedule 1A)
St. Louis, MO 63110
Allied Healthcare Products, Inc. Equipment (computer) lease no. 138575
1720 Suble(te (Schedule 3)
St. Louis, MO 63110 Equipment location. Tech Resource Group
Allied Healthcare Products, hic. Equipment (computer, printer, adaptor,
1720 Sublette monitors) lease no. 138575 (Schedule 5)
St. Louis, MO 63110
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIED HEALTHCARE PRODUCTS,JNC.
MISSOURI SECRETARY OF STATE:
UCC-11 SEARCHTO JULY1,1998'
------------- -----------
SECURED FORM OF FILING FILING FINANCIAL
DEBTOR: PARTY: UCC LOCATION DATE STATEMENT
<S> <C> <C> <C> <C> <C>
Allied Healthcare Products, Inc. Computer Sales UCC-1 (UCC- Missouri 12/26/95 2616340
1720 Sublette International, hic. 3 amendment Secretary of State
St. Louis, MO 63110 Assignee: filed 3/7/96)
Commerce Bank
N. A.
Allied Healthcare Products, hic. Computer Sales UCC- I Missouri 03/06/96 264W 19
1720 Sublette International, Inc. (UCC-3 Secretary of State
St. Louis, MO 63110 Assignee: amendment filed 8/21/96)
Commerce Bank
N. A.
Allied Healthcare Products, Inc. Municipal Tool & UCC-1 Missouri 3/20/96 2644715
1720 Sublette Machinery Secretary of State
St. Louis, MO 63110 Company
Allied Healthcare Products, Inc. Municipal Tool & UCC-1 Missouri 3/20/96 2644716
1720 Sublette Maclihiery Secretary of State
St. Louis, MO 63110 Company
Allied Hpltlicare Products, Inc. Master Lease Div. UCC- I Missouri 04/30/96 2658450
1720 Subleue of Tokai Financial Secretary of State
St. Louis, MO 63110 Services, Inc.
Allied Healthcare Products, Inc. Computer Sales UCC-1 Missouri 05/02/96 2659466
1720 Subleue International. Inc. (UCC-3 Secretary of State
St. Louis, MO 63110 Assignee: amendment filed 12/20/96)
Southwest Bank of
St. Louis
Allied Healthcare Products, Inc. Municipal Tool & UCC-1 Missouri 06/13/96 2676176
1720 Sublette Machinery Secretary of State
St. Louis, MO 63110 Company
DEBTOR: COLIATERAL
<S> <C>
Allied Healthcare Products, Inc. Equipment (computer accessories) lease
1720 Sublette no. 138575 (Schedule 6)
St. Louis, MO 63110
Allied Healthcare Products, hic. Equipment (conipuier and accessores) lease
1720 Sublette no. 138575 (Schedule 7)
St. Louis, MO 63110
Allied Healthcare Products, Inc. Equipment (Mazak Milling Center &
1720 Sublette SMW Spacesaver)
St. Louis, MO 63110
Allied Healthcare Products, Inc. Equipment (Mazak Milling Center &
1720 Sublette SMW Spacesaver)
St. Louis, MO 63110
Allied Hpltlicare Products, Inc. Equipment (mailing system) lease no.
1720 Subleue 24182826
St. Louis, MO 63110
Allied Healthcare Products, Inc. Equipment (computer) lease no. 138575
1720 Subleue (Schedule 9)
St. Louis, MO 63110 Equipment locafion: Riverside, CA
Allied Healthcare Products, Inc. Equipment (TurnJaig/Milling Center and
1720 Sublette accessories)
St. Louis, MO 63110
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ALLIED HEALTHCARE PRODUCTS,JNC.
MISSOURI SECRETARY OF STATE:
UCC-11 SEARCHTO JULY1,1998'
------------- -----------
SECURED FORM OF FILING FILING FINANCIAL
DEBTOR: PARTY: UCC LOCATION DATE STATEMENT
<S> <C> <C> <C> <C> <C>
Allied Healthcare Products, Inc. Municipal Tool & UCC-1 Missouri 06/13/96 2676177
1720 Sublette Machinery Secretary of State
St. Louis, MO 63110 Company
Allied Healthcare Products, Inc. Master Lease Div. UCC-1 Missouri 06/14/96 2676510
1720 Sublette of Tokai Financial Secretary of State
St. Louis. MO 63110 Services, Inc.
Allied Healthcare Products, Inc. Computer Sales UCC-1 Missouri 07/17/96 2686913
1720 Sublette International, Inc. Secretary of State
St. Louis, MO 63110 Assignee:
Southwest Bank of
St. Louis
Allied Healthcare Products, Inc. Municipal Tool & UCC-1 Missouri 08/26/96 2700114
1720 Sublette Machinery Secretary of State
St. Louis, MO 63110 Company
Allied Healthcare Products, Inc. Computer Sales UCC-1 Missouri 12/12/96 2734483
1720 Sublette International, hic. Secretary of State
St. Louis, MO 63110 Assignee:
Commerce Bank,
N.A.
Allied Healthcare Products, Inc. computer Sales UCC-1 Missouri 12/12/96 2734484
1720 Sublette international, Inc. Secretary of State
St. Louis, Mo 63110
Allied Healthcare Products, Inc. Mellon US UCC-1 Missouri 01/06/97 2742092
1720 Sublette Leasing, a Div. of Secretary of State
St. Louis, Mo 63110 Mellon Leasing
ICorp.
DEBTOR: COLIATERAL
<S> <C>
Allied Healthcare Products, Inc. Equipment (Mazak Turning Center and
1720 Sublette accessories)
St. Louis, MO 63110
Allied Healthcare Products, Inc. Equipment (Tracer mailing) lease no.
1720 Sublette 24182826
St. Louis. MO 63110
Allied Healthcare Products, Inc. Equipment (computer accessories) lease
1720 Sublette no. 138575 (Schedule 10)
St. Louis, MO 63110
Allied Healthcare Products, Inc. Equipment (Mazak Milling Center and
1720 Sublette accessories)
St. Louis, MO 63110 Equipment (computer software) lease no.
Allied Healthcare Products, Inc. Equipment (computer accessories lease no.
1720 Sublette 138575 (Schedule 12)
St. Louis, MO 63110
Allied Healthcare Products, Inc. Equipment (computer accessories lease no.
1720 Sublette 138575 1 (Schedule 11)
St. Louis, Mo 63110
Allied Healthcare Products, Inc. Equipment (Mazak Turning & Milling
1720 Sublette Center) lease no. 127372
St. Louis, Mo 63110
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ALLIED HEALTHCARE PRODUCTS,JNC.
MISSOURI SECRETARY OF STATE:
UCC-11 SEARCHTO JULY1,1998'
------------- -----------
SECURED FORM OF FILING FILING FINANCIAL
DEBTOR: PARTY: UCC LOCATION DATE STATEMENT
<S> <C> <C> <C> <C> <C>
Allied Healthcare Products, Inc. Mellon us UCC-1 Missouri 01/10/97- 2744213
1720 Sublette Leasing, a Div. of Secretary of Slate
St. Louis, Mo 63110 Mellon Leasing
Corp.
Allied Healthcare Products, Inc. Foothill Capital UCC- I Missouri 08/06/97 2817984
1720 Sublette Corporation Secretary of Stale
St. Louis, Mo 63110
Allied Heahlicare Products, Inc. Foothill Capital UCC-1 Missouri 08/13/97 2820513
1720 Sublelle Corporation Secretary of State
St. Louis, Mo 63110
Allied Healthcare Products, hic. Computer Sales UCC-1 Missouri 02/04/98 2875778
1720 Sublette International, Inc. Secretary of Slate
St. Louis, Mo 63110
Allied Healthcare Products, Inc. Siemens Credit UCC-1 Missouri 06/19/98 2928450
1720 Sublette Corp. Secretary of State
St. Louis, Mo 63110
DEBTOR: COLIATERAL
<S> <C>
Allied Healthcare Products, Inc. Equipment (injection Moldi~ng and Water
1720 Sublette Tower) lease no. 127405
St. Louis, Mo 63110
Allied Healthcare Products, Inc. Accounts, equipment, general intangibles,
1720 Sublette inventory and real property collateral
St. Louis, Mo 63110
Allied Heahlicare Products, Inc. Property located in St. Louis City and
1720 Sublelle improvements thereon
St. Louis, Mo 63110
Allied Healthcare Products, hic. Equipment (computer and printers) lease
1720 Sublette no. 138575 (Schedule 13)
St. Louis, Mo 63110
Allied Healthcare Products, Inc. Equipment lease 620-0000016-004
1720 Sublette
St. Louis, Mo 63110
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ALLIED HEALTHCARE PRODUCTS,JNC.
MISSOURI SECRETARY OF STATE:
UCC-11 SEARCHTO JULY2,1998'
------------- -----------
SECURED FORM OF FILING FILING FINANCIAL
DEBTOR: PARTY: UCC LOCATION DATE STATEMENT
<S> <C> <C> <C> <C> <C>
Allied Healthcare Products, Inc. Computer Sales UCC-1 St. Louis City 5/18/95 3360
1720 Sublette International, Inc. (UCC-3
St. Louis, MO 63110 Assignee: amendment
Commerce Bank filed
N.A. 8/10/95)
Allied Healthcare Products, Inc. Computer Sales UCC-1 St. Louis City 5/22/95 3419
1720 Sublette International, Inc.
St. Louis, MO 63110 Assignee:
Commerce Bank
N.A.
Allied Healthcare Products, Inc. Computer Sales UCC-1 St. Louis City 9/26/95 6162
1720 Sublette International, Inc.
St. Louis, MO 63110 Assignee:
Commerce Bank
N.A.
Allied Healthcare Products, Inc. Computer Sales UCC-1 St. Louis City 10/06/95 6453
1720 Stibldte International, Inc. (UCC-3
St. Louis, MO 63110 Assignee: amendment
Commerce Bank filed S/ 1 /96)
N.A.
Allied Healthcare Products, Inc. Computer Sales UCC-1 St. Louis City 12/13195 7835
1720 Sublette International, Inc. (UCC-3
St. Louis, MO 63110 Assignee: amendment
Commerce Bank filed 4/4/96
N.A. and 6/11/96)
Allied Healthcare Products, Inc. Computer Sales UCC-1 St. Louis City 12/28/95 8133
1720 Sublette International, Inc. (UCC-3
St. Louis, MO 63110 Assignee: amendment
Commerca BaA filed 3/7/96)
N.A.
DEBTOR: COLIATERAL
<S> <C>
Allied Healthcare Products, Inc. Equipment (computer) lease no. 138575
1720 Sublette (Schedule 1)
St. Louis, MO 63110
Allied Healthcare Products, Inc. Equipment (Unidata RDBMS, Dat&Flo)
1720 Sublette
St. Louis, MO 63110
Allied Healthcare Products, Inc. Equipment (computer accessories) lease
1720 Sublette no. 138575 (Schedule IA)
St. Louis, MO 63110
Allied Healthcare Products, Inc. Equipment (computer) lease no. 138575
1720 Stibldte (Schedule 3)
St. Louis, MO 63110 Equipment location: Tech Resource Group
Allied Healthcare Products, Inc. Equipment (computer, printer, adaptor,
1720 Sublette monitors) lease no. 138575 (Schedule 5)
St. Louis, MO 63110
Allied Healthcare Products, Inc. Equipment (computer accessories) lease
1720 Sublette no. 138575 (Schedule 6)
St. Louis, MO 63110
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIED HEALTHCARE PRODUCTS,JNC.
MISSOURI SECRETARY OF STATE:
UCC-11 SEARCHTO JULY2,1998'
------------- -----------
SECURED FORM OF FILING FILING FINANCIAL
DEBTOR: PARTY: UCC LOCATION DATE STATEMENT
<S> <C> <C> <C> <C> <C>
Allied Healthcare Products, Inc. Computer Sales UCC-1 St. Louis City 03/06/96 1389
1720 Sublette International, Inc. (UCC-3
St. Louis, MO 63110 Assignee: amendment
Commerce Bank filed
N.A. 8/20/96)
Allied Healthcare Products, Inc. Municipal Tool & UCC-1 St. Louis City 3/19/96 1750
1720 Subletto Machinery Company
St. Louis. MO 63110
Allied Healthcare Products, Inc. Municipal Tool & UCC-1 St. Louis City 3/19/96 1751
1720 Sublette Machinery Company
St. Louis. MO 63110
Allied Healthcare Products, Inc. Master Lease Div. UCC-1 St. Louis City 04/29/96 2688
1720 Sublette of TokAi Financial
St. Louis. MO 63110 Services, Inc.
Allied Healthcare Products, Inc. Computer Sales UCC-1 St. Louis City 05/02/96 2742
1720 Spblette International, Inc. (UCC-3
St. Louis, MO 63110 Assignee: amendment
Southwest Bank of filed
St. Louis 12/20/96)
Allied He4dthcare Products, Inc. Municipal Tool & UCC-1 St. Louis city 06/12/96 3787
1720 Sublette Machinery Company
St. Louis, MO 63110
Allied Healthcare Products, Inc. Municipal Tool & UCC-1 St. Louis City 06/12/96 3788
1720 Sublette Machinery Company
St. Louis, MO 63110
Allied Healthcare Products, Inc. Master Lease Div. UCC-1 St. Louis City 06/17/96 3902
1720 Sublette of Tokai Financial
St. Louis, MO 63110 Services, Inc.
DEBTOR: COLIATERAL
<S> <C>
Allied Healthcare Products, Inc. Equipment (computer and accessores) lease
1720 Sublette no. 138575 (Schedule 7)
St. Louis, MO 63110
Allied Healthcare Products, Inc. Equipment (Mazak Milling Center and
1720 Subletto SMW Spacesaver)
St. Louis. MO 63110
Allied Healthcare Products, Inc. Equipment (Mazak Milling Center &
1720 Sublette SMW Spacesavar)
St. Louis. MO 63110
Allied Healthcare Products, Inc. Equipment (mailing system) lease no.
1720 Sublette 24182826
St. Louis. MO 63110
Allied Healthcare Products, Inc. Equipment (computer) lease no. 138575
1720 Spblette (Schedule 9)
St. Louis, MO 63110 Equipment location: Riverside, CA
Allied He4dthcare Products, Inc. Equipment (Mazak Turning Center and
1720 Sublette accessories)
St. Louis, MO 63110
Allied Healthcare Products, Inc. Equipment (Turning/Milag Center and
1720 Sublette accessories)
St. Louis, MO 63110
Allied Healthcare Products, Inc. Equipment (Tracer mailing) lease no.
1720 Sublette 24182926
St. Louis, MO 63110
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ALLIED HEALTHCARE PRODUCTS,JNC.
MISSOURI SECRETARY OF STATE:
UCC-11 SEARCHTO JULY2,1998'
------------- -----------
SECURED FORM OF FILING FILING FINANCIAL
DEBTOR: PARTY: UCC LOCATION DATE STATEMENT
<S> <C> <C> <C> <C> <C>
Allied Healthcare Products, Inc. Computer Sales UCC-1 St. Louis City 07/17/96 4597
1720 Sublette International, Inc.
St. Louis, MO 63110 Assignee:
Southwest Bank of
St. Louis
Allied Healthcare Products, Inc. Municipal Tool & UCC-1 St. Louis City 08/26/96 5523
1720 Subletto Machinery Company
St. Louis. MO 63110
Allied Healthcaro Products, Inc. Computer Sales UCC-1 St. Louis City 12/12/96 8103
1720 Subletto International, Inc.
St. Louis, MO 63110 Assignee:
Commerce Bank,
N.A.
Affied Healthcare Products, Inc. Computer Sales UCC-1 St. Louis City 12/12/96 8104
1720 Subletto International, Inc.
St. Louis, MO 63110 f
Allied Healthcare Products, Inc. Mellon US Leasing, UCC-1 St. Louis City 01/13/97 288
1720 Subletto a Div. of Mellon
St. Louis, MO 63110 Leasing Corp.
Allied Healthcare Products, Inc. Mellon US Leasing, UCC-1 St. Louis City 01/14/97 334
1720 Subletto a Div. of Mellon
St. Louis. MO 63110 Leasing Corp.
Allied Healthcare Products, Inc. Foothill Capital UCC-1 St. Louis City 08/06/97 5378
1720 Sublette Corporation
St. Louis, MO 63110
Allied Healthcare Products, Inc. Foothill Capital UCC-1 St. Louis City 08112/97 5550
1720 Sublette Corporation
St. Louis, Mo 63110
DEBTOR: COLIATERAL
<S> <C>
Allied Healthcare Products, Inc. Equipment (computer accessories) lease
1720 Sublette no. 138575 (Schedule 10)
St. Louis, MO 63110
Allied Healthcare Products, Inc. Equipment (Mazak Milling Center and
1720 Subletto accessories)
St. Louis. MO 63110
Allied Healthcaro Products, Inc. Equipment (computer accessories) lease
1720 Subletto no. 138575 (Schedule 11)
St. Louis, MO 63110
Affied Healthcare Products, Inc. Equipment (computer software) lease no.
1720 Subletto 138575 (Schedule 12)
St. Louis, MO 63110
Allied Healthcare Products, Inc. Equipment (injection Molding and Water
1720 Subletto Tower) lease no. 127405
St. Louis, MO 63110
Allied Healthcare Products, Inc. Equipment (Mazak Turning & Milling
1720 Subletto Centar) lease no. 127372
St. Louis. MO 63110
Allied Healthcare Products, Inc. Accounts, equipment, general intangibles,
1720 Sublette inventory and real property collateral
St. Louis, MO 63110
Allied Healthcare Products, Inc. Property located in St. Louis City and
1720 Sublette improvements thereon
St. Louis, Mo 63110
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ALLIED HEALTHCARE PRODUCTS,JNC.
MISSOURI SECRETARY OF STATE:
UCC-11 SEARCHTO JULY2,1998'
------------- -----------
SECURED FORM OF FILING FILING FINANCIAL
DEBTOR: PARTY: UCC LOCATION DATE STATEMENT
<S> <C> <C> <C> <C> <C>
Allied Healthcare Products, Inc. Computer Sales UCC-1 St. Louis City 02/04/98 843
1720 Sublette International, Inc.
St. Louis, MO 63110
Allied Healthcare Products, Inc. Siemens Credit UCC-1 St. Louis City 06124/98 4336
1720 Subletto Corp.
St. Louis. MO 63110
DEBTOR: COLIATERAL
<S> <C>
Allied Healthcare Products, Inc. Equipment (computer and printers) lease
1720 Sublette no. 138575 (Schedule 13)
St. Louis, MO 63110
Allied Healthcare Products, Inc. Equipment lease 620-0000016-004
1720 Subletto
St. Louis. MO 63110
</TABLE>
4
<PAGE>
DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT
THIS DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT SECURES FUTURE
ADVANCES AND FUTURE OBLIGATIONS
AND SHALL BE GOVERNED BY SECTION 443.055 R.S.MO.
THE TOTAL PRINCIPAL AMOUNT OF THE FUTURE ADVANCES
AND FUTURE OBLIGATIONS WHICH MAY BE SECURED
HEREBY IS FIVE MILLION AND NO/100 DOLLARS
($5,000,000.00)
THIS DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT (this
"Deed of Trust"), is made and entered into as of the 7th day of August, 1998, by
and among Allied Healthcare Products, Inc., a Delaware corporation having its
chief executive office at 1720 Sublette Avenue, St. Louis, Missouri 63110 (the
"Grantor"), Joseph F. Hipskind, Jr., One Metropolitan Square, Suite 2600, St.
Louis, Missouri 63102, as Trustee (the "Trustee"), and LASALLE NATIONAL BANK,
One Metropolitan Square, Suite 2140, St. Louis, Missouri 63102 as beneficiary
(the "Grantee').
WITNESETH:
That for good and valuable consideration, and to secure the payment
and performance of the obligations of Grantor pursuant to:
I. The repayment of all amounts due, including but not limited to
principal, interest, make-whole amounts, fees and expenses, from time to time
(whether at stated maturity, by acceleration or otherwise), including future
advances, under the following documents:
(a) each of the following:
(i) the Promissory Note of Grantor, payable to the order of
Grantee, of even date herewith, in the original principal amount of
$5,000,000.00 (the "Note");
(ii) any and all other agreements and obligations of Grantor
from time to time in favor of Grantee;
(b) all additional security agreements, mortgages, deeds of trust,
assignments or other security instruments which are executed and delivered of
evidence, govern or secure obligations of Grantor under the documents described
in clause (a) above;
(1) The observance and performance by Grantor of each and every term,
covenant, condition and agreement required by this Deed of Trust to be observed
and performed by Grantor; and
(2) Any and all extensions, renewals, amendments, replacements,
restatements, re financings, refundings or other modifications (including but
not limited to modifications to interest rates or other payment terms) of any of
the foregoing; and
(3) advances made by Grantee for the reasonable protection of the Grantors
interest in the Property including, but not limited to, amounts for taxes,
insurance, repair, maintenance and preservation of the Property, completion of
improvements on the Property and expenses of collection, sale, and foreclosure
hereunder and that the same will have priority over any intervening or
subsequent liens to the extent allowed by law.
The foregoing are herein referred to as the "Obligations".
Grant. Grantor does GRANT, BARGAIN, SELL, REMISE, CONVEY, CONFIRM, RELEASE
-----
AND ASSIGN unto Trustee, his successors and assigns, in trust, with power of
sale and right-of-way and possession, the real estate described in Exhibit A,
attached hereto and made a part hereof (hereinafter described is referred to
herein as the "Premises");
TOGETHER with (1) all buildings, improvements and structures at any
time, now or hereafter, erected, situated or placed thereon; (2) all rights,
privileges, easements, hereditaments, appendages and appurtenances thereunto
belonging or in anywise appertaining; (3) all right, title, interest and estate
of Grantor in and to streets, roads, ways, sidewalks, curbs, alleys, and areas
adjoining said real estate and portions thereof, and whether vacated by law or
ordinance (conditionally or otherwise); (4) all leases, subleases, rents,
lettings and licenses of, and all contracts, bonds and agreements affecting the
Premises or any part thereof now or hereafter arising or entered into, and all
amendments, modifications, supplements, additions, extensions and renewals
thereof, and all right, title and interest of Grantor thereunder, including cash
and securities deposited thereunder, the right to receive and collect rents,
security deposits, income, proceeds, earnings, royalties, revenues, issues and
profits payable thereunder and the rights to enforce, whether at law or in
equity or by any other means, all provisions and options thereof or thereunder;
(5) all fixtures, fixed assets and personalty now owned or hereafter acquired by
Grantor and now or at any time hereafter annexed, affixed or attached to said
real estate and/or said buildings, improvements, or structures thereon and all
other personal property now owned or hereafter acquired by Grantor and used or
intended to be used in the possession, occupation or enjoyment thereof and
specifically but not by way of limitation the following owned by Grantor, all
apparatus, appliances, machinery, equipment and articles used to supply or
provide or in connection with heat, gas, air conditioning, plumbing, water,
lighting, power, elevator, sewerage, cleaning, refrigeration, cooling,
ventilation and sprinkler systems, all water heaters, furnishings, carpeting and
padding, rugs, lighting fixtures, shades and awnings, screens, drapes and
drapery equipment, fire prevention and extinguishing apparatus, security and
access control apparatus, all window cleaning apparatus, and all replacements,
additions and substitutions thereof or thereto; (6) all construction materials
owned by Grantor and placed thereon; (7) all existing and hereafter created or
acquired books, records, reports, surveys, plans, specifications, files, tests,
plats, engineering reports, government permits, escrow deposits, tenant security
deposits, soil reports and documents of any kind or nature relating to the real
estate or the development or operation thereof; (8) all of Grantor's contract
rights under and all receivables now or hereafter owing to Grantor under all
existing and future leases or renting of space in any buildings now or hereafter
on said real estate; (9) all of Grantor's rights under any existing and future
loan commitments to provide financing for all or any part of said real estate;
(10) all of Grantor's rights under any existing and future sales contracts
affecting all or any portion of said real estate; (11) all plants, trees and
shrubbery; (12) all products and proceeds of any of the foregoing, including
insurance proceeds and all proceeds of any award for
2
<PAGE>
the taking of all or any part of the foregoing pursuant to any governmental
action; (13) all of the foregoing whether now existing or hereafter acquired and
all replacements, additions, or substitutions thereof or thereto; and (14) all
proceeds, products (including insurance proceeds), improvements, replacements,
and substitutions of or to any of the foregoing (collectively referred to as the
"Improvements") (the Premises and all Improvements are collectively referred to
as the "Property").
SECTION 1. REPRESENTATIONS AND WARRANTIES.
- - ----------------------------------------------
Grantor represents, covenants and warrants as follows (which
representations, covenants and warranties are continuing, will, in all respects,
survive foreclosure of this Deed of Trust and shall run with the Property):
1.01 Title, Possession, Power to Execute. Except as set forth on
----------------------------------------
Exhibit B attached hereto, Grantor is lawfully seized and possessed of a good
and indefeasible title and estate in fee simple to the Property, and Grantor has
full right and power to convey the Property, and covenants and agrees to execute
and deliver or cause to be executed and delivered all further assurances of
title necessary or by the Grantee deemed advisable to effectuate the lien of
this Deed of Trust hereby given, and Grantor will forever warrant and defend the
title to the Property and every part thereof unto Grantee against the claims and
demands of all persons whomsoever.
1.02 Liens. Except for the exceptions set forth on Exhibit B attached
------
hereto and incorporated by this reference, the Property, and every part thereof,
is free and clear of all liens, encumbrances and charges of every kind and
character, including liens of general and special taxes and assessments,
excepting taxes for the current year which are not yet due, and excepting the
lien of this Deed of Trust;
1.03 Organization; Standing. Grantor is a corporation validly
------------------------
organized and existing under the laws of the State of Delaware. Grantor has the
power to own the Property, to carry on its affairs as currently conducted and
perform all of the Obligations.
1.04 Power; Authority. The undersigned has full power and authority
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on behalf of the Grantor to execute this Deed of Trust, and all other
instruments evidencing the Obligations, and the execution and delivery thereof
have been duly authorized and all acts and proceedings necessary or proper in
the premises have been duly done, performed and taken.
1.05 Location of Improvements. All Improvements now or hereafter
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located on the Premises are and will be located entirely within the boundaries
of the Premises.
1.06 Compliance with Law, etc. The Property and the present and
----------------------------
proposed use thereof complies with all applicable zoning, building,
environmental use, all federal, state and local laws and regulations, and all
covenants, restrictions and easements of record. There is no action or
proceeding pending before any court, quasi-judicial body or administrative
agency which may affect the validity or enforceability of this Deed of Trust or
the Obligations.
1.07 Information True and Correct. All financial data and
--------------------------------
documentation delivered by or on behalf of Grantor to Grantee are true and
correct in all material respects, and not misleading, and Grantor has not
omitted or failed to provide anything the omission of which would cause any such
data or documentation to be misleading.
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1.08 Hazardous Waste. Except as otherwise set forth in the Phase I
-----------------
Report (as hereinafter defined), the Property is free from all Hazardous Waste,
as defined hereinafter. Except as otherwise set forth in the Phase I Report (as
hereinafter defined), no condition exists in or on the Property that could give
rise to any claim, charge or lien against the Property for the removal of such
Hazardous Waste or damages attributable thereto or that is or may be a lien on
the Property.
SECTION 2. COVENANTS.
- - -----------------------
Grantor hereby expressly covenants and agrees with Grantee that so
long as any of the Obligations are outstanding and in effect and until this Deed
of Trust shall be released by the Grantor, it will:
2.01 Payment of Principal and Interest. Duly pay the Obligations
--------------------------------------
punctually as and when the same shall become due and payable according to the
true intent and purport thereof.
2.02 Transfer of Title; Liens. Without the prior written consent of
--------------------------
Grantee, and regardless of whether voluntary or involuntary, not transfer,
convey, contract for deed or otherwise part with title to the Property, or
create or permit or allow to exist or to be created any mortgage, deed of trust,
pledge or other lien or encumbrance on any said Property, other than this Deed
of Trust, and Grantor will not suffer or permit any mechanic's or materialmen's
lien or any other lien of any nature whatsoever to attach to any of said
Property or to remain outstanding against the same or any part thereof.
2.03 Risks to be Insured. At its sole cost and expense, maintain
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insurance of the following character:
(a) Hazard Insurance. (i) Insurance on the Premises and
------------------
Improvements now existing or hereafter erected or placed on the Premises against
loss by fire, and other hazards covered by the so-called "all-risk" form of
policy in an amount equal to the full insurable value thereof (but in no event
less than the unpaid Obligations secured hereby) without deduction for physical
depreciation. While any of the Improvements are in the course of being
constructed or rebuilt on the Premises, the Grantor shall provide the aforesaid
hazard insurance in builder's risk completed value form, including coverage
available on the so-called "all-risk" non-reporting form of policy for an amount
equal to 100 % of the insurable replacement value of such building or other
improvement.
(ii) If the Property includes or is to include steam boilers or
other equipment for the generation or transmission of steam, insurance against
loss or damage by explosion, rupture or bursting of steam boilers, pipes,
turbines, engines and other pressure vessels and equipment, in an amount
satisfactory to Grantee.
(iii) If the Property or any part thereof is located in a
designated official flood-hazardous area, flood insurance insuring the
Improvements now existing or hereafter erected on the Premises in an amount
equal to or greater than the principal balance of the Obligations.
(iv) Comprehensive general liability insurance with such limits,
coverages, risks insured and with waiver of subrogations clauses protecting
against claims arising from any accident or occurrence in or upon the Property
in an amount and in such form as shall be acceptable to Grantee.
4
(b) Policy Provisions. All insurance policies and renewals thereof
maintained by Grantor pursuant to this Section 2.,03 (collectively, the
"Policies" and individually, "Policy") shall (i) be written by an insurance
carrier satisfactory to Grantee, (ii) contain a standard non-contributory
mortgagee clause in favor of and in form acceptable to Grantee, (iii) contain an
agreement of the insurer in form satisfactory to Grantee that it will not cancel
or modify the Policy except after thirty (30) days prior written notice to
Grantee, (iv) provide breach of warranty protection to Grantee, and (v) be
satisfactory to Grantee in all other respects.
(c) Delivery of Policy. Grantor will deliver to Grantee original
Policies or certified copies of Policies in form satisfactory to Grantee
evidencing the insurance which is required by this Section, and Grantor shall
promptly furnish to Grantee copies of all renewal notices and all receipts of
paid premiums received by it. At least thirty (30) days prior to the expiration
date of a Policy, Grantor shall deliver to Grantee a renewal Policy in form
satisfactory to Grantee. If the Grantor has a blanket Policy in force providing
coverage for several properties of the Grantor, including the Property, Grantor
will deliver to Grantee a certified copy of such blanket Policy; which original
Policy (i) is written by a carrier or carriers acceptable to Grantee, (ii)
insures against the risks set forth hereinabove, (iii) cannot be amended,
modified or cancelled without thirty (30) days prior written notice to Grantee,
and (iv) is in amounts satisfactory to Grantee.
(d) Assignment of Policy. If the Property or any part thereof is
sold at a foreclosure sale or if Grantee shall acquire title to the Property or
any part thereof, Grantee shall have all of the right, title and interest of
Grantor in and to any Policies and the unearned premiums thereon and in and to
the proceeds resulting from any damage to the Property prior to such sale or
acquisition.
(e) Other Insurance. Grantor shall obtain such other insurance
coverage (and in such form) as Grantee shall from time to time reasonably
require, including, without limitation, earthquake, and/or hurricane insurance.
(f) Notice of Damage or Destruction; Adjusting Loss. If the
Property or any part thereof shall be damaged or destroyed by fire or other
casualty, Grantor will promptly give written notice thereof to the insurance
carrier and Grantee, and will not adjust any damage or loss unless Grantee shall
have joined in such adjustment, Grantee or Trustee, acting jointly or severally,
may make proof of loss, adjust and compromise any claim under the Policies and
appear in and prosecute any action arising from such Policies. In connection
therewith, Grantor does hereby irrevocably authorize, empower and appoint
Grantee and Trustee (acting jointly or severally) as attorney-in-fact for
Grantor (which appointment is coupled with an interest) to do any and all of the
foregoing in the name and on behalf of Grantor.
(g) Amounts of Insurance. Unless specified to the contrary herein, all
insurance shall be in such amount or amounts acceptable to Grantee.
2.04 Indemnification. Protect, indemnify and save harmless Trustee
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and Grantee from and against any liability, obligation, claim, damage, penalty,
cause of action, cost and expense (including without limitation reasonable
attorneys' fees and expenses), imposed upon, incurred by or asserted against
Grantee or Trustee by reason of (a) ownership or use of the Property or any
interest therein; (b) any accident, injury to or death of persons or loss of or
damage to property occurring in, on or about the Property or any part thereof or
on any adjoining sidewalks, curbs, adjacent parking areas, streets or ways; (c)
any use, nonuse or condition in, on or about the Property or any part thereof or
on any adjoining sidewalks, curbs, adjacent parking areas, streets or ways; (d)
any failure on the
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part of Grantor to perform or comply with any of the terms of this Deed of
Trust; or (e) performance of any labor or services or the furbishing of any
materials or other property in respect of the Property or any part thereof,
provided, however, and notwithstanding the foregoing, Grantor shall not be
required to indemnify Grantee for any loss, cost or expense if said loss, cost
or expenses arises from or relates to Grantor's or Trustee's gross negligence or
willful misconductAny amounts payable to Grantee by reason of the application of
this Section shall become immediately due and payable and shall bear interest at
a per annum rate of interest equal to the highest rate of interest provided for
after a default under the terms of the Obligations (the "Default Rate"). The
obligations of Grantor under this Section shall survive any termination or
satisfaction of this Deed of Trust.
2.05 Hazardous Waste.
Grantor represents and warrants to Grantee that except as otherwise set forth in
that certain Phase I Environmental Site Assessment Update dated as of June 12,
1998, prepared by ATC Associates, Inc., together with all attachments thereto
(the "Phase I Report"):
(a) The Premises are free from any Hazardous Materials (as defined
below) and that the Premises are not in material violation of any laws,
regulations or orders concerning Hazardous Materials.
(b) The Premises are not listed or proposed for listing or, to our
knowledge, threatened to be listed on the National Priorities List by the
Environmental Protection Agency or on any registry or list maintained by any
state or local agency, department or entity regarding Hazardous Materials, and
that there have been no discussions between Grantor or its agents, employees or
attorneys and state, federal or local officials concerning the possibility of
such listings.
(c) Except as otherwise set forth in the Phase I Report, there has
been no storage, disposal, discharge, deposit, injection, dumping, leaking,
spilling, placing or escape of any Hazardous Materials on, in, under or from the
Premises. Grantor agrees that it will not permit the illegal storage, disposal,
discharge, deposit, injection, dumping, leaking, spilling, placing or escape of
any Hazardous Material on, in or around the Premises now or at any future time
so long as any portion of the Obligations remains unpaid or unsatisfied.
(d) Grantor shall materially comply with any and all laws,
regulations or orders with respect to the discharge and removal of Hazardous
Material, shall pay when due the cost of removal of any such Hazardous Material,
and shall keep the Premises free of any lien imposed pursuant to such laws,
regulations or orders. In the event Grantor fails to do so, after written notice
to Grantor and opportunity to cure in compliance with Section 4.01, Grantee may
either declare this Deed of Trust to be in default and/or cause the Premises to
be freed from the Hazardous Materials. Grantor shall give to Grantee and its
agents and its employees access to the Premises and hereby specifically grants
to Grantee a license to remove the Hazardous Materials if Grantor shall so
choose but Grantee shall not be obligated to do so. Except where caused the
gross negligence or willful misconduct of Grantee, Grantor (jointly and
severally if there is more than one party constituting Grantor) shall indemnify
Grantee and hold it harmless from and against all loss, cost, damage and expense
(including, without limitation, reasonable attorneys' fees and costs incurred in
the investigation, defense and settlement of claims) that Grantee may incur as a
result of or in connection with the assertion against Grantor or Trustee of any
claim relating to the presence or removal of any Hazardous Material or
contaminant referred to in this Section 2.05, or compliance with any federal,
state or local regulations relating thereto.
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(e) As used herein, the term "Hazardous Material" shall mean any
asbestos, asbestos containing material (as defined in 29 C.F.R. 1910.1001
(b)). flammable substances, explosives, radioactive materials, PCB-laden oil,
hazardous materials, pollutants, contaminates, toxic substances, pollution or
related materials from time to time specified as such in, or regulated under any
federal, state or local laws, ordinances, rules, regulations or policies
governing use, spillage, leakage, dumping, storage, treatment, transportation,
manufacturer, refinement, handling, production or disposal of any hazardous
substance (as defined in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, 42 U.S.C. 9601(14) as amended from time to time, and
the regulations promulgated thereunder), or any hazardous waste (as defined in
the Resource Conservation and Recovery Act of 1976 42 U.S.C. 6903(5), as
amended from time to time, and the regulations promulgated thereunder),
petroleum (including crude oil or any fraction thereof), and natural gas or
synthetic gas, including mixtures thereof and whether liquified or not.
2.06 Condition of Property. Keep the Property, and every part thereof, in
-----------------------
good repair and condition appropriate for property and buildings of like
construction, materials and use, without any liability of Trustee or Grantee to
any person for damage for failure to repair or for any other cause. Grantor
agrees (a) upon damage or destruction of the Property or any part thereof by
fire or other casualty, to restore promptly, repair, replace or rebuild the
Property that is damaged or destroyed to the condition it was in immediately
prior to such damage or destruction, whether or not any insurance proceeds are
available or sufficient for such purposes; and (b) not to remove from the
Premises any of the Improvements thereon unless the same is immediately replaced
with items of at least equal value and utility, and this Deed of Trust shall
become a valid first lien on such property.
2.07 Use of Property. Not to use or permit to be used the Property, or any
----------------
part thereof, in any manner inconsistent with the rights of Trustee, or Grantee
hereunder, or in violation of the provisions of any insurance policy or any
rules or regulations of insurance underwriters, and in the use of said Property
will comply with, or cause to be complied with, all valid laws, ordinances,
rules, regulations, orders and directions of any legislative, executive,
administrative or judicial body, officer or department applicable to the
Property or to the uses and purposes thereof, and will maintain and use the
Property in full compliance therewith and in condition requisite thereunto.
2.08 Sums Due Grantor. In the event any part of the Property or any
-------------------
Improvements shall be destroyed or damaged by any party or from any cause
whereby Grantor becomes entitled to indemnity therefor from any third person or
persons, Grantor, for the considerations herein named, does hereby sell, assign
and transfer to Trustee all of such sum or sums so due from any such third
person or persons, and Trustee is hereby authorized to receive, collect and sue
for the same, and Grantor hereby authorizes and directs that such sum or sums be
paid to Trustee upon presentation of a duly certified copy hereof. Any and all
sums received by Trustee hereunder, after deducting therefrom the reasonable
charge or expenses paid or incurred in connection with the collection and
disbursement of said moneys, may be used and applied at the option of Grantee
either for the purpose of paying the cost of repair, restoration or replacement
of the mortgaged property damaged or destroyed, or applied to the prepayment, or
partial prepayment of the installments of the Obligations. Notwithstanding the
provisions of this Section and provided that no Event of Default shall then
exist, Grantor may retain the proceeds from any indemnified damage or
destruction for purposes of repair or replacement in such manner as Grantor
shall determine.
2.09 Taxes. If Grantor shall fail to pay, as the same comes due, any tax,
------
assessment, lien or other charge against the Property, or any part thereof, or
fails to keep and perform any of the covenants and conditions herein contained,
Trustee or Grantee, shall be privileged, but shall not be
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obligated, to pay such tax, assessment, lien, rent or other charge, or to redeem
such Property from any sale or foreclosure for taxes or assessments or liens,
and may effect and pay such insurance, pay any such obligations and make such
other disbursements as are necessary or advisable in the opinion of Trustee, or
Grantee, to cure any such default of Grantor hereunder, or to protect the lien
or the rights of Trustee and Grantee hereunder; any and all such sums of money
advanced for such purposes, or any of them, by Trustee, or Grantee, shall be
deemed an additional principal sum secured by this Deed of Trust and shall be
payable on demand with interest at the Default Rate from the time so advanced;
provided, however, nothing herein contained shall be construed as requiring
Trustee, or Grantee, to advance or expend money for any of the purposes
aforesaid. Nothing contained herein shall prevent Grantor from contesting any
tax, assessment, lien or other charge against the Property if Grantor in good
faith believes that such tax, assessment, lien or other charge is inaccurate.
2.10 Year 2000 Review. The Borrower and its subsidiaries have reviewed the
-----------------
areas within their business and operations which could be adversely affected by,
and have developed or are developing a program to address on a timely basis, the
"Year 2000 Problem" (that is, the risk that computer applications used by the
Borrower and its subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date on or
after December 31, 1999), and have made related appropriate inquiry of material
suppliers and vendors. Based on such review and program, the Borrower believes
that the "Year 2000 Problem" will not have a material adverse effect on the
Borrower. From time to time, at the request of the Bank, the Borrower and its
subsidiaries shall provide to the Bank such updated information or documentation
as is requested regarding the status of their efforts to address the Year 2000
problem.
SECTION 3. ASSIGNMENT OF LEASES, RENTS AND OTHER INCOME.
- - ----------------------------------------------------------------
3.01 Assignment. Grantor irrevocably assigns to Grantee the rents, income,
-----------
issues and profits of the Property for the purposes and upon the terms and
conditions set forth below. This assignment shall not impose upon the Grantee
any duty to produce rents from the Property or cause Grantee to be (a)
"Mortgagee-in-Possession" for any purpose; (b) responsible for performing any of
the obligations of the lessor under any lease; or (c) responsible for any waste
committed with respect to the management, upkeep, repair or control of the
Property. This is an absolute assignment, not an assignment for security only,
and the Grantee's right to rents, issues and profits is not contingent upon, and
may be exercised without, possession of the Property. No collection by Grantor
or the Grantee of rents or other items pursuant to this Section 3 or otherwise
shall cure or waive any default by Grantor.
3.02 License. The Grantee confers upon Grantor a license (the "License") to
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collect and retain the rents, income, issues and profits of the Property as they
become due and payable, until the occurrence of an "Event of Default" as
hereinafter defined. Upon an Event of Default, the License shall be
automatically revoked and the Grantee may collect and retain the rents, issues,
income and profits without notice and without taking possession of the Property.
This right to collect rents, issues, income and profits shall not grant to the
Grantee or the Trustee the right to possession, except as provided below.
Neither such right nor termination of the License shall impose upon the Grantee
or the Trustee the duty to produce rents, issues, income or profits or to
maintain all or any part of the Property.
3.03 Advance Rents; Consent of Grantee. Grantor will not cancel any of the
----------------------------------
leases now or hereafter assigned to Grantee pursuant hereto, nor terminate or
accept a surrender thereof or reduce the payment of rent thereunder or accept
any prepayment of rent (except any amount which may be required to be prepaid
for a period of not more than one month by the terms of any such lease)
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<PAGE>
without first obtaining the written consent of Grantee on each occasion, which
consent shall not be unreasonably withheld or delayed. No such lease shall be
allowed by Grantor to be merged into the fee simple estate of Grantor. Grantor
will perform all of its obligations as lessor under all of the leases
3.04 Application of Rents. The Grantee, in its sole discretion, may apply
----------------------
or require the application of any rents, issues, income or profits collected to
the payment of any one or more of the Obligations in such order as the Grantee
may elect.
SECTION 4. EVENTS OF DEFAULT.
- - ---------------------------------
4.01 Events Of Default. It is expressly provided and agreed by Grantor that
------------------
the occurrence of any one or more of the following events is hereby defined as
(and each of which shall be) an "Event of Default":
(a) If default shall be made in the payment of any of the Obligations as
and when the same shall become due and payable;
(b) If an "Event of Default" or default shall occur as defined or pursuant
to any agreement evidencing or securing the Obligations including the Note shall
occur and any applicable cure period has expired, or;
(c) With respect to Sections 1.01, 1.02, 1.03, 1.04, 1.05, 1.06, 1.07,
1.08, 2.02, and 2.05 (a)-(c), if any warranty of Grantor contained herein shall
prove to be in any material respect incorrect or if there shall be any breach of
any representation, covenant, agreement or terms hereof,
or;
(d) If any other warranty of Grantor contained herein shall prove to be in
any material respect incorrect or if there shall be any breach of any other
representation, covenant, agreement or terms hereof and Grantee has not cured
the same within thirty (30) days after receipt of written notice thereof, or if
said cure cannot reasonably be completed within said thirty (30) day period then
such additional time as is necessary provided Grantor diligently pursues such
cure to completion.
SECTION 5. REMEDIES UPON DEFAULT.
- - -------------------------------------
Upon the happening of any Event of Default, Grantee may declare the entire
unpaid balance of principal and the accrued interest on the Obligations, and all
other sums secured by this Deed of Trust, without presentment, demand, protest
or notice of any kind, all of which are hereby expressly waived, to be forthwith
due and payable, whereupon the same shall become immediately due and payable,
and Grantee may enforce payment of all obligations owed to Grantee, and exercise
any and all other rights and remedies granted to it and the Trustee under any
agreements evidencing the Obligations and/or under any applicable law, including
any one or more of the following:
5.01 Possession. Upon demand of Trustee or Grantee, Grantor shall forthwith
-----------
surrender to Trustee the actual possession of the Property and it shall be
lawful (whether or not Grantor has so surrendered possession) for Trustee,
either personally or by agents or attorneys, forthwith to enter into or upon the
Property and to exclude Grantor, the agents and servants of Grantor, and all
parties claiming by, through or under Grantor, wholly therefrom. Trustee shall
be solely and exclusively entitled to possession of said Property and every part
thereof, and to use,
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<PAGE>
operate, manage and control the same, either personally or by managers, agents,
servants or attorneys, for the benefit of Grantee, to the fullest extent
authorized by law; and upon every such entry, the Trustee may, from time to
time, at the expense of the Property and every part thereof, make all necessary
and proper repairs and replacements thereto and thereon, as the Trustee may deem
judicious.
5.02 Rents and Income. In addition to all other rights provided for herein,
-----------------
the Trustee or Grantee, without notice to Grantor, may make demand for and
collect and receive all rents and income from the Property, including rents and
income accrued but unpaid prior to the date of such default, and the receipt of
Trustee or Grantee therefor shall be binding on Grantor with respect to the
amount so paid. All sums of money received by Trustee or Grantee from rents and
income, after deducting therefrom the reasonable charges and expenses paid or
incurred in connection with the collection and disbursement thereof, shall be
applied to the payment of the Obligations, or applied to remedy any default
hereunder as Grantee may direct. Any lessee or sublessee of the Property, or any
part thereof, shall be fully protected in relying and acting upon the written
statement of Grantee to the effect that this Deed of Trust is in default and
that Trustee or Grantee is entitled to receive the rents and income hereunder,
notwithstanding any notice to or knowledge of said lessee or sublessee to the
contrary. Such lessee or sublessee shall have no duty to determine that any sum
paid to Trustee or Grantee hereunder is properly applied by Trustee or Grantee.
5.03 Sale of Property. (a) Trustee, at the request of Grantee, shall
-------------------
proceed to sell, either by himself or by agent or attorney, the Property or any
part thereof at public venue or outcry to the highest bidder for cash at such
time and place and upon such terms as it shall deem expedient, or as may be
required by applicable law after first giving notice as now required by
applicable law. Upon such sale Trustee shall receive the proceeds of such sale
or sales and shall execute and deliver deed or deeds or other instruments of
conveyance, assignment and transfer to the Property sold, to the purchaser or
purchasers thereof.
(b) Upon such sale or sales made by Trustee under the power herein
granted, or upon any sale or sales under or by virtue of any judicial
proceedings: (i) the whole of the Property, real, personal and mixed, may be
sold in one parcel as an entirety, or the Property may be sold in separate
parcels as may be determined by Trustee in his discretion; (ii) any deed or
other instrument of conveyance, assignment or transfer made and delivered by
Trustee in pursuance of the powers granted and conferred herein, and all
recitals therein contained shall be prima facie evidence of the facts therein
set forth; (iii) any such sale or sales shall operate to divest Grantor of all
right, title, interest, claim and demand, either at law or in equity, under
statute or otherwise, in and to the Property and every part thereof so sold and
shall be a perpetual bar, both in law or equity, against Grantor and any and all
persons claiming or to claim from, through or under Grantor; and (iv) at any
such sale or sales Grantee may bid for and purchase the Property or any part
thereof and may make payment therefor by credits against the Obligations.
5.04 Foreclosure. (a) Trustee may proceed by suit or suits at law or in
------------
equity, as Trustee may be advised by counsel, to enforce the payment of the
Obligations or to foreclose this Deed of Trust. In such event, Trustee shall be
entitled to a reasonable fee for his services and the services of his attorneys
and agents, and for all expenses, costs and outlays. Upon or at any time after
the filing of any suit to foreclose the lien hereof, Trustee shall be entitled
as a matter of right to the appointment of a receiver of the Property, either
before or after sale, without notice and without regard to the solvency or
insolvency of Grantor at the time of the application for such receiver, and
without regard to the then value of the Property. Trustee, or Grantee, may be
appointed as such receiver. Such receiver shall have full power to collect the
rents, issues and profits from the Property and all
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other powers necessary or incidental for the protection, possession, control,
management and operation of the Property.
(b) Upon any foreclosure or sale of the Property, or any part thereof,
the proceeds of such sale or sales shall be applied as follows: First, to the
cost and expense of executing this trust, including reasonable compensation of
Trustee and reasonable attorney's fees, outlays for documentary stamps, cost of
procuring title certificates, continuing abstracts, title searches or
examinations reasonably necessary or proper; Second, to the payment of any and
all advances made by Trustee or Grantee, with interest thereon as hereinabove
provided; Third, to the payment of the balance of the Obligations, with interest
thereon as therein provided and in such order as Grantee shall elect; and
Fourth, any surplus thereafter shall be paid to Grantor or to whomever shall be
lawfully entitled thereto; provided that in the event the net proceeds of such
sale or sales shall not be sufficient to pay in full the indebtedness hereby
secured, Grantor hereby promises and agrees to pay any deficiency thereon on
demand.
(c) Each time it shall become necessary to insert an advertisement of
foreclosure, and sale is not had, Trustee shall be entitled to receive the sum
of One Hundred Dollars ($100.00) for services and the amount of all advertising
charges from Grantor, all of which shall be further secured hereby.
5.05 Remedies Not Exclusive. No remedy herein conferred upon or reserved to
-----------------------
Trustee or Grantee is intended to be exclusive of any other remedy, but every
remedy herein provided shall be cumulative, and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity,
or by statute; and every power and remedy given by this Deed of Trust to Trustee
or to Grantee may be exercised from time to time and as often as may be deemed
expedient. No delay or omission by Trustee or by Grantee to exercise any right
or power arising from any default shall impair any such right or power or shall
be construed to be a waiver of any default or an acquiescence therein. In case
Trustee shall have proceeded to enforce any right under this Deed of Trust by
foreclosure, entry or otherwise, and such proceedings shall have been
discontinued or abandoned because of waiver or for any other reason, or shall
have been determined adversely, then, and in such and every such case, Grantor
and Trustee shall severally and respectively be restored to their former
positions and rights hereunder in respect of the Property, and all rights,
remedies and powers of Trustee shall continue as though no such proceedings had
been taken. The unenforceability or invalidity of any provision or provisions
hereof shall not render any other provision or provisions herein contained
unenforceable or invalid.
SECTION 6. GENERAL PROVISIONS.
- - ---------------------------------
6.01 R.S.Mo. 443.055. Grantor acknowledges and agrees that this Deed of
-----------------
Trust is to be governed by Section 443.055 of the Revised Statutes of Missouri
and the total principal amount of the obligations which may be secured hereby
shall not be limited to the face amount specified on the first page hereof to
the extent permitted under said Section 443.055. Notwithstanding anything to the
contrary, Grantee shall have no obligation to make any advances which would not
be secured hereby or enjoy the same priority granted other advances secured
hereby pursuant to said Section 443.055.
6.02 Trustee. The Trustee may resign at any time by written instrument to
--------
that effect delivered to Grantee. Grantee shall be entitled to remove, at any
time or from time to time without cause, the Trustee. In case of the death,
removal, resignation, refusal to act, or the inability to act of the Trustee,
Grantee shall be entitled to select and appoint a successor trustee hereunder by
an
11
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instrument duly executed, acknowledged and recorded in the manner and form for
conveyances of real estate as provided by applicable law, and any such successor
trustee shall thereupon succeed as trustee hereunder and to all of the rights,
powers, duties, obligations, and estate of Trustee as if specifically named
herein, provided no defect or irregularity in the resignation or removal of
Trustee or in the appointment of a successor trustee or in the execution and
recording of such instrument shall affect the validity of said resignation,
removal, or appointment or any act or thing done by such successor trustee
pursuant thereto. It is agreed that Trustee and any successor trustee shall not
be disqualified from acting as Trustee hereunder or from performing any of the
duties of Trustee, or from exercising the rights, powers and remedies herein
granted, by reason of the fact that Trustee is an officer, employee or
stockholder of or attorney for the Grantee, or is interested, directly or
indirectly, as the holder of the Obligations hereby secured, Grantor hereby
expressly consenting to Trustee and any successor trustee acting as Trustee
irrespective of the fact that Trustee might be otherwise disqualified for any of
the foregoing reasons, and that any interest which Trustee or any successor
shall have or may acquire in the obligation hereby secured, or the premises and
property hereby conveyed, shall neither interfere with nor prevent his acting as
Trustee or from purchasing the Property at said sale or sales, and all parties
waive any objection to Trustee having or acquiring any such interest in the
obligations or property aforesaid and continuing to act as Trustee. Trustee
covenants faithfully to perform and fulfill the trust herein created, being
liable, however, only for willful misconduct.
6.03 Liens. No lien provided for by the statutes of the State of Missouri,
------
in force at any time while the lien hereof exists, in favor of any person who
furnished labor or materials in the erection or repair of any Improvements now
or hereafter on the Property, shall attach to the Property, except as subject
and subordinate to the lien of this instrument, and any person dealing with said
Property after the recording of this instrument is hereby charged with notice of
and consent to this stipulation, and with a waiver of any lien except as subject
and subordinate hereto.
6.04 Taxation. In the event of the passage, after the date of this Deed of
---------
Trust, of any law of the State of Missouri deducting from the value of land for
the purpose of taxation any lien thereon or changing in any way the laws now in
force for the taxation of mortgages or deeds of trust for state or local
purposes or the manner of collection of such tax so as to make it obligatory
upon the Trustee or Grantee to pay such tax, or if any such tax is imposed under
any existing law then the whole of the principal sum secured hereby, together
with accrued interest thereon shall, at the option of the Grantee, become due
and payable, and the Grantee shall have the right to foreclose immediately this
Deed of Trust, unless said Grantor shall pay such tax or charge in full
forthwith upon demand. Grantor agrees to pay any such tax or charge; provided,
however, that should the payment of such tax or charge result in usury, then
only such portion of such tax or charge shall be paid by the Grantor as will not
amount to an exaction of interest in excess of the highest rate permitted by
law, and provided further that if only part of the tax or charge can lawfully be
paid, then Grantee shall retain the right to declare the entire outstanding
balance owed under the Obligations immediately due and payable.
6.05 Covenants to Run with the Land. Every covenant, agreement, condition,
-------------------------------
promise and undertaking herein, of said Grantor, shall run with the Premises, is
a condition upon which the loan secured hereby was made, and is of the essence
of this instrument, and any breach of any covenant, agreement, condition,
promise or undertaking shall be deemed a material breach going to the substance
hereof.
6.06 Gender and Number. Whenever used, the singular number shall include
--------------------
the plural, the plural the singular and the use of any gender shall include all
genders. If there is more than one Grantor, all obligations of this Deed of
Trust shall be joint and several.
12
<PAGE>
6.07 Security Agreement. This instrument is intended to be a security
--------------------
agreement pursuant to the Uniform Commercial Code for any of the items specified
above as part of the Property which, under applicable law, may be subject to a
security interest pursuant to the Uniform Commercial Code, and Grantor hereby
grants Grantee a security interest in said items. Grantor agrees that Grantee
may file this Deed of Trust, or a reproduction or summary hereof, in the real
estate records, personal property index, or other appropriate index, as a
financing statement for any of the items specified above as part of the
Property. Any reproduction of this Deed of Trust or of any other security
agreement or financing statement shall be sufficient as a financing statement.
In addition, Grantor agrees to execute and deliver to Grantee, upon Grantee's
request, any financing statements, as well as extensions, renewals and
amendments thereof, and reproductions of this Deed of Trust in such form as
Grantee may require to perfect a security interest with respect to said items.
Grantor shall pay all costs of filing such financing statements and any
extensions, renewals, amendments and releases thereof, and shall pay all
reasonable costs and expenses of any record searches for financing statements
Grantee may reasonably require. Without the prior written consent of Grantee,
Grantor shall not create or suffer to be created pursuant to the Uniform
Commercial Code any other security interest in said items, including
replacements and additions thereto. Upon the occurrence of an Event of Default,
Grantee shall have the remedies of a secured party under the Uniform Commercial
Code and, at Grantee's option, may also invoke the remedies as otherwise
provided in this Deed of Trust. In exercising any of said remedies, Grantee may
proceed against the items of real property and any items of personal property
specified above as part of the Property separately or together and in any order
whatsoever, without in any way affecting the availability of Grantee's remedies
under the Uniform Commercial Code or of the remedies otherwise provided in this
Deed of Trust.
6.08 Successors, Endorsees and Transferees. This Deed of Trust and all
-----------------------------------------
provisions hereof shall extend to and be binding upon Grantor, its successors
and assigns and all parties claiming by, through or under Grantor. The term
"Grantee," shall be deemed to mean and include the endorsee(s), transferee(s) of
the holders at any time of any of the Obligations, and the successor or
successors and assigns of said Grantee; and the covenants and agreements shall
bind and inure to the benefit of the successors and assigns of Grantor and the
endorsee(s), transferee(s), assignee(s) and successors of Grantee.
6.09 Severability. In the event any part, portion or provisions of this
-------------
Deed of Trust shall for any reason be illegal, invalid or unenforceable, then
such part, portion or provision thereof shall be held to apply only to the
extent it is legal, valid and enforceable and such remaining portion thereof
shall remain in full force and effect, the same as if such part, portion or
provision thereof declared illegal, invalid or unenforceable had not been a part
thereof.
6.10 Notice. All notices, demand or documents which are required or
-------
permitted to be given or served hereunder shall be in writing and shall be
deemed given when hand delivered or sent by certified mail return receipt
requested addressed to the Grantor, Trustee or Grantee, at the addresses
specified in the first paragraph of this Deed of Trust. The date of mailing
shall be the date of giving of such notice regardless of whether the notice is
actually received. Such addresses may be changed from time to time by any party
by serving notice as herein provided.
6.11 Possession of Property. Until an Event of Default shall occur, Grantor
-----------------------
shall be entitled to remain in possession of the Property, and if Grantor shall
well and truly pay or cause to be paid the Obligations with interest thereon,
and the other obligations hereby secured as and when the same shall become due
and payable under the terms thereof, then this Deed of Trust shall cease and
13
<PAGE>
become null void and the Property hereinbefore conveyed shall be released
without recourse or warranty at the cost of Grantor.
6.12 Condemnation. (a) Grantor hereby irrevocably assigns to Trustee any
-------------
award or payment which may become payable by reason of any taking of the
Property, or any part thereof, whether directly or indirectly, temporarily or
permanently, in or by condemnation or other eminent domain proceedings (a
"Taking"). Immediately upon receipt by Grantor of notice of the institution of
any proceeding or negotiations for a Taking, Grantor shall give notice thereof
to Trustee. Trustee may appear in any such proceedings and participate in any
such negotiations and may be represented by counsel. Grantor, notwithstanding
that Trustee may not be a party to any such proceeding, will promptly give to
Grantee copies of all notices, pleadings, judgments, determinations and other
papers received by Grantor therein. Notwithstanding anything herein to the
contrary, the Trustee shall have the right, at any time, by an instrument in
writing executed and delivered to Grantor, to direct the method of conducting
all proceedings for a Taking; provided that such direction shall not be
otherwise than in accordance with the provisions of law. Grantor will not enter
into any agreement permitting or consenting to the taking of the Property, or
any part thereof, or providing for the conveyance thereof in lieu of
condemnation, with anyone authorized to acquire the same in condemnation or by
eminent domain unless Grantee shall first have consented thereto in writing. All
awards payable as a result of a Taking shall be paid to Trustee, who may, at his
option, apply them, after first deducting Trustee's expenses incurred in the
collection thereof, to the payment of the debt secured hereby, whether or not
due and in such order of application as Trustee may determine, or to the repair,
replacement, rebuilding or restoration of the Property in such manner as Trustee
may determine.
(b) If the Taking involves a taking of any building or other Improvement
now or hereafter located on the Premises, Grantor shall promptly proceed, with
reasonable diligence, to demolish and remove any ruins and complete repair,
replacement, rebuilding or restoration of the Property to its respective size,
type, value and character immediately prior to the Taking, whether or not the
condemnation awards are available or adequate to complete such repair,
replacement, rebuilding or restoration; provided, however, that if Trustee shall
apply the entire condemnation award to payment of the debt secured hereby,
Grantor shall have the option, in lieu of completing such repair, replacement,
rebuilding or restoration, to pay in full the Obligations according to the terms
thereof and this Deed of Trust. Grantor shall promptly reimburse Trustee upon
demand for all of Trustee's expenses (including reasonable attorney's fees)
incurred in the collection of awards and their disbursement in accordance with
this Section, and all such expenses, together with interest from the date of
disbursement at the Default Rate, shall be additional amounts secured by this
Deed of Trust. Grantor shall certify to Trustee and shall provide adequate
evidence satisfactory to Trustee that the Property has been put in a state of
repair and equivalent to or better than that existing prior to such Taking.
6.13 Failure to Perform. In the event Grantor shall fail to keep and
---------------------
perform any covenant, agreement, condition, promise or undertaking herein
contained, then Grantee may, at its option, (a) pay any delinquent tax or other
assessment, or purchase any tax title obtained or that shall be obtained
thereon; (b) pay or compromise any and all suits or claims for liens or any
other claims that may be made against the Property; (c) make repairs upon the
Property; (d) pay any other expenses necessary to the management of the
Property; or (e) pay insurance premiums on policies covering the Property; and
Grantor further covenants and agrees to repay forthwith, on demand, all moneys
paid for any such purpose and any other moneys advanced by Grantee to protect
the lien of this Deed of Trust, with interest thereon from the date of the
payment at the Default Rate, and all such moneys shall, if not otherwise repaid,
become so much additional indebtedness secured by this Deed of Trust and be
14
<PAGE>
included in any decree foreclosing this Deed of Trust and shall be paid out of
the proceeds of sale of the Property. It shall not be obligatory upon Grantee to
inquire into the validity of any such tax deed, or of sale or of forfeitures
therefor, or claims of liens or claims affecting the Property before advancing
money in that behalf, as herein authorized, but nothing herein contained shall
be construed as requiring the Grantee to advance or expend any moneys for any
purpose aforesaid nor shall any such payments or advancements be construed so as
to in any way limit or impair the right of Grantee to avail itself of such
default by taking such action at law or in equity as it may deem necessary or
advisable to enforce the security hereby given it.
6.14 Fees and Expenses. Grantor agrees to pay all costs associated with
--------------------
closing, amending or modifying the transaction contemplated hereby, including
but not limited to Grantee's legal fees, the cost of recording all instruments,
the cost of preparing all surveys, inspections (including any environmental
audit) and appraisals, and all title company charges and any mortgage taxes of
any kind that are now or hereafter due in connection with recording this Deed of
Trust. All fees, costs and expenses allowable pursuant to the provisions hereof
shall be additional indebtedness secured hereby and shall be a charge upon said
Property and shall constitute a lien thereon prior and paramount to the
Obligations and debt secured hereby, and shall be provided for in any judgment
or decree entered in any such proceedings. There shall be included in any decree
foreclosing the lien of this Deed of Trust and be paid out of the proceeds of
any sale made in pursuance of any such decree in the following order: (a) all
costs of such suit or suits, advertising, sale and conveyance, reasonable
attorneys' fees of attorneys for Grantee and Trustee, stenographers' fees,
outlays for documentary evidence and costs of abstract and examination of title,
title opinions and title guaranty policies; (b) all moneys advanced by Grantee
for any purpose authorized herein, with interest on such advances at the Default
Rate; (c) all the accrued interest remaining unpaid on the indebtedness hereby
secured; (d) all amounts under the Obligations at such times remaining unpaid.
The remaining proceeds of the sale, if any, shall then be paid to Grantor or to
whomever shall be lawfully entitled. In case, after legal proceedings are
instituted to foreclose the lien of this Deed of Trust, tender is made of the
entire indebtedness due hereunder, Grantee and Trustee shall be entitled to
reimbursement for expenses incurred in connection with such legal proceedings,
including such expenditures as are enumerated above, and such expenses shall be
so much additional indebtedness secured by this Deed of Trust, and no such suit
or proceedings shall be dismissed or otherwise disposed of until such fees,
expenses and charges shall have been paid in full.
6.15 Power of Attorney. Grantor grants to Trustee and Grantee an
--------------------
irrevocable power of attorney coupled with an interest for the purpose of
exercising and perfecting any and all rights and remedies available to Grantee
or Trustee at law and in equity and pursuant to this Deed of Trust.
6.16 Further Acts. Grantor will, at the cost of Grantor, and without
--------------
expense to Grantee or Trustee, do, execute, acknowledge and deliver all and
every such further acts, deeds, conveyances, deeds of trust, mortgages,
assignments, notices of assignments, transfers and assurances as Grantee shall,
from time to time, require, for the better assuring, conveying, assigning,
transferring, and confirming unto Grantee the Property and rights hereby
mortgaged, given, granted, bargained, sold, conveyed, confirmed, pledged,
assigned and hypothecated or intended now or hereafter so to be, or which
Grantor may be or may hereafter become bound to convey or assign to Trustee or
Grantee, or for carrying out the intention or facilitating the performance of
the terms of this Deed of Trust or for filing, registering or recording this
Deed of Trust and, on demand, will execute and deliver and hereby authorizes
Grantee to execute in the name of Grantor or without the signature of Grantor to
the extent Grantee may lawfully do so, one or more financing statements, chattel
mortgages or comparable security instruments, to evidence more effectively the
lien hereof upon the Property. Grantee agrees
15
<PAGE>
that, upon the reasonable advance written request of Grantor pursuant to a
Grantor's refinancing of outstanding debt with Foothill Capital Corporation, it
shall execute an Intercreditor Agreement, which shall be mutually acceptable in
form to the parties thereto and which shall contain such terms as are customary
with respect to real estate and other assets.
6.17 Actions and Proceedings. Grantee or Trustee shall have the right to
--------------------------
appear in and defend any action or proceeding brought with respect to the
Property and to bring any action or proceeding, in the name and on behalf of
Grantor, which Grantee or Trustee, in its or his sole discretion, decides should
be brought to protect Grantee's interest in the Property. Grantee shall, at its
option, be subrogated to the lien of any mortgage or other security instrument
discharged in whole or in part by the debt secured hereby, or additional money
advanced hereby, and any such subrogation rights shall constitute additional
security for the payment of such debt.
6.18 Counterparts. This Deed of Trust may be executed in any number of
-------------
counterparts, each of which shall be deemed an original, and said counterparts
shall be deemed to constitute but one and the same instrument, which instrument
may be sufficiently evidenced by any one counterpart.
6.19 Amendment. This Deed of Trust may not be modified, amended, changed,
----------
discharged or terminated orally, but only in writing signed by the person
against whom the enforcement of the modification, amendment, change, discharge
or termination is sought.
6.20 Filing of Deed of Trust. Grantor forthwith upon the execution and
----------------------------
delivery of this Deed of Trust and thereafter, from time to time, will cause
this Deed of Trust, any financing statements, and any security instrument
creating a lien or security interest or evidencing the lien hereof upon the
Property and each instrument of further assurance to be filed or refiled,
registered or re-registered or recorded or re-recorded in such manner and in
such places as may be required under any present or future law in order to
publish notice of and protect fully the lien or security interest hereof upon,
and the interest of Grantee in the Property.
6.21 Recovery of Sums Required To Be Paid. Grantee shall have the right
----------------------------------------
from time to time to take action to recover any sum or sums which constitute a
part of the debt secured hereby as the same become due, without regard to
whether or not the balance of such debt shall be due, and without prejudice to
the right of Grantee thereafter to bring an action of foreclosure, or any other
action, for a default or defaults by Grantor existing at the time such earlier
action was commenced.
6.22 Estoppel Certificates. Grantor, upon request of Grantee, shall
-----------------------
certify, by a writing duly acknowledged to Grantee or to anyone else whom
Grantee shall designate, the amount of principal and interest then owing on the
Obligations, whether any offsets or defenses exist against the Obligations, the
name and address of any lessees of the Property or any part thereof together
with the terms of their respective leases, the rents payable thereunder and
whether any default exists under said leases. Such certificates shall be
executed by Grantor and any lessees, if requested by Grantee, and delivered to
the Grantee with ten (10) days of such request.
6.23 Documentary Stamps. If at any time the United States of America, any
--------------------
State thereof or any subdivision of any such State shall require revenue or
other stamps to be affixed to the Obligations or this Deed of Trust or any other
Loan Document, or impose any other tax or charge on the same, Grantor will pay
the same.
16
<PAGE>
6.24 Uniform Commercial Code Financing Statement. This Deed of Trust
------------------------------------------------
constitutes a financing statement filed as a fixture filing under the Uniform
Commercial Code in the real estate records of the county in which the Property
is located with respect to any and all fixtures included within the term
"Property" and with respect to any goods or other personal property that may now
be or hereafter become such a fixture.
6.25 References; Headings for Convenience. Unless otherwise specified
----------------------------------------
herein, all references herein to section numbers refer to section numbers of
this Deed of Trust, and all references to Exhibit A refer respectively to the
annexed Exhibit A which is incorporated herein by this reference. Headings
contained herein are for the convenience of the parties hereto and are not to be
considered in the construction or interpretation of this Deed of Trust.
6.26 Governing Law. This Deed of Trust shall be governed and construed
---------------
according to the internal laws of the State of Missouri.
6.27 Waiver of Jury Trial. GRANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY
---------------------
(WHICH THE GRANTEE AND TRUSTEE ALSO WAIVE) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
OBLIGATIONS, THE PROPERTY OR THE GRANTEE OR TRUSTEE'S CONDUCT IN RESPECT OF ANY
OF THE FOREGOING.
IN WITNESS WHEREOF, the parties hereto have executed this Deed of Trust as of
the day and year first above written.
Grantor:
ALLIED HEALTH PRODUCTS, INC.
By: /S/ Uma Nandan Aggarwal
-------------------------------
Uma Nandan Aggarwal
Chief Executive Officer and President
Trustee:
By: /S/ Joseph F. Hipskind Jr.
-----------------------------------
Joseph F. Hipskind Jr., as Trustee
Grantee:
LASALLE NATIONAL BANK
By: /S/ Andrew K. Dawson
----------------------------
Andrew K. Dawson
Vice President
17
<PAGE>
STATE OF MISSOURI )
) SS.
)
On this 6th day of August, 1998, before me appeared Uma Nandan Aggarwal, to
---
me
personally known, who, being by me duly sworn did say that he is the Chief
Executive Officer and
President of Allied Healthcare Products, Inc., a Delaware corporation, and
acknowledged this
instrument to be signed on behalf of said corporation as the free act and deed
of said corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in the county and State aforesaid, the day and year first
------
above written.
/s/ Anne Taylor Proffer
--------------------------
Notary Public
My term expires 3-30-2002
---------
(Seal)
STATE OF MISSOURI )
) SS.
)
On this 6th day of August, in the year 1998, before me, Anne Taylor Proffer
--- -------------------
Notary Public in and for said state, personally appeared Joseph F. Hipskind,
.Ir., known to me to be the person who executed the foregoing instrument, and
acknowledged to me that he executed the same for the purposes therein stated.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in the county and State aforesaid, the day and year first
------
above written.
/s/ Anne Taylor Proffer
--------------------------
Notary Public
My term expires 3-30-2002
---------
(Seal)
18
<PAGE>
STATE OF MISSOURI )
) SS.
)
On this 6th day of August, 1998, before me appeared Andrew K. Dawson, to me
personally known, who, being by me duly sworn did say that he is a Vice
President of LaSalle National Bank and acknowledged this instrument to be signed
on behalf of said Bank as the free act and deed of said Bank.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official seal
at my office in the County and State aforesaid, the day and year first above
------
written.
/s/ Anne Taylor Proffer
--------------------------
Notary Public
My term expires 3-30-2002
---------
(Seal)
19
<PAGE>
EXHIBIT A
Legal Description
-----------------
A tract of land being part of Blocks 1, 2, 5, 6 and 11 of Mount St. Louis in
Blocks 4029 and 4033 of the City of St. Louis, Missouri, and including that part
of Northrup Avenue, 50.00 feet wide, vacated per Ordinance No. 47198, League
Avenue, 50.00 feet wide, vacated per Ordinance No 47198 and Lilly Avenue, 50.00
feet wide, vacated per Ordinance No. 56033, No. 39950 and No. 54762 and all
being more particularly described as follows;
Beginning at the intersection of the East line of Sublette Avenue, 50.00 feet
wide, with the North line of Missouri Interstate Highway 1-44 as established by
deed recorded in Book 8501 page 576 of the City of St. Louis Records; thence
along said East line, North 00 degrees 00 minutes 00 seconds East a distance of
579.75 feet to the Southwest corner of a tract of land conveyed to Kaminski as
recorded in Deed Book MI 061 page 179 of the City of St. Louis Records, said
Southwest comer being distant South 196.40 feet from the South line of River Des
Peres Drainage Works; thence along the South Line of said property, North 72
degrees 20 minutes 17 seconds East a distance of t 3.15 feet; thence continuing
along said South line, South 89 degrees 57 minutes 17 seconds East a distance of
237.47 feet to the Southeast corner of said property; thence along the East line
of said property, North 00 degrees 00 minutes 00 seconds East a distance of
75.80 feet; thence continuing along said line, North 72 degrees 20 minutes 17
seconds East a distance of 43.87 feet to the centerline of League Avenue, as
vacated per City of St. Louis Ordinance No. 47198; thence along said centerline,
North 00 degrees 00 minutes 00 seconds East a distance of 165.56 feet to a point
in the South line of said River Des Peres Drainage Works, 150.00 feet wide;
thence along said South line, North 77 degrees 59 minutes 29 seconds East, a
distance of 543.11 feet; thence South 00 degrees 06 minutes 17 seconds West a
distance of 238.69 feet to a point in the North line of Northrup Avenue, 50.00
feet wide; thence along said North line, South 89 degrees 45 minutes 31 seconds
West a distance of 114.52 feet to the centerline of Lilly Avenue, as vacated per
City of St. Louis Ordinance No. 56033; thence along said centerline, South 00
degrees 05 minutes 40 seconds West a distance of 621.58 feet to a point in said
North line of Missouri Interstate Highway 1-44; thence along said North line,
South 82 degrees 42 minutes 31 seconds West a distance of 712.81 feet to the
Point of Beginning, according to survey made by Massmann Surveying, Project No.
298242 dated July 29, 1998.
<PAGE>
EXHIBIT "B"
All assessments and taxes for the year 1998 and all subsequent years for the
City of St. Louis.
Relinquishment of direct access to Interstate Highway 1-44, according to
instrument recorded in Book 8501 page 576.
Easements for utilities reserved by the City of St. Louis under the provisions
of its Ordinance Number 56033, and Ordinance No. 47198.
Rights of the City of St. Louis to construct, reconstruct, replace and repair
and maintain the existing sewers, sewer pipes, manholes and inlets, and
appurtenances thereto, under provisions of Ordinance No. 47198, Section Two.
Easement granted to Union Electric Company, according to instrument recorded in
Book 8620 page 195.
Subject property lies within an area designated as blighted by the St. Louis
City Ordinance No. 63234.
Encroachment of a wood fence, located on the Northwest part just East of
Sublette, onto the adjoining property, encroachment of a fence, located in the
Northwest corner into River Des Peres Drainage Works and encroachment of the
concrete curb and concrete sign base over and onto Northrup Avenue as shown on
Survey made by Massmann Surveying being project No. 298242 dated July 29, 1998.
<PAGE>
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT (the "Agreement") is made as of the 7th day of
August, 1998, by Allied Healthcare Products, Inc., (the "Borrower") for the
benefit of LaSalle National Bank, ("Lender").
WITNESSETH:
WHEREAS, Borrower has requested and Lender has agreed to make a loan to
Borrower in the amount of Five Million and No/00 Dollars ($5,000,000) (the
"Loan"), which Loan is evidenced by that certain Promissory Note in the original
principal amount of Five Million and No/00 Dollars ($5,000,000) of even date
herewith, as from time to time renewed, modified, amended or extended (the
"Note"), executed by Borrower and payable to the order or Lender;
WHEREAS, Borrower's obligations under the Note are secured in pan by a Deed
of Trust, Assignment of Rents and Security Agreement as from time to time
renewed, modified, amended or extended (the "Deed of Trust") from Borrower to
Joseph F. Hipskind, Jr., Trustee, for the benefit of the Lender dated of even
date with the Note, covering certain real property (including without
limitation, the real property described in Exhibit A, attached hereto and
incorporated herein) and personal property described therein (hereinafter
collectively referred to as the "Property") (the foregoing documents and all
other documents executed by Borrower in connection with or securing or
evidencing the Loan are hereinafter collectively called the "Loan Documents");
and
WHEREAS, as a condition to making the Loan, Lender requires Borrower to
provide certain indemnities;
WHEREAS, to induce Lender to make the Loan to Borrower, Borrower has agreed
to provide this Agreement for Lender's benefit.
NOW, THEREFORE, for and in consideration of the Ten Dollars ($10.00) and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Lender, by its acceptance of delivery hereof, and Borrower
hereby agree as follow:
1. Recitals. The foregoing recitals are incorporated into this Agreement by
this reference.
2. Definitions. The following definitions shall apply for purposes of this
Agreement:
(a) "Accessibility Laws" means any and all present and future
applicable (i) federal, state and municipal laws, ordinances, rules and
regulations and guidelines currently in existence or hereinafter enacted or
rendered governing accessibility for the disabled or handicapped, including but
not limited to The Architectural Barriers Act of 1968, The Rehabilitation Act of
1973, The Fair Housing Act of 1988 and The Americans With Disabilities Act of
1990, (ii) judicial or administrative interpretations thereof, including any
judicial or administrative orders or judgments, and (iii) including but not
limited to ordinances, codes, plans, injunctions, decrees, permits, demand
letters, concessions, grants, franchises,
<PAGE>
licenses, agreements, notices, or other governmental restrictions, relating to
the protection of the disabled or handicapped.
(b) "Environmental Law" shall mean any federal, state or local
statute, regulation or ordinance or any judicial or administrative decree or
decision, whether now existing or hereinafter enacted, promulgated or issued,
with respect to any Hazardous Materials, drinking water, groundwater, wetlands,
landfills, open dumps, storage tanks, underground storage tanks, solid waste,
waste water, storm water, run-off, waste emissions or wells. Without limiting
the generality of the foregoing, the term shall encompass each of the following
statutes, and regulations promulgated thereunder, and amendments and successors
to such statutes and regulations, as may be enacted and promulgated from time to
time: (i) the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 (codified in scattered sections of 26 U.S.C.; 33 U.S.C.; 42 U.S.C.
and 9601 et seq.) ("CERCLA"); (ii) the Resource Conservation and Recovery Act
of 1976 (42 U.S.C. 6901 et seq.); (iii) the Hazardous Materials Transportation
Act (49 U.S.C. 1801 et seq.) (iv) the Toxic Substances Control Act (15 U.S.C.
2601 et seq.); (v) the Clean Water Act (33 U.S.C. 1251 et seq.; (vi) the Clean
Air Act 42 U.S.C. 7401 et seq.); (vii) the Safe Drinking Water Act (21 U.S.C.
349; 42 U.S.C. 201 and 300f et seq.); (viii) the National Environmental
Policy Act of 1969 (42 (U.S.C. 4321); (ix) the Superfund Amendments and
Reauthorization Act of 1986 (codified in scattered sections of 10 U.S.C., 29
U.S.C., 33 U.S.C. and 42 U.S.C.) ("SARA"); (x) Title III of the Superfund
Amendments and Reauthorization Act (42 U.S.C. 11001 et seq.); (xi) the
Missouri Hazardous Waste Management Law (Mo. Rev. Stat 260.350-260.434);
(xii) Missouri Abandoned or Uncontrolled Sites Law (Mo. Rev. Stat.
260.435-260.546); (xiii) Missouri Air Conversation Law (Mo. Rev. Stat. Chapter
643); (xiv) Missouri Clean Water Law (Mo. Rev. Stat. Chapter 644); and (xv)
Missouri Underground Storage Tank Regulation (Mo. Rev. Stat.
319.100-319.137).
(c) "Clean-Up" shall mean removal, containment, or remediation of any
Environmental Activity which constitutes a violation of Environmental Laws in
accordance with Environmental Laws and good commercial practices from the
Property or surrounding areas.
(d) "Hazardous Materials" shall mean each and every element, compound,
chemical mixture, contaminant, pollutant, material, waste or other substance
which is defined, determined or identified as hazardous or toxic under any
Environmental Law.
(f) "Environmental Activity" means any actual, proposed, or threatened
storage, spilling, leaking, pouring, pumping, dumping, holding, existence,
release, emission, discharge, generation. injection, discarding, burying,
abandoning, processing, abatement, treatment, removal, disposition. handling,
transportation or other management of any Hazardous Material or any other
activity or occurrence that causes or would cause any such event to exist.
(g) "Indemnified Parties" shall mean Lender, Lender's successors and
assigns, Lender's trustee under the Deed of Trust, if any, and Lender's parents,
subsidiaries, and affiliates, each of their respective shareholders, directors,
officers, employees and agents, and any financial institution that is the
successor or assign of Lender and "Indemnified Party" shall mean any one of the
Indemnified Parties.
(h) "Regulatory Actions" mean any claim, action, proceeding brought or
instigated by any governmental authority in connection with any Environmental
Law or any Accessibility Law.
2
<PAGE>
3. Representations and Warranties. Except as otherwise set forth in that
---------------------------------
certain Phase 1 Environmental Site Assessment Update dated as of June 12, 1998,
prepared by ATC Associates, Inc., together with all attachments thereto (the
"Phase ] Report"), to the best of Borrower's knowledge, after due investigation
and inquiry:
(a) The Property is not and has not been a site for the use,
generation, manufacture, storage, treatment, Release, threatened Release,
discharge, disposal, transportation, or presence of Hazardous Materials.
(b) The Property is in material compliance with all Environmental Laws
and all Accessibility Laws.
(c) There are no Regulatory Actions or any claims by any person or
entity due to any violation of any Environmental Laws or based on a violation of
any Accessibility Laws pending or threatened against Borrower or the Property.
(d) There is no Environmental Activity in violation of any
Environmental Law upon, under, or within the Property or any material violation
of any Accessibility Law.
(e) Borrower has not received any notice, order, directive, complaint
or other communication, written or oral, has been made or issued by any
governmental agency or other person, entity or agency alleging the occurrence of
any Environmental Activity with respect to the Property or the use thereof or of
any violations of Accessibility Laws.
(f) Neither Borrower nor any other party has been or is involved in
operations at or near the Property which operations could lead to (i) the
imposition of liability on Borrower, or on any subsequent or former owner of the
Property as a result of a violation of any Environmental Law or any
Accessibility Law, or (ii) the creation of a lien on the Property under any
Environmental Laws or any Accessibility Laws.
(g) Neither Borrower nor any other party has engaged in any activity
that could impose liability under any Environmental Laws or Accessibility Laws
on Borrower or on any other person.
(h) The use of the Property for its intended purpose will not result
in any Environmental Activity in violation of any Environmental Laws or of any
violations of any Accessibility Law.
4Covenants.
----------
(a) Borrower shall substantially comply and in all respects with the
requirements of all Environmental Laws relating to the Property or the use
thereof and shall not engage in or otherwise permit the occurrence of any
Environmental Activity that constitutes a violation of any Environmental Laws
at, upon, under or within the Property.
(b) Borrower shall at all times maintain the Property in substantial
compliance with the requirements of all Accessibility Laws.
(c) In the event of any Environmental Activity in violation of any
applicable Environmental Laws relating to the Property, Borrower shall notify
Lender within forty eight (48) hours of becoming aware of said violation.
3
<PAGE>
(d) Borrower shall promptly forward to Lender copies of all orders,
notices, permits, applications or other communications and reports in connection
with any Environmental Activity or any other matters relating to any
Environmental Laws or any Accessibility Laws as they may affect the Property.
(e) Borrower will notify Lender, in writing, within forty eight (48)
hours of becoming aware of any existing, pending, or threatened (a) Regulatory
Actions, (b) any claims by any person or entity due to any violation of any
Environmental Laws or based on a violation of any Accessibility Laws, or (c) any
Environmental Activity which constitutes a violation of Environmental Laws, or
(d) of any event that would render any representation or warranty contained
herein incorrect in any respect as if said representations and warranties were
made at the time of such discovery.
(f) Borrower will Clean-Up any Environmental Activity which
constitutes a violation of Environmental Laws (a) in accordance with a schedule
required by such Environmental Laws or (b) in accordance with a schedule
acceptable to any regulatory authority enforcing such Environmental Laws.
(g) If Lender has reasonable cause to believe that there has been any
Environmental Activity in violation of any applicable Environmental Laws or any
violation of any Accessibility Laws at, upon, under or within the Property, then
promptly upon the written request of Lender, Borrower shall provide Lender, at
Borrower's expense, an environmental site assessment or environmental audit or
accessibility audit, as the case may be, in each case in form and substance
reasonably acceptable to Lender.
In the event that any of the forgoing covenants are breached, Lender
after first providing Borrower with notice of the alleged breach and allowing
Borrower thirty (30) days in which to cure said alleged breach, may declare the
Loan to be in default and pursue its remedies for default under the Note or any
of the Loan Documents.
5. Indemnity Agreement. Subject to the provisions of paragraph 7 below,
---------------------
Borrower covenants and agrees at its sole cost and expense, to indemnify, defend
(at all administrative, trial, and appellate levels) and hold each Indemnified
Party harmless against and from any and all liens, damages, losses, liabilities,
obligations, settlement payments, penalties, assessments, citations, directives,
claims, litigation, demands, defenses, judgments, suits, proceedings
(administrative or otherwise), costs, disbursements or expenses of any kind or
of any nature whatsoever (including, without limitation, reasonable attorneys,'
consultants,' and experts' fees and expenses and disbursements incurred in
investigating, defending against, settling or prosecuting any claim, litigation
or proceeding) which may at any time be imposed upon, incurred by or asserted or
awarded against such Indemnified Party whether as beneficiary of the Deed of
Trust, Mortgagee in possession, or as successor in interest to Borrower by
foreclosure or deed in lieu of foreclosure on the Property, and arising directly
or indirectly under or on account of the violation of any Environmental Law or
any Accessibility Law including but not limited to:
(a) the occurrence of any Environmental Activity in violation of any
Environmental Law affecting the Property, whether or not the same originates or
emanates from the Property or any contiguous real estate, including without
limitation, any loss of value of the Property as a result of any of the
foregoing regardless of whether or not caused by or within the control of
Borrower;
4
<PAGE>
(b) a Clean-Up;
(c) the violation of any Environmental Laws in connection with other
real property of Borrower which gives or may give rise to any rights whatsoever
in any party with respect to the Property by virtue of any Environmental Laws;
(d) any Regulatory Actions related to the Property;
(e) any costs of modifications or alterations to the Property required
by a regulatory authority so that it is in compliance with Accessibility Laws;
(f) any representation or warranty of Borrower set forth herein shall
prove to be false at any time hereunder or any failure of Borrower to perform
any covenant set forth herein or any other failure of Borrower to comply fully
with the terms and conditions of this Agreement;
(g) the enforcement of this Agreement or the assertion by Borrower of
any defense to its obligations hereunder (except the successful defense of
actual performance not subject to further appeal).
Lender's and the other Indemnified Parties' rights under this Agreement
shall be in addition to all rights of Lender under the Deed of Trust, the Notes,
the Loan Documents, and under any other documents or instruments evidencing,
securing or relating to the Loan, and payments by Borrower under this Agreement
shall not reduce Borrower's obligations and liabilities under any of the Loan
Documents.
Notwithstanding anything in this Agreement to the contrary, Borrower shall
not indemnify any Indemnified Party for any liens, damages, losses, liabilities,
obligations, settlement payments, penalties, assessments, citations, directives,
claims, litigation, demands, defenses, judgments, suits, proceedings
(administrative or otherwise), costs, disbursements or expenses of any kind or
of any nature whatsoever (including, without limitation, reasonable attorneys,'
consultants,' and experts' fees and expenses and disbursements incurred in
investigating, defending against, settling or prosecuting any claim, litigation
or proceeding) which may at any time be imposed upon, incurred by or asserted or
awarded against such Indemnified Party whether as beneficiary of the Deed of
Trust, Mortgagee in possession, or as successor in interest to Borrower by
foreclosure or deed in lieu of foreclosure on the Property, and arising directly
or indirectly under or on account of the gross negligence or willful misconduct
of such Indemnified Party, its officers, directors, employees, agents,
contractors or representatives.
Borrower's obligations under this Agreement as to Environmental Laws shall
arise upon the discovery of the presence of any Hazardous Materials that
constitutes a violation of any Environmental Laws at, upon, under or within the
Property, whether or not the Environmental Protection Agency, any other federal
agency or any state or local environmental agency has taken or threatened any
action in connection with the presence of any Hazardous Materials.
This Indemnity shall apply to violations of the Accessibility Laws after
the Transfer Date (hereinafter defined) due to conditions or events occurring or
existing at the Property on or before the Transfer Date, even though such
conditions or events which caused the violations of the Accessibility Laws did
not constitute violations when the Property was owned by Borrower due to the
fact that compliance with respect to such conditions or events was not "readily
achievable" (as such term is defined in the Accessibility Laws) for the Borrower
but is "readily achievable" for the Lender.
6
<PAGE>
Subject to the provisions of Paragraph 7 below, in the event of any
Environmental Activity affecting the Property, whether or not the same
originates or emanates from the Property or any contiguous real estate, or if
Borrower shall fail to comply with any of the requirements of any Environmental
Laws or Accessibility Laws, Lender may at its election, but without the
obligation to do so, give such notices or cause such work to be performed at the
Property or take any and all other actions as Lender shall deem necessary or
advisable in order to abate the discharge of any Hazardous Materials, remove the
Hazardous Materials, or cure Borrower's noncompliance with any Environmental
Laws or any Accessibility Laws; provided, however, that as long as (i) Borrower
is in possession, custody and control of the Property, and (ii) no uncured
default exists under any of the Loan Documents or under this Agreement, Lender
shall not exercise its right to cause work to be performed at the Property if,
within thirty (30) days after Borrower has received notice of any violation of
the representations, warranties or covenants set forth herein, Borrower shall
have commenced and thereafter shall diligently prosecute to completion the cure
of any such violation in accordance with the terms of this Agreement.
6. Transfer Date. In the event that (i) Lender takes title to the Property,
--------------
or any portion thereof, through a Foreclosure Transfer (as defined below), or
(ii) Borrower transfers ownership of the Property pursuant to transfer approved
by Lender in its sole discretion, and the transferee of the Property assumes all
obligations of Borrower under the Loan Documents, including without limitation
this Agreement, then from and after the date title vests in Lender or such
transferee (the "Transfer Date") with respect to such Property, or such portion
thereof, except as otherwise provided, this Agreement shall not apply to any
losses incurred by Lender as a result of actions after the Transfer Date by
Lender as owner and operator of such Property, or such portion thereof, or by a
party other than Lender if, but only if, such actions are the cause of damage
resulting from the introduction and release of a Hazardous Material at the
Property or the violation of Environmental Laws or Accessibility after the
Transfer Date by Lender or by such other party; provided, however, that, from
and after the Transfer Date, this Agreement shall otherwise remain in full force
and effect with respect to any and all other losses, including, without
limitation, with respect to (i) any conditions in existence on or prior to the
Transfer Date, (ii) the continuing migration or release of any Hazardous
Materials introduced at the Property or surrounding property on or prior to the
Transfer Date, and (iii) the existence of any conditions on or prior to the
Transfer Date which become a violation of any Environmental Laws or any
Accessibility Laws after the Transfer Date as a result of a change in the law
that becomes effective after that date. The burden of proof under this paragraph
with regard to establishing the date upon which a Hazardous Material was placed
or appeared in, on or under the Property shall be upon the Borrower. For
purposes hereof, "Foreclosure Transfer" means the transfer of title to all or
any part of the Property at a foreclosure sale under the Deed of Trust, either
pursuant to judicial decree of power of sale contained in the Deed of Trust, or
by a deed in lieu of such foreclosure. Liability under this Indemnity shall
extend beyond repayment of the Note and Borrower's other obligations to Lender
unless at such time Borrower provides Lender an environmental assessment report
acceptable to Lender showing the Property to be free of Hazardous Materials and
in compliance with all Environmental Laws and an accessibility assessment report
acceptable to the Lender showing the Property to be in compliance with all
Accessibility Laws, in which case Borrower shall be released from the provisions
hereof. For the purposes of this paragraph, "free" shall mean to a level that is
acceptable to the Missouri Department of Natural Resources and any other
applicable federal, state or local authority in accordance with Environmental
Laws and good commercial practices.
7. Permitted Contests. Notwithstanding any provision of this Agreement to
--------------------
the contrary, so long as Borrower is in possession, custody and control of the
Property, Borrower will be permitted to contest, at its sole cost and expense,
subject to compliance with the requirements of this paragraph, by appropriate
6
<PAGE>
action any investigation or monitoring of site conditions or any Clean-Up,
containment, restoration, removal, modification, alteration, or other remedial
work (collectively the "Remedial Work") required under any applicable
Environmental Law or any Accessibility Law, and Lender shall not perform any
such Remedial Work on Borrower's behalf, so long as (i) no uncured default
exists under this Agreement, the Deed of Trust, or any other Loan Document and
(ii) Borrower has given Lender written notice that Borrower is contesting the
same and Borrower actually contests the application, interpretation or validity
of such Environmental Law or any Accessibility Laws pertaining to the Remedial
Work by appropriate proceedings conducted in good faith with due diligence;
provided, such contest shall not subject Lender or any assignee of its interest
(including any person having a beneficial interest) in the Loan Documents to
civil or other liability and shall not jeopardize any such party's lien upon or
interest in the Property or affect in any way the payment of any sums to be paid
under the terms of the Loan Documents. Borrower shall give such security or
assurances as may be reasonably required by Lender to insure compliance with the
Environmental Laws or any Accessibility Laws pertaining to the Remedial Work
(and payment of all costs, expenses, interest and penalties in connection
therewith) and to prevent any sale, forfeiture or loss by reason of such
nonpayment or noncompliance.
8. Action. Borrower shall have the right to control any action for which
-------
indemnity is required through counsel of its choice, subject to Lender's
consent, which consent shall not be unreasonably withheld or delayed, provided,
however, at Lender's option, Lender may participate in such action and appoint
its own counsel. If Borrower fails to notify Lender in writing of its intent to
control such action within thirty (30) days (or 5 days less than such lesser
time as may be required to respond to such claims) of notice of such claims,
Lender shall have the right to undertake the control, conduct or settlement of
such claims through its own counsel at Borrower's expense and may settle such
matter without Borrower's consent at Borrower's sole expense. In the event any
proposed settlement includes non-monetary relief, including Clean-Up or
compliance with Accessibility Laws, Lender may agree to such Clean-Up or
compliance and settle such matter only with the consent of Borrower, which
consent shall not be unreasonably withheld or delayed, and provided that if
Borrower fails to notify Lender as to whether it shall consent to such
non-monetary relief within ten (10) clays from Lender's request approval,
Borrower shall be deemed to have consented to such non-monetary relief.
9. No Waiver. The liabilities of the Borrower under this Agreement shall in
----------
no way be limited or impaired by (i) any amendment or modification of the Loan
Documents; (ii) any extensions of time for performance required by any of the
Loan Documents; (iii) any sale, assignment or foreclosure pursuant to the Loan
Documents or any sale or transfer of all or any part of the Property (except as
set forth in paragraph 6 hereof); (iv) any exculpatory provision in any of the
Loan Documents limiting Lender's recourse to the Property or to any other
security, or limiting Lender's rights to a deficiency judgment against Borrower;
(v) the accuracy or inaccuracy of the representations and warranties made by
Borrower under the Loan Documents; (vi) the release of Borrower or any other
person from performance or observance of any of the agreements, covenants,
terms, or conditions contained in any of the Loan Documents by operation of law,
Lender's voluntary act, or otherwise; (vii) the release or substitution in whole
or in part, of any security for the note or other evidence of debt issued
pursuant to the Loan Documents; or (viii) Lender's failure to record any of the
Loan Documents (or improper recording or filing of any thereof) or to otherwise
perfect, protect, secure or insure any security interest or lien given as
security for the Note or other evidence of indebtedness under the Loan
Documents; and in any of such cases, whether with or without notice to Borrower
and with or without consideration.
10. Reliance. Borrower acknowledges that Lender has agreed to enter into
---------
the Loan and accept
7
<PAGE>
the Deed of Trust in reliance upon the representations, warranties and covenants
in this Agreement. For this reason, it is the intention of Borrower and Lender
that the provisions of this Agreement shall supersede any provisions in any of
the Loan Documents, including, without limitation, the Deed of Trust, which in
any way limit the personal liability of Borrower and that Borrower shall be
personally liable for any obligations arising under this Agreement even if the
amount of liability exceeds Borrower's obligations under the Loan Documents. All
of the representations, warranties, covenants and indemnities of this Agreement
shall survive the repayment and satisfaction of the Loan except as set forth in
paragraph 6 hereof.
11. Assignment. It is agreed and intended by Borrower and Lender that the
-----------
indemnity set forth herein may be assigned or otherwise transferred by Lender to
any financial institution that is the successor or assign of Lender or any
holder of the Note, without notice to Borrower and without any further consent
of Borrower. To the extent consent of any such assignment or transfer is
required by law, advance consent to any such assignment or transfer is hereby
given by Borrower in order to maximize the extent and effect of the indemnity
given hereby.
12. Costs and Expenses. Borrower shall pay to Lender all costs and expenses
-------------------
(including the reasonable fees and disbursements of Lender's legal counsel and
the reasonable charges of Lender's internal legal counsel) incurred by Lender in
connection with the enforcement of the terms of this Agreement.
13. License. Borrower hereby grants, and will cause any tenants of the
--------
Property to grant, to Lender and its agents, employees, attorneys, consultants,
contractors, successors and assigns, an irrevocable license and authorization,
upon reasonable notice, to enter upon and inspect the Property and facilities
thereon, and perform such tests, including without limitation subsurface
testing, soils and groundwater testing, and any other tests thereon as Lender in
its sole discretion determines are necessary to protect its security interest;
provided, however, that under no circumstances shall Lender be obligated to
perform such inspections or tests.
14. Security. This Agreement and the obligations of Borrower under this
---------
Agreement are secured by the Deed of Trust and each of the other Loan Documents.
15. Waiver by Borrower. Borrower waives any right or claim of right to
---------------------
cause a marshalling of Borrower's assets or to cause Lender to proceed against
any of the security for the Loan before proceeding under this Agreement against
Borrower; Borrower agrees that any payments required to be made hereunder shall
become due on demand.
16. Severability. If any clause or provision herein contained operates or
-------------
would prospectively operate to invalidate this Agreement in whole or in part,
then such clause or provision shall be held for naught as though not contained
herein, and the remainder of this Agreement shall remain operative and in full
force and effect.
17. Delay. No delay on Lender's part in exercising any right, power or
------
privilege under any of the Loan Documents shall operate as a waiver of any
privilege, power or right hereunder.
8
<PAGE>
18. Multiple Parties and Joint and Several Liability. Where two or more
----------------------------------------------------
persons or entities have executed this Agreement, unless the context clearly
indicates otherwise, all references herein to "Borrower" shall mean the
indemnitors hereunder or any of them. All obligations and liabilities of said
indemnitors shall be joint and several.
19. Counterparts. This Agreement may be executed in one or more
-------------
counterparts, each of which shall be deemed an original. Said counterparts shall
--
constitute but one and the same instrument and shall be binding upon each of the
undersigned individually as fully and completely as if all had signed but one
instrument so that the joint and several liability of each of the undersigned
hereunder shall be unaffected by the failure of any of the undersigned to
execute any or all of the said counterparts.
20. Notices. Each notice, demand, election or request provided for or
--------
permitted to be given pursuant to this Agreement (hereinafter in this paragraph
referred to as Notice") must be in writing and shall be deemed to have been
sufficiently given or served by personal delivery or by sending same by
overnight courier or by depositing same in the United States Mail, postpaid and
registered or certified, return receipt requested, and addressed as follows:
If to Lender:
LaSalle National Bank
One Metropolitan Square
211 N. Broadway, Suite 2140
St. Louis, Missouri 63102
Attn: Andrew K. Dawson
If to Borrower:
Allied Healthcare Products, Inc.
1720 Sublette Avenue
St. Louis, Missouri 63110
Attn: Uma Nandan Aggarwal
Each Notice shall be effective upon being personally delivered or upon being
sent by overnight courier or upon being deposited in the United States Mail as
aforesaid. The time period in which a response to such Notice must be given or
any action taken with respect thereto (if any), however, shall commence to run
from the date of receipt if personally delivered or sent by overnight courier
or, if so deposited in the United States Mail, the earlier of (i) three (3)
business clays following such deposit or (ii) the date of receipt as disclosed
on the return receipt. Rejection or other refusal to accept or the inability to
deliver because of changed address for which no Notice was given shall be deemed
to be receipt of the Notice sent. By giving at least thirty (30) days prior
Notice thereof, Lender or Borrower shall have the right from time to time and at
any time during the term of this Agreement to change their respective addresses
and each shall have the right to specify as its address any other address within
the United States of America.
21. Amendments. No provision of this Agreement may be changed, waived,
-----------
discharged or terminated orally, by telephone or by any other means except by an
instrument in writing signed by the party against whom enforcement of the
change, waiver, discharge, or termination is sought.
9
<PAGE>
22. Binding Effect. Except as herein provided, this Agreement shall be
----------------
binding upon Borrower and its heirs, personal representatives, successors and
assigns, and shall inure to the benefit of Lender, the other Indemnified
Parties, and their respective successors and assigns. Notwithstanding the
foregoing, Borrower, without the prior written consent of Lender in each
instance, may not assign, transfer or set over to another, in whole or in part,
all or any part of its benefits, rights, duties, and obligations hereunder,
including, but not limited to, performance of and compliance with conditions
hereof.
23. Governing Law. This Agreement and the rights and obligations of the
---------------
parties hereunder shall in all respects be governed by, and interpreted and
determined in accordance with, the laws of the State of Missouri (excluding the
laws applicable to conflicts or choice of law).
24. Non-Exclusive. Lender's rights and remedies against Borrower hereunder
--------------
shall be in addition to and no in lieu of all other rights and remedies of
Lender at law or in equity.
IN WITNESS WHEREOF, Borrower has caused this Agreement to be executed under
seal as of the day and year first written above.
ALLIED HEALTH PRODUCTS, INC.
By: /S/ Uma Nandan Aggarwal
-------------------------------
Uma Nandan Aggarwal
Chief Executive Officer and President
10
<PAGE>
EXHIBIT A
Legal Description
-----------------
A tract of land being part of Blocks 1, 2, 5, 6 and 11 of Mount St. Louis in
Blocks 4029 and 4033 of the City of St. Louis, Missouri, and including that part
of Northrup Avenue, 50.00 feet wide, vacated per Ordinance No. 47198, League
Avenue, 50.00 feet wide, vacated per Ordinance
No. 47198 and Lilly Avenue, 50.00 feet wide, vacated per Ordinance No. 56033,
No. 39950 and No. 54762 and all being more particularly described as follows:
Beginning at the intersection of the East line of Sublette Avenue, 50.00 feet
wide, with the North line of Missouri Interstate Highway 1-44 as established by
deed recorded in Book 8501 page 576 of the City of St. Louis Records; thence
along said East line, North 00 degrees 00 minutes 00 seconds East a distance of
579.75 feet to the Southwest comer of a tract of land conveyed to Kaminski as
recorded in Deed Book M1061 page 179 of the City of St. Louis Records, said
Southwest comer being distant South 196.40 feet from the South line of River Des
Peres Drainage Works; thence along the South Line of said property, North 72
degrees 20 minutes 17 seconds East a distance of 13.15 feet; thence continuing
along said South line, South 89 degrees 57 minutes 17 seconds East a distance of
237.47 feet to the Southeast comer of said property; thence along the East line
of said property, North 00 degrees 00 minutes 00 seconds East a distance of
75.80 feet; thence continuing along said line, North 72 degrees 20 minutes 17
seconds East a distance of 43.87 feet to the centerline of League Avenue, as
vacated per City of St. Louis Ordinance No. 47198; thence along said centerline,
North 00 degrees 00 minutes 00 seconds East a distance of 165.56 feet to a point
in the South line of said River Des Peres Drainage Works, 150.00 feet wide;
thence along said South line, North 77 degrees 59 minutes 29 seconds East, a
distance of 543.11 feet; thence South 00 degrees 06 minutes 17 seconds West a
distance of 238.69 feet to a point in the North line of Northrup Avenue, 50.00
feet wide; thence along said North line, South 89 degrees 45 minutes 31 seconds
West a distance of 114.52 feet to the centerline of Lilly Avenue, as vacated per
City of St. Louis Ordinance No. 56033; thence along said centerline, South 00
degrees 05 minutes 40 seconds West a distance of 621.58 feet to a point in said
North line of Missouri Interstate Highway 1-44; thence along said North line,
South 82 degrees 42 minutes 31 seconds West a distance of 712.81 feet to the
Point of Beginning, according to survey made by Massmann Surveying, Project No.
298242 dated July 29, 1998.
<PAGE>
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
among
ALLIED HEALTHCARE PRODUCTS, INC.,
B&F MEDICAL PRODUCTS, INC.,
HOSPITAL SYSTEMS, INC.,
and
LIFE SUPPORT PRODUCTS, INC.,
as Borrowers, on the one hand,
and
FOOTHILL CAPITAL CORPORATION,
on the other hand
Dated as of September 10, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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Page(s)
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<C> <S> <C>
1. DEFINITIONS AND CONSTRUCTION 1
1.1 Definitions 1
1.2 Accounting Terms 17
1.3 Code 17
1.4 Construction 17
1.5 Schedules and Exhibits 17
2. LOAN AND TERMS OF PAYMENT 18
2.1 Revolving Advances 18
2.2 Letters of Credit 18
2.3 [Intentionally Omitted] 21
2.4 [Intentionally Omitted 21
2.5 Overadvances 21
2.6 Interest and Letter of Credit Fees: Rates, Payments, and Calculations 21
2.7 Collection of Accounts 22
2.8 Crediting Payments; Application of Collections 23
2.9 Designated Account 23
2.10 Maintenance of Loan Account; Statements of Obligations 24
2.11 Fees 24
2.12 Eurodollar Rate Loans 25
2.13 Illegality 26
2.14 Requirements of Law 27
2.15 Indemnity 28
3. CONDITIONS; TERM OF AGREEMENT 29
3.1 Conditions Precedent to the Initial Advance 29
3.2 Conditions Precedent to all Advances and all Letters of Credit 29
3.3 Condition Subsequent 30
3.4 Term 30
3.5 Effect of Termination 30
3.6 Early Termination by Borrowers 30
3.7 Termination Upon Event of Default 31
4. CREATION OF SECURITY INTEREST 31
4.1 Grant of Security Interest 31
4.2 Negotiable Collateral 31
4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral 31
4.4 Delivery of Additional Documentation Required 31
4.5 Power of Attorney 32
<PAGE>
4.6 Right to Inspect 32
5. REPRESENTATIONS AND WARRANTIES 32
5.1 No Encumbrances 33
5.2 Eligible Accounts 33
5.3 Eligible Inventory 33
5.4 Equipment 33
5.5 Location of Inventory and Equipment 33
5.6 Inventory Records 33
5.7 Location of Chief Executive Office; FEIN 33
5.8 Due Organization and Qualification; Subsidiaries 34
5.9 Due Authorization; No Conflict 34
5.10 Litigation 35
5.11 No Material Adverse Change 35
5.12 Solvency 35
5.13 Employee Benefits 35
5.14 Environmental Condition 36
6. AFFIRMATIVE COVENANTS 36
6.1 Accounting System 36
6.2 Collateral Reporting 36
6.3 Financial Statements, Reports, Certificates 37
6.4 Tax Returns 38
6.5 [Intentionally Omitted] 38
6.6 Returns 38
6.7 Title to Equipment 38
6.8 Maintenance of Equipment 39
6.9 Taxes 39
6.10 Insurance 39
6.11 No Setoffs or Counterclaims 41
6.12 Location of Inventory and Equipment 41
6.13 Compliance with Laws 41
6.14 Employee Benefits 41
6.15 Leases 42
7. NEGATIVE COVENANTS 42
7.1 Indebtedness 42
7.2 Liens 43
7.3 Restrictions on Fundamental Changes 43
7.4 Disposal of Assets 43
7.5 Change Name 43
7.6 Guarantee 43
7.7 Nature of Business 43
7.8 Prepayments and Amendments 44
7.9 Change of Control. 44
<PAGE>
7.10 Consignments 44
7.11 Distributions 44
7.12 Accounting Methods 44
7.13 Investments 44
7.14 Transactions with Affiliates 44
7.15 Suspension 45
7.16 [Intentionally 45
7.17 Use of Proceeds 45
7.18 Change in Location of Chief Executive Office; Inventory and Equipment with Bailees 45
7.19 No Prohibited Transactions Under ERISA 45
7.20 Financial Covenants 46
7.21 Capital Expenditures 46
8. EVENTS OF DEFAULT 46
9. FOOTHILL'S RIGHTS AND REMEDIES 48
9.1 Rights and Remedies 48
9.2 Remedies Cumulative 50
10. TAXES AND EXPENSES 50
11. WAIVERS; INDEMNIFICATION 51
11.1 Demand; Protest; etc 51
11.2 Foothill's Liability for Collateral 51
11.3 Indemnification 51
11.4 Joint Borrowers 52
12. NOTICES 57
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER 58
14. DESTRUCTION OF BORROWERS' DOCUMENTS 59
15. GENERAL PROVISIONS 59
15.1 Effectiveness 59
15.2 Successors and Assigns 59
15.3 Section Headings 60
15.4 Interpretation 60
15.5 Severability of Provisions 60
15.6 Amendments in Writing 60
15.7 Counterparts; Telefacsimile Execution 60
15.8 Revival and Reinstatement of Obligations 60
15.9 Integration 61
</TABLE>
<PAGE>
SCHEDULES AND EXHIBITS,
------------------------
Schedule E-1 Eligible Inventory Locations
Schedule P-1 Permitted Liens
Schedule R-1 Real Property Collateral
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 6.12 Location of Inventory and Equipment
Exhibit C-1 Form of Compliance Certificate
<PAGE>
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
------------------------------------------------
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this "Agreement"),
is entered into as of September 10, 1998, among FOOTHILL CAPITAL CORPORATION, a
California corporation ("Foothill"), with a place of business located at 11111
Santa Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333, on the
one hand, and ALLIED HEALTHCARE PRODUCTS, INC., a Delaware corporation
("Parent"), B&F MEDICAL PRODUCTS, INC., a Delaware corporation CB&F"), HOSPITAL
SYSTEMS, INC., a California corporation ("Hospital Systems"), and LIFE SUPPORT
PRODUCTS, INC., a California corporation ("Life Support"), each with its chief
executive office located at 1720 Sublette Avenue, St. Louis, Missouri 63110, on
the other hand.
A. WHEREAS, Foothill, on the one hand, and Parent, B&F, Hospital Systems,
and Life Support (together with certain other affiliates of Parent) entered into
that certain Loan and Security Agreement, dated as of August 7, 1997 (as amended
by Amendment Number One thereto dated as of March 3, 1998 and Amendment Number
Two dated as of July 24, 1998, the "Original Loan Agreement").
B. WHEREAS, Parent, B&F, Hospital Systems and Life Support have requested
and Foothill has agreed, that the Original Loan Agreement be amended and
restated as provided herein.
C. NOW, THEREFORE, each of the parties hereto agrees that the Original Loan
Agreement is hereby amended and restated as follows:
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the following terms shall have
the following definitions:
"Account Debtor"means any Person who is or who may become obligated under,
-----------------
with respect to, or on account of, an Account.
"Accounts"means all currently existing and hereafter arising accounts,
----------
contract rights, and all other forms of obligations owing to a Person arising
out of the sale or lease of goods or the rendition of services by such Person,
irrespective of whether earned by performance, and any and all credit insurance,
guaranties, or security therefor.
"Adjusted Eurodollar Rate"means, with respect to each Interest Period for
----------------------------
any Eurodollar Rate Loan, the rate per annum (rounded upwards, if necessary, to
the next whole multiple of 1/16 of 1% per annum) determined by dividing (a) the
Eurodollar
1
<PAGE>
Rate for such Interest Period by (b) a percentage equal to (i) 100% minus (ii)
the Reserve Percentage. The Adjusted Eurodollar Rate shall be adjusted on and as
of the effective day of any change in the Reserve Percentage.
"Advances"has the meaning set forth in Section 2. l(a).
---------- ------------------
"Affiliate"means, as applied to any Person, any other Person who directly
-----------
or indirectly controls, is controlled by, is under common control with or is a
director or officer of such Person. For purposes of this definition, "control"
means the possession, directly or indirectly, of the power to vote 5 % or more
of the securities having ordinary voting power for the election of directors or
the direct or indirect power to direct the management and policies of a Person.
"Agreement"has the meaning set forth in the preamble hereto.
----------
"Applicable Margin."means: (a) with respect to Eurodollar Rate Loans,
---------------------
2.50%, and (b) with respect to all other Obligations (other than outstanding
L/Cs), 0.25%, in each case subject to adjustment as provided herein. In the
event that (i) Parent's audited financial statements delivered pursuant to
Section 6.3 (b)for its fiscal year ending in 1999 or for its fiscal year ending
-----------
in 2000 indicate that Parent's consolidated net profit (as defined by GAAP)
after taxes for such fiscal year of Parent is at least $1.00, and (ii) no
Default or Event of Default is then existing, then the then existing Applicable
Margin shall be reduced by 0.25 % on Foothill's receipt of such statements
evidencing such profit (such date of receipt in either such year the "Adjustment
Date"), but effective retroactively to the August 15 immediately preceding such
Adjustment Date. An appropriate credit shall be given promptly (but no sooner
than the first day of the month following the Adjustment Date) to Borrower in
the event of, and to give effect to, any such retroactive adjustments to the
Applicable Margin. The maximum aggregate reduction of the Applicable Margin (if
Borrower has consolidated net profits in each such fiscal year) would be 0.50%,
resulting in an adjusted Applicable Margin of 2.00% for Eurodollar Rate Loans
and -0.25% for all other Obligations (other than outstanding L/Cs) effective as
of August 15, 2000. Notwithstanding anything to the contrary in this definition:
(y) any adjustment to the Applicable Margin with respect to Eurodollar Rate
Loans will only affect Eurodollar Rate Loans with Interest Periods commencing
after the relevant Adjustment Date; and (z) at any time during the term of this
Agreement that an Event of Default exists, interest will be calculated on the
basis of Section 2.6 (c).
------------------
"Authorized Person"means any officer or other employee of
--------------------
Borrower.
"Average Unused Portion of Maximum Revolving Amount"means, as of any date
------------------------------------------------------
of determination, (a) $15,000,000, less(b) the sum of (i) the average Daily
----
Balance of Advances that were outstanding during the immediately preceding
month, plus(ii) the average Daily Balance of the undrawn Letters of Credit that
----
were outstanding during the immediately preceding month.
2
<PAGE>
"B&F"has the meaning set forth in the preamble to this Agreement.
-----
"Bankruptcy Code"means the United States Bankruptcy Code (11 U.S.C. 101
------------------
et seq.), as amended, and any successor statute.
"Benefit Plan"means a "defined benefit plan" (as defined in Section 3(35)
---------------
of ERISA) for which any Borrower, any Subsidiary of any Borrower, or any ERISA
Affiliate has been an "employer" (as defined in Section 3(5) of ERISA) within
the past six years.
"Borrower"means any one of Parent, B&F, Hospital Systems, or Life
----------
Support.
"Borrowers' Books"means all of Borrowers' books and records including:
-------------------
ledgers; records indicating, summarizing, or evidencing Borrowers' properties or
assets (including the Collateral) or liabilities; all information relating to
Borrowers' business operations or financial condition; and all computer
programs, disk or tape files, printouts, runs, or other computer prepared
information.
"Borrowing Base"has the meaning set forth in Section 2. l(a).
----------------- ------------------
"Business Day"means any day that is not a Saturday, Sunday, or other day on
--------------
which national banks are authorized or required to close.
"Change of Control"shall be deemed to have occurred at such time as a
---------------------
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly,
of more than 20% of the total voting power of all classes of stock then
outstanding of any Borrower entitled to vote in the election of directors.
"Closing Date"means the date of the making of the initial Advance
---------------
hereunder.
----
"Code"means the California Uniform Commercial Code.
------
"Collateral"means each Borrower's right, title, and interest in each of the
------------
following:
(a) Accounts,
(b) Borrowers' Books,
(c) Equipment,
3
<PAGE>
(d) General Intangibles,:
(e) Inventory,
(f) Investment Property,
(g) Negotiable Collateral,
(h) Real Property Collateral,
(i) any money, or other assets of Borrowers that now or hereafter come into
the possession, custody, or control of Foothill, and
(j) the proceeds and products, whether tangible or intangible, of any of
the foregoing, including proceeds of insurance covering any or all of the
Collateral of Borrowers, and any and all Accounts, Borrowers' Books, Equipment,
General Intangibles, Inventory, Investment Property, Negotiable Collateral, Real
Property, money, deposit accounts, or other tangible or intangible property
resulting from the sale, exchange, collection, or other disposition of any of
the foregoing, or any portion thereof or interest therein, and the proceeds
thereof.
"Collateral Access Agreement"means a landlord waiver, mortgagee waiver,
-------------------------------
bailee letter, or acknowledgement agreement of any warehouseman, processor,
lessor, consignee, or other Person in possession of, having a Lien upon, or
having rights or interests in the Equipment or Inventory of any Borrower, in
each case, in form and substance satisfactory to Foothill.
"Collections"means all cash, checks, notes, instruments, and other items of
-------------
payment (including, insurance proceeds, proceeds of cash sales, rental proceeds,
and tax refunds).
"Compliance Certificate"means a certificate substantially in the form of
-------------------------
Exhibit C-1and delivered by the chief accounting officer of a Borrower to
----------
Foothill.
"Consolidated Current Assets"means, for any Person, as of any date of
-------------------------------
determination, the aggregate amount of all current assets of such Person that
would, in accordance with GAAP, be classified on a balance sheet as current
assets.
"Consolidated Current Liabilities"means, for any Person, as of any date of
-----------------------------------
determination, the aggregate amount of all current liabilities of such Person
that would, in accordance with GAAP, be classified on a balance sheet as current
liabilities. For purposes of this definition, all Obligations outstanding under
this Agreement shall be deemed to be current liabilities without regard to
whether they would be deemed to be so under GAAP.
4
<PAGE>
"Daily Balance"means, with respect to each day during the term of this
----------------
Agreement, the amount of an Obligation owed at the end of such day.
"deems itself insecure"means that the Person deems itself insecure in
-------------------------
accordance with the provisions of Section 1208 of the Code.
"Default"means an event, condition, or default that, with the giving of
---------
notice, the passage of time, or both, would be an Event of Default.
"Designated Account"means account number 10-0101-268682 of Borrowers
---------------------
maintained with Borrowers' Designated Account Bank, or such other deposit
account of Borrowers (located within the United States) which has been
designated, in writing and from time to time, by Borrowers to Foothill.
"Designated Account Bank"means NationsBank, N.A., whose office is located
---------------------------
at St. Louis, Missouri, and whose ABA number is 081000032.
"Dilution"means, in each case based upon the experience of the immediately
----------
prior three months, the result of dividing the Dollar amount of (a) bad debt
write-downs, discounts, advertising, returns, promotions, credits, or other
dilution with respect to the Accounts of Borrowers, by (b) Borrowers'
Collections (excluding extraordinary items) plus the Dollar amount of clause
(a).
"Dilution Reserve"means, as of any date of determination, an amount
-------------------
sufficient to reduce Foothill's advance rate against Eligible Accounts by one
percentage point for each percentage point by which Dilution is in excess of
5.00%.
"Disbursement Letter"means an instructional letter executed and delivered
----------------------
by Borrowers to Foothill regarding the extensions of credit to be made on the
Closing Date, the form and substance of which shall be satisfactory to Foothill.
"Dollars or $"means United States dollars.
--------------
"Domestic Eligible Accountsmmeans Eligible Accounts that are payable in
------------------------------
Dollars with respect to Account Debtors that maintain their chief executive
offices in the United States; however, Domestic Eligible Accounts shall not
include: (a) Accounts with selling terms of more than 60 days, (b) Accounts that
the Account Debtor has failed to pay within 120 days of invoice date (but in no
event shall more than $1,000,000 of domestic Accounts more than 90 days from
invoice date be deemed eligible), and (c) Accounts owed by an Account Debtor or
its Affiliates where 50% or more of all Accounts owed by that Account Debtor (or
its Affiliates) are deemed ineligible under clause (b) above.
"Early Termination Premium"has the meaning set forth in
- - -----------------------------
Section 3.6.
- - -------------
5
<PAGE>
"Eligible Accounts"means those Accounts created by a Borrower in the
--------------------
ordinary course of business, that arise out of such Borrower's sale of goods or
rendition of services, that strictly comply with each and all of the
representations and warranties respecting Accounts made by such Borrower to
Foothill in the Loan Documents, and that are and at all times continue to be
acceptable to Foothill in all respects; provided, however,that standards of
------------------
eligibility may be fixed and revised from time to time by Foothill in Foothill's
reasonable credit judgment. Eligible Accounts shall not include the following:
(a) Accounts with respect to which the Account Debtor is an employee,
Affiliate, or agent of a Borrower;
(b) Accounts with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or other terms
by reason of which the payment by the Account Debtor may be conditional;
(c) [Intentionally Omitted];
(d) Accounts with respect to which the Account Debtor is either (i) the
United States or any department, agency, or instrumentality of the United States
(exclusive, however, of Accounts with respect to which the relevant Borrower has
complied, to the satisfaction of Foothill, with the Assignment of Claims Act, 31
U.S.C. 3727), or (ii) any State of the United States (exclusive, however, of
Accounts owed by any State that does not have a statutory counterpart to the
Assignment of Claims Act);
(e) Accounts with respect to which the Account Debtor is a creditor of any
Borrower, has or has asserted a right of setoff, has disputed its liability, or
has made any claim with respect to the Account;
(f) Accounts with respect to an Account Debtor whose total obligations
owing to the Borrowers exceed 10% of all Eligible Accounts of the Borrowers, to
the extent of the obligations owing by such Account Debtor in excess of such
percentage;
(g) Accounts with respect to which the Account Debtor is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business;
(h) Accounts the collection of which Foothill, in its reasonable credit
judgment, believes to be doubtful by reason of the Account Debtor's financial
condition;
(i) Accounts with respect to which the goods giving rise to such Account
have not been shipped and billed to the Account Debtor, the services giving rise
to such Account have not been performed and accepted by the Account Debtor, or
the Account otherwise does not represent a final sale;
6
<PAGE>
(j) Accounts with respect,to which the Account Debtor is located in the
states of New Jersey, Minnesota, or West Virginia (or any other state that
requires a creditor to file a Business Activity Report or similar document in
order to bring suit or otherwise enforce its remedies against such Account
Debtor in the courts or through any judicial process of such state), unless the
relevant Borrower has qualified to do business in New Jersey, Minnesota, West
Virginia, or such other states, or has filed a Notice of Business Activities
Report with the applicable division of taxation, the department of revenue, or
with such other state offices, as appropriate, for the then-current year, or is
exempt from such filing requirement; and
(k) Accounts that represent progress payments or other advance billings
that are due prior to the completion of performance by a Borrower of the subject
contract for goods or services.
"Eligible Inventory"means Inventory (net of cost price adjustments)
---------------------
consisting of first quality finished goods held for sale in the ordinary course
--
of a Borrower's business and raw materials for such finished goods, including
component parts, that are located at or in-transit between such Borrower's
premises identified on Schedule E-l,that strictly comply with each and all of
-------------
the representations and warranties respecting Inventory made by such Borrower to
Foothill in the Loan Documents, and that are and at all times continue to be
acceptable to Foothill in all respects as reasonably determined by Foothill
pursuant to its standard credit policy; provided, however,that standards of
------------------
eligibility may be fixed and revised from time to time by Foothill in Foothill's
reasonable credit judgment. In determining the amount to be so included,
Inventory shall be valued on a first in furst out basis at the lower of cost or
market on a basis consistent with such Borrower's current and historical
accounting practices. An item of Inventory shall not be included in Eligible
Inventory if:
(a) it is not owned solely by such Borrower or such Borrower does not have
good, valid, and marketable title thereto;
(b) it is not located at one of the locations set forth on
Schedule E-1;
- - --------------
(c) it is not located on property owned or leased by a Borrower or in a
contract warehouse, in each case, subject to a Collateral Access Agreement
executed by the mortgagee, lessor, the warehouseman, or other third party, as
the case may be, and segregated or otherwise separately identifiable from goods
of others, if any, stored on the premises;
(d) it is not subject to a valid and perfected first priority security
interest in favor of Foothill;
(e) it consists of goods returned or rejected by such Borrower's customers,
goods held for return to vendor or goods in transit; and
7
<PAGE>
(f) it is obsolete or slow moving, a restrictive or custom item,
work-in-process, or constitutes spare parts, samples, field service inventory,
floor reject inventory, packaging and shipping materials, supplies used or
consumed in such Borrower's business, Inventory subject to a Lien in favor of
any third Person, bill and hold goods, defective goods, "seconds," or Inventory
acquired on consignment.
"Equipment"means all of a Person's present and hereafter acquired
-----------
machinery, machine tools, motors, equipment, furniture, furnishings, fixtures,
vehicles (including motor vehicles and trailers), tools, parts, goods (other
than consumer goods, farm products, or Inventory), wherever located, including
all attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing.
"ERISA"means the Employee Retirement Income Security Act of 1974, 29 U.S.C.
-------
1000 et seq., amendments thereto, successor statutes, and regulations or
guidance promulgated thereunder.
"ERISA Affiliate"means (a) any corporation subject to ERISA whose employees
-----------------
are treated as employed by the same employer as the employees of a Borrower
under IRC Section 414(b), (b) any trade or business subject to ERISA whose
employees are treated as employed by the same employer as the employees of a
Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which a Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any party subject to ERISA that is a party to an arrangement
with a Borrower and whose employees are aggregated with the employees of such
Borrower under IRC Section 414(o).
"ERISA Event"means (a) a Reportable Event with respect to any Benefit Plan
--------------
or Multiemployer Plan, (b)the withdrawal of a Borrower, any of its Subsidiaries
or ERISA Affiliates from a Benefit Plan during a plan year in which it was a
"substantial employer" (as defined in Section 4001(a)(2) of ERISA), (c) the
providing of notice of intent to terminate a Benefit Plan in a distress
termination (as described in Section 4041(c) of ERISA), (d) the institution by
the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan, (e)
any event or condition (i) that provides a basis under Section 4042(a)(1), (2),
or (3) of ERISA for the termination of, or the appointment of a trustee to
administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in
termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the
partial or complete withdrawal within the meaning of Sections 4203 and 4205 of
ERISA, of a Borrower, any of its Subsidiaries or ERISA Affiliates from a
Multiemployer Plan, or (g) providing any security to any Plan under Section
401(a)(29) of the IRC by a Borrower or its Subsidiaries or any of their ERISA
Affiliates.
"Eurodollar Rate"means, with respect to the Interest Period for a
------------------
Eurodollar Rate Loan, the interest rate per annum (rounded upwards, if
8
<PAGE>
next whole multiple of 1/16 of 1% per annum) at which United States dollar
deposits are offered to Norwest Bank Minnesota, National Association (or its
Affiliates) by major banks in the London interbank market (or other Eurodollar
Rate market selected by Foothill) on or about 11:00 a.m. (California time) two
Business Days prior to the commencement of such Interest Period in amounts
comparable to the amount of the Eurodollar Rate Loans requested by and available
to Borrowers in accordance with this Agreement and for a period of three months
from the date of such offer.
"Eurodollar Rate Loans"means any Advance (or any portion thereof) made or
-------------------------
outstanding hereunder during any period when interest on such Advance (or
portion thereof) is payable based on the Adjusted Eurodollar Rate.
"Event of Default"has the meaning set forth in Section 8.
-------------------- -----------
"Existing Lender"means NationsBank, N.A. as agent for a syndicated lending
------------------
group, pursuant to a Loan Agreement dated October 13, 1995.
"FEIN"means Federal Employer Identification Number.
------
"Financing or Sale Event"means any of the following which is approved by
----------------------------
Foothill in its reasonable discretion: (a) a sale of all or substantially all of
the issued and outstanding stock of any Subsidiary of Parent in one or a series
of related transactions or all or substantially all of the assets of any
Subsidiary or division of Parent in one or a series of related transactions, (b)
a private placement of debt or equity by Parent, (c) a public offering of debt
or equity by Parent, or (d) a capital infusion in Parent or any Subsidiary.
"Foothill"has the meaning set forth in the preamble to this
----------
Agreement.
"Foothill Account"has the meaning set forth in Section 2.7.
------------------- -------------
"Foothill Expenses"means all: costs or expenses (including taxes, and
--------------------
insurance premiums) required to be paid by a Borrower under any of the Loan
Documents that are paid or incurred by Foothill; fees or charges paid or
incurred by Foothill in connection with Foothill's transactions with Borrowers,
including, fees or charges for photocopying, notarization, couriers and
messengers, telecommunication, public record searches (including tax lien,
litigation, and UCC searches and including searches with the patent and
trademark office, the copyright office, or the department of motor vehicles),
filing, recording, publication, appraisal (including periodic Personal Property
Collateral or Real Property Collateral appraisals), real estate surveys, real
estate title policies and endorsements, and environmental audits; costs and
expenses incurred by Foothill in the disbursement of funds to Borrowers (by wire
transfer or otherwise); charges paid or incurred by Foothill resulting from the
dishonor of checks; costs and expenses paid or incurred by Foothill to correct
any default or enforce any provision of the Loan Documents,
9
<PAGE>
or in gaining possession of, maintaining, handling', preserving, storing,
shipping, selling, preparing for sale, or advertising to sell the Personal
Property Collateral or the Real Property Collateral, or any portion thereof,
irrespective of whether a sale is consummated; costs and expenses paid or
incurred by Foothill in examining Borrowers' Books; costs and expenses of third
party claims or any other suit paid or incurred by Foothill in enforcing or
defending the Loan Documents or in connection with the transactions contemplated
by the Loan Documents or Foothill's relationship with Borrowers or any
guarantor; and Foothill's reasonable attorneys fees and expenses incurred in
advising, structuring, drafting, reviewing, administering, amending,
terminating, enforcing, defending, or concerning the Loan Documents, (including
attorneys fees and expenses incurred in connection with a "workout," a
"restructuring," or an Insolvency Proceeding concerning Borrowers or any
guarantor of the Obligations) irrespective of whether suit is brought.
"Foreign Eligible Accounts"means Eligible Accounts with respect to which
-----------------------------
the Account Debtor does not maintain its chief executive office in the United
States where the Accounts are either (i) supported by an irrevocable letter of
credit satisfactory to Foothill (as to form, substance, and issuer or United
States confuming bank) that has been delivered to Foothill and is directly
drawable by Foothill, or (ii) covered by credit insurance in form and amount,
and by an insurer, satisfactory to Foothill; however,Foreign Eligible Accounts
--------
shall not include: (a) Accounts with selling terms of more than 90 days from
invoice date, (b) Accounts more than 60 days from due date, not to exceed 150
days from invoice date, and (c) Accounts owed by an Account Debtor or its
Affiliates where 50% or more of all Accounts owed by that Account Debtor (or its
Affiliates) are deemed ineligible under clause (b) above.
"GAAP"means generally accepted accounting principles as in effect from time
------
to time in the United States, consistently applied.
"General Intangibles"means all of any Person's present and future general
----------------------
intangibles and other personal property (including contract rights, rights
arising under common law, statutes, or regulations, choses or things in action,
goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, rights to payment and other rights under any
royalty or licensing agreements, infringement claims, computer programs,
information contained on computer disks or tapes, literature, reports, catalogs,
deposit accounts, insurance premium rebates, tax refunds, and tax refund
claims), other than goods, Accounts, and Negotiable Collateral.
"Governing Documents"means the certificate or articles of incorporation,
----------------------
by-laws, or other organizational or governing documents of any Person.
"Governmental Authority'means any nation or government, any state or other
-------------------------
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
10
<PAGE>
"Hazardous Materials"means (a) substances that are defined or listed in, or
---------------------
otherwise classified pursuant to, any applicable laws or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b)oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Hospital Systems"has the meaning set forth in the preamble to this
-------------------
Agreement.
"Indebtedness"means: (a) all obligations of a Person for borrowed money,
--------------
(b) all obligations of a Person evidenced by bonds, debentures, notes, or other
similar instruments and all reimbursement or other obligations of a Person in
respect of letters of credit, bankers acceptances, interest rate swaps, or other
financial products, (c) all obligations of a Person under capital leases, (d)
all obligations or liabilities of others secured by a Lien on any property or
asset of a Person, irrespective of whether such obligation or liability is
assumed, and (e) any obligation of a Person guaranteeing or intended to
guarantee (whether guaranteed, endorsed, co-made, discounted, or sold with
recourse to such Person) any indebtedness, lease, dividend, letter of credit, or
other obligation of any other Person.
"Insolvency Proceeding"means any proceeding commenced by or against any
------------------------
Person under any provision of the Bankruptcy Code or under any other bankruptcy
or insolvency law, assignments for the benefit of creditors, formal or informal
moratoria, compositions, extensions generally with creditors, or proceedings
seeking reorganization, arrangement, or other similar relief.
"Intangible Assets"means, with respect to any Person, that portion of the
--------------------
book value of all of such Person's assets that would be treated as intangibles
under GAAP.
"Intellectual Property Security Agreements"means those certain Intellectual
-------------------------------------------
Property Security Agreements between Foothill and each of Parent, B&F, Hospital
Systems and Life Support, all dated as of August 7, 1997 as amended from time to
time.
"Interest Period"means, for any Eurodollar Rate Loan, the period commencing
-----------------
on the Business Day such Eurodollar Rate Loan is disbursed or continued, or on
the Business Day on which a Reference Rate Loan is converted to such Eurodollar
Rate Loan, and ending on the date that is one, two, three or six months
thereafter, as selected by Borrowers and notified to Foothill as provided in
Section 2.12(a) and (b).
------------------------
11
<PAGE>
"Inventory"means all present and future inventory in which a Person has any
-----------
interest, including goods held for sale or lease or to be furnished under a
contract of service and all of such Person's present and future raw materials,
work in process, finished goods, and packing and shipping materials, wherever
located.
"Investment Property"has the meaning set forth in Section 9115 of
----------------------
the Code.
"IRC"means the Internal Revenue Code of 1986, as amended, and the
-----
regulations thereunder.
"Junior Notes"means those certain subordinated notes in the aggregate
---------------
principal amount of $5,000,000, in favor of Sam Fox, Donald Nickelson, Dennis
Sheehan, and Woodbourne Partners, L.P., a Missouri limited partnership.
"L/C"has the meaning set forth in Section 2.2(a).
----- ----------------
"L/C Guaranty"has the meaning set forth in Section 2.2(a).
--------------- ----------------
"Letter of Credit"means an L/C or an L/C Guaranty, as the context requires.
--------------------
"Lien"means any interest in property securing an obligation owed to, or a
------
claim by, any Person other than the owner of the property, whether such interest
shall be based on the common law, statute, or contract, whether such interest
shall be recorded or perfected, and whether such interest shall be contingent
upon the occurrence of some future event or events or the existence of some
future circumstance or circumstances, including the lien or security interest
arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation,
assignment, deposit arrangement, security agreement, adverse claim or charge,
conditional sale or trust receipt, or from a lease, consignment, or bailment for
security purposes and also including reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases, and other
title exceptions and encumbrances affecting Real Property.
"Life Support"has the meaning set forth in the preamble to this
---------------
Agreement.
"Loan Account"has the meaning set forth in Section 2.10.
--------------- --------------
"Loan Documents"means this Agreement, the Intellectual Property Security
-----------------
Agreements, the Disbursement Letter, the Letters of Credit, the Lockbox
Agreements, the Mortgages, any note or notes executed by any Borrower and
payable to Foothill, and any other agreement entered into, now or in the future,
in connection with this Agreement.
12
<PAGE>
"Lockbox Account"shall mean a depositary account established pursuant
------------------
to one of the Lockbox Agreements.
"Lockbox Agreements"means those certain Lockbox Operating Procedural
---------------------
Agreements and those certain Depository Account Agreements, in form and
substance satisfactory to Foothill, each of which is among a Borrower or
Borrowers, Foothill, and one of the Lockbox Banks.
"Lockbox Banks"means NationsBank, N.A., or such other banks as may be
----------------
agreed to by Foothill and Borrower from time to time.
"Lockboxes"has the meaning set forth in Section 2.7.
----------- -------------
"Material Adverse Change"means (a) a material adverse change in the
---------------------------
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of a Borrower, (b) the material impairment of
a Borrower's ability to perform its obligations under the Loan Documents to
which it is a party or of Foothill to enforce the Obligations or realize upon
the Collateral, (c) a material adverse effect on the value of the Collateral or
the amount that Foothill would be likely to receive (after giving consideration
to delays in payment and costs of enforcement) in the liquidation of such
Collateral, or (d) a material impairment of the priority of Foothill's Liens
with respect to the Collateral.
"Maximum Revolving Amount"means $25,000,000.
----------------------------
"Mortgages"means one or more mortgages, deeds of trust, or deeds to secure
-----------
debt, executed by a Borrower in favor of Foothill, the form and substance of
which shall be satisfactory to Foothill, that encumber the Real Property
Collateral and the related improvements thereto.
"Multiemployer Plan"means a "multiemployer plan" (as defined in Section
---------------------
4001(a)(3) of ERISA) to which a Borrower, any of its Subsidiaries, or any ERISA
Affiliate has contributed, or was obligated to contribute, within the past six
years.
"Negotiable Collateral"means all of a Person's present and future letters
------------------------
of credit, notes, drafts, instruments, Investment Property, securities
(including the shares of stock of Subsidiaries of such Person), documents,
personal property leases (wherein such Person is the lessor), and chattel paper.
"Obligations"means all loans, Advances, debts, principal, interest
-------------
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), contingent reimbursement obligations under any outstanding
Letters of Credit, premiums (including Early Termination Premiums), liabilities
(including all amounts charged to Borrowers' Loan Account pursuant hereto),
obligations, fees, charges, costs, or Foothill Expenses (including any fees or
expenses that, but for the provisions of the
13
<PAGE>
Bankruptcy Code, would have accrued), lease payments, guaranties, covenants, and
duties owing by a Borrower to Foothill of any kind and description (whether
pursuant to or evidenced by the Loan Documents or pursuant to any other
agreement between Foothill and any Borrower, and irrespective of whether for the
payment of money), whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, and including any debt,
liability, or obligation owing from a Borrower to others that Foothill may have
obtained by assignment or otherwise, and further including all interest not paid
when due and all Foothill Expenses that a Borrower is required to pay or
reimburse by the Loan Documents, by law, or otherwise.
"Overadvance"has the meaning set forth in Section 2.5.
------------- -------------
"Parent"has the meaning set forth in the preamble to this Agreement.
--------
"Pay-Off Letter"means a letter, in form and substance reasonably
-----------------
satisfactory to Foothill, from Existing Lender respecting the amount necessary
to repay in full all of the obligations of Borrowers owing to Existing Lender
and obtain a termination or release of all of the Liens existing in favor of
Existing Lender in and to the properties or assets of Borrowers.
"PBGC"means the Pension Benefit Guaranty Corporation as defined in Title IV
------
of ERISA, or any successor thereto.
"Permitted Liens"means (a)Liens held by Foothill, (b)Liens for unpaid taxes
-----------------
that either (i) are not yet due and payable or (ii) are the subject of Permitted
Protests, (c) Liens set forth on ScheduleP-l, (d) the interests of lessors under
--------
operating leases and purchase money security interests and Liens of lessors
under capital leases to the extent that the acquisition or lease of the
underlying asset is permitted under Section 7.21and so long as the Lien only
------------
attaches to the asset purchased or acquired and only secures the purchase price
of the asset, (e)Liens arising by operation of law in favor of warehousemen,
landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in
the ordinary course of business of a Borrower and not in connection with the
borrowing of money, and which Liens either (i) are for sums not yet due and
payable, (ii) are the subject of Permitted Protests, or (iii) removed by payment
or bonded within 20 Business Days of any Borrower's obtaining notice thereof,
(f) Liens arising from deposits made in connection with obtaining worker's
compensation or other unemployment insurance, (g) Liens or deposits to secure
performance of bids, tenders, or leases (to the extent permitted under this
Agreement), incurred in the ordinary course of business of a Borrower and not in
connection with the borrowing of money, (h) Liens arising by reason of security
for surety or appeal bonds in the ordinary course of business of a Borrower, (i)
Liens of or resulting from any judgment or award that would not cause a Material
Adverse Change and as to which the time for the appeal or petition for rehearing
of which has not yet expired, or in respect of which a Borrower is in good faith
prosecuting an appeal or proceeding for a review, and in respect of which a stay
of execution pending such appeal or proceeding for review has been secured, O)
Liens with respect to the Real Property Collateral that are
14
<PAGE>
exceptions to the commitments for title insurance issued in connection with the
Mortgages, as accepted by Foothill, and (k) with respect to any Real Property
that is not part of the Real Property Collateral, easements, rights of way,
zoning and similar covenants and restrictions, and similar encumbrances that
customarily exist on properties of Persons engaged in similar activities and
similarly situated and that in any event do not materially interfere with or
impair the use or operation of the Collateral by any Borrower or the value of
Foothill's Lien thereon or therein, or materially interfere with the ordinary
conduct of the business of a Borrower.
"Permitted Protest"means the right of a Borrower to protest any Lien (other
-------------------
than any such Lien that secures the Obligations), tax (other than payroll taxes
or taxes that are the subject of a United States federal tax lien), or rental
payment, provided that (a) a reserve with respect to such obligation is
established on the books of such Borrower in an amount that is reasonably
satisfactory to Foothill, (b) any such protest is instituted and diligently
prosecuted by such Borrower in good faith, and (c) Foothill is satisfied that,
while any such protest is pending, there will be no impairment of the
enforceability, validity, or priority of any of the Liens of Foothill in and to
the Collateral.
"Person"means and includes natural persons, corporations, limited liability
--------
companies, limited partnerships, general partnerships, limited liability
partnerships, joint ventures, trusts, land trusts, business trusts, or other
organizations, irrespective of whether they are legal entities, and governments
and agencies and political subdivisions thereof.
"Personal Property Collateral"means all Collateral other than the Real
- - --------------------------------
Property Collateral.
"Plan"means any employee benefit plan, program, or arrangement maintained
------
or contributed to by a Borrower or with respect to which it may incur liability.
"Real Property"means any estates or interests in real property now owned or
---------------
hereafter acquired by a Borrower.
"Real Property Collateral"means the parcel or parcels of real property and
---------------------------
the related improvements thereto identified on Schedule R-I,and any Real
--------------
Property hereafter acquired by a Borrower.
"Reference Rate"means the variable rate of interest, per annum, most
-----------------
recently announced by Norwest Bank Minnesota, National Association, or any
successor thereto, as its "base rate," irrespective of whether such announced
rate is the best rate available from such financial institution.
"Reference Rate Loan"means any Advance (or portion thereof) made or
-----------------------
outstanding hereunder during any period when interest on such Advance (or
portion thereof) is payable based on the Reference Rate.
15
<PAGE>
"Renewal Date"has the meaning set forth in Section 3.4.
--------------- -------------
"Reportable Event"means any of the events described in Section 4043(c) of
-------------------
ERISA or the regulations thereunder other than a Reportable Event as to which
the provision of 30 days notice to the PBGC is waived under applicable
regulations.
"Requirement of Law"means, as to any Person: (a) (i) all statutes and
----------------------
regulations and (ii) court orders and injunctions, arbitrators' decisions,
and/or similar rulings, in each instance by any Governmental Authority or
arbitrator applicable to or binding upon such Person or any of such Person's
property or to which such Person or any of such Person's property is subject;
and (b) that Person's organizational documents, by-laws and/or other instruments
which deal with corporate or similar governance, as applicable.
"Reserve Percentage"for any Interest Period means, as of the date of
---------------------
determination thereof, the maximum percentage (rounded upward, if necessary to
the nearest 1/lOOth of 1%), as determined by Foothill (or its Affiliates) in
accordance with its (or their) usual procedures (which determination shall be
conclusive in the absence of manifest error), that is in effect on such date as
prescribed by the Board of Governors of the Federal Reserve System for
determining the reserve requirements (including supplemental, marginal, and
emergency reserve requirements) with respect to eurocurrency funding (currently
referred to as "eurocurrency liabilities") having a term equal to such Interest
Period by Foothill or its Affiliates.
"Retiree Health Plan"means an "employee welfare benefit plan" within the
-----------------------
meaning of Section 3(1) of ERISA that provides benefits to individuals after
termination of their employment, other than as required by Section 601 of ERISA.
"Solvent"means, with respect to any Person on a particular date, that on
---------
such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
16
<PAGE>
"Subsidiary"of a Person means a corporation, partnership, limited liability
------------
company, or other entity in which that Person directly or indirectly owns or
controls the shares of stock or other ownership interests having ordinary voting
power to elect a majority of the board of directors (or appoint other comparable
managers) of such corporation, partnership, limited liability company, or other
entity.
"Tangible Net Worth"means, as of any date of determination, the difference
---------------------
of (a)a Person's total stockholder's equity, minus(b)the sum of: (i) all
-----
Intangible Assets of such Person, and (ii) all amounts due to such Person from
Affiliates.
"Voidable Transfer"has the meaning set forth in Section 15.8.
-------------------- --------------
"Warrant"means that certain Warrant, dated as of the Closing Date, for the
---------
purchase by Foothill of 50,000 shares of Parent's Common Stock.
"Working Capital"means the result of subtracting Consolidated Current
------------------
Liabilities from Consolidated Current Assets.
1.2 Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Borrowers on a consolidated basis
unless the context clearly requires otherwise.
1.3 Code. Any terms used in this Agreement that are defined in the Code
shall be construed and defined as set forth in the Code unless otherwise defined
herein.
1.4 Construction. Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular, references to the
singular include the plural, the term "including" is not limiting, and the term
"or" has, except where otherwise indicated, the inclusive meaning represented by
the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. An Event of Default shall "continue"
or be "continuing" until such Event of Default has been waived in writing by
Foothill. Section, subsection, clause, schedule, and exhibit references are to
this Agreement unless otherwise specified. Any reference in this Agreement or in
the Loan Documents to this Agreement or any of the Loan Documents shall include
all alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, and supplements, thereto and thereof, as
applicable.
1.5 Schedules and Exhibits. All of the schedules and exhibits attached to
this Agreement shall be deemed incorporated herein by reference.
17
<PAGE>
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES.
(a) Subject to the terms and conditions of this Agreement, Foothill agrees
to make advances ("Advances") to Borrowers in an amount outstanding not to
exceed at any one time the lesser of (i) the Maximum Revolving Amount lessthe
----
outstanding balance of all undrawn or unreimbursed Letters of Credit, or (ii)
the Borrowing Base lessthe aggregate amount of all undrawn or unreimbursed
----
Letters of Credit. For purposes of this Agreement, "Borrowing Base," as of any
date of determination, shall mean the result of:
(w) the lesser of (i) 85 % of Domestic Eligible Accounts, lessthe amount,
----
if any, of the Dilution Reserve; provided, however,that Advances based upon
------------------
Domestic Eligible Accounts and Foreign Eligible Accounts, in the aggregate,
shall not exceed an amount equal to Borrower's Collections with respect to
Accounts for the immediately preceding 60 day period, plus
(x) the lesser of (i) (a) 85 % of Foreign Eligible Accounts supported by
letters of credit, plus (b) 85 % of Foreign Eligible Accounts supported by
credit insurance (net of the aggregate amount of all applicable deductibles),
and (ii) $8,000,000, plus
(y) the lesser of (i) $10,000,000, and (ii) 45 % of the value of Eligible
Inventory, minus
(z) the aggregate amount of reserves, if any, established by Foothill under
Sections 2. l(b), 6.15 and 10.
- - -----------------------------------
(b) Anything to the contrary in Section 2.1(a)above notwith-standing,
--------------
Foothill may create reserves against the Borrowing Base or reduce its advance
rates based upon Eligible Accounts or Eligible Inventory without declaring an
Event of Default if it reasonably determines that there has occurred a Material
Adverse Change.
(c) Amounts borrowed pursuant to this Section 2.1may be repaid and, subject
-----------
to the terms and conditions of this Agreement, reborrowed at any time during the
term of this Agreement.
2.2 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement, Foothill agrees
to issue letters of credit for the account of a Borrower (each, an "L/C") or to
issue guarantees of payment (each such guaranty, an "L/C Guaranty") with respect
to letters of
18
<PAGE>
credit issued by an issuing bank for the account of a Borrower. Foothill shall
have no obligation to issue a Letter of Credit if any of the following would
result:
(i) 100% of the aggregate amount of all other types of undrawn and
unreimbursed Letters of Credit, would exceed the Borrowing Base lessthe amount
----
of outstanding Advances lessthe reserves established under Section 2.1 (b);or
---- ----------------
(ii) the aggregate amount of all undrawn or unreimbursed Letters of Credit
(including Inventory Letters of Credit) would exceed the lower of: (x) the
Maximum Revolving Amount lessthe amount of outstanding Advances lessreserves
---- ----
established under Section 2.1(b);or (y) $3,000,000.
----------------
Each Borrower expressly understands and agrees that Foothill shall have no
obligation to arrange for the issuance by issuing banks of the letters of credit
that are to be the subject of L/C Guarantees. Each Borrower and Foothill
acknowledge and agree that certain of the letters of credit that are to be the
subject of L/C Guarantees may be outstanding on the Closing Date. Each Letter of
Credit shall have an expiry date no later than 60 days prior to the date on
which this Agreement is scheduled to terminate under Section 3.4(without regard
-----------
to any potential renewal term) and all such Letters of Credit shall be in form
and substance acceptable to Foothill in its sole discretion. If Foothill is
obligated to advance funds under a Letter of Credit, Borrowers immediately shall
reimburse such amount to Foothill and, in the absence of such reimbursement, the
amount so advanced immediately and automatically shall be deemed to be an
Advance hereunder and, thereafter, shall bear interest at the rate then
applicable to Advances under Section 2.6.
-------------
(b) Each Borrower hereby agrees to indemnify, save, defend, and hold
Foothill harmless from any loss, cost, expense, or liability, including payments
made by Foothill, expenses, and reasonable attorneys fees incurred by Foothill
arising out of or in connection with any Letter of Credit. Each Borrower agrees
to be bound by the issuing bank's regulations and interpretations of any letters
of credit guarantied by Foothill and opened to or for such Borrower's account or
by Foothill's interpretations of any Letter of Credit issued by Foothill to or
for such Borrower's account, even though this interpretation may be different
from such Borrower's own, and Borrowers understand and agree that Foothill shall
not be liable for any error, negligence, or mistake, whether of omission or
commission, in following any Borrower's instructions or those contained in the
Letter of Credit or any modifications, amendments, or supplements thereto. Each
Borrower understands that the L/C Guarantees may require Foothill to indemnify
the issuing bank for certain costs or liabilities arising out of claims by a
Borrower against such issuing bank. Each Borrower hereby agrees to indemnify,
save, defend, and hold Foothill harmless with respect to any loss, cost, expense
(including reasonable attorneys fees), or liability incurred by Foothill under
any L/C Guaranty as a result of Foothill's indemnification of any such issuing
bank.
19
<PAGE>
(c) Each Borrower hereby authorizes and directs any bank that issues a
letter of credit guaranteed by Foothill to deliver to Foothill all instruments,
documents, and other writings and property received by the issuing bank pursuant
to such letter of credit, and to accept and rely upon Foothill's instructions
and agreements with respect to all matters arising in connection with such
letter of credit and the related application. A Borrower may or may not be the
"applicant" or "account party" with respect to such letter of credit.
(d) Any and all charges, commissions, fees, and costs incurred by Foothill
relating to the letters of credit guaranteed by Foothill shall be considered
Foothill Expenses for purposes of this Agreement and immediately shall be
reimbursable by Borrowers to Foothill.
(e) Immediately upon the termination of this Agreement, Borrowers agree to
either (i) provide cash collateral to be held by Foothill in an amount equal to
102% of the maximum amount of Foothill's obligations under outstanding Letters
of Credit, or (ii) cause to be delivered to Foothill releases of all of
Foothill's obligations under outstanding Letters of Credit. At Foothill's
discretion, any proceeds of Collateral received by Foothill after the occurrence
and during the continuation of an Event of Default may be held as the cash
collateral required by this Section 2.2(e).
----------------
(f) If by reason of (i) any change in any applicable law, treaty, rule, or
regulation or any change in the interpretation or application by any
governmental authority of any such applicable law, treaty, rule, or regulation,
or (ii) compliance by the issuing bank or Foothill with any direction, request,
or requirement (irrespective of whether having the force of law) of any
governmental authority or monetary authority including, without limitation,
Regulation D of the Board of Governors of the Federal Reserve System as from
time to time in effect (and any successor thereto):
(A) any reserve, deposit, or similar requirement is or shall be
imposed or modified in respect of any Letters of Credit
issued hereunder, or
(B) there shall be imposed on the issuing bank or Foothill any
other condition regarding any letter of credit, or Letter of
Credit, as applicable, issued pursuant hereto;
and the result of the foregoing is to increase, directly or indirectly, the cost
to the issuing bank or Foothill of issuing, making, guaranteeing, or maintaining
any letter of credit, or Letter of Credit, as applicable, or to reduce the
amount receivable in respect thereof by such issuing bank or Foothill, then, and
in any such case, Foothill may, at any time within a reasonable period after the
additional cost is incurred or the amount received is reduced, notify Borrowers,
and Borrowers shall pay on demand such amounts as the issuing bank or Foothill
may specify to be necessary to compensate the issuing bank or Foothill for such
additional cost or reduced receipt, together with interest on such amount from
the date of such demand until payment in full thereof at the rate set forth in
Section 2.6(a)(i) or (c)(i),
------------------------------
20
<PAGE>
as applicable. The determination by the issuing bank or Foothill, as the case
may be, of any amount due pursuant to this Section 2.2(f),as set forth in a
---------------
certificate setting forth the calculation thereof in reasonable detail, shall,
in the absence of manifest or demonstrable error, be final and conclusive and
binding on all of the parties hereto.
2.3 [Intentionally Omitted]
2.4 [Intentionally Omitted]
2.5 Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrowers to Foothill pursuant to Sections 2.1 or 2.2is
-------------------
greater than either the Dollar or percentage limitations set forth in Sections
--------
2.1 or 2.2(an "Overadvance"), Borrowers immediately shall pay to Foothill, in
-----------
cash, the amount of such excess to be used by Foothill first, to repay Advances
-
outstanding under Section 2.1and, thereafter, to be held by Foothill as cash
------------
collateral to secure Borrower's obligation to repay Foothill for all amounts
paid pursuant to Letters of Credit; provided, however,that with respect to any
------------------
Overadvance caused by Foothill's charging fees, costs, expenses, or interest to
the Loan Account, the Borrowers shall have two Business Days to make such
payments.
2.6 Interest and Letter of Credit Fees: Rates, Payments, and
Calculations.
(a) Interest Rate. Except as provided in Section 2.6(c),all Obligations
---------------
(except for undrawn Letters of Credit) shall bear interest on the Daily Balance
as follows:
(i) each Eurodollar Rate Loan shall bear interest at a per annum rate equal
to the Applicable Margin plusthe Adjusted Eurodollar Rate; and
----
(ii) all other Obligations shall bear interest at a per annum [rate equal
to the Applicable Margin plusthe Reference Rate.
----
(b) Letter of Credit Fee. Borrowers shall pay Foothill a fee (in addition
to the charges, commissions, fees, and costs set forth in Section 2.2(d))equal
---------------
to 0.75 % per annum times the aggregate undrawn amount of all Letters of Credit
outstanding at the end of each day.
(c) Default Rate. Upon the occurrence and during the continuation of an
Event of Default, (i) all Obligations (except for undrawn Letters of Credi0
shall bear interest on the Daily Balance as follows: (1) subject to the optional
conversion provisions of Section 2.12(c),each Eurodollar Rate Loan shall bear
--------
interest at a per annum rate of 6.50 percentage points above the Adjusted
Eurodollar Rate; and (2) all other Obligations shall bear interest at a per
annum rate equal to 4.25 percentage points above the Reference Rate; and (ii)
the Letter of Credit fee provided in Section 2.6Co)shall be increased to 4.75%
--------------
per
21
<PAGE>
annum times the aggregate undrawn amount of all,Letters of Credit outstanding at
the end of each day.
(d) Minimum Interest. In no event shall the rate of interest chargeable
hereunder for any day for Advances be less than 7.00% per annum. To the extent
that interest accrued hereunder at the rate set forth herein would be less than
the foregoing minimum daily rate, the interest rate chargeable hereunder for
such day automatically shall be deemed increased to the minimum rate.
(e) Payments. Interest in respect of Reference Rate Loans and Letter of
Credit fees payable hereunder shall be due and payable, in arrears, on the first
day of each month during the term hereof. Interest in respect of each Eurodollar
Rate Loan shall be due and payable, in arrears, on (i) the last day of the
applicable Interest Period, and (ii) the first day of each month occurring
during the term thereof. Each Borrower hereby authorizes Foothill, at its
option, without prior notice to such Borrower, to charge such interest and
Letter of Credit fees, all Foothill Expenses (as and when incurred), the
charges, commissions, fees, and costs provided for in Section 2.2(d)(as and when
--------------
accrued or incurred), the fees and charges provided for in Section 2.11(as and
------------
when accrued or incurred), and all installments or other payments due under any
Loan Document to Borrowers' Loan Account, which amounts thereafter shall accrue
interest at the rate then applicable to Advances hereunder. Any interest not
paid when due shall be compounded and shall thereafter accrue interest at the
rate then applicable to Advances hereunder.
(f) Computation. The Reference Rate as of the date of this Agreement is
8.50% per annum. In the event the Reference Rate is changed from time to time
hereafter, the applicable rate of interest hereunder automatically and
immediately shall be increased or decreased by an amount equal to such change in
the Reference Rate. All interest and fees chargeable under the Loan Documents
shall be computed on the basis of a 360 day year for the actual number of days
elapsed.
(g) Intent to Limit Charges to Maximum Lawful Rate. In no event shall the
interest rate or rates payable under this Agreement, plus any other amounts paid
in connection herewith, exceed the highest rate permissible under any law that a
court of competent jurisdiction shall, in a final determination, deem
applicable. Borrowers and Foothill, in executing and delivering this Agreement,
intend legally to agree upon the rate or rates of interest and manner of payment
stated within it; provided, however,that, anything contained herein to the
-------------------
contrary notwithstanding, if said rate or rates of interest or manner of payment
exceeds the maximum allowable under applicable law, then, ipso factoas of the
----------
date of this Agreement, Borrowers are and shall be liable only for the payment
of such maximum as allowed by law, and payment received from Borrowers in excess
of such legal maximum, whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such excess.
2.7 Collection of Accounts. Borrowers shall at all times maintain lockboxes
(the "Lockboxes") and, immediately after the Closing Date, shall instruct all
22
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Account Debtors with respect to the Accounts,,' General Intangibles, and
Negotiable Collateral of Borrowers to remit all Collections in respect thereof
to such Lockboxes. Borrowers, Foothill, and the Lockbox Banks shall enter into
the Lockbox Agreements, which among other things shall provide for the opening
of a Lockbox Account for the deposit of Collections at a Lockbox Bank. Each
Borrower agrees that all Collections and other amounts received by such Borrower
from any Account Debtor or any other source immediately upon receipt shall be
deposited into a Lockbox Account. No Lockbox Agreement or arrangement
contemplated thereby shall be modified by a Borrower without the prior written
consent of Foothill. Upon the terms and subject to the conditions set forth in
the Lockbox Agreements, all amounts received in each Lockbox Account shall be
wired each Business Day into an account (the "Foothill Account") maintained by
Foothill at a depositary selected by Foothill.
2.8 Crediting Payments; Application of Collections. The receipt of any
Collections by Foothill (whether from transfers to Foothill by the Lockbox Banks
pursuant to the Lockbox Agreements or otherwise) immediately shall be applied
provisionally to reduce the Obligations outstanding under Section 2.1,but shall
------------
not be considered a payment on account unless such Collection item is a wire
transfer of immediately available federal funds and is made to the Foothill
Account or unless and until such Collection item is honored when presented for
payment. From and after the Closing Date, Foothill shall be entitled to charge
Borrowers for one Business Day of 'clearance' or 'float' at the rate set forth
in Section 2.6(a)(i)or Section 2.6(c)(i),as applicable, on all Collections that
----------------- ------------------
are received by Foothill (regardless of whether forwarded by the Lockbox Banks
to Foothill, whether provisionally applied to reduce the Obligations under
Section 2.1,or otherwise). This across-the-board one Business Day clearance or
--------
float charge on all Collections is acknowledged by the parties to constitute an
integral aspect of the pricing of Foothill's financing of Borrowers, and shall
apply irrespective of the characterization of whether receipts are owned by a
Borrower or Foothill, and whether or not there are any outstanding Advances, the
effect of such clearance or float charge being the equivalent of charging one
Business Day of interest on such Collections. Should any Collection item not be
honored when presented for payment, then Borrowers shall be deemed not to have
made such payment, and interest shall be recalculated accordingly. Anything to
the contrary contained herein notwithstanding, any Collection item shall be
deemed received by Foothill only if it is received into the Foothill Account on
a Business Day on or before 11:00 a.m. California time. If any Collection item
is received into the Foothill Account on a non-Business Day or after 11:00 a.m.
California time on a Business Day, it shall be deemed to have been received by
Foothill as of the opening of business on the immediately following Business
Day.
2.9 Designated Account. Foothill is authorized to make the Advances, the
Letters of Credit under this Agreement based upon telephonic or other
instructions received from anyone purporting to be an Authorized Person, or
without instructions if pursuant to Section 2.6(e).Borrowers agree to establish
---------------
and maintain a single Designated Account with the Designated Account Bank for
the purpose of receiving the proceeds of the Advances requested by Borrowers and
made by Foothill hereunder. Unless otherwise
23
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agreed by Foothill and Borrowers, any Advance requested by Borrowers and made by
Foothill hereunder shall be made to the Designated Account.
2.10 Maintenance of Loan Account; Statements of Obligations. At the request
of Borrowers, to facilitate and expedite the administration and accounting
processes and procedures of their borrowings under this Agreement, Foothill has
agreed, in lieu of maintaining separate loan accounts on Foothill's books in the
name of each of the Borrowers, that Foothill shall maintain a single account on
its books in the names of all of the Borrowers (the "Loan Account"). All
Advances made by Foothill to Borrowers or for Borrower's account, including
accrued interest, Foothill Expenses, and any other payment Obligations of
Borrowers shall be made jointly and severally to the Borrowers and shall be
charged to the Loan Account. In accordance with Section 2.8,the Loan Account
------------
will be credited with all payments received by Foothill from any Borrower or for
any Borrowers' account, including all amounts received in the Foothill Account
from any Lockbox Bank. Foothill shall render one statement regarding the Loan
Account to Parent on behalf of Borrowers, including principal, interest, fees,
and including an itemization of all charges and expenses constituting Foothill
Expenses owing, and such statements shall be conclusively presumed to be correct
and accurate and constitute an account stated between Borrowers and Foothill
unless, within 90 days after receipt thereof by Borrowers, Borrowers shall
deliver to Foothill written objection thereto describing the error or errors
contained in any such statements. Each Borrower hereby expressly agrees and
acknowledges that Foothill shall have no obligation to account separately to
such Borrower.
2.11 Fees. Borrowers shall pay to Foothill the following fees:
(a) [Intentionally Omitted];
(b) Anniversary Fee. On each August 7 during the term of this
Agreement, an anniversary fee in an amount equal to $35,000, which fee is fully
earned on each anniversary.
(c) [Intentionally Omitted]
(d) Unused Line Fee. On the first day of each month during the term of
this Agreement, an unused line fee in an amount equal to 0.25% per annum times
the Average Unused Portion of Maximum Revolving Amount;
(e) Financial Examination, Documentation, and Appraisal Fees.
Foothill's customary fee of $650 per day per examiner, plus out-of-pocket
Expenses for each financial analysis and examination (i.e., audits) of
Borrowers performed by personnel employed by Foothill; Foothill's customary
appraisal fee of $1,500 per day per appraiser, plus out-of-pocket expenses
for each appraisal of the Collateral performed by personnel employed by
Foothill; and, the actual charges paid or incurred by Foothill if it elects to
employ the services of one or more third Persons to perform such financial
analyses and examinations (i.e., audits) of Borrowers or to appraise the
Collateral; provided, however,
-------------------
24
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that prior to the occurrence and continuation of. an Event of Default or
Foothill deeming itself insecure, Borrowers shall not be obligated to pay for
more than two audits in any 12 month period; and
(f) Servicing Fee. On the first day of each month during the term of this
Agreement, and thereafter so long as any Obligations are outstanding, a
servicing fee in an amount equal to $2,000.
2.12 Eurodollar Rate Loans. Any other provisions herein to the contrary
notwithstanding, the following provisions shall govern with respect to
Eurodollar Rate Loans as to the matters covered:
(a) Borrowing; Conversion; Continuation.Borrowers may from time to time, on
------------------------------------
or after the Closing Date (and subject to the satisfaction of the requirements
of Sections 3.1 and 3.2),request in a written or telephonic communication with
-----------------------
Foothill: (i) Advances to constitute Eurodollar Rate Loans; (ii)that Reference
Rate Loans be converted into Eurodollar Rate Loans; or (iii) that existing
Eurodollar Rate Loans continue for an additional Interest Period. Any such
request shall specify the aggregate amount of the requested Eurodollar Rate
Loans, the proposed funding date therefor (which shall be a Business Day, and
with respect to continued Eurodollar Rate Loans shall be the last day of the
Interest Period of the existing Eurodollar Rate Loans being continued), and the
proposed Interest Period (in each case subject to the limitations set forth
below). Eurodollar Rate Loans may only be made, continued, or extended if, as of
the proposed funding date therefor, each of the following conditions is
satisfied:
(v) no Event of Default exists;
(W) no more than five Interest Periods may be in effect at
any one time;
(x) the amount of each Eurodollar Rate Loan borrowed, converted, or
continued must be in an amount not less than $500,000 and integral multiples of
$100,000 in excess thereof;
(y) Foothill shall have determined that the Interest Period or Adjusted
Eurodollar Rate is available to it and can be readily determined as of the date
of the request for such Eurodollar Rate Loan by Borrowers; and
(z) Foothill shall have received such request at least two Business Days
prior to the proposed funding date therefor.
Any request by Borrowers to borrow Eurodollar Rate Loans, to convert
Reference Rate Loans to Eurodollar Rate Loans, or to continue any existing
Eurodollar Rate Loans shall be irrevocable, except to the extent that Foothill
shall determine
25
<PAGE>
under Sections 2.12(a), 2.13 or 2.14that such Eurodollar Rate Loans cannot be
--------------------------------
made or continued.
(b) Determination of Interest Period.By giving notice as set forth in
------------------------------------
Section 2.12(a),Borrowers shall select an Interest Period for such Eurodollar
------------
Rate Loan. The determination of the Interest Period shall be subject to the
following provisions:
(A) in the case of immediately successive Interest Periods, each successive
Interest Period shall commence on the day on which the next preceding Interest
Period expires;
(B) if any Interest Period would otherwise expire on a day which is not a
Business Day, the Interest Period shall be extended to expire on the next
succeeding Business Day; provided, however,that if the next succeeding Business
------------------
Day occurs in the following calendar month, then such Interest Period shall
expire on the immediately preceding Business Day;
(C) if any Interest Period begins on the last Business Day of a month, or
on a day for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period, then the Interest Period shall end on
the last Business Day of the calendar month at the end of such Interest Period;
and
(D) Borrowers may not select an Interest Period which expires later than
the Renewal Date.
(c) Automatic Conversion: Optional Conversion by Foothill.Any Eurodollar
--------------------------------------------------------
Rate Loan shall automatically convert to a Reference Rate Loan upon the last day
of the applicable Interest Period, unless Foothill has received a request to
continue such Eurodollar Rate Loan at least two Business Days prior to the end
of such Interest Period in accordance with the terms of Section 2.12(a).Any
--------
Eurodollar Rate Loan shall, at Foothill's option, upon notice to Borrowers,
immediately convert to a Reference Rate Loan in the event that (i) an Event of
Default shall have occurred and be continuing or (ii) this Agreement shall
terminate, and Borrowers shall pay to Foothill any amounts required by Section
-------
2.15 as a result thereof.
- - ----
2.13 Illegality. Any other provision herein to the contrary
notwithstanding, if the adoption of or any change in any Requirement of Law or
in the interpretation or application thereof by a Governmental Authority made
subsequent to the Closing Date shall make it unlawful for Foothill to make or
maintain Eurodollar Rate Loans as contemplated by this Agreement, (a) the
obligation of Foothill hereunder to make Eurodollar Rate Loans, continue
Eurodollar Rate Loans as such, and convert Reference Rate Loans to Eurodollar
Rate Loans shall forthwith be suspended and (b) Foothill's then outstanding
Eurodollar Rate Loans, if any, shall be converted automatically to Reference
Rate Loans on the respective last days of the then current Interest Periods with
respect thereto or within such earlier
26
<PAGE>
period as required by law; provided, however,that before making any such demand,
------------------
Foothill agrees to use reasonable efforts (consistent with its internal policy
and legal and regulatory restrictions and so long as such efforts would not be
disadvantageous to it, in its reasonable discretion, in any legal, economic, or
regulatory manner) to designate a different lending office if the making of such
a designation would allow Foothill or its lending office to continue to perform
its obligations to make Eurodollar Rate Loans. If any such conversion of a
Eurodollar Rate Loan occurs on a day which is not the last day of the then
current Interest Period with respect thereto, Borrowers shall pay to Foothill
such amounts, if any, as may be required pursuant to Section 2.14.If
--------------
circumstances subsequently change so that Foothill shall determine that it is no
longer so affected, Foothill will promptly notify, and upon receipt of such
notice, the obligations of Foothill to make or continue Eurodollar Rate Loans or
to convert Reference Rate Loans into Eurodollar Rate Loans shall be reinstated.
2.14 REQUIREMENTS OF LAW.
(a) If the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof by a Governmental Authority made
subsequent to the Closing Date or compliance by Foothill with any request or
directive (whether or not having the force of law) from any central bank or
other Governmental Authority made subsequent to the Closing Date
(A) shall subject Foothill to any tax, levy, charge, fee, reduction, or
withholding of any kind whatsoever with respect to Eurodollar Rate Loans, or
change the basis of taxation of payments to Foothill in respect thereof (except
for the establishment of a tax based on the net income of Foothill or changes in
the rate of tax on the net income of Foothill);
(B) shall in respect of Eurodollar Rate Loans impose, modify or hold
applicable any reserve, special deposit, compulsory loan, or similar requirement
against assets held by, deposits or other liabilities in or for the account of,
Advances or other extensions of credit by, or any other acquisition of funds by,
any office of Foothill; or
(C) shall impose on Foothill any other condition with respect to Eurodollar
Rate Loans;
and the result of any of the foregoing is to increase the cost to Foothill, by
an amount which Foothill deems to be material, of making, converting into,
continuing, or maintaining Eurodollar Rate Loans or to increase the cost to
Foothill in respect of Eurodollar Rate Loans, by an amount which Foothill deems
to be material, or to reduce any amount receivable hereunder in respect of
Eurodollar Rate Loans, or to forego any other sum payable thereunder or make any
payment on account thereof in respect of Eurodollar Rate Loans, then, in any
such case, Borrowers shall promptly pay Foothill, upon its demand, any
additional amounts necessary to compensate Foothill for such increased cost or
reduced
27
<PAGE>
amount receivable; provided, however,that beforee making any such demand,
-------------------
Foothill agrees to use reasonable efforts (consistent with its internal policy
and legal and regulatory restrictions and so long as such efforts would not be
disadvantageous to it, in its reasonable discretion, in any legal, economic, or
regulatory manner) to designate a different Eurodollar lending office if the
making of such designation would allow Foothill or its Eurodollar lending office
to continue to perform its obligations to make Eurodollar Rate Loans or to
continue to fund or maintain Eurodollar Rate Loans and avoid the need for, or
materially reduce the amount of, such increased cost. If Foothill becomes
entitled to claim any additional amounts pursuant to this Section 2.14,Foothill
-------------
shall promptly notify Borrowers of the event by reason of which it has become so
entitled. A certificate as to any additional amounts payable pursuant to this
Section 2.14 submitted in reasonable detail by Foothill to Borrowers shall be
- - ------------
conclusive in the absence of manifest error. Within five Business Days after
Foothill notifies Borrowers of any increased cost pursuant to the foregoing
provisions of this Section 2.14,Borrowers may convert all Eurodollar Rate Loans
then outstanding into Reference Rate Loans in accordance with Section 2.12and,
------------
additionally, reimburse Foothill for any cost in accordance with Section
-------
2.15.This covenant shall survive the termination of this Agreement and the
- - -----
payment of the Advances and all other amounts payable hereunder for nine months
following such termination and repayment.
(b) If Foothill shall have determined that the adoption of or any change in
any Requirement of Law regarding capital adequacy or in the interpretation or
application thereof by a Governmental Authority made subsequent to the Closing
Date or compliance by Foothill or any Person controlling Foothill with any
request or directive regarding capital adequacy (whether or not having the force
of law) from any Governmental Authority made subsequent to the Closing Date does
or shall have the effect of increasing the amount of capital required to be
maintained or reducing the rate of return on Foothill's or such Person's capital
as a consequence of its obligations hereunder to a level below that which
Foothill or such Person could have achieved but for such change or compliance
(taking into consideration Foothill's or such Person's policies with respect to
capital adequacy) by an amount deemed by Foothill to be material, then from time
to time, after submission by Foothill to Borrowers of a prompt written request
therefor, Borrowers shall pay to Foothill such additional amount or amounts as
will compensate Foothill or such Person for such reduction. This covenant shall
survive the termination of this Agreement and the payment of the Advances and
all other amounts payable hereunder for nine months following such termination
and repayment.
2.15 Indemnity. Borrowers agree to indemnify Foothill and to hold Foothill
harmless from any loss or expense which Foothill may sustain or incur as a
consequence of (a) default by Borrowers in payment when due of the principal
amount of or interest on any Eurodollar Rate Loan, (b) default by Borrowers in
making a Borrowing of, conversion into, or continuation of Eurodollar Rate Loans
after Borrowers have given a notice requesting the same in accordance with the
provisions of this Agreement, (c) default by Borrowers in making any prepayment
of a Eurodollar Rate Loan after Borrowers have given a notice thereof in
accordance with the provisions of this Agreement, or (d) the making of a
prepayment of Eurodollar Rate Loans on a day which is not the last day of an
28
<PAGE>
Interest Period with respect thereto (whether due to the termination of this
Agreement, upon an Event of Default, or otherwise), including, in each case, any
such loss or expense (but excluding loss of margin or anticipated profits)
arising from the reemployment of funds obtained by it or from fees payable to
terminate the deposits from which such funds were obtained; provided,
---------
however,that Foothill, if requesting indemnification, shall have delivered to
the Borrowers a certificate as to the amount of such loss or expense, which
certificate shall be conclusive in the absence of manifest error. Calculation of
all amounts payable to Foothill under this Section 2.15shall be made as though
------------
Foothill had actually funded the relevant Eurodollar Rate Loan through the
purchase of a deposit bearing interest at the Eurodollar Rate in an amount equal
to the amount of such Eurodollar Rate Loan and having a maturity comparable to
the relevant Interest Period; provided, however,that Foothill may fund each of
------------------
the Eurodollar Rate Loans in any manner it sees fit, and the foregoing
assumption shall be utilized only for the calculation of amounts payable under
this Section 2.15.This covenant shall survive the termination of this Agreement
-------------
and the payment of the Loans and all other amounts payable hereunder for a
period of nine months thereafter.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO the Initial Advance. The obligation of Foothill
to make the initial Advance hereunder, is subject to the fulfillment, to the
satisfaction of Foothill and its counsel, of each of the following conditions on
or before the Closing Date:
(a) Foothill shall have received a fully executed counterpart of this
Agreement;
(b) the outstanding principal balance, and any accrued and unpaid interest
or fees in respect of, the Term Loans (as defined in the Original Loan
Agreement) have been paid in full; and
(c) all other documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been delivered, executed,
or recorded and shall be in form and substance satisfactory to Foothill and its
counsel.
3.2 Conditions Precedent to all Advances and all Letters of Credit. The
following shall be conditions precedent to all Advances and all Letters of
Credit hereunder:
(a) the representations and warranties contained in this Agreement and the
other Loan Documents shall be true and correct in all material respects on and
as of the date of such extension of credit, as though made on and as of such
date (except to the extent that such representations and warranties relate
solely to an earlier date);
29
<PAGE>
(b) no Default or Event Of Default shall have occurred and be continuing on
the date of such extension of credit, nor shall either result from the making
thereof; and
(c) no injunction, writ, restraining order, or other order of any nature
prohibiting, directly or indirectly, the extending of such credit shall have
been issued and remain in force by any governmental authority against any
Borrower, Foothill, or any of their Affiliates.
3.3 Condition Subsequent. As a condition subsequent to initial closing
hereunder, Borrowers shall perform or cause to be performed the following (the
failure by Borrowers to so perform or cause to be performed constituting an
Event of Default):
(a) within 30 days of the Closing Date, deliver to Foothill the certified
copies of the policies of insurance, together with the endorsements thereto, as
are required by Section 6.10,the form and substance of which shall be
--------------
satisfactory to Foothill and its counsel.
3.4 Term. This Agreement shall become effective upon the execution and
delivery hereof by Borrowers and Foothill and shall continue in full force and
effect for a term ending on August 6, 2001 (the "Maturity Date"), unless sooner
terminated pursuant to the terms hereof. The foregoing notwithstanding, Foothill
shall have the right to terminate its obligations under this Agreement
immediately and without notice upon the occurrence and during the continuation
of an Event of Default.
3.5 Effect of Termination. On the date of termination of this Agreement,
all Obligations (including contingent reimbursement obligations of Borrowers
with respect to any outstanding Letters of Credit) immediately shall become due
and payable without notice or demand. No termination of this Agreement, however,
shall relieve or discharge Borrowers of Borrowers' duties, Obligations, or
covenants hereunder, and Foothill's continuing security interests in the
Collateral shall remain in effect until all Obligations have been fully and
finally discharged and Foothill's obligation to provide additional credit
hereunder is terminated.
3.6 Early Termination by Borrowers. The provisions of Section 3.4that allow
---
termination of this Agreement by Borrowers only on the Maturity Date
notwithstanding, Borrowers have the option, at any time upon 90 days prior
written notice to Foothill, to terminate this Agreement by paying to Foothill,
in cash, the Obligations (including an amount equal to 102% of the undrawn
amount of the Letters of Credit), in full, together with a premium (the "Early
Termination Premium") equal to the following amounts: (a) $300,000 if such
prepayment occurs on or before August 15, 1999; (b) $200,000 if such prepayment
occurs on or after August 16, 1999 but on or before August 15, 2000, and (c)
$100,000 if such prepayment occurs on or after August 16, 2000.
30
<PAGE>
3.7 Termination Upon Event Of Default. If Foothill terminates this
Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Foothill's
lost profits as a result thereof, Borrowers shall pay to Foothill upon the
effective date of such termination, a premium in an amount equal to the Early
Termination Premium. The Early Termination Premium shall be presumed to be the
amount of damages sustained by Foothill as the result of the early termination
and Borrowers agree that it is reasonable under the circumstances currently
existing. The Early Termination Premium provided for in this Section 3.7shall be
-----------
deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Each Borrower hereby grants to Foothill a
continuing security interest in all of such Borrower's currently existing and
hereafter acquired or arising Personal Property Collateral in order to secure
prompt repayment of any and all Obligations and in order to secure prompt
performance by such Borrower of each of its covenants and duties under the Loan
Documents. Foothill's security interests in the Personal Property Collateral
shall attach to all Personal Property Collateral without further act on the part
of Foothill or Borrowers. Anything contained in this Agreement or any other Loan
Document to the contrary notwithstanding, except for the sale of Inventory to
buyers in the ordinary course of business, no Borrower has any authority,
express or implied, to dispose of any item or portion of the Personal Property
Collateral or the Real Property Collateral.
4.2 Negotiable Collateral. In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, Borrowers,
immediately upon the request of Foothill, shall endorse and deliver physical
possession of such Negotiable Collateral to Foothill.
4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral.
At any time, Foothill or Foothill's designee may (a)notify customers or Account
Debtors of any Borrower that the Accounts, General Intangibles, or Negotiable
Collateral of such Borrower have been assigned to Foothill or that Foothill has
a security interest therein, and (b) after an Event of Default, collect the
Accounts, General Intangibles, and Negotiable Collateral of such Borrower
directly and charge the collection costs and expenses to the Loan Account. Each
Borrower agrees that it will hold in trust for Foothill, as Foothill's trustee,
any Collections that it receives and immediately will deliver said Collections
to Foothill in their original form as received by Borrower.
4.4 Delivery of Additional Documentation Required. At any time upon the
request of Foothill, Borrowers shall execute and deliver to Foothill all
financing statements, continuation financing statements, continuation filings,
security agreements, pledges, assignments, control agreements, endorsements of
certificates of title, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other
31
<PAGE>
documents that Foothill reasonably may request, in "form satisfactory to
Foothill, to perfect and continue perfected Foothill's security interests in the
Collateral, and in order to fully consummate all of the transactions
contemplated hereby and under the other the Loan Documents.
4.5 Power of Attorney. Each Borrower hereby irrevocably makes, constitutes,
and appoints Foothill (and any of Foothill's officers, employees, or agents
designated by Foothill) as such Borrower's true and lawful attorney, with power
to (a) if such Borrower refuses to, or fails timely to execute and deliver any
of the documents described in Section 4.4,sign the name of such Borrower on any
------------
of the documents described in Section 4.4,(b) at any time that an Event of
-------------
Default has occurred and is continuing or Foothill deems itself insecure, sign
such Borrower's name on any invoice or bill of lading relating to any Account of
such Borrower, drafts against Account Debtors, schedules and assignments of
Accounts of such Borrower, verifications of Accounts of such Borrower, and
notices to Account Debtors, (c) send requests for verification of Accounts of
such Borrower, (d) endorse such Borrower's name on any Collection item that may
come into Foothill's possession, (e) at any time that an Event of Default has
occurred and is continuing or Foothill deems itself insecure, notify the post
office authorities to change the address for delivery of such Borrower's mail to
an address designated by Foothill, to receive and open all mail addressed to
such Borrower, and to retain all mail relating to the Collateral of such
Borrower and forward all other mail to such Borrower, (f) at any time that an
Event of Default has occurred and is continuing or Foothill deems itself
insecure, make, settle, and adjust all claims under such Borrower's policies of
insurance and make all determinations and decisions with respect to such
policies of insurance, and (g) at any time that an Event of Default has occurred
and is continuing or Foothill deems itself insecure, settle and adjust disputes
and claims respecting the Accounts of such Borrower directly with Account
Debtors, for amounts and upon terms that Foothill determines to be reasonable,
and Foothill may cause to be executed and delivered any documents and releases
that Foothill determines to be necessary. The appointment of Foothill as such
Borrower's attorney, and each and every one of Foothill's rights and powers,
being coupled with an interest, is irrevocable until all of the Obligations have
been fully and finally repaid and performed and Foothill's obligation to extend
credit hereunder is terminated.
4.6 Right to Inspect. Foothill (through any of its officers, employees, or
agents) shall have the right, from time to time hereafter to inspect Borrowers'
Books and to check, test, and appraise the Collateral in order to verify
Borrowers' financial condition or the amount, quality, value, condition of, or
any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement, each Borrower
makes the following representations and warranties which shall be true, correct,
and complete in all respects as of the date hereof, and shall be true, correct,
and complete in all respects as of the Closing Date, and at and as of the date
of the making of each Advance and each Letter of Credit as though made on and as
of the date of such Advance or Letter of Credit
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(except to the extent that such representations and Warranties relate solely to
an earlier date) and such representations and warranties shall survive the
execution and delivery of this Agreement:
5.1 No Encumbrances. Each Borrower has good and indefeasible title to its
Collateral, free and clear of Liens except for Permitted Liens.
5.2 Eligible Accounts. The Eligible Accounts of each Borrower are bona fide
existing obligations created by the sale and delivery of Inventory or the
rendition of services to Account Debtors in the ordinary course of such
Borrower's business, unconditionally owed to such Borrower without (to the best
of such Borrower's knowledge) defenses, disputes, offsets, counterclaims, or
rights of return or cancellation. The property giving rise to such Eligible
Accounts has been delivered to the Account Debtor, or to the Account Debtor's
agent for immediate shipment to and unconditional acceptance by the Account
Debtor. Borrowers have not received notice of actual or imminent bankruptcy,
insolvency, or material impairment of the financial condition of any Account
Debtor regarding any Eligible Account.
5.3 Eligible Inventory. All Eligible Inventory of Borrowers is of good and
merchantable quality, free from known defects.
5.4 Equipment. All of the Equipment of Borrowers is used or held for use in
Borrowers' business and is fit for such purposes.
5.5 Location of Inventory and Equipment. The Inventory and Equipment of
Borrowers are not stored with a bailee, warehouseman, or similar party (without
Foothill's prior written consent) and are located only at the locations
identified on Schedule 6.12or otherwise permitted by Section 6.12.
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5.6 Inventory Records. Each Borrower keeps correct and accurate records
itemizing and describing the kind, type, quality, and quantity of its Inventory,
and such Borrower's cost therefor.
5.7 Location of Chief Executive Office; FEIN. The chief executive office of
each Borrower is located at 1720 Sublette Avenue, St. Louis, Missouri 63110, and
each Borrower's FEIN is set forth below:
Borrower FEIN
-------- ----
Parent 25-1370721
B&F 34-1792342
Hospital Systems 94-3218390
Life Support 95-3560739
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5.8 DUE Organization and Qualification; Subsidiaries.
(a) Each Borrower is duly organized and existing and in good standing under
the laws of the jurisdiction of its incorporation and qualified and licensed to
do business in, and in good standing in, any state where the failure to be so
licensed or qualified reasonably could be expected to cause a Material Adverse
Change.
(b) Set forth on Schedule 5.8,is a complete and accurate list of each
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Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction of
their incorporation; (ii) the number of shares of each class of common and
preferred stock authorized for each of such Subsidiaries; and (iii) the number
and the percentage of the outstanding shares of each such class owned directly
or indirectly by such Borrower. All of the outstanding capital stock of each
such Subsidiary has been validly issued and is fully paid and non-assessable.
(c) Except as set forth on Schedule 5.8,no capital stock (or any
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securities, instruments, warrants, options, purchase rights, conversion or
exchange rights, calls, commitments or claims of any character convertible into
or exercisable for capital stock) of any direct or indirect Subsidiary of any
Borrower is subject to the issuance of any security, instrument, warrant,
option, purchase right, conversion or exchange right, call, commitment or claim
of any right, title, or interest therein or thereto.
5.9 DUE AUTHORIZATION; NO CONFLICT.
(a) The execution, delivery, and performance by each Borrower of this
Agreement and the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action.
(b) The execution, delivery, and performance by each Borrower of this
Agreement and the Loan Documents to which it is a party do not and will not (i)
violate any provision of federal, state, or local law or regulation (including
Regulations T, U, and X of the Federal Reserve Board) applicable to such
Borrower, the Governing Documents of such Borrower, or any order, judgment, or
decree of any court or other Governmental Authority binding on such Borrower,
(ii) conflict with, result in a breach of, or constitute (with due notice or
lapse of time or both) a default under any material contractual obligation or
material lease of such Borrower, (iii) result in or require the creation or
imposition of any Lien of any nature whatsoever upon any properties or assets of
such Borrower, other than Permitted Liens, or (iv)require any approval of
stockholders or any approval or consent of any Person under any material
contractual obligation of such Borrower.
(c) Other than the filing of appropriate financing statements, fixture
filings, and mortgages, the execution, delivery, and performance by each
Borrower of this Agreement and the Loan Documents to which such Borrower is a
party do not and
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will not require any registration with, consent, or approval of, or notice to,
or other action with or by, any federal, state, foreign, or other Governmental
Authority or other Person.
(d) This Agreement and the Loan Documents to which any Borrower is a party,
and all other documents contemplated hereby and thereby, when executed and
delivered by such Borrower will be the legally valid and binding obligations of
such Borrower, enforceable against such Borrower in accordance with their
respective terms, except as enforcement may be limited by equitable principles
or by bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or limiting creditors' rights generally.
(e) The Liens granted by each Borrower to Foothill in and to its properties
and assets pursuant to this Agreement and the other Loan Documents are validly
created, perfected, and first priority Liens, subject only to Permitted Liens.
5.10 Litigation. There are no actions or proceedings pending by or against
any Borrower before any court or administrative agency and no Borrower has any
knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving any Borrower or any guarantor of the Obligations, except for: (a)
ongoing collection matters in which a Borrower is the plaintiff; (b) matters
disclosed on Schedule 5.10;and (c) matters arising after the date hereof that,
--------------
if decided adversely to a Borrower, would not have a Material Adverse Change.
5.11 No Material Adverse Change. All financial statements relating to any
Borrower or any guarantor of the Obligations that have been delivered by any
Borrower to Foothill have been prepared in accordance with GAAP (except, in the
case of unaudited financial statements, for the lack of footnotes and being
subject to year-end audit adjustments) and fairly present such Borrower's (or
such guarantor's, as applicable) financial condition as of the date thereof and
such Borrower's results of operations for the period then ended. There has not
been a Material Adverse Change with respect to any Borrower (or such guarantor,
as applicable) since the date of the latest financial statements submitted to
Foothill on or before the Closing Date.
5.12 Solvency. Each Borrower is Solvent. No transfer of property is being
made by any Borrower and no obligation is being incurred by any Borrower in
connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay, or defraud either present or
future creditors of any Borrower.
5.13 Employee Benefits. None of Borrowers, any of their Subsidiaries, or
any of their ERISA Affiliates maintains or contributes to any Benefit Plan,
other than those listed on Schedule 5.13.Each Borrower, each of its Subsidiaries
--------------
and each ERISA Affiliate have satisfied the minimum funding standards of ERISA
and the IRC with respect to each Benefit Plan to which it is obligated to
contribute. No ERISA Event has occurred
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nor has any other event occurred that may result in' an ERISA Event that
reasonably could be expected to result in a Material Adverse Change. None of
Borrowers or their Subsidiaries, any ERISA Affiliate, or any fiduciary of any
Plan is subject to any direct or indirect liability with respect to any Plan
under any applicable law, treaty, rule, regulation, or agreement. None of
Borrowers or their Subsidiaries or any ERISA Affiliate is required to provide
security to any Plan under Section 401(a)(29) of the IRC.
5.14 Environmental Condition. None of Borrowers' properties or assets has
ever been used by any Borrower or, to the best of each Borrower's knowledge, by
previous owners or operators in the disposal of, or to produce, store, handle,
treat, release, or transport, any Hazardous Materials. None of Borrowers'
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a Hazardous Materials
disposal site, or a candidate for closure pursuant to any environmental
protection statute. No Lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned or
operated by any Borrower. No Borrower has received a summons, citation, notice,
or directive from the Environmental Protection Agency or any other federal or
state governmental agency concerning any action or omission by any Borrower
resulting in the releasing or disposing of Hazardous Materials into the
environment.
6. AFFIRMATIVE COVENANTS.
Each Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, and
unless Foothill shall otherwise consent in writing, such Borrower shall do all
of the following:
6.1 Accounting System. Maintain a standard and modern system of accounting
that enables such Borrower to produce financial statements in accordance with
GAAP, and maintain records pertaining to its Collateral that contain information
as from time to time may be requested by Foothill. Such Borrower also shall keep
a modern inventory reporting system that shows all additions, sales, claims,
returns, and allowances with respect to its Inventory.
6.2 Collateral Reporting. Provide Foothill with the following documents at
the following times in form satisfactory to Foothill: (a) on a weekly basis, the
summary page of each such Borrower's Accounts aging report, (b) on a monthly
basis, a sales journal, collection journal, and credit register since the last
such schedule and a calculation of the Borrowing Base as of such date using the
amount of ineligible Accounts as determined based upon the prior month's aging
of Accounts, (c) on a monthly basis and, in any event, by no later than the 10th
Business Day of each month during the term of this Agreement, (i) a detailed
calculation of the Borrowing Base, and (ii) a detailed aging, by total, of such
Borrower's Accounts, together with a reconciliation to the detailed calculation
of the Borrowing Base previously provided to Foothill, (d) on a monthly basis
and, in any event, by no later than the 10th Business Day of each month during
the term of this Agreement, a summary aging, by vendor, of such Borrower's
accounts payable and any
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book overdraft, (e) on a monthly basis, Inventory reports specifying such
Borrower's cost, (f) upon Foothill's request, notice of all returns, disputes,
or claims, (g) upon Foothill's request, copies of invoices in connection with
its Accounts, customer statements, credit memos, remittance advices and reports,
deposit slips, shipping and delivery documents in connection with its Accounts
and for Inventory and Equipment acquired by such Borrower, purchase orders and
invoices, (h) on a quarterly basis, a detailed list of such Borrower's
customers, (i) on a monthly basis, a calculation of the Dilution for the prior
month; and (j) such other reports as to the Collateral or the financial
condition of such Borrower as Foothill may request from time to time. Original
sales invoices evidencing daily sales shall be mailed by such Borrower to each
Account Debtor and, at Foothill's direction, the invoices shall indicate on
their face that such Borrower's Account has been assigned to Foothill and that
all payments are to be made directly to Foothill. In the event that, at any
time, Borrowers' excess borrowing availability under Section 2.1 shall be less
than $3,000,000, then Borrower agrees that Foothill may, in the exercise of its
reasonable credit judgment, require changes in the frequency and type of reports
required under this Section 6.2.
6.3 Financial Statements, Reports, Certificates. Deliver to Foothill: (a)
as soon as available, but in any event within 45 days after the end of each
month during each of Parent's fiscal years, a company prepared balance sheet,
income statement, and statement of cash flow covering Parent's operations during
such period; and (b) as soon as available, but in any event within 90 days after
the end of each of such Parent's fiscal years, financial statements of Parent
for each such fiscal year, audited by independent certified public accountants
reasonably acceptable to Foothill and certified, without any qualifications, by
such accountants to have been prepared in accordance with GAAP, together with a
certificate of such accountants addressed to Foothill stating that such
accountants do not have knowledge of the existence of any Default or Event of
Default. Such audited financial statements shall include a balance sheet, profit
and loss statement, and statement of cash flow and, if prepared, such
accountants' letter to management. In addition to the financial statements
referred to above, Parent agrees to deliver financial statements prepared on a
consolidating basis so as to present such Parent and each such related entity
separately, and on a consolidated basis.
Together with the above, Parent also shall deliver to Foothill such
Parent's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K
Current Reports, and any other filings made by Parent with the Securities and
Exchange Commission, if any, as soon as the same are filed, or any other
information that is provided by Parent to its shareholders, and any other report
reasonably requested by Foothill relating to the financial condition of such
Parent.
Each month, together with the financial statements provided pursuant to
Section 6.3(a),Parent shall deliver to Foothill a certificate signed by its
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chief financial officer to the effect that: (i) all financial statements
delivered or caused to be delivered to Foothill hereunder have been prepared in
accordance with GAAP (except, in the case of unaudited financial statements, for
the lack of footnotes and being subject to year-end audit
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adjustments) and fairly present the financial condition of Parent, (ii) the
representations and warranties of Borrowers contained in this Agreement and the
other Loan Documents are true and correct in all material respects on and as of
the date of such certificate, as though made on and as of such date (except to
the extent that such representations and warranties relate solely to an earlier
date), (iii) for each month that also is the date on which a financial covenant
in Section 7.20is to be tested, a Compliance Certificate demonstrating in
-------------
reasonable detail compliance at the end of such period with the applicable
financial covenants contained in Section 7.20,and (iv) on the date of delivery
-- -------------
of such certificate to Foothill there does not exist any condition or event that
constitutes a Default or Event of Default (or, in the case of clauses (i), (ii),
or (iii), to the extent of any non-compliance, describing such non-compliance as
to which he or she may have knowledge and what action Parent has taken, is
taking, or proposes to take with respect thereto).
Each Borrower shall have issued written instructions to its independent
certified public accountants authorizing them to communicate with Foothill and
to release to Foothill whatever financial information concerning such Borrower
that Foothill may request. Each Borrower hereby irrevocably authorizes and
directs all auditors, accountants, or other third parties to deliver to
Foothill, at such Borrower's expense, copies of such Borrower's financial
statements, papers related thereto, and other accounting records of any nature
in their possession, and to disclose to Foothill any information they may have
regarding such Borrower's business affairs and financial conditions.
6.4 Tax Returns. Deliver to Foothill copies of each of such Parent's future
federal income tax returns, and any amendments thereto, within 45 days of the
filing thereof with the Internal Revenue Service.
6.5 [Intentionally Omitted].
6.6 Returns. Cause returns and allowances, if any, as between such Borrower
and its Account Debtors to be on the same basis and in accordance with the usual
customary practices of such Borrower, as they exist at the time of the execution
and delivery of this Agreement. If, at a time when no Event of Default has
occurred and is continuing, any Account Debtor returns any Inventory to such
Borrower, such Borrower shall determine the reason for such return as soon as
reasonably practicable and, if such Borrower accepts such return, issue a credit
memorandum (with a copy to be sent to Foothill) in the appropriate amount to
such Account Debtor. If, at a time when an Event of Default has occurred and is
continuing, any Account Debtor returns any Inventory to such Borrower, such
Borrower promptly shall determine the reason for such return and, if Foothill
consents (which consent shall not be unreasonably withheld), issue a credit
memorandum (with a copy to be sent to Foothill) in the appropriate amount to
such Account Debtor.
6.7 Title to Equipment. Upon Foothill's request, such Borrower immediately
shall deliver to Foothill, properly endorsed,any and all evidences of ownership
of, certificates of title, or applications for title to any items of its
Equipment.
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6.8 Maintenance of Equipment. Maintain its Equipment in good operating
condition and repair (ordinary wear and tear excepted), and make all necessary
replacements thereto so that the value and operating efficiency thereof shall at
all times be maintained and preserved. Other than those items of Equipment that
constitute fixtures on the Closing Date, such Borrower shall not permit any item
of its Equipment to become a fixture to real estate or an accession to other
property, and such Equipment shall at all times remain personal property.
6.9 Taxes. Cause all assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against such
Borrower or any of its property to be paid in full, before delinquency or before
the expiration of any extension period, except to the extent that the validity
of such assessment or tax shall be the subject of a Permitted Protest. Such
Borrower shall make due and timely payment or deposit of all such federal,
state, and local taxes, assessments, or contributions required of it by law, and
will execute and deliver to Foothill, on demand, appropriate certificates
attesting to the payment thereof or deposit with respect thereto. Such Borrower
will make timely payment or deposit of all tax payments and withholding taxes
required of it by applicable laws, including those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Foothill with proof satisfactory to Foothill
indicating that such Borrower has made such payments or deposits.
6.10 Insurance.
(a) At its expense, keep its Personal Property Collateral insured against
loss or damage by fire, theft, explosion, sprinklers, and all other hazards and
risks, and in such amounts, as are ordinarily insured against by other owners in
similar businesses. Such Borrower also shall maintain business interruption,
public liability, product liability, and property damage insurance relating to
such Borrower's ownership and use of its Personal Property Collateral, as well
as insurance against larceny, embezzlement, and criminal misappropriation.
(b) At its expense, obtain and maintain (i) insurance of the type necessary
to insure the Improvements and Chattels (as such terms are defined in the
Mortgages), for the full replacement cost thereof, against any loss by fire,
lightning, windstorm, hail, explosion, aircraft, smoke damage, vehicle damage,
earthquakes, elevator collision, and other risks from time to time included
under "extended coverage" policies, in such amounts as Foothill may require, but
in any event in amounts sufficient to prevent such Borrower from becoming a
co-insurer under such policies, (ii) combined single limit bodily injury and
property damages insurance against any loss, liability, or damages on, about, or
relating to each parcel of Real Property Collateral, in an amount of not less
than $1,000,000; and (iii) insurance for such other risks as Foothill may
require. Replacement costs, at Foothill's option, may be redetermined by an
insurance appraiser, satisfactory to Foothill, not more frequently than once
every 12 months at such Borrower's cost.
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(c) All such policies of insurance shall be in such form, with such
companies, and in such amounts as may be reasonably satisfactory to Foothill.
All insurance required herein shall be written by companies which are authorized
to do insurance business in the State of California. All hazard insurance and
such other insurance as Foothill shall specify, shall contain a California Form
438BFU (NS)mortgagee endorsement, or an equivalent endorsement satisfactory to
Foothill, showing Foothill as sole loss payee thereof, and shall contain a
waiver of warranties. Every policy of insurance referred to in this Section
-------
6.10shall contain an agreement by the insurer that it will not cancel such
policy except after 30 days prior written notice to Foothill and that any loss
payable thereunder shall be payable notwithstanding any act or negligence of
such Borrower or Foothill which might, absent such agreement, result in a
forfeiture of all or a part of such insurance payment and notwithstanding (i)
occupancy or use of the Real Property Collateral for purposes more hazardous
than permitted by the terms of such policy, (ii) any foreclosure or other action
or proceeding taken by Foothill pursuant to the Mortgages upon the happening of
an Event of Default, or (iii) any change in title or ownership of the Real
Property Collateral. Such Borrower shall deliver to Foothill certified copies of
such policies of insurance and evidence of the payment of all premiums therefor.
(d) Original policies or certificates thereof satisfactory to Foothill
evidencing such insurance shall be delivered to Foothill prior to the expiration
of the existing or preceding policies. Such Borrower shall give Foothill prompt
notice of any loss covered by such insurance, and Foothill shall have the right
to adjust any loss. Foothill shall have the exclusive right to adjust all losses
payable under any such insurance policies without any liability to such Borrower
whatsoever in respect of such adjustments. Any monies received as payment for
any loss under any insurance policy including the insurance policies mentioned
above, shall be paid over to Foothill to be applied at the option of Foothill
either to the prepayment of the Obligations without premium, in such order or
manner as Foothill may elect, or shall be disbursed to such Borrower under stage
payment terms satisfactory to Foothill for application to the cost of repairs,
replacements, or restorations. Ail repairs, replacements, or restorations shall
be effected with reasonable promptness and shall be of a value at least equal to
the value of the items or property destroyed prior to such damage or
destruction. Upon the occurrence of an Event of Default, Foothill shall have the
right to apply all prepaid premiums to the payment of the Obligations in such
order or form as Foothill shall determine.
(e) Such Borrower shall not take out separate insurance concurrent in form
or contributing in the event of loss with that required to be maintained under
this Section 6.10,unless Foothill is included thereon as named insured with the
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loss payable to Foothill under a standard California 438BFU (NS) Mortgagee
endorsement, or its local equivalent. Such Borrower immediately shall notify
Foothill whenever such separate insurance is taken out, specifying the insurer
thereunder and full particulars as to the policies evidencing the same, and
originals of such policies immediately shall be provided to Foothill.
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6.11 No Setoffs or Counterclaims. Make payments hereunder and under the
other Loan Documents by or on behalf of such Borrower without setoff or
counterclaim and free and clear of, and without deduction or withholding for or
on account of, any federal, state, or local taxes.
6.12 Location of Inventory and Equipment. Keep its Inventory and Equipment
only at the locations identified on Schedule 6.12; provided, however,that
----------------------------------
Borrowers may amend Schedule 6.12so long as such amendment occurs by written
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notice to Foothill not less than 30 days prior to the date on which the
Inventory or Equipment of Borrowers is moved to such new location, so long as
such new location is within the continental United States, and so long as, at
the time of such written notification, Borrowers provide any financing
statements or fixture filings necessary to perfect and continue perfected
Foothill's security interests in such assets and also provides to Foothill a
Collateral Access Agreement.
6.13 Compliance with Laws. Comply with the requirements of all applicable
laws, rules, regulations, and orders of any governmental authority, including
the Fair Labor Standards Act and the Americans With Disabilities Act, other than
laws, rules, regulations, and orders the non-compliance with which, individually
or in the aggregate, would not have and could not reasonably be expected to
cause a Material Adverse Change.
6.14 Employee Benefits.
(a) Deliver to Foothill: (i) promptly, and in any event within 10 Business
Days after such Borrower or any of its Subsidiaries knows or has reason to know
that an ERISA Event has occurred that reasonably could be expected to result in
a Material Adverse Change, a written statement of the chief financial officer of
such Borrower describing such ERISA Event and any action that is being taken
with respect thereto by such Borrower, any such Subsidiary or ERISA Affiliate,
and any action taken or threatened by the IRS, Department of Labor, or PBGC.
Such Borrower or such Subsidiary, as applicable, shall be deemed to know all
facts known by the administrator of any Benefit Plan of which it is the plan
sponsor, (ii) promptly, and in any event within 3 Business Days after the filing
thereof with the IRS, a copy of each funding waiver request fried with respect
to any Benefit Plan and all communications received by such Borrower, any of its
Subsidiaries or, to the knowledge of such Borrower, any ERISA Affiliate with
respect to such request, and (iii) promptly, and in any event within 3 Business
Days after receipt by such Borrower, any of its Subsidiaries or, to the
knowledge of such Borrower, any ERISA Affiliate, of the PBGC's intention to
terminate a Benefit Plan or to have a trustee appointed to administer a Benefit
Plan, copies of each such notice.
(b) Cause to be delivered to Foothill, upon Foothill's request, each of the
following: (i) a copy of each Plan (or, where any such plan is not in writing,
complete description thereof) (and if applicable, related trust agreements or
other funding instruments) and all amendments thereto, all written
interpretations thereof and written descriptions thereof that have been
distributed to employees or former employees of such
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Borrower or its Subsidiaries; (ii) the most recent determination letter issued
by the IRS with respect to each Benefit Plan; (iii) for the three most recent
plan years, annual reports on Form 5500 Series required to be filed with any
governmental agency for each Benefit Plan; (iv) all actuarial reports prepared
for the last three plan years for each Benefit Plan; (v) a listing of all
Multiemployer Plans, with the aggregate amount of the most recent annual
contributions required to be made by such Borrower or any ERISA Affiliate to
each such plan and copies of the collective bargaining agreements requiring such
contributions; (vi) any information that has been provided to such Borrower or
any ERISA Affiliate regarding withdrawal liability under any Multiemployer Plan;
and (vii) the aggregate amount of the most recent annual payments made to former
employees of such Borrower or its Subsidiaries under any Retiree Health Plan.
6.15 Leases. Pay when due all rents and other amounts payable under any
leases to which such Borrower is a party or by which such Borrower's properties
and assets are bound, unless such payments are the subject of a Permitted
Protest. To the extent that such Borrower fails timely to make payment of such
rents and other amounts payable when due under its leases, Foothill shall be
entitled, in its discretion, to reserve an amount equal to such unpaid amounts
against the Borrowing Base.
7. NEGATIVE COVENANTS.
Each Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, such
Borrower will not, without Foothill's prior written approval which may be given
in Foothill's sole discretion, do any of the following:
7.1 Indebtedness. Create, incur, assume, permit, guarantee, or otherwise
become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement, together with Indebtedness to
issuers of letters of credit that are the subject of L/C Guarantees;
(b) Indebtedness set forth in the latest financial statements of Borrowers
submitted to Foothill on or prior to the Closing Date;
(c) Indebtedness secured by Permitted Liens;
(d) Indebtedness evidenced by the Junior Notes and by that certain
$5,000,000 Promissory Note in favor of LaSalle National Bank, dated August 7,
1998;
(e) The private placement of subordinate debt on terms and conditions
consistent in all material respects with the A.G. Edwards draft Private
Placement Memorandum dated July 24, 1997, with subordination provisions no less
favorable than those set forth in those certain Subordination Agreements entered
into by Foothill in connection with the Junior Notes; and
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(f) refinancings, renewals; or extensions of Indebtedness permitted under
clauses (b) and (c) of this Section 7.1(and continuance or renewal of any
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Permitted Liens associated therewith) so long as: (i) the terms and conditions
of such refinancings, renewals, or extensions do not materially impair the
prospects of repayment of the Obligations by Borrowers, (ii) the net cash
proceeds of such refinancings, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness so refinanced,
renewed, or extended, (iii)such refinancings, renewals, refundings, or
extensions do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, and (iv)to the extent that
Indebtedness that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to Foothill as those applicable to
the refinanced Indebtedness.
7.2 Liens. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced under
Section 7.1(d)and so long as the replacement Liens only encumber those assets or
- - --------------
property that secured the original Indebtedness).
7.3 Restrictions on Fundamental Changes. Enter into any merger,
consolidation, reorganization, or recapitalization, or reclassify its capital
stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of,
in one transaction or a series of transactions, all or any substantial part of
its property or assets.
7.4 Disposal of Assets. Sell, lease, assign, transfer, or otherwise dispose
of any of such Borrower's properties or assets other than sales of Inventory to
buyers in the ordinary course of such Borrower's business as currently
conducted.
7.5 Change Name. Change such Borrower's name, FEIN, corporate structure
(within the meaning of Section 9402(7) of the Code), or identity, or add any new
fictitious name.
7.6 Guarantee. Guarantee or otherwise become in any way liable with respect
to the obligations of any third Person except by endorsement of instruments or
items of payment for deposit to the account of such Borrower or which are
transmitted or turned over to Foothill.
7.7 Nature of Business. Make any change in the principal nature of such
Borrower's business.
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7.8 Prepayments and Amendments.
(a) Except in connection with a refinancing permitted by Section 7. l(d)or,
---------------
so long as no Event of Default has occurred and is continuing, the prepayment of
the Junior Notes upon completion of a Financing or Sale Event, prepay, redeem,
retire, defease, purchase, or otherwise acquire any Indebtedness owing to any
third Person, other than the Obligations in accordance with this Agreement, and
(b) Directly or indirectly, amend, modify, alter, increase, or change any
of the terms or conditions of any agreement, instrument, document, indenture, or
other writing evidencing or concerning Indebtedness permitted under Sections 7.
-----------
l(b), (c). or (d).
- - ---------------------
7.9 Change of Control. Cause, permit, or suffer, directly or indirectly,
any Change of Control.
7.10 Consignments. Consign any Inventory or sell any of its Inventory on
bill and hold, sale or return, sale on approval, or other conditional terms of
sale.
7.11 Distributions. Make any distribution or declare or pay any dividends
(in cash or other property, other than capital stock) on, or purchase, acquire,
redeem, or retire any of such Borrower's capital stock, of any class, whether
now or hereafter outstanding.
7.12 Accounting Methods. Modify or change its method of accounting or enter
into, modify, or terminate any agreement currently existing, or at any time
hereafter entered into with any third party accounting firm or service bureau
for the preparation or storage of such Borrower's accounting records without
said accounting firm or service bureau agreeing to provide Foothill information
regarding the Collateral or such Borrower's financial condition. Such Borrower
waives the right to assert a confidential relationship, if any, it may have with
any accounting firm or service bureau in connection with any information
requested by Foothill pursuant to or in accordance with this Agreement, and
agrees that Foothill may contact directly any such accounting firm or service
bureau in order to obtain such information.
7.13 Investments. Directly or indirectly make, acquire, or incur any
liabilities (including contingent obligations) for or in connection with (a) the
acquisition of the securities (whether debt or equity) of, or other interests
in, a Person, (b)loans, advances, capital contributions, or transfers of
property to a Person, or (c) the acquisition of all or substantially all of the
properties or assets of a Person.
7.14 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of such Borrower
except for transactions that are in the ordinary course of such Borrower's
business, upon fair and
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reasonable terms, that are fully disclosed to Foothill, and that are no less
favorable to such Borrower than would be obtained in an arm's length transaction
with a non-Affiliate.
7.15 Suspension. Suspend or go out of a substantial portion of its
business.
7.16 [Intentionally Omitted].
7.17 Use of Proceeds. Use (a)the proceeds of the Advances made hereunder
for any purpose other than (i) on the Closing Date, (y) to repay in full the
outstanding principal, accrued interest, and accrued fees and expenses owing to
Existing Lender, and (z) to pay transactional costs and expenses incurred in
connection with this Agreement, and (ii) thereafter, consistent with the terms
and conditions hereof, for its lawful and permitted corporate purposes.
7.18 Change in Location of Chief Executive Office; Inventory and Equipment
with Bailees. Relocate its chief executive office to a new location without
providing 30 days prior written notification thereof to Foothill and so long as,
at the time of such written notification, such Borrower provides any financing
statements or fixture filings necessary to perfect and continue perfected
Foothill's security interests and also provides to Foothill a Collateral Access
Agreement with respect to such new location. The Inventory and Equipment of such
Borrower shall not at any time now or hereafter be stored with a bailee,
warehouseman, or similar party without Foothill's prior written consent.
7.19 No Prohibited Transactions Under ERISA. Directly or indirectly:
(a) engage, or permit any Subsidiary of such Borrower to engage, in any
prohibited transaction which is reasonably likely to result in a civil penalty
or excise tax described in Sections 406 of ERISA or 4975 of the IRC for which a
statutory or class exemption is not available or a private exemption has not
been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any accumulated
funding deficiency (as defined in Sections 302 of ERISA and 412 of the IRC),
whether or not waived;
(c) fail, or perm- it any Subsidiary of such Borrower to fail, to pay
timely required contributions or annual installments due with respect to any
waived funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of such Borrower to terminate, any
Benefit Plan where such event would result in any liability of such Borrower,
any of its Subsidiaries or any ERISA Affiliate under Title IV of ERISA;
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(e) fail, or permit any Subsidiary of such Borrower to fail, to make any
required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of such Borrower to fail, to pay any
required installment or any other payment required under Section 412 of the IRC
on or before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of such Borrower to amend, a Plan
resulting in an increase in current liability for the plan year such that either
of such Borrower, any Subsidiary of such Borrower or any ERISA Affiliate is
required to provide security to such Plan under Section 401(a)(29) of the IRC;
or
(h) withdraw, or permit any Subsidiary of such Borrower to Multiemployer
Plan where such withdrawal is reasonably likely to of any such withdraw,
from any result in any liability entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of such Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of $500,000.
7.20 Financial Covenants. Have Parent fail to maintain:
(a) Minimum Tangible Net Worth. Minimum Tangible Net Worth of not less
than: (i) $20,000,000, measured as of any month end during Parent's fiscal year
1999, and (ii) $21,000,000, measured as of any month end thereafter.
(b) [Intentionally Omitted]
(c) [Intentionally Omitted]
7.21 Capital Expenditures. Borrowers shall, in the aggregate, make capital
expenditures in any fiscal year in excess of $3,000,000.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1 If Borrowers fail to pay when due and payable or when declared due and
payable, any portion of the Obligations (whether of principal, interest
(including any interest which, but for the provisions of the Bankruptcy Code,
would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
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8.2 If any Borrower fails to perform, keep, or observe any term, provision,
condition, covenant, or agreement contained in this Agreement, in any of the
Loan Documents, or in any other present or future agreement between such
Borrower and Foothill; provided, however,that Borrowers' failure to perform,
-------------------
keep, or observe the terms of Sections 6.2, 6.3, 6.4, 6.7, 6.8, 6.13, 6.14 or
--------------------------------------------
6.15 shall not constitute an Event of Default unless such failure continues for
- - ---
five Business Days or more in the case of Section 6.2and otherwise 15 clays or
-----------
more;
8.3 If there is a Material Adverse Change;
8.4 If any material portion of any Borrower's properties or assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any third Person;
8.5 If an Insolvency Proceeding is commenced by any Borrower;
8.6 If an Insolvency Proceeding is commenced against any Borrower and any
of the following events occur: (a) such Borrower consents to the institution of
the Insolvency Proceeding against it; (b) the petition commencing the Insolvency
Proceeding is not timely controverted; (c)the petition commencing the Insolvency
Proceeding is not dismissed within 60 calendar days of the date of the filing
thereof; provided, however,that, during the pendency of such period, Foothill
-------------------
shall be relieved of its obligation to extend credit hereunder; (d) an interim
trustee is appointed to take possession of all or a substantial portion of the
properties or assets of, or to operate all or any substantial portion of the
business of, such Borrower; or (e) an order for relief shall have been issued or
entered therein;
8.7 If any Borrower is enjoined, restrained, or in any way prevented by
court order from continuing to conduct all or any material part of its business
affairs;
8.8 If a notice of Lien, levy, or assessment is filed of record with
respect to any of any Borrower's properties or assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, or if any taxes or debts owing
at any time hereafter to any one or more of such entities becomes a Lien,
whether choate or otherwise, upon any of such Borrower's properties or assets
and the same is not paid on the payment date thereof; provided, however,that no
------------------
such Liens or debts for aggregate amounts of less than $250,000 (in the case of
the United States Government) or $1,000,000 (for any state, county or
municipality) shall constitute an Event of Default if the same are discharged
within 30 days of the date thereof; provided, however,that Foothill shall have
------------------
the right to establish a reserve in Borrowers' Loan Account for the amount of
such Liens;
8.9 If judgments or other claims, in excess of $250,000 in the aggregate,
become Liens or encumbrances upon any material portion of any Borrower's
properties or
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assets, and such Liens or encumbrances are not discharged within 30 days of the
date thereof or stayed pending appeal;
8.10 If there is a default in any material agreement to which any Borrower
is a party with one or more third Persons (including LaSalle National Bank) and
such default (a) occurs at the final maturity of the obligations thereunder, or
(b) results in a right by such third Person(s), irrespective of whether
exercised, to accelerate the maturity of such Borrower's obligations thereunder;
8.11 If any Borrower makes any payment on account of Indebtedness that has
been contractually subordinated in right of payment to the payment of the
Obligations, except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness; or
8.12 If any material misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to Foothill
by any Borrower or any officer, employee, agent, or director of any Borrower, or
if any such warranty or representation is withdrawn.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence, and during the continuation,
of an Event of Default Foothill may, at its election, without notice of its
election and without demand, do any one or more of the following, all of which
are authorized by Borrowers:
(a) Declare all Obligations, whether evidenced by this Agreement, by any of
the other Loan Documents, or otherwise, immediately due and payable;
(b) Cease advancing money or extending credit to or for the benefit of
Borrowers under this Agreement, under any of the Loan Documents, or under any
other agreement between Borrowers and Foothill;
(c) Terminate this Agreement and any of the other Loan Documents as to any
future liability or obligation of Foothill, but without affecting Foothill's
rights and security interests in the Personal Property Collateral or the Real
Property Collateral and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Account Debtors for
amounts and upon terms which Foothill considers advisable, and in such cases,
Foothill will credit Borrowers' Loan Account with only the net amounts received
by Foothill in payment of such disputed Accounts after deducting all Foothill
Expenses incurred or expended in connection therewith;
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(e) Cause Borrowers to hold all of their returned Inventory in trust for
Foothill, segregate all such returned Inventory from all other property of any
Borrower or in any Borrower's possession and conspicuously label said returned
Inventory as the property of Foothill;
(f) Without notice to or demand upon any Borrower or any guarantor, make
such payments and do such acts as Foothill considers necessary or reasonable to
protect its security interests in the Collateral. Borrowers agree to assemble
the Personal Property Collateral if Foothill so requires, and to make the
Personal Property Collateral available to Foothill as Foothill may designate.
Each Borrower authorizes Foothill to enter the premises where the Personal
Property Collateral is located, to take and maintain possession of the Personal
Property Collateral, or any part of it, and to pay, purchase, contest, or
compromise any encumbrance, charge, or Lien that in Foothill's determination
appears to conflict with its security interests and to pay all expenses incurred
in connection therewith. With respect to any of Borrowers' owned or leased
premises, each Borrower hereby grants Foothill a license to enter into
possession of such premises and to occupy the same, without charge, for up to
120 days in order to exercise any of Foothill's rights or remedies provided
herein, at law, in equity, or otherwise;
(g) Without notice to any Borrower (such notice being expressly waived),
and without constituting a retention of any collateral in satisfaction of an
obligation (within the meaning of Section 9505 of the Code), set off and apply
to the Obligations any and all (i) balances and deposits of any Borrower held by
Foothill (including any amounts received in the Lockbox Accounts), or (ii)
indebtedness at any time owing to or for the credit or the account of any
Borrower held by Foothill;
(h) Hold, as cash collateral, any and all balances and deposits of any
Borrower held by Foothill, and any amounts received in the Lockbox Accounts, to
secure the full and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell (in the manner provided for herein) the
Personal Property Collateral. Foothill is hereby granted a license or other
right to use, without charge, any Borrower's labels, patents, copyrights, rights
of use of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Personal Property Collateral, in completing production of, advertising for sale,
and selling any Personal Property Collateral and each Borrower's rights under
all licenses and all franchise agreements shall inure to Foothill's benefit;
(j) Sell the Personal Property Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including any Borrower's premises) as
Foothill determines is commercially reasonable. It is not necessary that the
Personal Property Collateral be present at any such sale;
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(k) Foothill shall give notice of the disposition of the Personal Property
Collateral as follows:
(1) Foothill shall give Borrowers and each holder of a security interest in
the Personal Property Collateral who has filed with Foothill a written request
for notice, a notice in writing of the time and place of public sale, or, if the
sale is a private sale or some other disposition other than a public sale is to
be made of the Personal Property Collateral, then the time on or after which the
private sale or other disposition is to be made;
(2) The notice shall be personally delivered or mailed, postage prepaid, to
Borrowers as provided in Section 12,at least 5 days before the date fixed for
-----------
the sale, or at least 5 days before the date on or after which the private sale
or other disposition is to be made; no notice needs to be given prior to the
disposition of any portion of the Personal Property Collateral that is
perishable or threatens to decline speedily in value or that is of a type
customarily sold on a recognized market. Notice to Persons other than Borrowers
claiming an interest in the Personal Property Collateral shall be sent to such
addresses as they have furnished to Foothill;
(3) If the sale is to be a public sale, Foothill also shall give notice of
the time and place by publishing a notice one time at least 5 days before the
date of the sale in a newspaper of general circulation in the county in which
the sale is to be held;
(1) Foothill may credit bid and purchase at any public sale; and
(m) Any deficiency that exists after disposition of the Personal Property
Collateral as provided above will be paid immediately by Borrowers. Any excess
will be returned, without interest and subject to the rights of third Persons,
by Foothill to Borrowers.
9.2 Remedies Cumulative. Foothill's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Foothill shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Foothill of one
right or remedy shall be deemed an election, and no waiver by Foothill of any
Event of Default shall be deemed a continuing waiver. No delay by Foothill shall
constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If any Borrower fails to pay any monies (whether taxes, assessments,
insurance premiums, or, in the case of leased properties or assets, rents or
other amounts payable under such leases) due to third Persons, or fails to make
any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, to the extent that Foothill
determines that such failure by such Borrower could result
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in a Material Adverse Change, in its discretion and without prior notice to
Borrowers, Foothill may do any or all of the following: (a) make payment of the
same or any part thereof; (b) set up such reserves in Borrowers' Loan Account as
Foothill deems necessary to protect Foothill from the exposure created by such
failure; or (c) obtain and maintain insurance policies of the type described in
Section 6.10,and take any action with respect to such policies as Foothill deems
- - -------------
prudent. Any such amounts paid by Foothill shall constitute Foothill Expenses.
Any such payments made by Foothill shall not constitute an agreement by Foothill
to make similar payments in the future or a waiver by Foothill of any Event of
Default under this Agreement. Foothill need not inquire as to, or contest the
validity of, any such expense, tax, or Lien and the receipt of the usual
official notice for the payment thereof shall be conclusive evidence that the
same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 Demand; Protest; etc. Each Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees at any time
held by Foothill on which such Borrower may in any way be liable.
11.2 Foothill's Liability for Collateral. So long as Foothill complies with
its obligations, if any, under Section 9207 of the Code, Foothill shall not in
any way or manner be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage thereto occurring or arising in any manner or
fashion from any cause; (c) any diminution in the value thereof; or (d) any act
or default of any carrier, warehouseman, bailee, forwarding agency, or other
Person. All risk of loss, damage, or destruction of the Collateral shall be
borne by Borrowers.
11.3 Indemnification. Borrowers shall pay, indemnify, defend, and hold
Foothill, each Participant, and each of their respective officers, directors,
employees, counsel, agents, and attorneys-in-fact (each, an "Indemnified
Person") harmless (to the fullest extent permitted by law) from and against any
and all claims, demands, suits, actions, investigations, proceedings, and
damages, and all reasonable attorneys fees and disbursements and other costs and
expenses actually incurred in connection therewith (as and when they are
incurred and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them in connection with or as a
result of or related to the execution, delivery, enforcement, performance, and
administration (including any of the foregoing arising out of the administration
of the credit facilities hereunder on a joint borrowing basis) of this Agreement
and any other Loan Documents or the transactions contemplated herein, and with
respect to any investigation, litigation, or proceeding related to this
Agreement, any other Loan Document, or the use of the proceeds of the credit
provided hereunder (irrespective of whether any Indemnified Person is a party
thereto), or any act, omission, event or circumstance in any manner related
thereto (all the foregoing, collectively, the "Indemnified Liabilities").
Borrowers shall have no obligation to any Indemnified Person under this Section
-------
11.3 with respect to any Indemnified Liability
- - ----
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that a court of competent jurisdiction finally determines to have resulted from
the gross negligence or willful misconduct of such Indemnified Person. This
provision shall survive the termination of this Agreement and the repayment of
the Obligations.
11.4 Joint Borrowers.
(a) Each Borrower agrees that it is jointly and severally, directly and
primarily liable to Foothill for payment in full of all Obligations, whether for
principal, interest or otherwise and that such liability is independent of the
duties, obligations, and liabilities of the other Borrowers. Foothill may bring
a separate action or actions on each, any, or all of the Obligations against any
Borrower, whether action is brought against the other Borrowers or whether the
other Borrowers are joined in such action. In the event that any Borrower fails
to make any payment of any Obligations on or before the due date thereof, the
other Borrowers immediately shall cause such payment to be made or each of such
Obligations to be performed, kept, observed, or fulfilled.
(b) The Loan Documents are a primary and original obligation of each
Borrower, are not the creation of a surety relationship, and are an absolute,
unconditional, and continuing promise of payment and performance which shall
remain in full force and effect without respect to future changes in conditions,
including any change of law or any invalidity or irregularity with respect to
the Loan Documents. Each Borrower agrees that its liability under the Loan
Documents shall be immediate and shall not be contingent upon the exercise or
enforcement by Foothill of whatever remedies it may have against the other
Borrowers, or the enforcement of any lien or realization upon any security
Foothill may at any time possess. Each Borrower consents and agrees that
Foothill shall be under no obligation (under Section 2899 or 3433 of the
California Civil Code or otherwise) to marshal any assets of any Borrower
against or in payment of any or all of the Obligations.
(c) Each Borrower acknowledges that it is presently informed as to the
financial condition of the other Borrowers and of all other circumstances which
a diligent inquiry would reveal and which bear upon the risk of nonpayment of
the Obligations. Each Borrower hereby covenants that it will continue to keep
informed as to the financial condition of the other Borrowers, the status of the
other Borrowers and of all circumstances which bear upon the risk of nonpayment
of the Obligations. Absent a written request from any Borrower to Foothill for
information, such Borrower hereby waives any and all rights it may have to
require Foothill to disclose to such Borrower any information which Foothill may
now or hereafter acquire concerning the condition or circumstances of the other
Borrowers.
(d) The liability of each Borrower under the Loan Documents includes
Obligations arising under successive transactions continuing, compromising,
extending, increasing, modifying, releasing, or renewing the Obligations,
changing the interest rate, payment terms, or other terms and conditions
thereof, or creating new or additional Obligations after prior Obligations have
been satisfied in whole or in part. To
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the maximum extent permitted by law, each Borrower hereby waives any right to
revoke its liability under the Loan Documents as to future indebtedness, and in
connection therewith, each Borrower hereby waives any rights it may have under
Section 2815 of the California Civil Code. If such a revocation is effective
notwithstanding the foregoing waiver, each Borrower acknowledges and agrees that
(a)no such revocation shall be effective until written notice thereof has been
received by Foothill, (b) no such revocation shall apply to any Obligations in
existence on such date (including, any subsequent continuation, extension, or
renewal thereof, or change in the interest rate, payment terms, or other terms
and conditions thereof), (c) no such revocation shall apply to any Obligations
made or created after such date to the extent made or created pursuant to a
legally binding commitment of Foothill in existence on the date of such
revocation, (d) no payment by such Borrower or from any other source prior to
the date of such revocation shall reduce the maximum obligation of the other
Borrowers hereunder, and (e) any payment by such Borrower or from any source
other than Borrowers, subsequent to the date of such revocation, shall first be
applied to that portion of the Obligations as to which the revocation is
effective and which are not, therefore, guaranteed hereunder, and to the extent
so applied shall not reduce the maximum obligation of each Borrower hereunder.
(e) (i) Each Borrower absolutely, unconditionally, knowingly, and
expressly waives:
(1) (A) notice of acceptance hereof; (B) notice of any loans or other
financial accommodations made or extended under the Loan Documents or the
creation or existence of any Obligations; (C) notice of the amount of the
Obligations, subject, however, to each Borrower's right to make inquiry of
Foothill to ascertain the amount of the Obligations at any reasonable time; (D)
notice of any adverse change in the financial condition of the other Borrowers
or of any other fact that might increase such Borrower's risk hereunder;
(E)notice of presentment for payment, demand, protest, and notice thereof as to
any instruments among the Loan Documents; and (F) all notices (except if such
notice is specifically required to be given to Borrowers hereunder or under the
Loan Documents) and demands to which such Borrower might otherwise be entitled.
(2) its right, under Sections 2845 or 2850 of the California Civil Code, or
otherwise, to require Foothill to institute suit against, or to exhaust any
rights and remedies which Foothill has or may have against, the other Borrowers
or any third party, or against any Collateral provided by the other Borrowers,
or any third party. In this regard, each Borrower agrees that it is bound to the
payment of all Obligations, whether now existing or hereafter accruing, as fully
as if such Obligations were directly owing to Foothill by such Borrower. Each
Borrower further waives any defense arising by reason of any disability or other
defense (other than the defense that the Obligations shall have been fully and
finally performed and indefeasibly paid) of the other Borrowers or by reason of
the cessation from any cause whatsoever of the liability of the other Borrowers
in respect thereof.
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(3) (A) any rights to assert against Foothill any defense (legal or
equitable), set-off, counterclaim, or claim which such Borrower may now or at
any time hereafter have against the other Borrowers or any other party liable to
Foothill; (B) any defense, set-off, counterclaim, or claim, of any kind or
nature, arising directly or indirectly from the present or future lack of
perfection, sufficiency, validity, or enforceability of the Obligations or any
security therefor; (C) any defense such Borrower has to performance hereunder,
and any right such Borrower has to be exonerated, provided by Sections 2819,
2822, or 2825 of the California Civil Code, or otherwise, arising by reason of:
the impairment or suspension of Foothill's rights or remedies against the other
Borrowers; the alteration by Foothill of the Obligations; any discharge of the
other Borrowers' obligations to Foothill by operation of law as a result of
Foothill's intervention or omission; or the acceptance by Foothill of anything
in partial satisfaction of the Obligations; (D) the benefit of any statute of
limitations affecting such Borrower's liability hereunder or the enforcement
thereof, and any act which shall defer or delay the operation of any statute of
limitations applicable to the Obligations shall similarly operate to defer or
delay the operation of such statute of limitations applicable to such Borrower's
liability hereunder.
(ii) Each Borrower absolutely, unconditionally, knowingly, and expressly
waives any defense arising by reason of or deriving from (i) any claim or
defense based upon an election of remedies by Foothill including any defense
based upon an election of remedies by Foothill under the provisions of Sections
580a, 580b, 580d, and 726 of the California Code of Civil Procedure or any
similar law of California or any other jurisdiction; or (ii) any election by
Foothill under Bankruptcy Code Section 111 l(b) to limit the amount of, or any
collateral securing, its claim against the Borrowers. Pursuant to California
Civil Code Section 2856(b):
"Each Borrower waives all rights and defenses arising out of an election of
remedies by the creditor, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed such Borrower's rights of subrogation and reimbursement against
the other Borrowers by the operation of Section 580(d) of the California Code of
Civil Procedure or otherwise.
"Each Borrower waives all rights and defenses that such Borrower may have
because another Borrower's Obligations are secured by real property. This means,
among other things:
"(1) Foothill may collect from such Borrower without first foreclosing on
any real or personal property collateral pledged by another Borrower.
"(2) If Foothill forecloses on any collateral pledged by another Borrower:
real property
54
<PAGE>
(A) The amount of the Obligations may be reduced only by the price for
which that collateral is sold at the foreclosure sale, even if the collateral is
worth more than the sale price.
(B) Foothill may collect from such Borrower even if Foothill, by
foreclosing on the real property collateral, has destroyed any right such
Borrower may have to collect from another Borrower.
"This is an unconditional and irrevocable waiver of any rights and defenses
such Borrower may have because the Obligations are secured by real property.
These rights and defenses include, but are not limited to, any rights or
defenses based upon Section 580a, 580b, 580d, or 726 of the California Code of
Civil Procedure."
If any of the Obligations at any time is secured by a mortgage or deed of trust
upon real property, Foothill may elect, in its sole discretion, upon a default
with respect to the Obligations, to foreclose such mortgage or deed of trust
judicially or nonjudicially in any manner permitted by law, before or after
enforcing the Loan Documents, without diminishing or affecting the liability of
any Borrower hereunder except to the extent the Obligations are repaid with the
proceeds of such foreclosure. Each Borrower understands that (a) by virtue of
the operation of California's antideficiency law applicable to nonjudicial
foreclosures, an election by Foothill nonjudicially to foreclose such a mortgage
or deed of trust probably would have the effect of impairing or destroying
rights of subrogation, reimbursement, contribution, or indemnity of such
Borrower against the other Borrowers or other guarantors or sureties, and (b)
absent the waiver given by such Borrower, such an election would prevent
Foothill from enforcing the Loan Documents against such Borrower. Understanding
the foregoing, and understanding that such Borrower is hereby relinquishing a
defense to the enforceability of the Loan Documents, such Borrower hereby waives
any right to assert against Foothill any defense to the enforcement of the Loan
Documents, whether denominated "estoppel" or otherwise, based on or arising from
an election by Foothill nonjudicially to foreclose any such mortgage or deed of
trust. Each Borrower understands that the effect of the foregoing waiver may be
that each Borrower may have liability hereunder for amounts with respect to
which such Borrower may be left without rights of subrogation, reimbursement,
contribution, or indemnity against the other Borrower or other guarantors or
sureties. Each Borrower also agrees that the "fair market value" provisions of
Section 580a of the California Code of Civil Procedure shall have no
applicability with respect to the determination of such Borrower's liability
under the Loan Documents.
55
<PAGE>
(iii) Until such time as all Obligations have been fully, finally, and
indefeasibly paid in full, in cash, each Borrower hereby absolutely,
unconditionally, knowingly, and expressly postpones: (1) any right of
subrogation such Borrower has or may have as against the other Borrowers with
respect to the Obligations; (2) any right to proceed against the other Borrowers
or any other Person, now or hereafter, for contribution, indemnity,
reimbursement, or any other suretyship rights and claims, whether direct or
indirect, liquidated or contingent, whether arising under express or implied
contract or by operation of law, which such Borrower may now have or hereafter
have as against the other Borrowers with respect to the Obligations; and (3) any
right to proceed or seek recourse against or with respect to any property or
asset of the other Borrowers.
(iv) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER PROVISION
SET FORTH IN THIS SECTION 11.4, EACH BORROWER HEREBY ABSOLUTELY, KNOWINGLY,
UNCONDITIONALLY, AND EXPRESSLY WAIVES AND AGREES NOT TO ASSERT ANY AND ALL
BENEFITS OR DEFENSES ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF
CALIFORNIA CIVIL CODE SECTIONS 2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821,
2822, 2825, 2839, 2845, 2848, 2849, AND 2850, CALIFORNIA CODE OF CIVIL PROCEDURE
SECTIONS 580a, 580b, 580c, 580d, AND 726, AND CHAPTER 2 OF TITLE 14 OF THE
CALIFORNIA CIVIL CODE.
(f) Each Borrower consents and agrees that, without notice to or by such
Borrower, and without affecting or impairing the liability of such Borrower
hereunder, Foothill may, by action or inaction:
(i) compromise, settle, extend the duration or the time
for the payment of, or discharge the performance of, or
may refuse to or otherwise not enforce the Loan
Documents, or any part thereof, with respect to the
other Borrowers;
(ii) release the other Borrowers or grant other
indulgences to the other Borrowers in respect thereof;
or
(iii) release or substitute any guarantor, if any, of
the Obligations, or enforce, exchange,
release, or waive any security for the Obligations
or any guaranty of the Obligations, or any portion
thereof.
(g) Foothill shall have the right to seek recourse against each Borrower to
the fullest extent provided for herein, and no election by Foothill to proceed
in one form of action or proceeding, or against any party, or on any obligation,
shall constitute a waiver of Foothill's right to proceed in any other form of
action or proceeding
56
<PAGE>
or against other parties unless Foothill has expressly waived such right in
writing. Specifically, but without limiting the generality of the foregoing, no
action or proceeding by Foothill under the Loan Documents shall serve to
diminish the liability of any Borrower thereunder except to the extent that
Foothill finally and unconditionally shall have realized indefeasible payment by
such action or proceeding.
(h) The Obligations shall not be considered indefeasibly paid for purposes
of this Section 11.4unless and until all payments to Foothill are no longer
-------------
subject to any right on the part of any person, including any Borrower, any
Borrower as a debtor in possession, or any trustee (whether appointed pursuant
to 11 U.S.C., or otherwise) of any Borrower's assets to invalidate or set aside
such payments or to seek to recoup the amount of such payments or any portion
thereof, or to declare same to be fraudulent or preferential. Upon such full and
final performance and indefeasible payment of the Obligations, Foothill shall
have no obligation whatsoever to transfer or assign its interest in the Loan
Documents to any Borrower. In the event that, for any reason, any portion of
such payments to Foothill is set aside or restored, whether voluntarily or
involuntarily, after the making thereof, then the obligation intended to be
satisfied thereby shall be revived and continued in full force and effect as if
said payment or payments had not been made, and each Borrower shall be liable
for the full amount Foothill is required to repay plus any and all costs and
expenses (including attorneys' fees and attorneys' fees incurred pursuant to 11
U.S.C.) paid by Foothill in connection therewith.
Borrowers and each of them warrant and agree that each of the waivers and
consents set forth herein are made after consultation with legal counsel and
with full knowledge of their significance and consequences, with the
understanding that events giving rise to any defense or fight waived may
diminish, destroy or otherwise adversely affect rights which Borrowers otherwise
may have against other Borrowers, the Lender Group or others, or against
Collateral. If any of the waivers or consents herein are determined to be
contrary to any applicable law or public policy, such waivers and consents shall
be effective to the maximum extent permitted by law.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other Loan Document shall be in writing
and (except for financial statements and other informational documents which may
be sent by frost-class mail, postage prepaid) shall be personally delivered or
sent by registered or certified mail (postage prepaid, return receipt
requested), overnight courier, or telefacsimile to Borrower or to Foothill, as
the case may be, at its address set forth below:
If to Borrowers: c/o ALLIED HEALTHCARE PRODUCTS, INC.
1720 Sublette Avenue
St. Louis, Missouri 63110
Attn: Vice President Finance
Fax No. 314.771.0650
57
<PAGE>
with copies TO: GREENSFELDER, HEMKER & GALE P.C.
2000 Equitable Building
10 South Broadway
St. Louis, Missouri 63102
ATTN: Vincent J. Garozzo, Esq.
Fax No. 314.241.3237
IF TO FOOTHILL: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310.478.9788
with copies TO: BUCHALTER, NEMER, FIELDS & YOUNGER
601 South Figueroa, Suite 2400
Los Angeles, California 90017
Attn: Robert C. Colton, Esq.
Fax No. 213.896.0400
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this Section 12,other than
-----------
notices by Foothill in connection with Sections 9504 or 9505 of the Code, shall
be deemed received on the earlier of the date of actual receipt or 3 days after
the deposit thereof in the mail. Each Borrower acknowledges and agrees that
notices sent by Foothill in connection with Sections 9504 or 9505 of the Code
shall be deemed sent when deposited in the mail or personally delivered, or,
where permitted by law, transmitted by telefacsimile or other similar method set
forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE
STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA OR, AT THE SOLE OPTION OF-FOOTI4ffLL, IN ANY OTHER
58
<PAGE>
COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH
HAS SUBJECT MATTER JURISDICTION OVER
THE MATTER IN CONTROVERSY. EACH BORROWER AND FOOTHILL
WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO
ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT
ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION !3.EACH BORROWER AND
-----------
FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF
THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH
BORROWER AND FOOTHILL REPRESENTS THAT THEY HAVE REVIEWED THIS WAIVER AND EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWERS' DOCUMENTS.
All documents, schedules, invoices, agings, or other papers delivered to
Foothill may be destroyed or otherwise disposed of by Foothill four months after
they are delivered to or received by Foothill, unless Borrowers request, in
writing, the return of said documents, schedules, or other papers and makes
arrangements, at Borrowers' expense, for their return.
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed effective
when executed by Borrowers and Foothill.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the respective successors and assigns of each of the parties;
provided, however,that no Borrower may assign this Agreement or any rights or
------------
duties hereunder without Foothill's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Foothill
shall release the assigning Borrower from its Obligations. Foothill may assign
this Agreement and its rights and duties hereunder and no consent or approval by
Borrowers is required in connection with any such assignment. Foothill reserves
the right to sell, assign, transfer, negotiate, or grant participations in all
or any part of, or any interest in Foothill's rights and benefits hereunder. In
connection with any such assignment or participation, Foothill may disclose all
documents and information which Foothill now or hereafter may have relating to
any Borrower or any Borrower's business. To the extent that Foothill assigns its
rights and obligations hereunder to a third Person, Foothill thereafter shall be
released from such assigned obligations to
59
<PAGE>
Borrowers and such assignment shall effect a novation between Borrowers and such
third Person.
15.3 SECTION HEADINGS. Headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each section applies equally to this entire Agreement.
15.4 INTERPRETATION. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Foothill or Borrowers,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement can only be amended by a writing
signed by both Foothill and Borrowers.
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be executed
in any number of counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be an original,
and all of which, when taken together, shall constitute but one and the same
Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence or payment
of the Obligations by any Borrower or any guarantor of the Obligations or the
transfer by either or both of such parties to Foothill of any property of either
or both of such parties should for any reason subsequently be declared to be
void or voidable under any state or federal law relating to creditors' rights,
including provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, and other voidable or recoverable payments of money or transfers of
property (collectively, a "Voidable Transfers), and if Foothill is required to
repay or restore, in whole or in part, any such Voidable Transfer, or elects to
do so upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Foothill is required or elects to repay or
restore, and as to all reasonable costs, expenses, and attorneys fees of
Foothill related thereto, the liability of Borrowers or such guarantor
automatically shall be revived, reinstated, and restored and shall exist as
though such Voidable Transfer had never been made.
60
<PAGE>
15.9 INTEGRATION. This Agreement, certain supplemental letters delivered
concurrently herewith, together with the other Loan Documents, reflects the
entire understanding of the parties with respect to the transactions
contemplated hereby and shall not be contradicted or qualified by any other
agreement, oral or written, before the date hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in Los Angeles, California.
ALLIED HEALTHCARE PRODUCTS, INC.,
a Delaware corporation
By Uma Nandan Aggarwal
Title: President and Chief Executive Officer
B&F MEDICAL PRODUCTS, INC.,
a Delaware corporation
By Uma Nandan Aggarwal
Title: President and Chief Executive Officer
HOSPITAL SYSTEMS, INC.,
a California corporation
By Uma Nandan Aggarwal
Title: President and Chief Executive Officer
LIFE SUPPORT PRODUCTS, INC.,
a California corporation
By Uma Nandan Aggarwal
Title: President and Chief Executive Officer
61
<PAGE>
FOOTHILL," CAPITAL CORPORATION,
a California corporation
By Christopher J Coutu
Title: Vice President
62
<PAGE>
SCHEDULE E-I
See Schedule 6.12
<PAGE>
Schedule P-!
Liens on the Sublette real property and related fixtures as evidenced by that
certain (i) Deed of Trust between Parent, Joseph Hipskind, as Trustee and
LaSalle National Bank dated August 7, 1998 and (ii) UCC fixture filing attached
hereto, securing that certain $5,000,000 Promissory Note made by Parent in favor
of LaSalle National Bank.
<PAGE>
Schedule P-I
Real Property Owned:
- - ----------------------
Kinderhook Road
Stuyvesant Falls, NY 12174
1421 North Expressway Drive
Toledo, OH 43608
52 Gradolph Street
Toledo, OH 43608
<PAGE>
Schedule 5.8
DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES
Allied Healthcare Products, Inc., a Delaware corporation, owns 100% of the
issued and outstanding stock of the following corporations:
B&F Medical Products, Inc., a Delaware corporation with 100,000 shares of common
stock, par value $. 01 (the "Common Stock"), authorized and 1,000 shares of
Common Stock issued and outstanding.
Hospital Systems, Inc., a California corporation with 100,000 shares of common
stock, no par value (the "Common Stock"), authorized and 100 shares of Common
Stock issued and outstanding.
Life Support Products, Inc., a California corporation with 3,000,000 shares of
stock authorized consisting of 2,571,367 shares of common stock, no par value
(the "Common Stock"), with 934,403 shares of Common Stock issued and outstanding
and 428,633 shares of Series A preferred stock, no par value (the "Preferred
Stock") with no shares of Preferred Stock issued and outstanding.
Omni-Tech Medical, Inc., a Kansas corporation ("Omni-Tech") with 100,000 shares
of common stock, par value of $1.00 (the "Common Stock") authorized and 100,000
shares of Common Stock issued and outstanding. Omni-Tech has no material assets
and is a dormant corporation.
<PAGE>
SCHEDULE 5.10,
MATERIAL PROCEEDINGS
Product liability claims are asserted against the Borrowers from time to
time for various injuries alleged to have resulted from defects in the
manufacture and/or design of a Borrower's products. Product liability claims are
covered by the Borrowers comprehensive general liability insurance policies,
subject to certain deductible amounts. The Borrowers establish reserves for such
deductible amounts, which they believe to be adequate based on their previous
claims experience.
From time to time, the Borrowers are the subject of legal proceedings,
including proceedings other than product liability claims, such as claims
involving employee matters and similar claims. There are no material claims
currently pending which could have a material adverse affect.
The following is a list of pending and potential litigation:
I. HOSPITAL PRODUCTS DIVISION.
A. Hammer v. Allied. Mist-O-Gen
-------------------------------
Jurisdiction: Circuit Court of Illinois, Will Co.
Date of incident: October 20, 1995
Case file date: October 15, 1996
Product involved: Mist-O-Gen TAB 25 Tubing Dryer
Case type: Personal injury
B. Gibbons v. The Port Hope and District Hospital. et al.
---------------------------------------------------------------
Jurisdiction: Ontario (Canada) General Division
Date of incident: April 23, 1996
Case file date: April 21, 1997
Date of service: June 12, 1997
Product involved: Extractor
Case type: Wrongful Death
II. PENDING LITIGATION
D Dubkoff. et al. v. Northcoast Rehabilitation Hospital. et al.
- - - ---------------------------------------------------------------------
Jurisdiction: Superior Court for State of California,
Contra Costa County
<PAGE>
Date of incident: June 15, 1996 .
Date of service: November 3, 1997
Product involved: Bear 3 Adult Volume Ventilator
Case type: Wrongful Death
B.
David Shamel v. Allied Healthcare Products. et al.
---------------------------------------------------------
Jurisdiction: District Court of Travis County, Texas
Date of incident: June 14, 1996
Date of service: July 3, 1998
Product involved: Oxygen Regulator
Case type: Personal Injury
Michael Bush v. Allied Healthcare Products. et al.
---------------------------------------------------------
Jurisdiction: District Court of Travis County, Texas
Date of incident: June 14, 1996
Date of service: July 3, 1998
Product involved: Oxygen Regulator
Case type: Personal Injury
John N. Steck, Jret ux v. Praxair. et al.
-------------------------------------------------
Jurisdiction: Court of Common Pleas,
Allegheny County Pennsylvania
Date of incident: April 4, 1997
Date of service: April 9, 1998
Product involved: Oxygen Regulator
Case type: Personal Injury
III. POTENTIAL LITIGATION - VENTILATION PRODUCTS DIVISION
A. Betty Ellis
-------
Date of incident: March 22, 1997
Product involved: BEAR 2
Case type: Wrongful Death
B. Laurano
-------
Date of incident: December 22, 1993
Product involved: Unknown Bear product
Case type: Personal Injury
C. Mary- Lou Demerly
-------------------
<PAGE>
Date of incident: November 8, 1996
Case type: Wrongful Termination
IV. POTENTIAL LITIGATION
A. JWP Bankruptcy.This case involves an insolvent installer alleging
----------------
Allied owes approximately $94,000.00 arising out of an equipment
transaction around the Fall of 1996. We are in the process of gathering
the necessary documentation to show we have paid these bills by
credits.
B. Roy Williams.Firefighter in Broward County, Florida who was burned
--------------
in an oxygen cylinder fire this Spring. They will allege, among other
things, a defective oxygen regulator. No suit has been filed.
C. Mike Szyczerba.Firefighter in the Chicagoland area burned in an
----------------
oxygen cylinder fire in 1996. They Will allege a defective regulator.
The items set forth on this Schedule 5.10 would not, if adversely decided,
individually or collectively cause a Material Adverse Change to Borrower.
<PAGE>
SCHEDULE 5.13 EMPLOYEE BENEFITS
None.
<PAGE>
SCHEDULE 6.12
LOCATION OF INVENTORY AND EQUIPMENT
Location of Parent's Inventory:
- - ----------------------------------
1720 Sublette Avenue
St. Louis, Missouri 63110
Location of Life Support's Inventory:
- - -----------------------------------------
1720 Sublette Avenue
St. Louis, Missouri 63110
Locations of B&F's Inventory:
- - --------------------------------
1421 Expressway Drive North
Toledo, OH 43608
52 Gradolph Street
Toledo, OH 43608
Location of Hospital System's Inventory:
- - --------------------------------------------
5301 Adeline Street
Oakland, CA 94608-3196
Other Locations of Inventory:
- - --------------------------------
Kinderhook Road
Stuyvesant Falls, NY 12174
Deroyal Industries
1601 Hwy 33, South
New Tazwell, TN 37825
<PAGE>
COMPLIANCE CERTIFICATE
(Amended and Restated Loan and Security Agreement Section 6.3)
Date ___________, 199__
Foothill Capital Corporation
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, CA 90025-3333
Attention:___________________
RE: Amended and Restated Loan and Security Agreement, dated as of September
1, 1998 (the "Agreement") by and between FOOT!~L CAPITAL CORPORATION
("Lender") on the one hand and ALLIED E[EALTI{CARE PRODUCTS, INC. ("Parent")
and certain of its subsidiaries (jointly "Borrowers") on the other hand.
Dear___________:
In accordance with Section 6.3 of the Agreement, this letter shall serve as
certification to Lender that to the best of my knowledge: (i) all financial
statements have been prepared in accordance with GAAP and fairly represent the
financial condition of Parent (except, in the case of unaudited financial
statements, for the lack of footnotes and being subject to year-end audit
adjustments), (ii) the representations and warranties of Borrowers set forth in
the Agreement and other Loan Documents are tree and correct in all material
respects on and as of the date of this certification (except to the extent that
such representations and warranties relate solely to an earlier date), (iii)
Parent is in compliance with the financial covenants set forth in Section 7.20
of the Agreement, and (iv) on the date of delivery of this certificate to Lender
there does not exist any condition or event that constitutes a Default or Event
of Default. Such certification is made as of the fiscal month
ending____________,199_.
Sincerely,
ALLIED HEALTHCARE PRODUCTS, INC.
By:_____________________
Vice-President Finance
Allied manufactures and sells its products under a variety
of well-known and respected brand names, including:
Gomco sets the industry standard in portable suction equipment for hospitals.
Life Support Products is a market leader in respiratory care and trauma products
for emergency medical operations.
Chemetron's respiratory care and medical gas construction products command a
major share of the hospital and medical facility market.
Timeter is recognized as one of the most respected brand names in quality
medical gas flowmeters and calibration equipment.
B&F manufactures a wide range of disposable respiratory care products for the
home care market.
Schuco produces portable suction equipment and nebulizers used in home and
alternate care settings.
ALLIED HEALTHCARE PRODUCTS, INC.
1720 Sublette Avenue
St. Louis, Missouri 63110
(314) 771-2400
Fax: (314) 771-0650
Building
ON THE
BASICS
ALLIED HEALTHCARE PRODUCTS, INC.
1998 Annual Report
------------------
CORPORATE PROFILE
Allied Healthcare Products is a leading manufacturer of medical gas construction
equipment, respiratory care products, emergency medical equipment and home
health care products. The company's products are utilized in a wide range of
medical settings, including emergency medical situations, hospital and sub-acute
care treatment, and home health care.
Allied's medical gas construction systems include in-wall components for
delivering medical gases throughout the hospital, and central station pumps and
compressors for supplying vacuum and medical air. The company also manufactures
headwalls, which are pre-fabricated with piping and electrical components to
speed renovations and provide a decorative look for patient rooms and intensive
care units.
Allied also offers a broad range of products used in respiratory care, including
large volume compressors, transport ventilators and calibrators, humidifiers,
oxygen concentrators, nebulizers, and a complete line of disposable respiratory
products.
The company's emergency medical products include respiratory and resuscitation
products, trauma and patient handling equipment, and related items for ambulance
companies, fire departments and emergency medical system volunteer
organizations.
Allied's well-respected brand names include Chemetron , Gomco , Timeter ,
Oxequip , Life Support Products , B&F Medical , Schuco , Hospital Systems and
Omni-Tech Medical .
<TABLE>
<CAPTION>
Financial Highlights
For years ended June 30, 1998 1997 1996
<S> <C> <C> <C>
OPERATING RESULTS
Net sales. . . . . . . . . . . . . $96,467 $118,118 $120,123
Operating income . . . . . . . . . 6,503 1,843 8,124
Income (loss) before income taxes
and extraordinary loss . . . . . 2,153 (5,949) 3,300
Net income (loss). . . . . . . . . (7,396) (4,521) 1,827
Net income (loss) as a % of sales. (7.7)% (3.8)% 1.5%
FINANCIAL POSITION
Working capital. . . . . . . . . . $21,308 $ 18,743 $ 38,030
Total assets . . . . . . . . . . . 80,180 126,343 136,760
Total debt . . . . . . . . . . . . 18,415 46,932 52,882
Shareholders' equity . . . . . . . 52,037 59,365 63,886
Current ratio. . . . . . . . . . . 2.67:1 1.57:1 2.69:1
PER SHARE DATA
Net income (loss). . . . . . . . . $ (0.95) $ (0.58) $ 0.25
Book value . . . . . . . . . . . . $ 6.67 $ 7.61 $ 8.19
</TABLE>
ANNUAL MEETING
The Annual Meeting of Shareholders of
Allied Healthcare Products, Inc. will take
place on Monday, November 16, 1998,
at 10 a.m. Central Time, at The Daniele Hotel,
216 N. Meramec, Clayton, Missouri 63105.
TRANSFER AND DIVIDEND DISBURSING AGENT
American Stock Transfer and Trust Company
New York, New York
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers, LLP
St. Louis, Missouri
LEGAL COUNSEL
Kodner, Watkins, Muchnick &Dunne, LC
St. Louis, Missouri
INVESTOR RELATIONS
Tom Goyda
Shandwick International
St. Louis, Missouri
(314) 552-6724
COMMON STOCK INFORMATION
The common stock is traded on the Nasdaq National Market under the symbol AHPI.
<TABLE>
<CAPTION>
1998 HIGH LOW
<S> <C> <C>
September quarter $7 71/48 $ 6 31/48
December quarter. 8 11/42 7 11/44
March quarter . . 8 6 71/416
June quarter. . . 6 11/42 4 11/44
</TABLE>
<TABLE>
<CAPTION>
1997 HIGH LOW
- - -----------------
<S> <C> <C>
September quarter $10 11/44 $6 11/44
December quarter. 7 31/44 6 31/48
March quarter . . 9 11/44 7
June quarter. . . 7 11/48 5 31/48
<FN>
Allied Healthcare Products, Inc. began trading on the Nasdaq National Market
under the symbol AHPI on January 14, 1992, following its initial public
offering. As of September 18, 1998, there were 266 shareholders of record.
</TABLE>
DIRECTORS
DENNIS W. SHEEHAN
Chairman of the Board
Allied Healthcare Products, Inc.
St. Louis, Missouri
Retired Chairman, President and
Chief Executive Officer
AXIA Incorporated
UMA NANDAN AGGARWAL
President and Chief Executive Officer
Allied Healthcare Products, Inc.
St. Louis, Missouri
DAVID A. GEE
President Emeritus
The Jewish Hospital
St. Louis, Missouri
JAMES B. HICKEY, JR.
President and Chief Executive Officer
Angeion Corporation
Minneapolis, Minnesota
ROBERT E. LEFTON, PH.D.
President and Chief Executive Officer
Psychological Associates
St. Louis, Missouri
WILLIAM A. PECK, M.D.
Vice Chancellor of Medical Affairs
Washington University
St. Louis, Missouri
JOHN D. WEIL
President
Clayton Management Company
St. Louis, Missouri
OFFICERS
UMA NANDAN AGGARWAL
President and Chief Executive Officer
DAVID A. GRABOWSKI
Vice President, Sales and Marketing
GABRIEL S. KOHN
Vice President, Engineering
FORM 10-K
INVESTOR RELATIONS
Allied Healthcare Products, Inc.
1720 Sublette Avenue
St. Louis, Missouri 63110
(314) 771-2400
Fax: (314) 771-0650
Dear Shareholders:
Allied Healthcare Products accomplished a number of key objectives in fiscal
1998 which will significantly improve the company's financial and operating
picture as we move into fiscal 1999. The company cured its liquidity problems
and also broke a string of seven consecutive quarterly losses, reporting a small
profit in the third quarter.
Despite disappointments with the results for the fourth quarter and the year, we
continue to focus on our turnaround efforts and on rebuilding sales momentum as
we strive to return Allied to sustained profitability.
1998 Achievements
Nineteen ninety-eight was a year when we did make significant headway, with
accomplishments including:
Strengthening the Balance Sheet-Following the refinancing of our bank debt
in August 1997, the company sold its Bear Medical and BiCore ventilation
products divisions in October and used the cash proceeds to pay down outstanding
debt. Aggregate indebtedness at year-end was $18.4 million, a decrease of $28.5
million compared with debt of $46.9 million at the end of fiscal 1997. We also
reevaluated the carrying costs of all of Allied's remaining businesses and took
a $9.8 million charge primarily for the write-down of goodwill. In addition, we
added to our reserves for inventories and receivables.
Asset Management-We reduced base business (excluding Bear Medical and
BiCore in both periods) inventories and receivables by $4.7 million during the
fiscal year, while also improving our inventory mix and the quality of our
receivables.
Reducing Costs-Due to the dramatic reduction in debt, we have seen a
significant decrease in interest expense. At the same time, our selling, general
and administrative costs as a percentage of sales have declined thanks to our
cost cutting and productivity improvement efforts. Recently announced plans to
relocate our B&F division's production to our existing St. Louis facility in
October 1998 are expected to save us more than $1.0 million in additional annual
operating costs.
Quality and Customer Service-Investments in improving product quality
resulted in our St. Louis facility earning both the ISO 9001 and CE
certifications. In addition, better inventory management has led to improved
stocking of fast-moving items, and our customers have noticed improved shipping
times and overall service.
New Product Development-Revitalized product development and enhancement
efforts have resulted in the introduction of several new products over the past
year. These new products and several additional introductions planned for fiscal
1999 will help Allied reestablish itself as an innovator in its market niches.
1998 Financial Performance
Revenues for the year ended June 30, 1998 were $96.5 million, down 18.3 percent
from $118.1 million the prior year. Allied reported a net loss of $7.4 million,
or 95 cents per diluted share, for fiscal 1998 compared with a net loss of $4.5
million, or 58 cents per diluted share, for the full year in 1997. Results for
fiscal 1998 include a number of special items, including a $12.8 million gain on
the sale of Bear Medical and BiCore and the $9.8 million write-down of goodwill,
and a $9.0 million provision for income taxes reflecting the effects of these
transactions.
Excluding sales from Bear Medical and BiCore in both years, revenues for the
company's base businesses declined 3.0 percent due to several factors. First,
the overall domestic market for health care products remained sluggish.
Declining Medicare reimbursements, a milder cold and flu season, and a drop in
new hospital construction hurt sales of Allied's home care, respiratory care and
construction products. In addition, our refusal to accept unprofitable business
resulted in a significant drop in the sale of aluminum cylinders. Finally, the
weakness in a number of Asian economies affected our sales in that region of the
world.
Board Transition
During 1998, we reduced the size of our board as two new directors joined and
three directors left due to other demands on their time. We welcome John Weil,
president of Clayton Management Co., and Jim Hickey, president and CEO of
Angeion Corp., and look forward to their contributions. At the same time, we
bid farewell to Samuel Hamacher, James Janning and Donald Nickelson and thank
them for their service over the years.
The 1999 fiscal year is shaping up to be a pivotal one at Allied Healthcare
Products. In fiscal 1998, we established a firm financial foundation. Our debt
has gone down significantly; our assets are under better control; and our costs
have been reduced. We have also improved product quality and customer service,
and regained product development momentum. We are very excited about this
progress, and must now build on this solid base to improve sales and produce
stronger results in 1999 and the years ahead.
Sincerely,
/S/ UMA NANDAN AGGARWAL /S/ DENNIS W. SHEEHAN
UMA NANDAN AGGARWAL DENNIS W. SHEEHAN
President and Chief Executive Officer Chairman
BALANCE SHEET IMPROVEMENT
- - ---------------------------
Allied's focus on better management of its assets - principally accounts
receivable and inventories - paid strong dividends in fiscal 1998. Base business
accounts receivable levels declined by $1.7 million overall (see accompanying
chart), and accounts were more current at the end of fiscal 1998 than they were
in the prior year. This trend is even more significant in light of the fact that
the industry as a whole experienced deterioration in this category.
Base business inventory levels overall decreased by $3.0 million (see
accompanying chart), but the story behind the inventory level decrease shows
even more positive trends. That's because the company improved its inventory
mix, so that more high-volume goods are in stock for quick sales and shipping,
and fewer low-volume and out-of-date products are on the shelves accumulating
carrying costs.
The sale of Bear Medical and BiCore, and reductions in working capital
needs, have also enabled Allied to dramatically lower its long-term debt and
improve its debt-to-equity ratio, as shown in the accompanying chart.
QUALITY & CUSTOMER SERVICE
- - -----------------------------
A llied's efforts to raise the caliber of its manufacturing and customer service
operations to world-class standards were rewarded when the company's St. Louis
facility earned the ISO 9001 certification, as well as the CE certification for
certain products shipped to Europe. This success came about as a result of an
intensive period of hard work on the part of all of Allied's St. Louis
employees.
A new line of Disposable Bag Valve Mask Resuscitators (the DBMR 570 Series),
----------------------------------------------------------------------------
from
----
Life Support Products , offers additional
features based on the needs of emergency medical personnel and a lower price
that reflects today's cost-conscious health care system.
As a result of Allied's focus on quality and customer service in 1998, the
company is moving into fiscal 1999 on firmer footing in the marketplace.
Customers have recognized that Allied is dedicated to manufacturing quality
products. In addition, efforts to ensure off-the-shelf delivery of high-demand
merchandise will lead to more satisfied customers. Moving production of the B&F
and Schuco lines to St. Louis in October 1998 will also enable Allied to improve
quality and customer service for its home care lines.
PROFITABILITY
- - -------------
The most important task facing Allied going forward is to build on the solid
foundation established in fiscal 1998 to return to consistent profitability in
1999. The company has made progress, posting its first quarterly profit in
nearly two years for the third quarter of fiscal 1998.
The company's revenue base will be significantly lower due to the sale of
the Bear Medical and BiCore businesses. However, on a pro forma basis Allied's
base business generated fiscal 1998 gross profit $200,000 higher than the prior
year on a revenue decrease of $2.6 million, due to improved pricing and product
mix. Selling, general and administrative expenses declined by $4.3 million, and
the company generated income from operations of $1.6 million compared to a loss
from operations of $2.9 million in fiscal 1997. In addition, dramatically lower
interest costs have further reduced Allied's break even point heading into
fiscal 1999.
Coming soon from Chemetron , a new
----------------------------------
Medical Gas Manifold that provides fully
automated delivery of medical gases. Featuring electronic controls and a
simplified design, the unit offers nearly double the flow of Allied's
current manifolds at a lower cost.
PRODUCTS
- - --------
Allied regained its new product momentum during fiscal 1998 by releasing a
series of new products. The company's new Respical , PocketCap , Connect2 and
Disposable Bag Valve Mask Resuscitators have met with solid marketplace
acceptance. In the fourth quarter of fiscal 1998, these products generated a
total of more than $700,000 in new sales for Allied. In the coming year, Allied
plans to retain its product development momentum and roll out additional
products.
Some of Allied's recent product introductions and plans for the first half
of the year are outlined in the accompanying table:
The new PocketCap portable CO2 monitor,
----------------------------------------
from Allied's Life Support Products division,
provides emergency medical personnel with
an affordable, compact and reliable unit to
confirm tracheal intubation.
Companies owned by Allied Healthcare Products, Inc. as follows:
Parent Co./Allied Healthcare Products, Inc.
B&F Medical Products, Inc.
Life Support Products
Hospital Systems, Inc.
Omni-Tech Medical, Inc.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (Nos. 33-99960, 33-86019, 33-45147, 33-45146 and
333-16489) of Allied Healthcare Products, Inc. of our report dated August 7,
1998, except for Note 14 which is as of September 8, 1998, appearing in the 1998
Annual Report to Shareholders of Allied Healthcare Products, Inc. on Form 1O-K
(wh/ch report and consolidated financial statements are included herein). We
also consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page S-1 of this Form 1O-K.
/S/ PricewaterhouseCoopers LLP
- - --------------------------------
Pricewaterhou seCoopers LLP
St. Louis, Missouri
September 21, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints each of the Chief Executive Officer and Chief
Financial Officer of Allied Healthcare Products, Inc. as his true and lawful
attorney-in-fact and agent, each with full power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign the 1998 Annual
Report on Form 10-K of Allied Healthcare Products, Inc., and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite as fully to all intents and purposes as he might or could do in
person, and ratifying and confirming all that said attorney-in-fact and agent or
his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
/s/ Dennis W. Sheehan
------------------------
Dennis W. Sheehan
Date: August 25, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints each of the Chief Executive Officer and Chief
Financial Officer of Allied Healthcare Products, Inc. as his true and lawful
attorney-in-fact and agent, each with full power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign the 1998 Annual
Report on Form 10-K of Allied Healthcare Products, Inc., and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite as fully to all intents and purposes as he might or could do in
person, and ratifying and confirming all that said attorney-in-fact and agent or
his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
/s/ Dr. William Peck
---------------------
Dr. William Peck
Date: August 24, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints each of the Chief Executive Officer and Chief
Financial Officer of Allied Healthcare Products, Inc. as his true and lawful
attorney-in-fact and agent, each with full power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign the 1998 Annual
Report on Form 10-K of Allied Healthcare Products, Inc., and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite as fully to all intents and purposes as he might or could do in
person, and ratifying and confirming all that said attorney-in-fact and agent or
his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
/s/ Robert E. Lefton
---------------------
Robert E. Lefton
Date: August 31, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints each of the Chief Executive Officer and Chief
Financial Officer of Allied Healthcare Products, Inc. as his true and lawful
attorney-in-fact and agent, each with full power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign the 1998 Annual
Report on Form 10-K of Allied Healthcare Products, Inc., and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite as fully to all intents and purposes as he might or could do in
person, and ratifying and confirming all that said attorney-in-fact and agent or
his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
/s/ James B. Hickley, Jr.
--------------------------
James B. Hickley, Jr.
Date: August 26, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints each of the Chief Executive Officer and Chief
Financial Officer of Allied Healthcare Products, Inc. as his true and lawful
attorney-in-fact and agent, each with full power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign the 1998 Annual
Report on Form 10-K of Allied Healthcare Products, Inc., and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite as fully to all intents and purposes as he might or could do in
person, and ratifying and confirming all that said attorney-in-fact and agent or
his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
/s/ John Weil
--------------
John Weil
Date: August 31, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints each of the Chief Executive Officer and Chief
Financial Officer of Allied Healthcare Products, Inc. as his true and lawful
attorney-in-fact and agent, each with full power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign the 1998 Annual
Report on Form 10-K of Allied Healthcare Products, Inc., and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite as fully to all intents and purposes as he might or could do in
person, and ratifying and confirming all that said attorney-in-fact and agent or
his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
/s/ Uma Aggarwal
----------------------------------
Uma Aggarwal
Date: August 25, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints each of the Chief Executive Officer and Chief
Financial Officer of Allied Healthcare Products, Inc. as his true and lawful
attorney-in-fact and agent, each with full power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign the 1998 Annual
Report on Form 10-K of Allied Healthcare Products, Inc., and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite as fully to all intents and purposes as he might or could do in
person, and ratifying and confirming all that said attorney-in-fact and agent or
his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
/s/ David A. Gee
-----------------
David A. Gee
Date: August 24, 1998
<PAGE>
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