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, 1999
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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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 22, 1999, the aggregate market value of the voting stock
held by non-affiliates (4,448,341 shares) of the Registrant was $12,788,980
(based on the closing price, on such date, of $2.875 per share).
As of September 22, 1999, 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 1, 1999 (portion) (Part III)
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ALLIED HEALTHCARE PRODUCTS, INC.
INDEX TO FORM 10-K
Page
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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
Market for Registrant's Common Stock and Related
Item 5. Stockholder Matters . 11
Item 6. Selected Financial Data 12
Management's Discussion and Analysis of Financial
Item 7. Condition and Results of Operations 13
Item 8. Financial Statements and Supplementary Data 27
Changes in and Disagreements with Accountants on
Item 9. Accounting and Financial Disclosure 43
PART III
Item 10. Directors and Executive Officers of the Registrant 44
Item 11. Executive Compensation 44
Security Ownership of Certain Beneficial Owners and
Item 12. Management 44
Item 13. Certain Relationships and Related Transactions 44
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports
on Form 8-K 44
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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 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 1999/RECENT EVENTS
The following list includes significant events that are further discussed
in the Management Discussion and Analysis (MDA) section and in the Consolidated
Financial Statements in this Form 10-K:
- August 1998 announcement by the Company to close its B&F facility
in Toledo, Ohio and the consolidation of those operations into St.
Louis, Missouri during the second quarter of fiscal 1999.
- The Company obtained a term loan from LaSalle National Bank in August
1998 and subsequently amended its Foothill Capital loan agreement in
September 1998 to reduce interest costs and fees.
- Product recall of aluminum oxygen regulators in February 1999.
- April 1999 announcement of John D. Weil as Chairman of the Board
of Directors, succeeding the late Dennis W. Sheehan. Also the
appointment of Brent D. Baird as Director of the Company.
- Sale of Hospital Systems, Inc., the Company's headwall division, in
May 1999.
- July 1999 resignation of President, Chief Executive Officer and
Director Uma Nandan Aggarwal and subsequent announcement of his
successor in August 1999, Earl R. Refsland as President, Chief
Executive Officer and Director of the Company.
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 1999, respiratory care products, medical gas equipment and
emergency medical products represented approximately 32%, 54% and 14%
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 O2 cylinders; pressure regulators; Timeter; B&F; Schuco Patients at home
Products nebulizers; portable large volume
compressors; portable suction
equipment and disposable 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
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- Emergency service
mask resuscitators; emergency Tech providers
transport ventilators and oxygen
regulators
Trauma and Patient Handling Spine immobilization products; LSP Emergency service
Products pneumatic anti-shock garments and 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, 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.
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
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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 hospital and
sub-acute care facilities. Sales of these products are made through the same
distribution channel as our respiratory care products. The Company believes
that it holds a significant share of the U.S. market in both regulation devices
and suction equipment.
DISPOSABLE CYLINDERS. Disposable oxygen cylinders are designed to provide
oxygen for short periods of time 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.
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, multilators and humidifiers. The emergency medical
products are broken down into two account groups: respiratory/resuscitator
products and trauma patient handling products.
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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, 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.
The Company's autovent transport ventilator 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 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 that is designed for safe immobilization of injury victims and
provides a durable and cost effective means of emergency patient transportation
and extrication. The infant/pediatric immobilization board is durable and scaled
for children. The half back extractor/rescue vest is useful for both suspected
cervical/spinal injuries and for mountain and air rescues. The Company's
pneumatic anti-shock garments are used to treat victims experiencing hypovolemic
shock. Allied's trauma burn kits contain a comprehensive line of products for
the treatment of trauma and burns.
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 39
sales professionals, all of whom are full-time employees of the Company.
The sales force includes 27 medical gas specialists, 5 emergency
specialists and 7 international sales representatives. In addition, a director
of corporate and national accounts is responsible for pursuing business with
large national group purchasing organizations, large homecare national chains
and OEM sales. Five product managers are responsible for the marketing
activities of these product lines.
The 27 medical gas specialists are responsible for sales of all Allied
products with the exception of emergency products within their territory. Sales
of products are accomplished through respiratory care/anesthesia distributors
for the regulation devices, suction equipment, respiratory care/anesthesia
products and disposable cylinders. The homecare products are sold primarily
through our own in house telemarketing and manufacturers rep groups across the
country. Construction products are sold direct to hospital construction
contractors and through distributors.
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
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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 an area of growth that the
Company has been emphasizing. The Asian situation which has slowed incoming
orders in 1999 has begun to turn around and we are now seeing activity in all
product groupings.
Allied's net sales to foreign markets totaled 18% of the Company's net
sales in fiscal 1999. 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 has resulted in reduced 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.
The Company also invested $1.1 million, in fiscal 1997, for molds and
injection-molding machinery to expand the production capacity and gain
efficiencies in manufacturing of its B&F disposable product line. In August
1999, Allied announced the closing of its Toledo, Ohio facility and subsequent
consolidation of the production of its B&F disposable product line into the St.
Louis facility. This move was completed during the second quarter of fiscal
1999. See further discussion of the closure of the Toledo operation in the
following MDA section of this Form 10-K.
RESEARCH AND DEVELOPMENT
In 1999 the Company expended $1.3 million in research and development
activities. Excluding the divested ventilation products division, research and
development expenditures in 1998 were approximately $1.1 million. The Company
expects to continue to increase its research and development efforts in order to
keep pace with technological advances.
During fiscal 1999, the Company introduced several new products
that resulted from its research and development programs. A new version
of the Connect II gas outlet targeted at the ambulance market was
introduced which can also supply medical gas equipment in operating rooms
as well as headwalls in patient rooms. The new Chemetron Model 3000
medical gas manifold utilizes microprocessor technology to provide a modern
and more reliable means to ensure continuous gas delivery in hospitals.
A new version of the Gomco suction pump utilizes a rotary pump to provide
high flow and vacuum levels in a mobile, stand type housing. Cost reduced
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versions of oxygen flowmeters and medical gas adapters allow these
products to compete more effectively in the marketplace. In response to
the market shift from aluminum to brass oxygen regulators, the Company
introduced new all brass oxygen regulators. In addition, the Company
has introduced Carbolime, a carbon dioxide absorbent that complements
Baralyme carbon dioxide absorbent currently marketed by the Company.
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.
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 have received ISO 9001 Certification for the St. Louis facility and
certification per the Medical Device Directive (MDD - European) for certain
products in 1998. As such, the Company will be audited by FDA, ISO, and
European auditors for compliance with the Good Manufacturing Practices ("GMP"),
ISO and MDD regulations for medical devices. These regulations require the
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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.
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. 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 that it believes
are useful to the business and provides the Company with an advantage over its
competitors.
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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.
EMPLOYEES
At June 30, 1999, the Company has 564 full-time employees and 9 part-time
employees. Approximately 333 employees in the Company's principal manufacturing
facility located in St. Louis, Missouri, are covered by a collective bargaining
agreement that expires in May 2000. Approximately 12 employees at the Company's
facility in Stuyvesant Falls, New York are also covered by a collective
bargaining agreement that will expire in 2001. As indicated elsewhere in this
Form 10-K, Allied's facility in Toledo was shut down and the operations
consolidated into St. Louis during the second quarter of fiscal 1999. Also as
indicated in this Form 10-K, the Company's division in Oakland, California was
sold in May 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 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 care
products; emergency
medical products
Stuyvesant Falls, New York 30,000 Owned CO2 absorbent
</TABLE>
9
<PAGE>
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, Allied's facility in Toledo was shut down and the operations
consolidated into St. Louis during the second quarter of fiscal 1999. Also as
indicated in this Form 10-K, the Company's headwall division in Oakland,
California was sold in May 1999.
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. The Company has voluntarily effectuated the recall of its aluminum
body regulators manufactured under the Life Supports Products, Inc. brand name
in cooperation with the U.S. Food and Drug Administration ("FDA") under Product
Recall No. Z-693/698-9 to conform with the industry wide recommendation to cease
use of aluminum parts in oxygen regulators.
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 22, 1999, there were 257 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 1999 and 1998,
respectively. The Company currently does not pay any dividend on its Common
Stock.
COMMON STOCK INFORMATION
<TABLE>
<CAPTION>
1999 HIGH LOW 1998 HIGH LOW
- ----------------- ------- ------- ----------------- ------ -------
<S> <C> <C> <C> <C> <C>
September quarter $4-3/16 $ 1-3/4 September quarter $7-7/8 $ 6-3/8
December quarter 3 1-1/4 December quarter 8-1/2 7-1/4
March quarter 2 1-1/4 March quarter 8 6-7/16
June quarter 2-3/8 1-9/16 June quarter 6-1/2 4-1/4
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In thousands, except per share data)
Year ended June 30, 1999 1998 1997 1996 1995
- ---------------------------------------------------- -------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales $72,799 $ 96,467 $118,118 $120,123 $111,639
Cost of sales 55,864 69,110 82,365 80,550 68,430
Gross profit 16,935 27,357 35,753 39,573 43,209
Selling, general and administrative expenses 18,733 23,889 33,910 31,449 24,849
Provision for restructuring and consolidation (1) 758 -- -- -- --
Provision for product recall (2) 1,500 -- -- -- --
Gain on sale of business (3) (27) (12,813) -- -- --
Non-recurring impairment losses (4) -- 9,778 -- -- --
10
<PAGE>
Income (loss) from operations (4,029) 6,503 1,843 8,124 18,360
Interest expense 1,926 4,152 7,606 4,474 3,704
Other, net 36 198 186 350 (21)
Income (loss) before provision (benefit) for
income taxes and extraordinary loss (5,991) 2,153 (5,949) 3,300 14,677
Provision (benefit) for income taxes (5) (1,873) 9,019 (1,428) 1,473 5,854
Income (loss) before extraordinary loss (4,118) (6,866) (4,521) 1,827 8,823
Extraordinary loss on early extinguishment of debt,
net of income tax benefit -- 530 -- -- --
Net income (loss) $(4,118) $ (7,396) $ (4,521) $ 1,827 $ 8,823
Basic and diluted earnings (loss) per share (6) $ (0.53) $ (0.95) $ (0.58) $ 0.25 $ 1.45
Weighted average common shares outstanding 7,807 7,805 7,797 7,378 6,067
(In thousands)
June 30, 1999 1998 1997 1996 1995
- ---------------------------------------------------- -------- --------- --------- -------- ---------
BALANCE SHEET DATA
Working capital $22,619 $ 21,308 $ 18,743 $ 38,030 $ 2,810
Total assets 74,275 80,180 126,343 136,760 126,192
Short-term debt 908 3,443 12,891 3,849 34,420
Long-term debt (net of current portion) 16,330 14,972 34,041 49,033 34,602
Stockholders' equity 47,919 52,037 59,365 63,886 38,374
<FN>
(1) See Note 3 to the June 30, 1999 Consolidated Financial Statements for further discussion.
(2) See Note 4 to the June 30, 1999 Consolidated Financial Statements for further discussion.
(3) See Notes 5 & 6 to the June 30, 1999 Consolidated Financial Statements for further discussion.
(4) See Note 7 to the June 30, 1999 Consolidated Financial Statements for further discussion.
(5) See Note 10 to the June 30, 1999 Consolidated Financial Statements for further discussion of the
Company's 1998 effective tax rate.
(6) See Note 2 to the June 30, 1999 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, 1999. This discussion should be read in
conjunction with the consolidated financial statements, notes to the
consolidated financial statements and selected consolidated financial data
included elsewhere herein.
Certain statements contained herein are forward-looking statements. Actual
results could differ materially from those anticipated as a result of various
factors, including cyclical and other industry downturns, the effects of federal
and state legislation on health care reform, including Medicare and Medicaid
financing, the inability to 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 1999 were affected by several one
time, unusual items, which are discussed further below. During the second
quarter of fiscal 1999 the Company closed the Toledo, Ohio facility of its
disposable products division and consolidated production of the B&F line of home
care products into its manufacturing facility in St. Louis, Missouri. As a
result of this shutdown the Company recorded a provision for restructuring and
consolidation. The Company also recorded a provision in connection with a
product recall of aluminum oxygen regulators during the third quarter of fiscal
1999. Also, on May 28, 1999 the Company sold the assets of its headwall
products division with the proceeds being used to pay down debt.
11
<PAGE>
The results of operations for fiscal 1998 were also affected by several one
time, unusual items. 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 strengthened its balance sheet by reducing debt, reducing intangible
assets, and increasing reserves. For further discussion of these non-recurring
items please refer to the "Notes to Consolidated Financial Statements" section
of this Form 10-K.
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 1999 operating results,
which make meaningful comparisons to prior years more difficult, are summarized
below:
B&F CONSOLIDATION PROVISION
On August 5, 1998 the Company's Board of Directors voted to close the
Toledo facility of its disposable products division and consolidate production
of the B&F line of home care products into its manufacturing facility in St.
Louis, Missouri. This move was announced on August 10, 1998. The move was
substantially completed during the second quarter of fiscal 1999. In connection
with the shutdown of the facility, Allied recorded a provision of approximately
$1.0 million pre-tax, $0.6 million after tax, or $0.07 per share, in the first
quarter of fiscal 1999 to cover the cost of closing the facility. The provision
reflects costs of certain fixed asset impairments, employee severance benefits
and other related exit costs. Subsequently, during the second quarter of
fiscal 1999, the company negotiated and received a $0.2 million cash payment
from the City of Toledo as partial reimbursement for closure costs.
Accordingly, Allied recorded this cash payment, in the second quarter of fiscal
1999, as a reduction to the aforementioned provision resulting in a net charge
of $0.8 million pre-tax, $0.5 million after tax, or $0.06 per share for the
fiscal year ended June 30, 1999.
LSP OXYGEN REGULATOR RECALL
On February 4, 1999, Allied announced a recall of aluminum oxygen
regulators marketed under its Life Support Products label. These products are
used to regulate pressure of bottled oxygen for administration to patients under
emergency situations. Following reports of regulator fires, the Company
instituted a recall in May 1997, under which it provided retrofit kits to
prevent contaminants from entering the regulators. The Company has also been
testing regulator design with the help of the National Aeronautical and Space
Administration's White Sands National Laboratories. While preliminary findings
led the Company to believe the Company's products did not cause those fires,
there is enough concern among the users that the Company, in cooperation with
the U. S. Food and Drug Administration ("FDA"), agreed to institute a voluntary
recall to replace aluminum components in the high pressure chamber of the
regulators with brass components. The FDA has recommended that all regulator
manufacturers cease use of aluminum in regulators. Accordingly, the Company has
now introduced new brass regulators and is also offering a trade-in program to
the existing users. As a result of the recall, the Company recorded a charge of
$1.5 million pre-tax, $0.9 million after tax, or $0.12 per share in the second
quarter of fiscal 1999. As of June 30, 1999 the Company has incurred $0.9
million for costs associated with the recall and has a reserve balance of $0.6
million for future expected costs which management estimates to be appropriate.
SALE OF HEADWALL PRODUCTS DIVISION
On May 28, 1999, the Company sold the assets of Hospital Systems, Inc.
("HSI") to David Miller (former General Manager-Hospital Systems, Inc.) for $0.5
million. The net proceeds of $0.5 million were utilized to repay a portion of
its revolving credit facility. The sale of HSI, located in Oakland, California,
resulted in a gain before taxes for financial reporting purposes of $0.03
million.
12
<PAGE>
SUBSEQUENT EVENTS
On July 28, 1999 the Company's President, Chief Executive Officer and
Director Uma Nandan Aggarwal resigned. Subsequently on August 24, 1999 the
Company announced Earl R. Refsland as President, Chief Executive Officer and
Director of the Company. As a result of Mr. Aggarwal's resignation, the Company
is expecting to record a $0.2 million charge to operations in the first quarter
of fiscal year 2000 per terms of a mutually accepted departure agreement.
On September 1, 1999 the Company's credit facility with LaSalle National
Bank was amended. The amendment provides favorable changes to certain debt
covenants.
FISCAL 1999 FOURTH QUARTER RESULTS OF OPERATIONS
Net sales for the three months ended June 30, 1999 were $18.6 million
compared to sales of $19.5 million for the three months ended June 30, 1998.
The $0.9 million decline in sales is comprised of a $1.1 million decline
attributable to sales associated with the divested headwall products division,
while base business sales increased $0.2 million. The net loss for the fourth
quarter of fiscal 1999 was $0.7 million or $0.10 per share compared to $0.3
million or $0.04 per share loss in fiscal 1998. See also the following "Fiscal
1999 Compared to Fiscal 1998" section for a discussion of various other internal
and external factors affecting operations.
Sales of respiratory care products for the fourth quarter of fiscal 1999
were $5.5 million, a decrease of $1.1 million, compared to sales of $6.6 million
in the prior year same period. This decrease is primarily due to continued weak
sales to the home care market, which declined $0.8 million, or 17.5%, during the
fourth quarter of fiscal 1999 versus the same period of fiscal 1998. Sales of
home care products, mainly the company's B&F line, continues to be impacted by
the interruptions caused by the consolidation of the Toledo operations into St.
Louis during the second quarter of fiscal 1999. The Company continues efforts
to improve efficiency and increase stocking levels of the B&F disposable
products through outsourcing arrangements that will increase customer service
levels. Management believes that, in the longer term, these efforts will also
lower manufacturing costs and increase the level of incoming business.
Sales of medical gas equipment for the fourth quarter of fiscal 1999 of
$10.1 million was slightly above sales of $10.0 million in the prior year same
period. The $0.1 million increase in sales is comprised of an increase in base
business sales of $1.2 million, partially offset by a $1.1 million decline in
sales of the now divested headwall products division. Sales of medical gas
construction products increased $1.0 million, or 27.9%, to $4.4 million from
$3.4 million in the prior year. Medical gas suction and regulation device sales
in the fourth quarter of fiscal 1999 of $5.2 million were $0.2 million higher
than in the prior year.
Sales of emergency medical products increased $0.2 million to $3.0 million
in the fourth quarter of fiscal 1999 compared to the fourth quarter of fiscal
1998. This increase is attributable to sales of brass oxygen regulators due to a
trade-in program instituted as a result of the aluminum oxygen regulator recall
as discussed earlier in this MD&A section.
Gross profit for the fourth quarter of fiscal 1999 was $4.2 million, or
22.4% of sales, compared to $4.9 million or 25.0% of net sales in the fourth
quarter of fiscal 1998. Continued manufacturing inefficiencies related to the
consolidation of the B&F disposable products operations into St. Louis
unfavorably impacted gross profit in the fourth quarter of fiscal 1999. See
also the following "Fiscal 1999 compared to Fiscal 1998" section for further
discussion.
Selling, General and Administrative ("SG&A") expenses were $4.5 million in
the fourth quarter of fiscal 1999, a decrease of $0.4 million from the fourth
quarter of fiscal 1998. Various cost containment initiatives over the past
fiscal year, as well as administrative expenses savings due to the shutdown of
the Toledo facility, favorably impacted SG&A expense in the fourth quarter of
fiscal 1999.
The loss from operations for the fourth quarter of fiscal 1999 increased to
$0.3 million compared to less than $0.1 million in the prior year same period
reflecting the factors discussed above.
13
<PAGE>
The Company incurred a loss before income taxes of $0.8 million in the
fourth quarter of fiscal 1999 compared to a loss of $0.7 million in the same
period for the prior year. The loss before taxes in the fourth quarter of fiscal
1999, as compared to the same period fiscal 1998, benefited from a $0.1 million
decrease in interest expense. However, the Company recorded a tax benefit of
$0.3 million in the fourth quarter of fiscal 1998 compared to a tax benefit of
less than $0.1 million in the fourth quarter of fiscal 1999. For a further
discussion of the Company's income taxes see the "Notes to Consolidated
Financial Statements" section of this Form 10-K. Results of operations in the
fourth quarter of fiscal 1999 was a net loss of $0.7 million, or $0.10 per
share, compared to a net loss of $0.3 million, or $0.04 per share, in the fourth
quarter of fiscal 1998.
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, 1999, 1998 and
1997.
<TABLE>
<CAPTION>
Year ended June 30, 1999
---------------------
Net % of Total
Sales Net Sales
-------- -----------
<S> <C> <C>
Respiratory care products $ 23,273 32.0%
Medical gas equipment 39,194 53.8%
Emergency medical products 10,332 14.2%
-------- -----------
Total $ 72,799 100.0%
======== ===========
Year ended June 30, 1998
---------------------
Net % of Total
Sales Net Sales
-------- -----------
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%
======== ===========
Year ended June 30, 1997
---------------------
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%
======== ===========
Dollars in thousands
</TABLE>
14
<PAGE>
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, 1999 1998 1997
- --------------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 76.7 71.6 69.7
------ ------ ------
Gross profit 23.3 28.4 30.3
Selling, general and administrative expenses 25.7 24.8 28.7
Provision for restructuring and consolidation 1.0 -- --
Provision for product recall 2.1 -- --
Gain on sale of business (0.0) (13.3) --
Non-recurring impairment losses -- 10.2 --
------ ------ ------
Income (loss) from operations (5.5) 6.7 1.6
Interest expense 2.6 4.3 6.4
Other, net 0.1 0.2 0.2
------ ------ ------
Income (loss) before provision (benefit) for
income taxes and extraordinary loss (8.2) 2.2 (5.0)
Provision (benefit) for income taxes (2.5) 9.3 (1.2)
------ ------ ------
Loss before extraordinary loss (5.7) (7.1) (3.8)
Extraordinary loss on early extinguishment of debt,
net of income tax benefit -- 0.6 --
------
Net loss (5.7)% (7.7)% (3.8)%
====== ====== ======
</TABLE>
FISCAL 1999 COMPARED TO FISCAL 1998
Net sales for fiscal 1999 of $72.8 million were $23.7 million, or 24.5%,
less than net sales of $96.5 million in fiscal 1998. Of the $23.7 million
decline, $10.4 million is attributable to fiscal 1998 sales generated by the
ventilation products division prior to its sale in October 1997, $2.7 million is
related to the now divested headwall products division, and $10.6 million
relates to a decline in sales of core products. The decline in sales of core
products reflected various internal and external factors.
Home care product sales, mainly the B&F line, were negatively impacted due
to shipping delays caused by the closure and consolidation of the Company's
Toledo facility into St. Louis. As previously discussed, this facility was
closed during the second quarter of fiscal 1999 and consolidated into St. Louis.
The Company continues its efforts to improve manufacturing efficiencies and
realize cost savings on the B&F product line through selective outsourcing of
labor intensive assembly operations. As discussed earlier management believes
that, in the longer term, these efforts will lower manufacturing costs and
increase the level of incoming business through improved customer service. The
Company also experienced certain production and supply chain problems at its St.
Louis facility that caused delays in delivery times on various products. Most
of these production problems and supply chain issues have now been resolved. In
addition, the Company has continued its efforts to increase margins on certain
distributed products and OEM business by selecting markets and/or customers that
will support more favorable pricing on these products.
Certain external issues have continued to impact the Company's operations,
both in fiscal 1999 and fiscal 1998. The emphasis on cost containment by
healthcare providers has resulted in significant consolidation in the healthcare
environment and pricing pressures for the past several years. Home care sales
have also been adversely affected by reductions in Medicare reimbursements.
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 demands for its products caused by an aging
population, an increase in the occurrence of lung disease, advances in treatment
15
<PAGE>
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 $39.2 million in fiscal 1999 were $5.8
million, or 12.9%, below prior year sales of $45.0 million. Of the decline, $2.7
million is related to the now divested headwall products division. Medical gas
system construction sales and medical gas suction and regulation device sales
experienced decreases of 7.7% and 8.2%, respectively, in fiscal 1999 compared to
fiscal 1998. A $0.8 million decrease in aluminum oxygen cylinder sales
contributed to the $3.1 million decrease in base business medical gas equipment
sales. Medical gas construction product sales are affected by large bid orders
on new hospital construction and renovation of medical facilities. Hospital
consolidation has caused a decrease in large bid orders for these products.
Respiratory care product sales in fiscal 1999 of $23.3 million were $16.8
million, or 41.9%, less than sales of $40.1 million in the prior year. Of the
decline, $10.4 million was attributable to revenues generated by the ventilation
products division prior to its sale in October 1997 and $6.4 million relates to
the Company's base respiratory product lines. Sales to the home healthcare
market declined by 26.5%, primarily in the B&F disposable line, due to the
factors 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. Also contributing to the decrease in
respiratory care products is the loss of air compressor OEM business to Bear
Medical following its divestiture.
Emergency medical product sales in fiscal 1999 of $10.3 million were $1.0
million, or 8.7%, less than fiscal 1998 sales of $11.3 million. A decrease in
OEM sales of certain emergency products contributed to most of the decrease.
Business in this market is largely replacement driven and is expected to reflect
the demand for replacement orders in the short term.
International sales, which are included in the product lines discussed
above decreased $10.9 million, or 45.4%, to $13.1 million in fiscal 1999
compared to sales of $24.0 million in fiscal 1998. International sales declined
$6.9 million due to the sale of the ventilation products division, headwall
products sales decreased $1.0 million, while international sales of the base
business decreased by $3.0 million. Export sales to the European Community
were adversely affected by a delay in obtaining CE mark certification on certain
products.
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. Export sales are
affected by international economic conditions and the relative value of foreign
currencies.
Gross profit in fiscal 1999 was $16.9 million, or 23.3% of net sales,
compared to a gross profit of $27.4 million, or 28.4% of net sales in fiscal
1998. Manufacturing inefficiencies and the inability to recognize cost savings,
in a timely manner, from the consolidation of the Toledo operations into St.
Louis impacted gross margins in fiscal 1999. The Company is continuing its
efforts in gaining efficiency in the manufacturing of B&F products in St. Louis
and is also outsourcing the assembly of certain products as previously
discussed. The sale of the ventilation products division adversely impacted
gross profit as a percent of sales in fiscal 1999, as ventilation products
typically have a higher gross profit margin than the Company's base business
products. Continued pricing pressures brought on by the consolidations and cost
containment initiatives of healthcare providers further served to reduce margins
as a percent to net sales.
Selling, General and Administrative ("SG&A") expenses for fiscal 1999 were
$18.7 million, a decrease of $5.2 million over SG&A expenses of $23.9 million in
fiscal 1998. $2.4 million of the decease in SG&A expenses in fiscal 1999 is
attributable to direct expenses associated with the sale of the ventilation
products division. Another $0.6 million decrease is due to administrative cost
savings from the closing of the Toledo facility. The remainder of the decrease
in 1999 SG&A costs can be attributed to cost reduction efforts initiated during
fiscal 1999. As a percentage of net sales, fiscal 1999 SG&A expenses were 25.7%
compared to 24.8% in fiscal 1998. This increase was attributable to lower sales
in fiscal 1999, as discussed above.
16
<PAGE>
As discussed previously in the preceding Overview section, financial
results for fiscal 1999 were impacted by certain one-time, unusual transactions
and events which make meaningful comparisons to prior years more difficult.
These specific transactions and events include the following items:
On August 5, 1998 the Company's Board of Directors voted to close its
Toledo, Ohio facility and consolidate production of the B&F line of home
care products into its manufacturing facility in St. Louis, Missouri. In
connection with the shutdown of the facility, Allied recorded a provision
of approximately $1.0 million pre-tax, $0.6 million after tax, or $0.07 per
share, in the first quarter of fiscal 1999 to cover the cost of closing the
facility. The provision reflects costs of certain fixed asset impairments,
employee severance benefits and other related exit costs. Subsequently,
during the second quarter of fiscal 1999, the company negotiated and
received a $0.2 million cash payment from the City of Toledo as partial
reimbursement for closure costs. Accordingly, Allied recorded this cash
payment, in the second quarter of fiscal 1999, as a reduction to the
aforementioned provision resulting in a net charge of $0.8 million pre-tax,
$0.5 million after tax, or $0.06 per share for the fiscal year ended June
30, 1999.
On February 4, 1999, Allied announced a recall of aluminum oxygen
regulators marketed under its Life Support Products label. Following
reports of regulator fires, the Company instituted a recall in May 1997,
under which it provided retrofit kits to prevent contaminants from entering
the regulators. While preliminary findings led the Company to believe the
Company's products did not cause those fires, there is enough concern among
the users that the Company, in cooperation with the U. S. Food and Drug
Administration ("FDA"), agreed to institute a voluntary recall to replace
aluminum components in the high pressure chamber of the regulators with
brass components. The FDA has recommended that all regulator manufacturers
cease use of aluminum in regulators. Accordingly, the Company has now
introduced new brass regulators and is also offering a trade in program to
the existing users. As a result of the recall, the Company recorded a
charge of $1.5 million pre-tax, $0.9 million after tax, or $0.12 per share
in the second quarter of fiscal 1999. As of June 30, 1999 the Company has
incurred $0.9 million for costs associated with the recall and has a
reserve balance of $0.6 million for future expected costs which management
estimates to be appropriate.
On May 28, 1999, the Company sold the assets of Hospital Systems, Inc.
("HSI") to David Miller (former General Manager-Hospital Systems, Inc.) for
$0.5 million. The net proceeds of $0.5 million were utilized to repay a
portion of its revolving credit facility. The sale of HSI, located in
Oakland, California, resulted in a gain before taxes for financial
reporting purposes of $0.03 million.
Loss from operations in fiscal 1999 was $4.0 million compared to income
from operations of $6.5 million in fiscal 1998. Fiscal 1999 loss from
operations includes charges for the unusual items discussed above which have an
unfavorable impact of $2.2 million. Fiscal 1998 income from operations included
a $12.8 million gain on the sale of Bear Medical and $9.8 million of
non-recurring charges mainly for goodwill write-downs attributable to the
revaluation of the carrying value of various businesses. These fiscal 1998
non-recurring items had a favorable impact on operating income of $3.0 million.
Without the impact of the various unusual items for both fiscal 1999 and fiscal
1998, income from operations decreased $5.3 million. Fiscal 1998 operating
income also includes results from the operations of the ventilation products
division for four months prior to its sale in October 1997.
Interest expense decreased $2.3 million or 53.6%, to $1.9 million in fiscal
1999 from $4.2 million in fiscal 1998. Interest expense has been significantly
reduced due to the reduction in debt, which primarily reflected application of
the proceeds from the sale of the ventilation products division in fiscal 1998.
The Company had a loss before taxes of $6.0 million, compared to income
before taxes and extraordinary loss of $2.2 million in fiscal 1998. The Company
recorded an income tax benefit of $1.9 million in fiscal 1999 compared to a
provision for income taxes of $9.0 million in fiscal 1998. As previously
discussed, the gain on the sale of the ventilation products division resulted in
a tax provision of $9.3 million in fiscal 1998. In addition, the non-recurring
17
<PAGE>
charge of $9.8 million was principally goodwill, and therefore non-deductible
for income tax purposes. For further discussion of the Company's income tax
calculation please refer to the "Notes to Consolidated Financial Statements"
section included in this Form 10-K.
Net loss in fiscal 1999 was $4.1 million, or $0.53 per diluted share, a
decrease of $3.3 million from the net loss of $7.4 million or $0.95 per diluted
share in fiscal 1998. Net loss in fiscal 1998 included a $0.5 million
extraordinary loss on early extinguishment of debt. 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 7,806,682 in fiscal 1999 compared to 7,805,021 in
fiscal 1998.
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 sale of the ventilation products
division, a decrease in large hospital construction projects and inefficiencies
at the Company's Toledo facility negatively impacted revenues. This facility
was closed during the second quarter of fiscal 1999.
Certain external issues first experienced in fiscal 1996 continued to
impact the Company's operations in fiscal 1998. These matters were described in
the preceding section "Fiscal 1999 Compared to Fiscal 1998.
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 that 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 continued to experience
capacity constraints at the Toledo, Ohio facility, and as previously noted,
consolidated its production to the St. Louis, Missouri facility in the second
quarter of fiscal 1999.
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. 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.
Export sales are affected by international economic conditions and the
relative value of foreign currencies. In 1998, the continued devaluation of
Asian currency and economic downturn reduced international shipments.
18
<PAGE>
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.
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 one-time fiscal 1997 expenditures. In fiscal 1997, the Company made
strategic investments in certain SG&A activities and recorded certain one-time
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, unusual transactions
and events which make meaningful comparisons to prior years more difficult.
These specific transactions and events include the following items:
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
19
<PAGE>
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 one-time, unusual 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.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The following tables set forth selected information concerning Allied's
financial condition:
<TABLE>
<CAPTION>
Dollars in thousands 1999 1998 1997
- -------------------- ------- ------- -------
<S> <C> <C> <C>
Cash $ 587 $ 1,195 $ 988
Working Capital $22,619 $21,308 $18,743
Total Debt $17,238 $18,415 $46,932
Current Ratio 3.30:1 2.67:1 1.57:1
</TABLE>
The Company's working capital was $22.6 million at June 30, 1999 compared
to $21.3 million at June 30, 1998. The increase in working capital is primarily
due to the decrease in the current portion of long term debt attributable to
debt refinancing discussed further below. Accounts receivable declined to $12.6
million at June 30, 1999 down $1.6 million from $14.2 million at June 30, 1998.
Accounts receivable as measured in days sales outstanding ("DSO") decreased to
62 DSO from 69 DSO during fiscal 1999 as collection efforts have improved the
average time that is needed to collect from a customer. Inventories declined to
$17.5 million at June 30, 1999, or $0.8 million, from $18.3 million at June 30,
1998. Of this decline, $0.4 million is related to the core business while $0.4
million of decrease is due to the sale of the headwall products division. The
Company continues to focus 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 148 DOH at June 30, 1999 from 129 DOH at June 30,
1998, due to lower sales in the last five months of fiscal year 1999. Accounts
payable decreased to $5.4 million at June 30, 1998, down $0.4 million from June
30, 1998 balance of $5.8 million.
The net increase/(decrease) in cash for the fiscal years ended June 30,
1999, June 30, 1998, and June 30, 1997 was $(0.6) million, $0.2 million, and
$(0.5) million respectively. Net cash provided by (used by) operations was
$(0.2) million, $(5.2) million, and $8.9 million for the same periods. Cash
used by operations for the fiscal year ended June 30, 1999 consisted of a net
loss of $4.1 million, which was offset by $3.8 million in non-cash charges to
operations for amortization and depreciation, restructuring and consolidation of
$0.2 million and product recall of $0.6 million. Changes in working capital and
deferred tax accounts unfavorably impacted cash flow from operations by $0.7
million. Cash provided by investing activities, consisting of $1.4 million from
the proceeds on the sale of the Toledo, Ohio facilities and $0.5 million of
proceeds from the sale of the headwall products division, was used to fund
capital expenditures of $1.1 million and reduce debt. Cash used by operations
for the comparable prior year period 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 also reported a $12.8 million gain on the sale of the
ventilation products division and also recorded non-recurring impairment
20
<PAGE>
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. 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.
At June 30, 1999 the Company had aggregate indebtedness of $17.2 million,
including $0.9 million of short-term debt and $16.3 million of long-term debt.
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.
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. In
fiscal 1998, amendments to the Foothill credit facility were completed 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 carried a fixed rate of interest of 7.75%,
compared to the then current rate of 9.0% under the revolving credit agreement.
In fiscal 1999, an amendment to the LaSalle credit facility was completed in the
third quarter and reflected a change to the debt covenant. On September 1, 1999
a subsequent amendment to the LaSalle credit facility was completed which also
changed certain debt covenants.
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 Wells Fargo Bank, 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. The rates noted above will drop by 0.25% at the end of fiscal 1999 and
21
<PAGE>
2000 if the Company is profitable. In addition, the fees charged to the Company
are also reduced. An amendment to the Foothill credit facility was completed in
the fourth quarter fiscal 1999. The amendments extended the favorable rate
reduction based upon profitability to 2001 and 2002. Fees charged to the Company
were reduced along with favorable debt covenant changes and the maturity date
was extended until January 6, 2003. At June 30, 1999, $5.5 million was available
under the revolving facility for additional borrowings.
Capital expenditures, net of capital leases, were $1.1 million, $0.6
million and $0.1 million in fiscal 1999, 1998 and 1997, respectively. During
fiscal 1999 the Company invested $0.4 million for the consolidation of the
Toledo, Ohio operation into its St. Louis, Missouri facility as previously
discussed. In addition, $0.2 million was invested for upgrading computer
equipment, $0.2 million for additional capacity of the computer controlled
machining centers and $0.3 million for tooling. 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 $1.6 million in fiscal 2000.
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.
The following table sets forth selected operating results for the eight
quarters ended June 30, 1999. 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>
June 30, March 31, Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
Three months ended, 1999 1999 1998 1998 1998 1998 1997 1997
- ------------------------------ ---------- ----------- ---------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 18,621 $ 19,227 $ 17,092 $ 17,859 $ 19,476 $ 22,785 $ 24,033 $ 30,173
Gross profit 4,165 4,940 3,423 4,407 4,878 6,507 6,743 9,229
Income (loss) from operations (323) 339 (2,601) (1,444) (29) 1,100 3,455 1,977
Net income (loss) (738) (189) (1,912) (1,279) (315) 241 (6,684) (638)
Basic and diluted earnings (0.10) (0.02) (0.25) (0.16) (0.04) 0.03 (0.86) (0.08)
(loss) per share
</TABLE>
Dollars in thousands, except per share data
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 has adopted FAS 131 for fiscal 1999 and has determined that it
operates in a single segment. Please see Note 17 of the "Notes to Consolidated
Financial Statements" section of this Form 10-K for further discussion.
22
<PAGE>
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 changeover to 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 date
methodology of this software is not sensitive to year 2000 problems. However,
the Company is in the process of implementing testing procedures to insure year
2000 readiness. System modifications or reprogramming have been minor in
nature. The Company has also analyzed other internal computerized processes,
including, but not limited to, manufacturing, engineering, personal computer
network, and other facility management systems for potential year 2000 issues.
Systems identified as being impacted by the changeover to the year 2000 are
being modified or replaced. The Company estimates that the year 2000 conversion
effort is over 80% complete and expects all critical systems will be year 2000
compliant by November 1999.
The Company has not separately distinguished between costs incurred
specifically to assure year 2000 compliance and normal expenditures needed to
maintain or upgrade existing systems to current technology levels. The Company
believes that any such costs expended were not material. The Company does not
expect to incur any significant costs on the remaining year 2000 compliance
efforts.
The Company is dependent on various third parties to conduct its business
operations. These third parties are customers and vendors of raw material and
components used in the production process. The Company's revenues are not
dependent upon any single or any few number of customers. The Company employs a
large number of vendors, without concentration of critical vendors. The Company
believes that vendors could be replaced if they fail to meet the Company's
demand for components. None of the Company's products or components of Company
products use date sensitive technology. Therefore, the Company believes that
third party risk involving the changeover to year 2000 is relatively small.
However, while reasonable actions are being taken to mitigate the risk of
unanticipated costs and/or business interruptions due to year 2000 problems in
its internal systems, or those of its vendors, there can be no assurance that
the Company will not experience any costs and/or disruptions from any other
external year 2000 failures. The magnitude of any such costs and/or disruptions
and the possible impact on the Company's consolidated results of operations, is
unpredictable. In addition, while efforts to date have focused on mitigating
year 2000 problems, the Company plans to evaluate the reasonable potential risks
to determine the extent of contingency planning and resources that are
appropriate.
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 sheets 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, 1999 and 1998, and the results of their operations and their cash flows
for each of the three years in the period ended June 30, 1999, 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.
23
<PAGE>
/s/ PricewaterhouseCoopers LLP
St. Louis, Missouri
August 11, 1999, except for Note 18, which is
as of September 1, 1999
24
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
Year ended June 30, 1999 1998 1997
- --------------------------------------------------- ------------ ------------- -------------
<S> <C> <C> <C>
Net sales $72,799,372 $ 96,466,860 $118,117,518
Cost of sales 55,864,554 69,110,274 82,364,405
------------ ------------- -------------
Gross profit 16,934,818 27,356,586 35,753,113
Selling, general and administrative expenses 18,733,227 23,888,131 33,909,510
Provision for restructuring and consolidation 758,467 -- --
Provision for product recall 1,500,000 -- --
Gain on sale of business (27,246) (12,812,927) --
Non-recurring impairment losses -- 9,778,259 --
------------ ------------- -------------
Income (loss) from operations (4,029,630) 6,503,123 1,843,603
------------ ------------- -------------
Other expenses:
Interest expense 1,925,757 4,151,986 7,606,129
Other, net 35,984 198,329 186,291
------------ ------------- -------------
1,961,741 4,350,315 7,792,420
------------ ------------- -------------
Income (loss) before provision (benefit) for
income taxes and extraordinary loss (5,991,371) 2,152,808 (5,948,817)
Provision (benefit) for income taxes (1,872,976) 9,018,488 (1,427,716)
------------ ------------- -------------
Loss before extraordinary loss (4,118,395) (6,865,680) (4,521,101)
Extraordinary loss on early extinguishment of debt,
net of income tax benefit of $373,191 -- 530,632 --
------------ ------------- -------------
Net loss $(4,118,395) $ (7,396,312) $ (4,521,101)
============ ============= =============
Basic and diluted loss per share:
Loss before extraordinary loss $ (0.53) $ (0.88) $ (0.58)
Extraordinary loss -- (0.07) --
------------ ------------- -------------
Loss per share $ (0.53) $ (0.95) $ (0.58)
============ ============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
25
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
June 30, 1999 1998
- ------------------------------------------------------------ ------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 587,457 $ 1,194,813
Accounts receivable, net of allowance for doubtful
accounts of $834,883 and $1,035,833, respectively 12,601,165 14,227,314
Inventories 17,499,822 18,341,340
Income taxes receivable 1,635,866 --
Other current assets 138,360 273,832
------------- -------------
Total current assets 32,462,670 34,037,299
------------- -------------
Property, plant and equipment, net 14,287,037 17,525,906
Goodwill, net 27,210,653 28,026,064
Other assets, net 314,828 590,933
------------- -------------
Total assets $ 74,275,188 $ 80,180,202
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,434,303 $ 5,807,349
Current portion of long-term debt 907,649 3,442,797
Accrual for product recall 594,725 --
Other accrued liabilities 2,906,636 3,479,215
------------- -------------
Total current liabilities 9,843,313 12,729,361
------------- -------------
Long-term debt 16,330,185 14,971,775
Deferred tax liability-noncurrent 182,608 441,589
Commitments and contingencies (Notes 9 and 15)
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 shares issued and
outstanding at June 30, 1999 and 1998 101,102 101,102
Additional paid-in capital 47,014,621 47,014,621
Retained earnings 21,534,787 25,653,182
Common stock in treasury, at cost (20,731,428) (20,731,428)
------------- -------------
Total stockholders' equity 47,919,082 52,037,477
------------- -------------
Total liabilities and stockholders' equity $ 74,275,188 $ 80,180,202
============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
26
<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, 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)
Net loss for the year ended
June 30, 1999 -- -- -- (4,118,395) --
---------- -------- ----------- ------------ -------------
Balance, June 30, 1999 $ - $101,102 $47,014,621 $21,534,787 $(20,731,428)
========== ======== =========== ============ =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
27
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended June 30, 1999 1998 1997
- --------------------------------------------------------------------- ------------- -------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (4,118,395) $ (7,396,312) $ (4,521,101)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities,
excluding the effects of acquisitions:
Depreciation and amortization 3,781,063 4,881,890 5,572,188
Provision for restructuring and consolidation 217,926 -- --
Provision for product recall 594,725 -- --
Gain on sale of Hospital Systems, Inc. (27,246) -- --
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 1,626,149 2,887,344 2,871,621
Decrease in inventories 407,134 2,412,551 1,993,499
Decrease (increase) in income taxes receivable (1,635,866) -- 2,285,224
Decrease in other current assets 133,307 696,056 1,168,686
Increase (decrease) in accounts payable (373,046) (6,671,539) 943,936
Increase (decrease) in other accrued liabilities (572,440) (1,688,283) 1,027,393
Increase (decrease) in deferred income taxes - noncurrent (258,981) 2,106,658 (2,451,982)
------------- -------------- -------------
Net cash provided by (used in) operating activities (225,670) (5,184,287) 8,889,464
Cash flows from investing activities:
Capital expenditures, net (1,061,309) (644,080) (58,610)
Proceeds on sale of Toledo, Ohio facilities 1,393,287 -- --
Proceeds on sale of Hospital Systems, Inc. - Net of disposal costs 495,178 -- --
Proceeds on sale of Bear Medical - Net of disposal costs -- 35,362,286 --
------------- -------------- -------------
Net cash provided by (used in) investing activities 827,156 34,718,206 (58,610)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 5,000,000 26,000,000 5,000,000
Payment of long-term debt (7,411,458) (37,267,757) (4,662,785)
Borrowings under revolving credit agreement 88,063,847 128,862,400 27,365,170
Payments under revolving credit agreement (86,829,127) (146,033,153) (35,810,605)
Proceeds from issuance of common stock -- 68,750 --
Debt issuance costs (32,104) (957,782) (677,563)
Dividends paid on common stock -- -- (545,768)
------------- -------------- -------------
Net cash used in financing activities (1,208,842) (29,327,542) (9,331,551)
Net increase (decrease) in cash and equivalents (607,356) 206,377 (500,697)
Cash and equivalents at beginning of period 1,194,813 988,436 1,489,133
------------- -------------- -------------
Cash and equivalents at end of period $ 587,457 $ 1,194,813 $ 988,436
============= ============== =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,046,103 $ 5,256,981 $ 6,614,365
Income taxes $ 541,756 $ 5,380,817 $ 138,339
Supplemental schedule of noncash investing and financing activities:
Equipment acquired through capital leases -- -- $ 2,157,967
</TABLE>
See accompanying Notes to Consolidated Financial Statements
28
<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 5
regarding sale of the Company's architectural products division on May 28, 1999.
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 $1,247,188 and $2,012,427 at June 30, 1999 and 1998,
respectively, are included in accounts payable.
CONCENTRATIONS OF CREDIT RISK
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. The Company's customers can be grouped into three
main categories: medical equipment distributors, construction contractors and
health care institutions. At June 30, 1999 the Company believes that it has no
significant concentration of credit risk.
INVENTORIES
Inventories are stated at the lower of cost, determined using the last-in,
first-out (LIFO) method, or market. If the first-in, first-out (FIFO) method
(which approximates replacement cost) had been used in determining cost,
inventories would have been $2,411,909 and $2,066,220 higher at June 30, 1999
and 1998, 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
$1,936,402 and $2,189,000 at June 30, 1999 and 1998, respectively.
29
<PAGE>
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, 1999, 1998 and 1997 was $816,411,
$1,077,959, and $1,473,164 respectively. Accumulated amortization at June 30,
1999 and 1998 was $6,315,687 and $5,499,276 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 7 regarding goodwill impairment and related non-recurring charges recorded
in the second quarter of the fiscal year ended June 30, 1998. Management
believes that there has been no further impairment at June 30, 1999 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 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, 1999, 1998 and 1997 was
$1,315,593, $1,688,071 and $3,684,702, respectively.
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, 1999, 1998 and 1997 was 7,806,682,
7,805,021, and 7,796,682 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 a 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
30
<PAGE>
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 12 for additional discussion.
3. B&F CONSOLIDATION PROVISION
On August 5, 1998 the Company's Board of Directors voted to close the
Toledo facility of its disposable products division and consolidate production
of the B&F line of home care products into its manufacturing facility in St.
Louis, Missouri. This move was announced on August 10, 1998. The move was
substantially completed during the second quarter of fiscal 1999. In connection
with the shutdown of the facility, Allied recorded a provision of approximately
$1.0 million pre-tax, $0.6 million after tax, or $0.07 per share, in the first
quarter of fiscal 1999 to cover the cost of closing the facility. The provision
reflects costs of certain fixed asset impairments, employee severance benefits
and other related exit costs. Subsequently, during the second quarter of
fiscal 1999, the company negotiated and received a $0.2 million cash payment
from the City of Toledo as partial reimbursement for closure costs.
Accordingly, Allied recorded this cash payment, in the second quarter of fiscal
1999, as a reduction to the aforementioned provision resulting in a net charge
of $0.8 million pre-tax, $0.5 million after tax, or $0.06 per share for the
fiscal year ended June 30, 1999.
4. LSP OXYGEN REGULATOR RECALL
On February 4, 1999, Allied announced a recall of aluminum oxygen
regulators marketed under its Life Support Products label. These products are
used to regulate pressure of bottled oxygen for administration to patients under
emergency situations. Following reports of regulator fires, the Company
instituted a recall in May 1997, under which it provided retrofit kits to
prevent contaminants from entering the regulators. The Company has also been
testing regulator design with the help of the National Aeronautical and Space
Administration's White Sands National Laboratories. While preliminary findings
led the Company to believe the Company's products did not cause those fires,
there is enough concern among the users that the Company, in cooperation with
the U. S. Food and Drug Administration ("FDA"), agreed to institute a voluntary
recall to replace aluminum components in the high pressure chamber of the
regulators with brass components. The FDA has recommended that all regulator
manufacturers cease use of aluminum in regulators. Accordingly, the Company has
now introduced new brass regulators and is also offering a trade-in program to
the existing users. As a result of the recall, the Company recorded a charge of
$1.5 million pre-tax, $0.9 million after tax, or $0.12 per share in the second
quarter of fiscal 1999.
31
<PAGE>
A reconciliation of activity with respect to the Company's product recall is as
follows:
<TABLE>
<CAPTION>
<S> <C>
Provision, December 31, 1998 $1,500,000
Product costs for retrofitting and replacement (784,831)
Administrative costs incurred (120,444)
-----------
Ending Balance, June 30, 1999 $ 594,725
===========
</TABLE>
5. SALE OF HEADWALL PRODUCTS DIVISION
On May 28, 1999, the Company sold the assets of Hospital Systems, Inc.
("HSI") to David Miller (former General Manager-Hospital Systems, Inc.) for $0.5
million. The net proceeds of $0.5 million were utilized to repay a portion of
its revolving credit facility. The sale of HSI, located in Oakland, California,
resulted in a gain before taxes for financial reporting purposes of $0.03
million.
Had the divestiture occurred on July 1, 1998, consolidated pro forma net
sales, net loss, and loss per share for the year ended June 30, 1999 would have
been $69.6 million, $(4.3) million and $(0.55), respectively.
6. 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"),
collectively referred to as the ventilation products division, 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
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.
7. 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.
32
<PAGE>
$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,
1999 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.
8. FINANCING
Long-term debt consisted of the following at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
UNSUBORDINATED DEBT
<S> <C> <C>
Notes payable to bank or other financial lending institution, secured by
virtually all assets of the Company
Term loan - principal due in varying monthly
maturities ranging from $27,714 to $40,518
with remaining balance due August 1, 2003 $ 4,714,669
Revolving credit facility - aggregate revolving commitment
of $25,000,000; principal due at maturity on January 6, 2003 10,618,532 $ 9,383,812
5,800,000
Term loan payable to financial institution - paid in fiscal 1998
Other 32,819 45,840
------------ ------------
15,366,020 15,229,652
------------ ------------
SUBORDINATED DEBT
Capital lease obligations 1,871,814 2,429,920
Industrial Development Revenue Bonds - paid in fiscal 1999 755,000
1,871,814 3,184,920
------------ ------------
17,237,834 18,414,572
Less-Current portion of long-term debt, including $523,523 and
$676,357 of capital lease obligations at June 30, 1999 and June
30, 1998 respectively (907,649) (3,442,797)
------------ ------------
$16,330,185 $14,971,775
============ ============
</TABLE>
On August 7, 1998, the Company borrowed approximately $5.0 million from
LaSalle National Bank. 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 $0.06 million, with a final payment of all principal and
interest remaining unpaid due at maturity on August 1, 2003. Interest is fixed
at 7.75% 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,
and for which the Company was in compliance at June 30, 1999.
33
<PAGE>
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 (8.00% at June 30, 1999) 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 Wells Fargo Bank, National Association, or any successor
thereto, as its "base rate". This amendment also provides the Company with a
rate of LIBOR + 2.50%. Interest rates on the reference rate and LIBOR will drop
by 0.25% at the end of fiscal 2000 if the Company is profitable. In addition,
the fees charged to the Company were reduced along with certain debt covenants
for which the Company was in compliance at June 30, 1999.
On March 3, 1999, the Company purchased the remaining $505,000 of its
outstanding Missouri Industrial Revenue Bonds. The bonds, which bore a variable
interest rate, had a final maturity date of April 1, 2001 and were repaid early
using borrowings from the Company's revolving credit facility.
On March 24, 1999, the Company's credit facility with LaSalle National Bank
was amended. The amendment provided for favorable changes to certain debt
covenants.
On June 28, 1999, the Company's credit facilities with Foothill Capital
Corporation were amended. The amendment provides for favorable interest rate
reduction, based upon annual profitability, for fiscal years 2001 and 2002. The
amendment also extended the maturity date to January 6, 2003 along with a
favorable change to certain debt covenants.
Aggregate maturities of long-term debt, excluding capital leases, for each
of the fiscal years subsequent to June 30, 1999 are as follows:
<TABLE>
<CAPTION>
Fiscal Revolving
Year Credit Facility Term Other Total
- ---- ---------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
2000 $ 367,551 $ 16,575 $ 384,126
2001 397,070 16,244 413,314
2002 428,959 428,959
2003 $10,618,532 463,411 11,081,943
2004 3,057,678 3,057,678
----------- ----------
$10,618,532 $ 4,714,669 $ 32,819 $15,366,020
=========== =========== =========== ==========
</TABLE>
9. LEASE COMMITMENTS
The Company leases certain of its electronic data processing and
manufacturing 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 office equipment under
noncancelable operating leases. These leases are reflected in the consolidated
financial statements as operating leases in accordance with FAS 13.
34
<PAGE>
Minimum lease payments under long-term capital leases and the operating
leases at June 30, 1999 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
----------- ----------
<S> <C> <C>
2000 $ 737,250 $ 145,090
2001 737,250 53,340
2002 779,851 53,340
2003 -- 53,340
2004 -- 44,450
----------- ----------
Total minimum lease payments 2,254,351 $ 349,560
==========
Less amount representing interest (382,537)
-----------
Present value of net minimum lease payments, including
current portion of $523,523 $1,871,814
===========
</TABLE>
Rental expense incurred on the operating leases in fiscal 1999, 1998 and
1997 totaled $118,990, $381,024, and $686,168, respectively.
10. INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ---------- ------------
<S> <C> <C> <C>
Current Payable:
Federal $(1,497,541) $4,249,382 --
State -- 1,957,403 --
------------ ---------- ------------
Total Current (1,497,541) 6,206,785 --
------------ ---------- ------------
Deferred:
Federal (113,472) 2,451,228 $(1,214,731)
State (261,963) 360,475 (212,985)
------------ ---------- ------------
Total Deferred (375,435) 2,811,703 (1,427,716)
------------ ---------- ------------
$(1,872,976) $9,018,488 $(1,427,716)
============ ========== ============
</TABLE>
Income taxes were 31.3%, 418.9%, and (24.0)% of pre-tax earnings (losses)
in 1999, 1998 and 1997, respectively. A reconciliation of income taxes, with
the amounts computed at the statutory federal rate follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Computed tax at federal statutory rate $(2,037,066) $ 731,955 $(2,022,597)
State income taxes, net of federal tax benefit (172,876) 1,611,155 (160,989)
Non deductible goodwill 277,240 7,925,827 491,854
Other, net 59,726 (1,250,449) 264,016
------------ ------------ ------------
Total $(1,872,976) $ 9,018,488 $(1,427,716)
============ ============ ============
</TABLE>
The increase in the dollar amount of reconciling items during fiscal year
1998 relates to the effect of the sale of the Bear ventilation products
division. The increase in the income tax provision was primarily attributable
to the non-deductible portion of goodwill associated with the sale, and the
effect of state income taxes associated with the transaction.
35
<PAGE>
The deferred tax assets and deferred tax liabilities recorded on the
balance sheet as of June 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
At June 30, 1999 At June 30, 1998
--------------------------- ---------------------------
Deferred Deferred Tax Deferred Deferred Tax
Tax Assets Liabilities Tax Assets Liabilities
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Current:
Bad debts $ 325,604 -- $ 403,975 --
Accrued liabilities 347,903 -- 103,369 --
Inventory -- $ 926,154 -- $ 876,444
------------ ------------- ------------ -------------
673,507 926,154 507,344 876,444
------------ ------------- ------------ -------------
Non Current:
Depreciation -- 52,629 -- 65,685
Other property basis -- 10,857 -- 399,611
Intangible assets 380,762 -- 363,331 --
Net operating loss carryforward 264,274 -- -- --
Other -- 438,767 -- 14,233
------------ ------------- ------------ -------------
645,036 502,253 363,331 479,529
------------ ------------- ------------ -------------
Valuation allowance (325,391) -- (325,391) --
------------ ------------- ------------ -------------
Total deferred taxes $ 993,152 $ 1,428,407 $ 545,284 $ 1,355,973
============ ============= ============ =============
</TABLE>
11. 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.
During the fiscal years ended June 30, 1999, 1998 and 1997, the Company
made contributions of $359,087, $464,227 and $601,338, respectively.
12. SHAREHOLDERS EQUITY
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 $1.88 and $16.00, 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 $1.88 and $18.25,
36
<PAGE>
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 one
year 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 1999, 1998 and 1997,
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, 1996 $ 13.79 413,600
Options Granted 6.90 358,000
Options Exercised -- --
Options Canceled 11.47 (177,100)
---------------
June 30, 1997 $ 9.22 594,500
---------------
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
===============
June 30, 1998 $ 8.39 625,450
Options Granted 1.97 54,000
Options Exercised -- --
Options Canceled 10.54 (149,700)
---------------
June 30, 1999 $ 7.13 529,750
---------------
Exercisable at June 30, 1999 148,500
===============
</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 1999, 1998 and 1997 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.
37
<PAGE>
13. EXPORT SALES
Export sales for the years ended June 30, 1999, 1998 and 1997 are comprised
as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Europe $ 2,500 $ 5,700 $ 9,300
Canada 1,800 1,900 2,600
Latin America 3,400 5,900 6,300
Middle East 1,200 1,600 3,200
Far East 2,600 6,000 9,400
Other 1,600 2,900 3,700
------- ------- -------
$13,100 $24,000 $34,500
======= ======= =======
</TABLE>
14. SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
June 30,
1999 1998
------------- -------------
INVENTORIES
<S> <C> <C>
Work in progress $ 779,027 $ 2,424,041
Component parts 13,848,272 14,820,526
Finished goods 2,872,523 1,096,773
------------- -------------
$ 17,499,822 $ 18,341,340
============= =============
PROPERTY, PLANT AND EQUIPMENT
Machinery and equipment $ 14,905,236 $ 13,836,067
Buildings 11,644,429 13,442,979
Land and land improvements 934,216 989,516
Property held under capital leases 4,518,761 5,220,926
------------- -------------
Total property, plant and equipment at cost 32,002,642 33,489,488
Less accumulated depreciation and amortization,
including $2,741,859 and $2,551,105 respectively,
related to property held under capital leases (17,715,605) (15,963,582)
------------- -------------
$ 14,287,037 $ 17,525,906
============= =============
OTHER ACCRUED LIABILITIES
Accrued compensation expense $ 1,211,251 $ 1,295,354
Accrued interest expense 98,669 219,015
Accrued income tax 985,711 942,036
Other 611,005 1,022,810
------------- -------------
$ 2,906,636 $ 3,479,215
============= =============
</TABLE>
15. 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
38
<PAGE>
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.
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal 1999 and 1998 appears below
(all amounts in thousands except per share data):
<TABLE>
<CAPTION>
Net Sales
------------------
1999 1998
-------- --------
<S> <C> <C>
First Quarter $17,859 $30,173
Second Quarter 17,092 24,033
Third Quarter 19,227 22,785
Fourth Quarter 18,621 19,476
-------- --------
Total Year $72,799 $96,467
======== ========
Gross Profit
------------------
1999 1998
-------- --------
First Quarter $ 4,407 $ 9,229
Second Quarter 3,423 6,743
Third Quarter 4,940 6,507
Fourth Quarter 4,165 4,878
-------- --------
Total Year $16,935 $27,357
======== ========
Net Income (Loss)
------------------
1999 1998
-------- --------
First Quarter (1,279) (638)
Second Quarter (1,912) (6,684)
Third Quarter (189) 241
Fourth Quarter (738) (315)
-------- --------
Total Year $(4,118) $(7,396)
======== ========
39
<PAGE>
Earnings (Loss) Per Share
------------------
1999 1998
-------- --------
First Quarter $ (.16) $ (.08)
Second Quarter (.25) (.86)
Third Quarter (.02) .03
Fourth Quarter (.10) (.04)
-------- --------
Total Year $ (.53) $ (.95)
======== ========
</TABLE>
17. SEGMENT INFORMATION
The Company operates in one segment consisting of the manufacturing,
marketing and distribution of a variety of respiratory products used in the
health care industry to hospitals, hospital equipment dealers, hospital
construction contractors, home health care dealers and emergency medical product
dealers. The Company's product lines include respiratory care products, medical
gas equipment and emergency medical products. The Company does not have any one
single customer that represents more than 10 percent of total sales.
18. SUBSEQUENT EVENTS
On July 28, 1999 the Company's President, Chief Executive Officer and
Director Uma Nandan Aggarwal resigned. Subsequently on August 24, 1999 the
Company announced Earl R. Refsland as President, Chief Executive Officer and
Director of the Company. As a result of Mr. Aggarwal's resignation, the Company
is expecting to record a $0.2 million charge to operations in the first quarter
of fiscal year 2000 per terms of a mutually accepted separation agreement.
On September 1, 1999 the Company's credit facility with LaSalle National
Bank was amended. The amendment provides favorable changes to certain debt
covenants.
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 1, 1999. The information required
by this item is set forth under the caption "Election of Directors" on pages 2
through 3, under the caption "Executive Officers" on page 11 and under the
caption Section 16(a) Beneficial Ownership Reporting Compliance on page 21 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 12 through 13 of the definitive proxy
statement, which information is incorporated herein by reference thereto.
40
<PAGE>
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 7
through 8 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, 1999, 1998 and 1997
Consolidated Balance Sheet at June 30, 1999 and 1998
Consolidated Statement of Changes in Stockholders' Equity
for the years ended June 30, 1999, 1998 and 1997
Consolidated Statement of Cash Flows for the years ended June 30,
1999, 1998 and 1997
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, 1999, 1998 and 1997
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 February 4, 1999 (announcing the recall of all oxygen
regulators sold under the Life Supports Products brand to replace aluminum
components in the unit's high-pressure chambers with brass components).
Form 8-K dated as of April 2, 1999 (announcing the naming of a new member of the
board of directors, Mr. Brent D. Baird, and announcing that current director,
John D. Weil, has been named the new chairman of the board of directors).
41
<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/ Earl R. Refsland
--------------------
Earl R. Refsland
President and Chief Executive Officer
Dated : September 27, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on September 27, 1999.
SIGNATURES TITLE
* Chairman of the Board
- ---------------------------------------
John D. Weil
* President, Chief Executive Officer
- --------------------------------------- and Director (principal Executive
Earl R. Refsland Officer)
* Director
- ---------------------------------------
David A. Gee
*
- ---------------------------------------
Robert E. Lefton Director
*
- ---------------------------------------
William A. Peck Director
*
- ---------------------------------------
Brent D. Baird Director
*
- ---------------------------------------
James B. Hickey, Jr. Director
42
<PAGE>
* By: /s/ Earl R. Refsland
-----------------------
Earl R. Refsland
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 Earl R. Refsland 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 1999 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.
43
<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 11, 1999, except for Note 18, which is as of September 1, 1999,
appearing in the 1999 Annual Report to Shareholders of Allied Healthcare
Products, Inc. (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedule listed in item 14(a)(2) of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in all
material aspects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
St. Louis, Missouri
August 11, 1999, except for Note 18,
Which is as of September 1, 1999
<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
- -------------------------------- ------------ ------------------------ --------- ------------
CHARGED TO
BALANCE AT CHARGED TO ACCOUNTS
BEGINNING OF COSTS OTHER - DEDUCTIONS - BALANCE AT END
DESCRIPTION PERIOD AND EXPENSES DESCRIBE DESCRIBE OF PERIOD
- -------------------------------- ------------ -------------- -------- --------- ------------
FOR THE YEAR ENDED JUNE 30, 1999
<S> <C> <C> <C> <C> <C> <C>
Reserve For
Doubtful Accounts $(1,035,833) $ (175,496) $ 376,446 (1) $ (834,883)
Inventory Allowance
For Obsolescence
And Excess Quantities $(2,189,000) $ (200,000) $ 452,598 (2) $(1,936,402)
- ------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JUNE 30, 1998
Reserve For
Doubtful Accounts $(1,225,326) $ (264,165) $ 453,658 (3) $(1,035,833)
Inventory Allowance
For Obsolescence
And Excess Quantities $(1,689,000) $ (1,112,000) $ 612,000 (4) $(2,189,000)
- ------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JUNE 30, 1997
Reserve For
Doubtful Accounts $ (422,517) $ (1,058,999) $ 256,190 (1) $(1,225,326)
Inventory Allowance
For Obsolescence
And Excess Quantities $(1,812,542) $ (154,357) $ 277,899 (5) $(1,689,000)
- ------------------------------------------------------------------------------------------------------
<FN>
(1) Decrease due to bad debt write-offs, bad debt recoveries and changes in estimate.
(2) Decrease due to inventory disposed of and changes in estimate. Additional decrease of
$228,928 due to the sale of Hospital Systems, Inc.
(3) 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.
(4) Increase due to changes in estimate. Offsetting decrease of $612,000 due to the sale of Bear
Medical Systems, Inc.
(5) Decrease due to inventory disposed of and changes in estimate.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- ------------- ------------------------------------------------------------------------------------------------
<S> <C>
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 (filed as Exhibit 10(3) to the Company's Annual Report on
Form 10-K for the year ended June 30, 1998 (the "1998 Form 10-K") and incorporated by
reference)
10.4 Allied Healthcare Products, Inc. 1994 Employee Stock Option Plan (filed with the Commission
as Exhibit 10(39) to the Company's Annual Report on Form 10-K for the year ended June 30,
1994 (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 Allied Healthcare Products, Inc. Amended 1994 Employee Stock Option Plan (filed with the
Commission as Exhibit 10(28) 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)
10.7 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)
10.8 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
- ------------- ------------------------------------------------------------------------------------------------
10.9 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)
10.10 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)
10.11 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)
10.12 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)
10.13 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)
10.14 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)
10.15 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)
10.16 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)
10.17 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)
10.18 Loan and Security Agreement, dated as of August 7, 1998 by and between Allied Healthcare
Products, Inc. and LaSalle National Bank (filed with the Commission as Exhibit 10(24) to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998 (the "1998
Form 10-K") and incorporated herein by reference)
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ------------- ------------------------------------------------------------------------------------------------
10.19 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 (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, 1998 (the "1998 Form 10-K") and incorporated herein by reference)
10.20 Letter Agreement dated February 11, 1999 between Allied Healthcare Products, Inc. and
Gabriel S. Kohn
10.21 Letter Agreement dated February 11, 1999 between Allied Healthcare Products, Inc. and David
A. Grabowski
10.22 Letter Agreement dated March 16, 1999 between Allied Healthcare Products, Inc. and Thomas
A. Jenuleson
10.23 Amendment Number One to Amended and Restated Loan and Security Agreement dated as of
June 28, 1999 among Allied Healthcare Products, Inc., B&F Medical Products, Inc. and Life
Support Products, Inc. as Borrowers, and Foothill Capital Corporation
10.24 Asset Purchase Agreement dated May 28, 1999 by and between Allied Healthcare Products,
Inc. and Hospital Systems, Inc. and David Miller
10.25 Employment Agreement dated August 24, 1999 by and between Allied Healthcare Products,
Inc. and Earl Refsland
10.26 Allied Healthcare Products, Inc. 1999 Incentive Stock Plan
13 Annual Report to Stockholders
21 Subsidiaries of the Registrant
23 Consent of PricewaterhouseCoopers, LLP
24 Powers of Attorney
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 10.20
<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
1720 Sublette Avenue
St. Louis, Missouri 63110
February 11, 1999
Mr. Gabe Kohn
Vice President
Engineering & Operations
Allied Healthcare Products, Inc.
1720 Sublette
St. Louis, Missouri 63110
Dear Mr. Kohn:
Allied Healthcare Products, Inc. (the "Company") considers the
establishment and maintenance of a sound and vital management to be essential to
protecting and enhancing the best interests of the Company and its shareholders.
In this connection, the Company recognizes that, as is the case with many
publicly held corporations, the possibility of a change in control may exist and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders. Accordingly, the
Company's Board of Directors has determined that appropriate steps should be
taken, to reinforce and encourage the continued attention and dedication of
members of the Company's management, including yourself, to their assigned
duties without distraction in the fact of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company.
In order to induce you to remain in the employ of the company, this letter
agreement sets forth the severance benefits which the Company agrees will be
provided to you in the event your employment with the Company is terminated
subsequent to a "change in control of the Company" (as defined in Section 2
hereof) under the circumstances described below.
1. TERM. This Agreement shall commence on the date hereof and shall
----
continue until December 31, 2000; provided, however, that commencing on January
1, 2001 and each January 1st thereafter, the term of this Agreement shall
automatically be extended for one additional year unless at least 30 days prior
to such January 1st date, the Company shall have given notice that it does not
wish to extend this Agreement, and provided, further, that following a change in
control of the Company (as hereinafter defined) the term of this Agreement shall
automatically extend to the date which is two years following such change in
control.
2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless
-------------------
there shall have been a change in control of the Company, as set forth below,
and your employment by the Company shall thereafter have been terminated in
accordance with Section 3 below. For purposes of this Agreement, a "change in
control of the Company" shall mean a change in control of a nature that would be
required to be reported in response to Item 5(f) of Schedule 14A promulgated
under the Securities Exchange Act of 1934, as amended ("Exchange Act"); provided
that, without limitation, such a change in control shall be deemed to have
occurred if (i) any "person" (as such term is used in Section 13(d) and 14(d)(2)
of the Exchange Act) is or becomes the beneficial owner, directly or indirectly,
of securities of the Company representing a majority of the ownership, directly
or indirectly, of securities of the Company representing a majority of the
combined voting power of the Company's then outstanding securities; or (ii)
<PAGE>
during any period of two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Company (the "Board") cease
for any reason to constitute at least a majority thereof unless the election, or
the nomination for election by the Company's shareholders, of each new director
was approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period.
3. TERMINATION FOLLOWING CHANGE OF CONTROL. If any of the events
-------------------------------------------
described in Section 2 hereof constituting a change in control of the Company
shall have occurred, you shall be entitled to the benefits provided in Section 4
hereof upon the subsequent termination of your employment within a period of two
(2) years following such change in control unless such termination is (a)
because of your death or Retirement, (b) by the Company for Cause or Disability,
or (c) by you other than for Good Reason.
(i) Disability; Retirement.
-----------------------
(A) If, as a result of your incapacity due to physical or mental
illness, you shall have been absent from your duties with the Company on a full
time basis for 130 consecutive business days, and within thirty (30) days after
written notice of termination is given you shall not have returned to the full
time performance of your duties, the Company may terminate this Agreement for
"Disability."
(B) Termination by the Company or you of your employment based on
"Retirement" shall mean termination in accordance with the Company's retirement
policy, including early retirement, generally applicable to its salaried
employees or in accordance with any retirement arrangement established with your
consent with respect to you.
(ii) Cause. The Company may terminate your employment for Cause.
-----
For the purposes of this Agreement, the Company shall have "Cause" to terminate
your employment hereunder upon (A) the willful and continued failure by you to
substantially perform your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness), after a
demand for substantial performance is delivered to you by the Board which
specifically identifies the manner in which the Board believes that you have not
substantially performed your duties, or (B) the willful engaging by you in gross
misconduct materially and demonstrably injurious to the Company. For purposes of
this paragraph, no act, or failure to act, on your part shall be considered
"willful" unless done, or omitted to be done, by you not in good faith and
without reasonable belief that your action or omission was in the best interest
of the Company. Notwithstanding the foregoing, you shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
you a copy of a resolution duly adopted by the affirmative vote of not less than
two-thirds of the entire membership of the Board at a meeting of the Board
called and held for the purpose (after reasonable notice to you and an
opportunity for you, together with your counsel, to be heard before the Board),
finding that in the good faith opinion of the Board you were guilty of conduct
set forth above in clauses (A) or (B) of the first sentence of this paragraph
and specifying the particulars thereof in detail.
(iii) Good Reason. You may terminate your employment for Good
------------
Reason. For purposes of this Agreement "Good Reason" shall mean:
(A) without your express written consent, the assignment to you of
any duties materially inconsistent with your positions, duties, responsibilities
and status with the Company immediately prior to a change in control;
(B) a reduction by the Company in your base salary as in effect on
the date hereof or as the same may be increased from time to time;
(C) the Company's requiring you to be based anywhere other than
the Company's facility where you performed your duties for the Company
immediately prior to a change in control; and,
(D) the failure by the Company to continue to effect any benefit
or compensation plan, pension plan, life insurance plan, health and accident
plan or disability plans in which you are participating at the time of a change
in control of the Company (or plans providing you with substantially similar
<PAGE>
benefits), the taking of any action by the Company which would adversely affect
your participation in or materially reduce your benefits under any of such plans
or deprive you of any material fringe benefit enjoyed by you at the time of the
change in control, or the failure by the Company to provide you with the number
of paid vacation days to which you are then entitled on the basis of years of
service with the Company in accordance with the Company's normal vacation policy
in effect on the date hereof;
(E) the failure of the Company to obtain the assumption of the
agreement to perform this Agreement by any successor as contemplated in
paragraph 5 hereof; or
(F) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of
subparagraph (iv) below (and, if applicable, subparagraph (ii) above); and for
the purposes of this Agreement, no such purported termination shall be
effective.
(iv) Notice of Termination. Any termination by the Company
-----------------------
pursuant to subparagraphs (i) or (ii) above or by you pursuant to subparagraph
(iii) above shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(v) Date of Termination. "Date of Termination" shall mean (A) if
---------------------
this Agreement is terminated by Disability, thirty (30) days after Notice of
Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such thirty (30) days
period), (b) if your employment is terminated pursuant to subparagraph (iii)
above, the date specified in the Notice of Termination, and (C) if your
employment is terminated for any other reason, the date on which a Notice of
Termination is given; provided that if within thirty (30) days after any Notice
of Termination one party notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the date on which
the dispute is finally determined, either by mutual written agreement of the
parties, by a binding and final arbitration award or by a final judgment, order
or decree of a court of competent jurisdiction (the time for appeal therefrom
having expired and no appeal having been perfected).
4. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
--------------------------------------------------------
(i) During any period that you fail to perform your duties
hereunder as a result of incapacity due to physical or mental illness, you shall
continue to receive your full base salary at the rate then in effect until this
Agreement is terminated pursuant to paragraph 3(i) hereof. Thereafter, your
benefits shall be determined in accordance with the Company's long term
disability plan, or a substitute plan then in effect.
(ii) If your employment shall be terminated for Cause, the Company
shall pay you your full base salary through the Date of Termination at the rate
in effect at the time Notice of Termination is given and the Company shall have
no further obligations to you under this Agreement.
<PAGE>
(iii) If the Company shall terminate your employment other than
pursuant to paragraph 3(i) or 3(ii) hereof or if you shall terminate your
employment for Good Reason, then the Company shall pay to you as severance pay
in lump sum on the fifth day following the Date of Termination, the following
amounts:
(A) your full base salary through Date of Termination at the rate in
effect at the time Notice of Termination is given;
(B) in lieu of any further salary payments to you for periods subsequent
to the Date of Termination, an amount equal to the product of (a) the sum of
your annual base salary at the rate in effect as of the Date of Termination
multiplied by (b) the number one (1),
(C) the Company shall also pay all legal fees and expenses incurred by you
as a result of such termination (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination or in seeking to obtain
or enforce any right or benefit provided by this Agreement.)
(iv) Unless you are terminated for Cause, the Company shall maintain in
full force and effect, for the continued benefit of you for one year after the
Date of Termination, all employee benefit plans and programs or arrangements in
which you were entitled to participate immediately prior to the Date of
Termination provided that your continued participation is possible under the
general terms and provisions of such plans and programs. In the event that your
participation in any such plan or program is barred, the Company shall arrange
to provide you with benefits substantially similar to those which you are
entitled to receive under such plans and programs. At the end of the period of
coverage, you shall have the option to have assigned to you at no cost and with
no apportionment of prepaid premiums, any assignable insurance policy owned by
the Company and relating specifically to you.
(v) You shall not be required to mitigate the amount of any payment
provided for in this paragraph 4 by seeking other employment or otherwise, nor
shall the amount of any payment provided for in this paragraph 4 be reduced by
any compensation earned by you as the result of employment by another employer
after the Date of Termination, or otherwise.
5. SUCCESSORS, BINDING AGREEMENT
-------------------------------
(i) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise)to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to you, to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Failure of the Company to
obtain such agreement prior to the effectiveness of any such succession shall be
a breach of this Agreement and shall entitle you to compensation form the
Company in the same amount and on the same terms as you would be entitled
hereunder if you terminated your employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this paragraph 5 or which otherwise becomes bound
by all the terms and provisions of this Agreement by operation of law.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amounts would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee, or
other designee or, if there be no such designee, to your estate.
6. NOTICE. For the purposes of this Agreement, notices and all other
------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
<PAGE>
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Chief
Executive Officer of the Company with a copy to the Secretary of the Company, or
to such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
7. MISCELLANEOUS. No provisions of this Agreement may be modified,
-------------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by you and such officer as may be specifically designated by
the Board of Directors of the Company. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior to subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Missouri.
8. VALIDITY. The invalidity or unenforceability of any provisions of
--------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
10. ARBITRATION. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration in
St. Louis, Missouri in accordance with the rules of the American Arbitration
Association then in effect. Notwithstanding the pendency of any such dispute or
controversy, the Company will continue to pay you your full compensation in
effect when the notice giving rise to the dispute was given (including, but not
limited to, base salary) and continue you as a participant in all compensation,
benefit and insurance plans in which you were participating when the notice
giving rise to the dispute was given, until the dispute is finally resolved in
accordance with paragraph 3(v) hereof. Amounts paid under this paragraph are in
addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that you shall be entitled to seek specific performance of your right
to be paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter
which will then constitute our agreement on this subject.
Sincerely,
ALLIED HEALTHCARE PRODUCTS, INC.
By /s/ Uma Aggarwal
---------------------------------
Uma Aggarwal, President and
Chief Executive Officer
AGREED TO THIS 22nd DAY
OF FEBRUARY, 1999.
/s/ Gabriel S. Kohn
- ----------------------
<PAGE>
EXHIBIT 10.21
<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
1720 Sublette Avenue
St. Louis, Missouri 63110
February 11, 1999
Mr. Dave Grabowski
Vice President
Sales & Marketing
Allied Healthcare Products, Inc.
1720 Sublette Avenue
St. Louis, Missouri 63110
Dear Mr. Grabowski:
Allied Healthcare Products, Inc. (the "Company") considers the
establishment and maintenance of a sound and vital management to be essential to
protecting and enhancing the best interests of the Company and its shareholders.
In this connection, the Company recognizes that, as is the case with many
publicly held corporations, the possibility of a change in control may exist and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders. Accordingly, the
Company's Board of Directors has determined that appropriate steps should be
taken, to reinforce and encourage the continued attention and dedication of
members of the Company's management, including yourself, to their assigned
duties without distraction in the fact of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company.
In order to induce you to remain in the employ of the company, this letter
agreement sets forth the severance benefits which the Company agrees will be
provided to you in the event your employment with the Company is terminated
subsequent to a "change in control of the Company" (as defined in Section 2
hereof) under the circumstances described below.
1. TERM. This Agreement shall commence on the date hereof and shall
----
continue until December 31, 2000; provided, however, that commencing on January
1, 2001 and each January 1st thereafter, the term of this Agreement shall
automatically be extended for one additional year unless at least 30 days prior
to such January 1st date, the Company shall have given notice that it does not
wish to extend this Agreement, and provided, further, that following a change in
control of the Company (as hereinafter defined) the term of this Agreement shall
automatically extend to the date which is two years following such change in
control.
2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless
-------------------
there shall have been a change in control of the Company, as set forth below,
and your employment by the Company shall thereafter have been terminated in
accordance with Section 3 below. For purposes of this Agreement, a "change in
control of the Company" shall mean a change in control of a nature that would be
required to be reported in response to Item 5(f) of Schedule 14A promulgated
under the Securities Exchange Act of 1934, as amended ("Exchange Act"); provided
that, without limitation, such a change in control shall be deemed to have
occurred if (i) any "person" (as such term is used in Section 13(d) and 14(d)(2)
of the Exchange Act) is or becomes the beneficial owner, directly or indirectly,
of securities of the Company representing a majority of the ownership, directly
or indirectly, of securities of the Company representing a majority of the
combined voting power of the Company's then outstanding securities; or (ii)
during any period of two consecutive years, individuals who at the beginning of
<PAGE>
such period constitute the Board of Directors of the Company (the "Board") cease
for any reason to constitute at least a majority thereof unless the election, or
the nomination for election by the Company's shareholders, of each new director
was approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period.
3. TERMINATION FOLLOWING CHANGE OF CONTROL. If any of the events
-------------------------------------------
described in Section 2 hereof constituting a change in control of the Company
shall have occurred, you shall be entitled to the benefits provided in Section 4
hereof upon the subsequent termination of your employment within a period of two
(2) years following such change in control unless such termination is (a)
because of your death or Retirement, (b) by the Company for Cause or Disability,
or (c) by you other than for Good Reason.
(i) Disability; Retirement.
-----------------------
(A) If, as a result of your incapacity due to physical or mental
illness, you shall have been absent from your duties with the Company on a full
time basis for 130 consecutive business days, and within thirty (30) days after
written notice of termination is given you shall not have returned to the full
time performance of your duties, the Company may terminate this Agreement for
"Disability."
(B) Termination by the Company or you of your employment based on
"Retirement" shall mean termination in accordance with the Company's retirement
policy, including early retirement, generally applicable to its salaried
employees or in accordance with any retirement arrangement established with your
consent with respect to you.
(ii) Cause. The Company may terminate your employment for Cause.
-----
For the purposes of this Agreement, the Company shall have "Cause" to terminate
your employment hereunder upon (A) the willful and continued failure by you to
substantially perform your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness), after a
demand for substantial performance is delivered to you by the Board which
specifically identifies the manner in which the Board believes that you have not
substantially performed your duties, or (B) the willful engaging by you in gross
misconduct materially and demonstrably injurious to the Company. For purposes of
this paragraph, no act, or failure to act, on your part shall be considered
"willful" unless done, or omitted to be done, by you not in good faith and
without reasonable belief that your action or omission was in the best interest
of the Company. Notwithstanding the foregoing, you shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
you a copy of a resolution duly adopted by the affirmative vote of not less than
two-thirds of the entire membership of the Board at a meeting of the Board
called and held for the purpose (after reasonable notice to you and an
opportunity for you, together with your counsel, to be heard before the Board),
finding that in the good faith opinion of the Board you were guilty of conduct
set forth above in clauses (A) or (B) of the first sentence of this paragraph
and specifying the particulars thereof in detail.
(iii) Good Reason. You may terminate your employment for Good
------------
Reason. For purposes of this Agreement "Good Reason" shall mean:
(A) without your express written consent, the assignment to you of
any duties materially inconsistent with your positions, duties, responsibilities
and status with the Company immediately prior to a change in control;
(B) a reduction by the Company in your base salary as in effect on
the date hereof or as the same may be increased from time to time;
(C) the Company's requiring you to be based anywhere other than
the Company's facility where you performed your duties for the Company
immediately prior to a change in control; and,
(D) the failure by the Company to continue to effect any benefit
or compensation plan, pension plan, life insurance plan, health and accident
plan or disability plans in which you are participating at the time of a change
in control of the Company (or plans providing you with substantially similar
<PAGE>
benefits), the taking of any action by the Company which would adversely affect
your participation in or materially reduce your benefits under any of such plans
or deprive you of any material fringe benefit enjoyed by you at the time of the
change in control, or the failure by the Company to provide you with the number
of paid vacation days to which you are then entitled on the basis of years of
service with the Company in accordance with the Company's normal vacation policy
in effect on the date hereof;
(E) the failure of the Company to obtain the assumption of the
agreement to perform this Agreement by any successor as contemplated in
paragraph 5 hereof; or
(F) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of
subparagraph (iv) below (and, if applicable, subparagraph (ii) above); and for
the purposes of this Agreement, no such purported termination shall be
effective.
(iv) Notice of Termination. Any termination by the Company
-----------------------
pursuant to subparagraphs (i) or (ii) above or by you pursuant to subparagraph
(iii) above shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(v) Date of Termination. "Date of Termination" shall mean (A) if
---------------------
this Agreement is terminated by Disability, thirty (30) days after Notice of
Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such thirty (30) days
period), (b) if your employment is terminated pursuant to subparagraph (iii)
above, the date specified in the Notice of Termination, and (C) if your
employment is terminated for any other reason, the date on which a Notice of
Termination is given; provided that if within thirty (30) days after any Notice
of Termination one party notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the date on which
the dispute is finally determined, either by mutual written agreement of the
parties, by a binding and final arbitration award or by a final judgment, order
or decree of a court of competent jurisdiction (the time for appeal therefrom
having expired and no appeal having been perfected).
4. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
--------------------------------------------------------
(i) During any period that you fail to perform your duties
hereunder as a result of incapacity due to physical or mental illness, you shall
continue to receive your full base salary at the rate then in effect until this
Agreement is terminated pursuant to paragraph 3(i) hereof. Thereafter, your
benefits shall be determined in accordance with the Company's long term
disability plan, or a substitute plan then in effect.
(ii) If your employment shall be terminated for Cause, the Company
shall pay you your full base salary through the Date of Termination at the rate
in effect at the time Notice of Termination is given and the Company shall have
no further obligations to you under this Agreement.
(iii) If the Company shall terminate your employment other than
pursuant to paragraph 3(i) or 3(ii) hereof or if you shall terminate your
employment for Good Reason, then the Company shall pay to you as severance pay
in lump sum on the fifth day following the Date of Termination, the following
amounts:
(A) your full base salary through Date of Termination at the rate in
effect at the time Notice of Termination is given;
(B) in lieu of any further salary payments to you for periods subsequent
to the Date of Termination, an amount equal to the product of (a) the sum of
your annual base salary at the rate in effect as of the Date of Termination
multiplied by (b) the number one (1),
<PAGE>
(C) the Company shall also pay all legal fees and expenses incurred by you
as a result of such termination (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination or in seeking to obtain
or enforce any right or benefit provided by this Agreement.)
(iv) Unless you are terminated for Cause, the Company shall maintain in
full force and effect, for the continued benefit of you for one year after the
Date of Termination, all employee benefit plans and programs or arrangements in
which you were entitled to participate immediately prior to the Date of
Termination provided that your continued participation is possible under the
general terms and provisions of such plans and programs. In the event that your
participation in any such plan or program is barred, the Company shall arrange
to provide you with benefits substantially similar to those which you are
entitled to receive under such plans and programs. At the end of the period of
coverage, you shall have the option to have assigned to you at no cost and with
no apportionment of prepaid premiums, any assignable insurance policy owned by
the Company and relating specifically to you.
(v) You shall not be required to mitigate the amount of any payment
provided for in this paragraph 4 by seeking other employment or otherwise, nor
shall the amount of any payment provided for in this paragraph 4 be reduced by
any compensation earned by you as the result of employment by another employer
after the Date of Termination, or otherwise.
5. SUCCESSORS, BINDING AGREEMENT
-------------------------------
(i) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise)to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to you, to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Failure of the Company to
obtain such agreement prior to the effectiveness of any such succession shall be
a breach of this Agreement and shall entitle you to compensation form the
Company in the same amount and on the same terms as you would be entitled
hereunder if you terminated your employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this paragraph 5 or which otherwise becomes bound
by all the terms and provisions of this Agreement by operation of law.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amounts would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee, or
other designee or, if there be no such designee, to your estate.
6. NOTICE. For the purposes of this Agreement, notices and all other
------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Chief
Executive Officer of the Company with a copy to the Secretary of the Company, or
to such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
7. MISCELLANEOUS. No provisions of this Agreement may be modified,
-------------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by you and such officer as may be specifically designated by
the Board of Directors of the Company. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
<PAGE>
the same or at any prior to subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Missouri.
8. VALIDITY. The invalidity or unenforceability of any provisions of
--------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
10. ARBITRATION. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration in
St. Louis, Missouri in accordance with the rules of the American Arbitration
Association then in effect. Notwithstanding the pendency of any such dispute or
controversy, the Company will continue to pay you your full compensation in
effect when the notice giving rise to the dispute was given (including, but not
limited to, base salary) and continue you as a participant in all compensation,
benefit and insurance plans in which you were participating when the notice
giving rise to the dispute was given, until the dispute is finally resolved in
accordance with paragraph 3(v) hereof. Amounts paid under this paragraph are in
addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that you shall be entitled to seek specific performance of your right
to be paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter
which will then constitute our agreement on this subject.
Sincerely,
ALLIED HEALTHCARE PRODUCTS, INC.
By /s/ Uma Aggarwal
---------------------------------
Uma Aggarwal, President and
Chief Executive Officer
AGREED TO THIS 23RD DAY
OF FEBRUARY, 1999.
/s/ David Grabowski
- ---------------------
<PAGE>
EXHIBIT 10.22
<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
1720 Sublette Avenue
St. Louis, Missouri 63110
March 16, 1999
Mr. Thomas A. Jenuleson
Chief Financial Officer
Allied Healthcare Products, Inc.
1720 Sublette
St. Louis, Missouri 63110
Dear Mr. Jenuleson:
Allied Healthcare Products, Inc. (the "Company") considers the
establishment and maintenance of a sound and vital management to be essential to
protecting and enhancing the best interests of the Company and its shareholders.
In this connection, the Company recognizes that, as is the case with many
publicly held corporations, the possibility of a change in control may exist and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders. Accordingly, the
Company's Board of Directors has determined that appropriate steps should be
taken, to reinforce and encourage the continued attention and dedication of
members of the Company's management, including yourself, to their assigned
duties without distraction in the fact of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company.
In order to induce you to remain in the employ of the company, this letter
agreement sets forth the severance benefits which the Company agrees will be
provided to you in the event your employment with the Company is terminated
subsequent to a "change in control of the Company" (as defined in Section 2
hereof) under the circumstances described below.
1. TERM. This Agreement shall commence on the date hereof and shall
----
continue until December 31, 2000; provided, however, that commencing on January
1, 2001 and each January 1st thereafter, the term of this Agreement shall
automatically be extended for one additional year unless at least 30 days prior
to such January 1st date, the Company shall have given notice that it does not
wish to extend this Agreement, and provided, further, that following a change in
control of the Company (as hereinafter defined) the term of this Agreement shall
automatically extend to the date which is two years following such change in
control.
2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless
-------------------
there shall have been a change in control of the Company, as set forth below,
and your employment by the Company shall thereafter have been terminated in
accordance with Section 3 below. For purposes of this Agreement, a "change in
control of the Company" shall mean a change in control of a nature that would be
required to be reported in response to Item 5(f) of Schedule 14A promulgated
under the Securities Exchange Act of 1934, as amended ("Exchange Act"); provided
that, without limitation, such a change in control shall be deemed to have
occurred if (i) any "person" (as such term is used in Section 13(d) and 14(d)(2)
of the Exchange Act) is or becomes the beneficial owner, directly or indirectly,
of securities of the Company representing a majority of the ownership, directly
or indirectly, of securities of the Company representing a majority of the
combined voting power of the Company's then outstanding securities; or (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Company (the "Board") cease
<PAGE>
for any reason to constitute at least a majority thereof unless the election, or
the nomination for election by the Company's shareholders, of each new director
was approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period.
3. TERMINATION FOLLOWING CHANGE OF CONTROL. If any of the events
-------------------------------------------
described in Section 2 hereof constituting a change in control of the Company
shall have occurred, you shall be entitled to the benefits provided in Section 4
hereof upon the subsequent termination of your employment within a period of two
(2) years following such change in control unless such termination is (a)
because of your death or Retirement, (b) by the Company for Cause or Disability,
or (c) by you other than for Good Reason.
(i) Disability; Retirement.
-----------------------
(A) If, as a result of your incapacity due to physical or mental
illness, you shall have been absent from your duties with the Company on a full
time basis for 130 consecutive business days, and within thirty (30) days after
written notice of termination is given you shall not have returned to the full
time performance of your duties, the Company may terminate this Agreement for
"Disability."
(B) Termination by the Company or you of your employment based on
"Retirement" shall mean termination in accordance with the Company's retirement
policy, including early retirement, generally applicable to its salaried
employees or in accordance with any retirement arrangement established with your
consent with respect to you.
(ii) Cause. The Company may terminate your employment for Cause.
-----
For the purposes of this Agreement, the Company shall have "Cause" to terminate
your employment hereunder upon (A) the willful and continued failure by you to
substantially perform your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness), after a
demand for substantial performance is delivered to you by the Board which
specifically identifies the manner in which the Board believes that you have not
substantially performed your duties, or (B) the willful engaging by you in gross
misconduct materially and demonstrably injurious to the Company. For purposes of
this paragraph, no act, or failure to act, on your part shall be considered
"willful" unless done, or omitted to be done, by you not in good faith and
without reasonable belief that your action or omission was in the best interest
of the Company. Notwithstanding the foregoing, you shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
you a copy of a resolution duly adopted by the affirmative vote of not less than
two-thirds of the entire membership of the Board at a meeting of the Board
called and held for the purpose (after reasonable notice to you and an
opportunity for you, together with your counsel, to be heard before the Board),
finding that in the good faith opinion of the Board you were guilty of conduct
set forth above in clauses (A) or (B) of the first sentence of this paragraph
and specifying the particulars thereof in detail.
(iii) Good Reason. You may terminate your employment for Good
------------
Reason. For purposes of this Agreement "Good Reason" shall mean:
(A) without your express written consent, the assignment to you of
any duties materially inconsistent with your positions, duties, responsibilities
and status with the Company immediately prior to a change in control;
(B) a reduction by the Company in your base salary as in effect on
the date hereof or as the same may be increased from time to time;
(C) the Company's requiring you to be based anywhere other than
the Company's facility where you performed your duties for the Company
immediately prior to a change in control; and,
(D) the failure by the Company to continue to effect any benefit
or compensation plan, pension plan, life insurance plan, health and accident
plan or disability plans in which you are participating at the time of a change
in control of the Company (or plans providing you with substantially similar
benefits), the taking of any action by the Company which would adversely affect
<PAGE>
your participation in or materially reduce your benefits under any of such plans
or deprive you of any material fringe benefit enjoyed by you at the time of the
change in control, or the failure by the Company to provide you with the number
of paid vacation days to which you are then entitled on the basis of years of
service with the Company in accordance with the Company's normal vacation policy
in effect on the date hereof;
(E) the failure of the Company to obtain the assumption of the
agreement to perform this Agreement by any successor as contemplated in
paragraph 5 hereof; or
(F) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of
subparagraph (iv) below (and, if applicable, subparagraph (ii) above); and for
the purposes of this Agreement, no such purported termination shall be
effective.
(iv) Notice of Termination. Any termination by the Company
-----------------------
pursuant to subparagraphs (i) or (ii) above or by you pursuant to subparagraph
(iii) above shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(v) Date of Termination. "Date of Termination" shall mean (A) if
---------------------
this Agreement is terminated by Disability, thirty (30) days after Notice of
Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such thirty (30) days
period), (b) if your employment is terminated pursuant to subparagraph (iii)
above, the date specified in the Notice of Termination, and (C) if your
employment is terminated for any other reason, the date on which a Notice of
Termination is given; provided that if within thirty (30) days after any Notice
of Termination one party notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the date on which
the dispute is finally determined, either by mutual written agreement of the
parties, by a binding and final arbitration award or by a final judgment, order
or decree of a court of competent jurisdiction (the time for appeal therefrom
having expired and no appeal having been perfected).
4. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
--------------------------------------------------------
(i) During any period that you fail to perform your duties
hereunder as a result of incapacity due to physical or mental illness, you shall
continue to receive your full base salary at the rate then in effect until this
Agreement is terminated pursuant to paragraph 3(i) hereof. Thereafter, your
benefits shall be determined in accordance with the Company's long term
disability plan, or a substitute plan then in effect.
(ii) If your employment shall be terminated for Cause, the Company
shall pay you your full base salary through the Date of Termination at the rate
in effect at the time Notice of Termination is given and the Company shall have
no further obligations to you under this Agreement.
(iii) If the Company shall terminate your employment other than
pursuant to paragraph 3(i) or 3(ii) hereof or if you shall terminate your
employment for Good Reason, then the Company shall pay to you as severance pay
in lump sum on the fifth day following the Date of Termination, the following
amounts:
(A) your full base salary through Date of Termination at the rate in
effect at the time Notice of Termination is given;
(B) in lieu of any further salary payments to you for periods subsequent
to the Date of Termination, an amount equal to the product of (a) the sum of
your annual base salary at the rate in effect as of the Date of Termination
multiplied by (b) the number one (1),
<PAGE>
(C) the Company shall also pay all legal fees and expenses incurred by you
as a result of such termination (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination or in seeking to obtain
or enforce any right or benefit provided by this Agreement.)
(iv) Unless you are terminated for Cause, the Company shall maintain in
full force and effect, for the continued benefit of you for one year after the
Date of Termination, all employee benefit plans and programs or arrangements in
which you were entitled to participate immediately prior to the Date of
Termination provided that your continued participation is possible under the
general terms and provisions of such plans and programs. In the event that your
participation in any such plan or program is barred, the Company shall arrange
to provide you with benefits substantially similar to those which you are
entitled to receive under such plans and programs. At the end of the period of
coverage, you shall have the option to have assigned to you at no cost and with
no apportionment of prepaid premiums, any assignable insurance policy owned by
the Company and relating specifically to you.
(v) You shall not be required to mitigate the amount of any payment
provided for in this paragraph 4 by seeking other employment or otherwise, nor
shall the amount of any payment provided for in this paragraph 4 be reduced by
any compensation earned by you as the result of employment by another employer
after the Date of Termination, or otherwise.
5. SUCCESSORS, BINDING AGREEMENT
-------------------------------
(i) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise)to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to you, to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Failure of the Company to
obtain such agreement prior to the effectiveness of any such succession shall be
a breach of this Agreement and shall entitle you to compensation form the
Company in the same amount and on the same terms as you would be entitled
hereunder if you terminated your employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this paragraph 5 or which otherwise becomes bound
by all the terms and provisions of this Agreement by operation of law.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amounts would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee, or
other designee or, if there be no such designee, to your estate.
6. NOTICE. For the purposes of this Agreement, notices and all other
------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Chief
Executive Officer of the Company with a copy to the Secretary of the Company, or
to such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
7. MISCELLANEOUS. No provisions of this Agreement may be modified,
-------------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by you and such officer as may be specifically designated by
the Board of Directors of the Company. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior to subsequent time. No agreements or representations,
<PAGE>
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Missouri.
8. VALIDITY. The invalidity or unenforceability of any provisions of
--------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
10. ARBITRATION. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration in
St. Louis, Missouri in accordance with the rules of the American Arbitration
Association then in effect. Notwithstanding the pendency of any such dispute or
controversy, the Company will continue to pay you your full compensation in
effect when the notice giving rise to the dispute was given (including, but not
limited to, base salary) and continue you as a participant in all compensation,
benefit and insurance plans in which you were participating when the notice
giving rise to the dispute was given, until the dispute is finally resolved in
accordance with paragraph 3(v) hereof. Amounts paid under this paragraph are in
addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that you shall be entitled to seek specific performance of your right
to be paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter
which will then constitute our agreement on this subject.
Sincerely,
ALLIED HEALTHCARE PRODUCTS, INC.
By /s/ Uma Aggarwal
---------------------------------
Uma Aggarwal, President and
Chief Executive Officer
AGREED TO THIS 17TH DAY
OF MARCH, 1999.
/s/ Thomas A. Jenuleson
- --------------------------
<PAGE>
EXHIBIT 10.23
<PAGE>
AMENDMENT NUMBER ONE TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This Amendment Number One to Amended and Restated Loan and Security
Agreement ("Amendment") is entered into as of June 28, 1999, by and among
FOOTHILL CAPITAL CORPORATION ("Foothill"), ALLIED HEALTHCARE PRODUCTS, INC., B&F
MEDICAL PRODUCTS, INC., and LIFE SUPPORT SYSTEMS, INC. (jointly "Borrowers"), in
light of the following:
A. Borrowers and Foothill have previously entered into that certain
Amended and Restated Loan and Security Agreement, dated as of September 10, 1998
(the "Agreement").
B. Borrowers and Foothill desire to amend the Agreement as provided for
and on the conditions herein.
NOW, THEREFORE, Borrowers and Foothill hereby amend and supplement the
Agreement as follows:
1. DEFINITIONS. All initially capitalized terms used in this Amendment
-----------
shall have the meanings given to them in the Agreement unless specifically
defined herein.
2. AMENDMENTS.
----------
(a) The definition of "Applicable Margin" in Section 1.1 of the
Agreement is amended to read as follows:
"'Applicable Margin' E 99182510325 meansE 991825113 : (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 June
---------------
30, 1999, for its fiscal year ending June 30, 2000, for its fiscal year ending
June 30, 2001 or for its fiscal year ending June 30, 2002 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). 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)."
-----------------
(b) The Maturity Date in Section 3.4 of the Agreement is amended
to be January 6, 2003.
(c) Section 3.6 of the Agreement is amended to read as follows:
"EARLY TERMINATION BY BORROWERS. The provisions of Section 3.4 that
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
<PAGE>
occurs on or after August 16, 1999 but on or before August 6, 2000; (c)
$100,000 if such prepayment occurs on or after August 7, 2000 but on or
before August 6, 2001, and (d) $50,000 if such prepayment occurs on or
after August 6, 2001."
(d) The final sentence of Section 6.2 of the Agreement is amended to
read as follows:
"In the event that, at any time, Borrowers' excess borrowing
availability under Section 2.1 shall be less than $1,500,000, then Borrowers
------------
agree 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."
- ---
(e) Section 7.20(a) of the Agreement is amended to read as follows:
"(a) Minimum Tangible Net Worth. Minimum Tangible Net Worth, at
all times, of not less than $17,500,000, measured as of any month end
commencing with June 30, 1999 and continuing for each month
thereafter."
3. REPRESENTATIONS AND WARRANTIES. Borrowers hereby affirm to Foothill
that all of Borrowers' representations and warranties set forth in the Agreement
are true, complete and accurate in all respects as of the date hereof.
4. NO DEFAULTS. Borrowers hereby affirm to Foothill that no Event of
------------
Default has occurred and is continuing as of the date hereof.
5. CONDITION PRECEDENT. The effectiveness of this Amendment is
--------------------
expressly conditioned upon receipt by Foothill of an executed copy of this
Amendment and the attached acknowledgment.
6. COSTS AND EXPENSES. Borrowers shall pay to Foothill all of
--------------------
Foothill's out-of-pocket costs and expenses (including, without limitation,
the fees and expenses of its counsel, which counsel may include any local
counsel deemed necessary, search fees, filing and recording fees,
documentation fees, appraisal fees, travel expenses, and other fees)
arising in connection with the preparation, execution, and delivery of this
Amendment and all related documents.
7. LIMITED EFFECT. In the event of a conflict between the terms and
---------------
provisions of this Amendment and the terms and provisions of the Agreement,
the terms and provisions of this Amendment shall govern. In all other
respects, the Agreement, as amended and supplemented hereby, shall remain
in full force and effect.
8. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any
----------------------------
number of counterparts and by different parties on separate counterparts,
each of which when so executed and delivered shall be deemed to be an
original. All such counterparts, taken together, shall constitute but one
and the same Amendment. This Amendment shall become effective upon the
execution of a counterpart of this Amendment by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
<PAGE>
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ Kevin Belanger
--------------------
Title: Assistant Vice President
ALLIED HEALTHCARE PRODUCTS, INC.,
a Delaware corporation
By: /s/ Thomas A. Jenuleson
--------------------------
Title: Vice President and CFO
B&F MEDICAL PRODUCTS, INC.,
a Delaware corporation
By: /s/ Thomas A. Jenuleson
--------------------------
Title: Vice President and CFO
LIFE SUPPORT PRODUCTS, INC.,
a California corporation
By: /s/ Thomas A. Jenuleson
----------------------------
Title: Vice President and CFO
<PAGE>
EXHIBIT 10.24
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT ("Agreement") is made and entered into this
28th day of May, 1999, by and between Allied Healthcare Products, Inc. ("AHPI")
and Hospital Systems, Inc. ("HSI") (collectively "Seller") and David Miller or
his assignee ("Purchaser").
WITNESSETH:
WHEREAS, AHPI is a Delaware corporation with its principal place of
business in the City of St. Louis, Missouri; and
WHEREAS, HSI is a California corporation with its principal place of
business in the City of Oakland, California, and is a wholly owned subsidiary of
AHPI; and
WHEREAS, Purchaser is an individual residing in the State of California;
and
WHEREAS, Seller desires to sell to Purchaser and Purchaser desires to buy
from Seller certain assets of HSI as more specifically set forth herein ("The
Transaction"); and
WHEREAS, the parties desire to enter into this Agreement for the purposes
of memorializing the terms and conditions under which The Transaction will be
effectuated.
NOW THEREFORE, in consideration of the terms and conditions set forth
herein, and each act done by the parties pursuant to the terms hereof, and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. PURCHASE PRICE. Contemporaneously with the execution of this Agreement,
Purchaser shall pay to AHPI, via wire transfer, the sum of Five Hundred Fifty
Thousand and no/100 Dollars ($550,000.00), subject to adjustments as provided
herein ("Purchase Price"), into Foothill Capital Corporation's account using the
following wire transfer instructions:
Chase Manhattan Bank
New York, NY
ABA 021000021
Credit: Foothill Capital Corporation
Account: 323-266193
Re: Allied Healthcare Products, Inc.
Address, if needed:
The Chase Manhattan Bank
Funds Transfer Services
4 New York Plaza, 15th Floor
New York, New York 10004
Attn: Operations Manager
2. INVENTORIES. Upon and as evidenced by execution of this Agreement by the
parties, ownership of all HSI inventory of raw materials, work-in-progress, and
finished goods (collectively "Inventories") existing as of the date of execution
of this Agreement, are assigned and transferred to Purchaser by Seller. The
parties agree and acknowledge that the specific Inventories being purchased by
Purchaser hereunder are premised on the inventories shown on AHPI's 3/31/99 key
balance sheet data ("KBSD"), a true and correct copy of which is attached
hereto, incorporated herein by reference and marked Exhibit A. The parties
hereto further agree and acknowledge that of the Purchase Price, Four Hundred
Eighty Four Thousand and no/100 dollars ($484,000.00), subject to the physical
inventory as provided for hereinafter, is attributable to the purchase by
Purchaser of Inventories hereunder. Seller represents and warrants that all
Inventories sold to Purchaser hereunder are owned by HSI, free and clear of
liens and encumbrances. Seller further represents and warrants that Inventories
<PAGE>
shown on the attached Exhibit A consist of items of a quality and quantity
usable and salable in the ordinary course of HSI's business and are based on
quantities determined by physical count or measurement taken and effectuated
within the six (6) month period preceding execution of this Agreement and are
valued at the lower of a) cost (determined on a first-in, first-out basis) or b)
market value and on a basis consistent with that employed by AHPI in prior
years' consolidated financial statements.
3. PHYSICAL INVENTORY. The parties hereto agree that, prior to the
execution of this Agreement, a physical inventory ("Physical Inventory") of the
Inventories was effectuated by the parties in strict accordance with AHPI's
Principles and Procedures, a copy of which is attached hereto, incorporated
herein by reference, and marked Exhibit B. Any increase or decrease in the
Inventories from the KBSD, as determined by the Physical Inventory, shall cause
the Purchase Price to be adjusted, on a dollar for dollar basis, accordingly,
giving rise, in the case of an increase in the Inventories, to the obligation of
Purchaser to remit to AHPI, contemporaneously with the execution hereof, the
value of the Inventories, as determined by the Physical Inventory, in excess of
that set forth in the AHPI KBSD reflected in Exhibit A or, in the case of a
decrease in the Inventories, to the obligation of AHPI to remit to Purchaser the
difference of the value of the Inventories, as determined by the Physical
Inventory, and that set forth in the AHPI KBSD reflected in Exhibit A.
4. TANGIBLE PERSONAL PROPERTY. Upon and as evidenced by execution of this
Agreement by the parties, all trucks, automobiles, machinery, equipment,
furniture, fixtures, improvements, supplies, tools, dies, rigs, molds, patterns,
drawings, and all other tangible personal property owned or leased by HSI and
used in connection with the existing business and operations of HSI, and
specifically excluding cash, ("Tangible Personal Property") are assigned and
transferred to Purchaser. As of the date of execution of this Agreement by the
parties, no Tangible Personal Property purchased hereunder by Purchaser is held
under or subject to any security agreement, conditional sales contract, or other
title retention or security arrangement, save leased Tangible Personal Property
which shall be taken and assumed by Purchaser subject to the terms of any such
corresponding lease. Purchaser agrees to comply with and satisfy all terms of
said corresponding leases and indemnify and hold Seller harmless from any and
all obligations arising out of said leases following execution of this Agreement
by the parties hereto. All such Tangible Personal Property, whether or not
subject to a lease, will not be located other than in the possession of HSI. The
parties hereto agree and acknowledge that of the Purchase Price, Thirty Five
Thousand and no/100 dollars ($35,000.00) ("TPPPP") shall be attributable to
Tangible Personal Property. AHPI shall be solely responsible for and shall pay
applicable corresponding sales tax on the TPPPP.
<PAGE>
5. TANGIBLE PERSONAL PROPERTY PHYSICAL INVENTORY. The parties hereto agree
that a reconciliation of changes in the tangible personal property was
effectuated by the parties. The parties agree that any increase or decrease in
the Tangible Personal Property from that set forth in the KBSD shall cause the
Purchase Price to be adjusted on a dollar for dollar basis.
6. INTANGIBLE PROPERTY. Upon and as evidenced by execution of this
Agreement by the parties, all HSI interest, to the full extent of its interest,
in HSI trade names, the name of HSI, and all HSI trademarks, service marks,
domain names, copyrights, patent # 4,725,030, inventions, industrial models,
processes, designs, applications for patents, trade secrets, secret formulas,
customer lists, processes, know-how, computer programs and routines, technical
data and all other intangible assets of HSI used by HSI in the conduct of its
business and necessary for the prospective conduct of business by Purchaser in a
fashion consistent with the conduct of business by HSI as of the date of
execution of this Agreement are transferred and assigned by AHPI and HSI to
Purchaser. The parties hereto agree and acknowledge that of the Purchase Price,
Thirty One Thousand and no/100 dollars ($31,000.00) shall be attributable to
Intangible Property. To Seller's knowledge, the conduct of the business by HSI
as of the date of this Agreement does not conflict with the intellectual
property rights of any third-party. The parties agree to cooperate and
coordinate efforts in effectuating Purchaser's anticipated disclosed intent to
assume the name "Hospital Systems, Inc."
7. CONTRACTS, COMMITMENTS, AND LIABILITIES. Upon and as evidenced by
execution of this Agreement by the parties hereto, except as provided
hereinbelow, Purchaser shall assume and hold Seller harmless from all rights,
<PAGE>
duties, obligations, and entitlements arising out of, pertaining to and touching
upon all contracts and purchase orders for products manufactured by HSI in its
normal course of business ("Backlogs") and, further, Purchaser will assume and
hold Seller harmless from any contracts and purchase order obligations incurred
in the normal course of business related to Backlogs or, if not related to
Backlogs, those obligations incurred in the normal course of business of HSI by
the Management of HSI in Oakland, California.
Further, Purchaser shall assume and hold Seller harmless from those
obligations and duties arising under contracts and agreements specifically
identified, delineated and set forth by AHPI in the Additional Obligations
Schedule attached hereto, incorporated herein by reference, and marked Exhibit
D. Payments received to date by Seller as advance payments on the contracts and
obligations for services not performed or products not delivered as of the date
of this Agreement ("Obligation Payments Received To Date") assumed by Purchaser
are also noted and delineated in the attached Exhibit D and are acknowledged by
the parties to be accurate and correct. Contemporaneously with the execution of
this Agreement by the parties, Seller shall pay to Purchaser an amount equal to
the sum of the Obligation Payments Received To Date reflected on the attached
Exhibit D.
The parties further agree that AHPI will be responsible for and hold
Purchaser harmless from any and all claims, including those relating to
commissions, arising out of or pertaining to work performed by HSI on contracts
prior to the execution of this Agreement by the parties and Purchaser will be
responsible for and hold AHPI harmless from any claims, including those relating
to commissions, arising out of or pertaining to work performed by HSI on
contracts following the execution of this Agreement by the parties.
The parties further agree that commissions attributable and payable to AHPI
sales personnel will be paid, whether by Purchaser or Seller depending on the
date of the underlying order, at a rate not to exceed AHPI's individual
commission agreement corresponding to each such designated AHPI sales personnel.
The parties hereto agree, and Purchaser specifically approves, that for the
purposes of this Agreement, all Backlog orders, the corresponding responsible
AHPI sales personnel, and the corresponding commission rate, are set forth in
the Orders, Backlog Order Commission Schedule (Inclusive of Advances) attached
hereto, incorporated herein by reference and marked Exhibit C. Except as
otherwise specifically provided herein, AHPI will be responsible for and
indemnify Purchaser from any and all accounts payable incurred for products and
services delivered prior to the execution of this Agreement by the parties and,
further, AHPI will be entitled to receive from Purchaser any and all accounts
receivable received by Purchaser for products delivered and services rendered
prior to the execution of this Agreement by the parties.
8. LEASE ASSUMPTION ACKNOWLEDGEMENT. Purchaser specifically agrees and
acknowledges that Purchaser shall upon and contemporaneously with the execution
of this Agreement by the parties, fully assume and hold AHPI harmless from any
and all obligations, duties, and responsibilities arising out of, pertaining to,
or in any way relating to the lease on the building in which HSI currently
located, being commonly known and referred to as: 5301 Adeline Street, Oakland,
California.
9. EMPLOYMENT CONTRACT(S) RELEASE ACKNOWLEDGEMENT. Upon and as evidenced by
the execution of this Agreement by the parties, Purchaser and David Miller do
hereby fully and forever release Seller from any and all liabilities, duties and
obligations arising out of, pertaining to or touching upon the terms of any
employment agreement(s) executed by and between AHPI and David Miller and/or HSI
and David Miller prior to the date of this Agreement.
10. MUTUAL INDEMNIFICATION. AHPI agrees to indemnify and hold Purchaser
harmless from any and all liability associated with the assets or business of
HSI incurred prior to the execution of this Agreement by the parties hereto.
Purchaser agrees to indemnify and hold Seller harmless from any and all claims
arising out of, pertaining to, or touching upon the actions of Purchaser, or
Purchaser's subsequent assignee, if any, in the operation, use and actions of
Purchaser associated with the assets, employees or business of HSI Purchaser
incurred or otherwise occurring following execution of this Agreement by the
parties.
<PAGE>
11. UNION CONTRACT ACKNOWLEDGEMENT. Purchaser acknowledges that certain HSI
employees are members of a recognized labor union and are employed under and
pursuant to the terms and conditions of a labor agreement ("Union Contract");
that Purchaser is aware of the terms and conditions of said Union Contract; that
Purchaser is knowledgeable of the HSI employees employed under the terms of said
Union Contract, and that Purchaser, having given notice of the transaction
contemplated herein to the HSI employees employed under the terms of said Union
Contract, hereby assumes and is responsible for and shall indemnify and hold
harmless AHPI from any and all liability arising out of, pertaining to, or
touching upon the actions of Purchaser, and Purchaser's subsequent assignee, if
any, with respect to said Union Contract or HSI employees subject to said Union
Contract. Without restricting or otherwise in any way encumbering or limiting
the range of prospective action of Purchaser with respect to HSI employees,
Seller represents and warrants that all employees of HSI immediately preceding
the execution of this Agreement by the parties shall cease to be employees of
Seller following execution of this Agreement by the parties. Purchaser
represents that Purchaser will be offering HSI employees positions of employment
with Purchaser following execution of this Agreement. The parties further agree
AHPI will bear, on a pro-rated basis for the calendar year 1999 the employment
expenses, including accrued vacation pay and other ordinary and usual employee
benefits associated with union and salaried HSI employees through the date of
execution of this Agreement by the parties and, thereafter, Purchaser assumes
same, in toto.
12. CONFIDENTIALITY. The parties hereto agree and acknowledge that the
terms and conditions of this Agreement shall be held and maintained in strictest
of confidence. Neither party hereto will issue any public announcement regarding
the transactions contemplated herein without the written approval of the other
party hereto, save to the extent required by law, SEC regulations, lawfully
issued subpoena, or as part of a legal proceeding between the parties hereto or
their respective successors and/or assigns. The parties specifically acknowledge
that the parties hereto mutually approve of a public announcement for public
release contemporaneously with the execution of this Agreement by the parties,
the mutually approved text of which is attached hereto, incorporated herein, and
marked Exhibit E.
13. LEGAL REPRESENTATION. The parties hereto agree and acknowledge that
this Agreement is the product of bilateral negotiation, with the assistance of
the parties' respective legal counsel, and, as such, this Agreement shall not be
interpreted more favorably for any party hereto. All parties hereto represent
and warrant they have received and reviewed this Agreement in detail with their
respective legal counsel prior to the execution of same and that each party
hereto shall bear their respective legal fees and costs incurred in connection
with same.
14. BROKERAGE FEES. The parties hereto represent and warrant that there has
been no retention of any broker or sales personnel to assist with, facilitate
in, or otherwise further the transactions contemplated herein and, as such, no
fees therefore are required to be paid to any such individual or entity by the
respective parties hereto and each party hereto mutually indemnifies and fully
holds harmless the other(s) from any such claim brought for brokerage/sales fees
arising out of the indemnifying party's retention of any broker or sales fees
retained or authorized to procure fees for the effectuation of the sale
contemplated herein.
15. DUE DILIGENCE ACKNOWLEDGEMENT. Purchaser represents and warrants that
Purchaser has had the opportunity to and has, in fact, effectuated a full and
comprehensive due diligence inquiry into HSI, the assets purchased hereunder,
AHPI, and all other elements of the transactions contemplated herein and that
AHPI and HSI has made fully available to Purchaser all information, data,
reports, and documents requested by Purchaser in Purchaser's discharge of
Purchaser's due diligence inquiry and Purchaser further represents that
Purchaser is satisfied with Purchaser's due diligence findings within the
context of this Agreements and the transactions contemplated herein.
16. FUTURE RELATIONSHIP OF THE PARTIES. Following execution of this
Agreement, AHPI will continue to extend to Purchaser the then current transfer
prices for medical gas outlets provided by AHPI to HSI under existing contracts
executed prior the date of this Agreement. Prospectively, following the
execution of this Agreement by the parties, AHPI will sell to Purchaser medical
gas outlets and any other equipment manufactured or marketed by AHPI ordered by
Purchaser for use in the manufacturing of HSI products, including flow meters,
vacuum regulators, and other items to be attached to HSI products not otherwise
competitive with AHPI products at the most favorable price at which AHPI sells
similar items to its other non-affiliated customers. To facilitate the favorable
pricing contemplated herein, Purchaser shall be obligated to provide AHPI with
<PAGE>
copies of approved submittals in which such other equipment is ordered in
combination with manufactured HSI products prior to or contemporaneously with
the ordering of same from AHPI. Similarly, Purchaser will sell to AHPI HSI
products ordered by AHPI at the most favorable price at which Purchaser sells
similar items to its non-affiliated customers. The term of the prospective
"Favorable Price" relationship contemplated in this paragraph will begin upon
execution of this Agreement by the parties and shall continue for a period of
five (5) years thereafter, after which, said "Favorable Price" relationship may
be extended upon mutual written agreement by the parties.
17. WARRANTY AND SERVICE ISSUES. Purchaser agrees to cooperate fully with
AHPI and diligently undertake to honor and to resolve any service or warranty
issues on HSI products sold, shipped, or in use prior to the execution of this
Agreement by the parties and, further, shall be responsible for honoring fully
and otherwise discharging obligations and duties arising under warranties for
said HSI products sold and shipped after the execution of this Agreement.
18. CHOICE OF LAW AND VENUE. This Agreement shall be governed by and
interpreted under the laws of the State of California. Any suit or cause of
action arising out of, touching upon, or pertaining to this Agreement or
performance hereunder ("Matter-In-Controversy") shall be brought solely in
arbitration under and pursuant to the Rules of Arbitration Procedure as then in
force and effect with the American Arbitration Association ("AAA"). The AAA will
be the sole forum for the submission and binding resolution of any
Matter-In-Controversy. As a strict condition precedent to pursuit of any remedy
in arbitration hereunder, the parties hereto agree to participate in good faith
in non-binding mediation of the Matter-In-Controversy under and pursuant to the
Rules of Mediation and Mediation infrastructure in place with the U.S. District
Court for the District in which the arbitration is filed. The parties agree and
acknowledge that legal relief alone will be insufficient to remedy the breach or
threatened breach of this Agreement by one of the parties hereto and,
accordingly, the parties hereto agree and acknowledge that in the event of a
breach or threatened breach of this Agreement, the other party(ies) may pursue
and procure, in addition to legal remedies, equitable relief in the form of a
temporary restraining order, preliminary injunction and permanent injunction.
The prevailing party in a cause of action brought to enforce the terms hereof
shall be entitled to recover from the non-prevailing party reasonable legal
fees, costs, and related expenses, including arbitration forum fees, incurred in
connection with same.
19. RELEASE. Purchaser does hereby fully and forever release and hold
Seller, collectively, its assigns, successors, and agents, harmless from any and
all causes of action, charges, and liability, if any, existing or arising out of
any incident, act or omission occurring subsequent to the execution of this
Agreement by the parties. Seller does hereby release fully and forever release
and hold Purchaser, his heirs, assigns, and agents, harmless from any and
claims, causes of action, charges, and liability, if any, existing or arising
out of any incident, act or omission occurring prior to the execution of this
Agreement by the parties.
20. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which shall be one
and the same instrument.
21. AMENDMENTS. No amendment or alternation of the terms of this Agreement
shall be valid unless made in writing and signed by all of the parties hereto.
22. SEVERABILITY. The holding of any provision of this Agreement to be
invalid or unenforceable by the Court of competent jurisdiction shall not affect
any other provision of this Agreement, which shall remain in full force and
effect.
23. WAIVER OF BREACH. The parties agree and acknowledge that a waiver by
either party of a breach of any provision or term contained herein shall not
operate or be construed as a waiver of any subsequent breach by that same party.
24. ASSURANCES. The parties agree to execute and deliver all such further
documents, agreements and instruments and to take such other and further action
as may be necessary, appropriate, or reasonably required to carry out the
purpose and effectuate the transactions and intent of this Agreement.
<PAGE>
25. HEADINGS. The headings contained and appearing in the text of this
Agreement are for the purposes of facilitating ease of reference and shall not
be considered a part of this Agreement or in any way modify, amend, or affect
the provisions and terms set forth herein.
26. ENTIRE AGREEMENT. This Agreement contains the entire agreement among
the parties hereto and supersedes all prior writings, agreements, letters of
intent and representations of this parties with respect to the subject matter
hereof.
27. FURTHER ASSURANCES. The parties agree to (a) furnish upon request to
each other such further information (b) deliver to each other such documents or
(c) do such things as the other party may reasonably request that may arise as
the result of an order, ruling or subpoena rendered by any court, administrative
agency or governmental body (National, State, or local).
IN WITNESS WHEREOF, the parties hereto have agreed to the terms set forth
hereinabove and have executed and delivered this Agreement on the day and year
first above written.
PURCHASER:
DAVID H. MILLER
Address:_______________________
_______________________________
BY: /s/ David H. Miller
----------------------
DAVID H. MILLER, individually and on behalf
of assignee, if any.
STATE OF CALIFORNIA )
) SS
CITY OF OAKLAND )
Before me personally appeared, DAVID H. MILLER, individually and on behalf
of assignee, if any, being first duly sworn upon his oath and states that he
agrees to the terms contained in the foregoing instrument and agrees to be bound
by same.
IN TESTIMONY WHEREOF, I have hereunto set my hand and seal this 28th day of
May, 1999.
/s/ Willie H. McBride
------------------------
NOTARY PUBLIC
My Commission Expires: 2-27-2001
SELLER:
ALLIED HEALTHCARE PRODUCTS, INC.
1720 Sublette Ave.
St. Louis, Mo. 63110
BY: /s/ Allen C. McDonnell
--------------------------
Name: Allen McDonnell
Title: Treasury Manager
<PAGE>
STATE OF CALIFORNIA )
) SS
CITY OF OAKLAND )
Before me personally appeared, Allen McDonnell, Treasury Manager, being
first duly sworn upon his oath and states that Allied Healthcare Products, Inc.
agrees to the terms contained in the foregoing instrument and agrees to be bound
by same.
IN TESTIMONY WHEREOF, I have hereunto set my hand and seal this 28th day of
May, 1999.
/s/ Willie H. McBride
------------------------
NOTARY PUBLIC
My Commission Expires: 2-27-2001
HOSPITAL SYSTEMS, INC.
Address:_____________________________
_____________________________________
BY: /s/ Allen C. McDonnell
-------------------------
NAME: Allen McDonnell
TITLE: Treasury Manager
STATE OF CALIFORNIA )
) SS
CITY OF OAKLAND )
Before me personally appeared, Allen McDonnell, being first duly sworn upon
his oath and states that Hospital Systems, Inc. agrees to the terms contained in
the foregoing instrument and agrees to be bound by same.
IN TESTIMONY WHEREOF, I have hereunto set my hand and seal this 28th day of
May, 1999.
/s/ Willie H. McBride
------------------------
NOTARY PUBLIC
My Commission Expires: 2-27-2001
<PAGE>
EXHIBIT A
3/31/99 AHPI KEY BALANCE SHEET DATA
<PAGE>
Allied Healthcare Products, Inc.
Architectural Products Division
Key Balance Sheet Data
March 31, 1999
<TABLE>
<CAPTION>
<S> <C>
Inventory $713,299
Allowance for Obsolescence (228,928)
---------
Net Inventory 484,371
Net Fixed Assets 35,541
---------
Total Assets $519,912
=========
</TABLE>
<PAGE>
EXHIBIT B
AHPI PRINCIPLES AND PROCEDURES
<PAGE>
WORK IN PROCESS
To the extent possible, instructions for the component inventory should be
followed when doing the WIP inventory.
MANUFACTURING AREA
Parts issue: All components will be issued and relieved from the component
inventory before the physical inventory begins. The issued components will be
moved to the production are and stored by part number. To the extent possible,
parts should be consolidated so there is only one location for each part.
Once the physical inventory begins, no material is to be moved within component
or WIP areas or to or from the component to the WIP areas.
Count: Components are to be counted and the counts entered on the inventory
tags supplied. If a component is stored in more than one location, a separate
card should be written for each location.
Components in sub-assemblies and semi-finished goods are to be counted at each
manufacturing location. The components should be listed on an inventory sheet,
one for each manufacturing location. This sheet will be supplied. If a part
number exists for a completed sub-assembly, that number should be used instead
of the list of components.
CLEAN ROOM
Material in the Clean Room will be counted. All components will be counted and
included in the component inventory.
---------
Sub assemblies should be consolidated and their components listed on sheets
similar to those used for sub-assembly counts in the manufacturing area. If a
part number exists for a sub-assembly, that number should be used instead of the
list of components.
SUMMARY AND VALUATION
Listing: WIP inventories will be listed, priced and summarized on an Excel
spreadsheet.
<PAGE>
EXHIBIT C
ORDERS, BACKLOG ORDER COMMISSION SCHEDULE
(INCLUSIVE OF ADVANCES)
<PAGE>
<TABLE>
<CAPTION>
Hospital Systems Backlog
Open Orders as of 31 May 99
w/Commisions
Sales Advances Outstanding
Job Project City State Zone to Date Billing % to Billl Cust # VCR Commission
- ---- ------------------------ ------------ ------ ----- ---------- ------------- ----------- ------ ----- -----------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8505 Arab Care DayCare
Center 961 $ #DIV/01 No PO 1.31% $
8514 Vassar Brothers Hospital Poughkeepsie NY 404 $ 236,754.30 84% 200908 3.25% $ 7,694.51
8530 Columbia Garden Park Gulfport MS 426 $ 516.17 $ 85,490.00 99% 206177 2.34% $ 2,000.47
8542 VAMC Waco TX 484 $ 57,332.50 100% 205743 1.97% $ 1,129.45
8551 VAMC Phoenix AZ 445 $ 56,072.40 97% 022420 2.00% $ 1,121.45
8552 VAMC Elsmere DE 413 $ 44,531.25 100% 205658 3.25% $ 1,447.27
8555 VAMC New Orleans LA 426 $ 42,350.00 97% 205732 2.34% $ 990.99
8571 Illinois Masonic M/C Chicago IL 430 $ 32,933.12 100% 205253 2.97% $ 978.11
8575 St. Joseph's Womans
Med Ctr. Tampa FL 422 $ 117,383.00 100% 134742 2.69% $ 3,157.60
8579 VAMC Northhampton MA 404 $ 985.00 100% 206162 3.25% $ 32.01
8580 San Juan Municipal San Juan PR 930 $ 22,154.04 100% 205283 1.06% $ 234.83
8581 San Juan Municipal San Juan PR 930 $ 25,176.00 100% 205283 1.06% $ 266.87
8584 Bowie State University Bowie MD 418 $ 37,650.00 100% 206179 2.29% $ 862.19
8585 Del Barton Hospital Morristown NJ 404 $ 1,104.00 100% 010865 3.25% $ 35.88
8598 Hospital Hermanos
Melendez PR 930 $ 1,810.00 100% 205263 1.06% $ 19.19
8599 St Jude Children's
Hospital Memphis TN 434 $ 68,834.00 3.05% $ 2,099.44
8601 Holzer M/C Gampois OH 438 $ 2,800.00 100% 205253 3.64% $ 101.92
8602 Columbia Hospital Huntsville AL 422 $ 5,445.40 87% 206251 2.69% $ 146.48
8603 Istanbul Memorial
Hospital Istanbul TURKEY 946 $16,268.20 $ 124,402.00 100% 011674 1.06% $ 1,318.66
8605 Kings County Hospital Brooklyn NY 404 $ 226,543.78 100% 025590 3.25% $ 7,362.67
8606 Hospital CIMA in Jan San Jose CR 904 $ 15,540.00 100% 197690 1.06% $ 164.72
8607 Inonu Hospital Turkey 946 $ 28,480.00 100% 011674 1.31% $ 373.09
8608 John Muir M/C Concord CA 450 $ 13,825.00 100% 139022 2.41% $ 333.18
8609 Salem Hospital Salem OR 450 $ 26,388.00 100% 206290 2.41% $ 635.95
8610 Tripler Army Hospital Honolulu HI 455 $ 18,046.00 100% 085523 3.32% $ 599.13
------------- -----------
Totals $16,784.37 $1,292,029.79 $ 33,108.06
</TABLE>
<PAGE>
EXHIBIT D
ADDITIONAL OBLIGATIONS SCHEDULE
[To Be Completed at Time of Closing]
Credits to Purchaser:
Credits to Seller:
<PAGE>
EXHIBIT D
ADDITIONAL OBLIGATIONS SCHEDULE
DUE TO DAVID MILLER (PURCHASER):
<TABLE>
<CAPTION>
<S> <C>
ISTANBUL ORDER $16,267.20
COLUMBIA GARDEN PREPAY 510.00
ESTIMATED HRLY IRA PAYMENT 211.20
PHYSICAL INVENTORY DECREASE 25,153.10
HOURLY VACATION 18,356.16
SALARY VACATION 9,181.33
----------
$69,678.99
DUE TO ALLIED (SELLER):
JUNE 1999 PREPAID DENTAL INS 1,350.33
ESTIMATED PAYROLL ACCOUNT RF 1,288.36
MILLER & ANGSTADT 812.27
----------
3,450.96
NET DUE TO DAVID MILLER @ CLOS $66,228.03
==========
</TABLE>
<PAGE>
EXHIBIT E
MUTUALLY APPROVED PRESS RELEASE TEXT
<PAGE>
NOT FOR RELEASE
WITHOUT APPROVAL
Contacts: Uma Nandan Aggarwal, Tom Goyda or Shari Shane
President and CEO, or Shandwick
Tom Jenuleson, CFO (314) 436-6565
(314) 771-2400
ALLIED HEALTHCARE PRODUCTS SELLS
HEADWALL MANUFACTURING DIVISION
ST. LOUIS, June 1, 1999 - Allied Healthcare Products, Inc. (Nasdaq: AHPI) today
announced that it has Sold its Hospitals Systems Inc. (HSI) division to the
group's management team. HSI, based in Oakland, Calif., manufactures
pre-fabricated headwall units that contain piping, wiring and cutlets for
medical gas, suction and electrical systems, as well as fixtures for monitoring
equipment. The units are typically used by medical facilities when remodeling
patient rooms and intensive care areas. As previously reported, the division's
financial results had been affected by weak market conditions. "Allied will
focus on maintaining and expanding its strong market presence in the respiratory
care, medical gas and emergency medical products segments," said Uma Nandan
Aggarwal, the company's president and chief executive officer. "Selling HSI to
the management group gives us the capacity to direct our resources at
strengthening Allied's base business, while ensuring continuity for HSI's
customers, employees and suppliers." Financial details of the transaction were
not released. The sale of HSI is not expected to have any Material impact on
Allied's financial results. Allied Healthcare Products, Inc., based in St.
Louis, is a leading manufacturer of respiratory care Products, medical gas
equipment and emergency medical products used in a wide range of hospital and
Alternate care settings.
<PAGE>
EXHIBIT 10.25
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into effective
as of the 24th day of August, 1999, by and between EARL REFSLAND a resident of
Missouri ("Executive") and ALLIED HEALTHCARE PRODUCTS, INC., a Delaware
corporation, for itself and on behalf of any of its current or future subsidiary
corporations (collectively referred to in this Agreement as the "Company").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of designing, manufacturing
and distributing a variety of respiratory products used in the health care
industry in a wide range of hospital and alternate site settings, including, but
not limited to, sub-acute care facilities, home health care and emergency
medical care (the "Business");
WHEREAS, the Company desires to employ Executive, and Executive desires
employment with the Company, in accordance with and only on the terms,
conditions and covenants set out in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, covenants, and agreements hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties hereto, the Company and Executive agree as follows:
1. Term. The term of Executive's employment with the Company begins on
September 13th, 1999, or on such earlier date as the parties may hereafter
mutually agree (hereinafter the "Effective Date"), and will continue through
and including the fourth anniversary thereafter (as the same may be extended or
renewed by mutual agreement, the "Expiration Date"), unless Executive's
employment is earlier terminated as hereinafter provided (the period from the
Effective Date to the Expiration Date or any such earlier date in which
Executive's employment is terminated pursuant to the provisions of this
Agreement is referred to herein as the "Term").
2. Duties of Executive. During the Term, Executive shall serve as the
Chief Executive Officer and President of the Company, and shall have, subject to
the directives of the Board of Directors of the Company (the "Board"),
supervision and control over, and responsibility for, the general management and
operation of the Company, and shall have such other powers and duties as may
from time to time be prescribed by the Board. Executive shall devote his full
working time and best efforts, skill and attention to the Business and interests
of the Company. Executive shall follow and act in accordance with all policies
established by the Company from time to time. During the Term, Executive shall
not actively engage in or be involved in any business activities other than on
behalf of the Company unless prior written consent is provided by the Board;
provided, however, Executive may continue to serve as Chairman of Andros
- -------- -------
Technologies, Inc., provided such position does not involve active management,
may serve as a director of other organizations with the prior consent of the
Company, such consent not to be unreasonably withheld, and may engage in such
charitable endeavors and/or other passive ownership activities, provided such
activities do not, whether individually or in the aggregate, materially
interfere with Executive's duties hereunder. In addition, during the Term, the
Company agrees to use reasonable efforts to cause Executive to be nominated to
the Board.
3. Compensation. As consideration for the services rendered by
Executive pursuant to this Agreement, the Company agrees to pay to Executive an
initial salary at the rate of Two Hundred Eighty Thousand Dollars ($280,000) per
year for the first year of the Term ("Annual Salary"), which amount shall be
payable in accordance with the Company's normal payroll practices in effect from
time to time. Executive's annual salary for the remainder of the Term will be
determined at the sole discretion of the Board, but in no event will Executive's
annual salary be reduced below the initial annual salary amount stated herein.
All payments of compensation will be subject to normal employee withholding and
all other applicable tax deductions.
4. Fringe Benefits. During the Term, Executive may participate in the
fringe benefit programs that may generally be made available by the Company to
management level employees of the Company from time to time (collectively,
"Fringe Benefits"). Executive's participation in the Fringe Benefits offered by
the Company shall be in accordance with the participation guidelines that the
<PAGE>
Company may establish from time to time and may require a financial contribution
by Executive.
5. Other Compensation.
(a) Incentive Compensation. Commencing on and after the first
-----------------------
anniversary of the Effective Date, Executive shall be entitled to receive, in
addition to his Annual Salary, such incentive compensation payments as the
Board, in its sole discretion, may determine appropriate or necessary.
(b) Stock Options. Concurrently herewith, the Company is granting
-------------
Executive the right and option to acquire 542,000 shares of the Company's common
stock, $.01 par value, at a price per share equal to $2.00 (the "Stock
Options"). Stock Options shall vest at a rate of six and one-quarter percent
(6.25%) per three (3) month period, commencing three (3) months after the
Effective Date, and on each three (3) month anniversary thereafter, and any
non-vested Stock Options shall not be exercisable. Such Stock Options are
subject to the provisions and conditions more particularly set forth in that
certain 1999 Incentive Stock Plan dated July 15, 1999 (the "Plan") and the
letter from the Company granting such Stock Options in substantially the form
attached hereto as Exhibit A and incorporated herein by this reference. The
----------
Stock Options shall immediately vest upon the occurrence of a Change of Control
(as hereinafter defined), the termination of Executive's employment by the
Company without Cause (as hereinafter defined), the death or Disability (as
hereinafter defined) of Executive, the termination of Executive's employment by
Executive for Good Reason (as hereinafter defined), or the payment by the
Company of any cash dividends in respect of its issued and outstanding common
stock.
(c) Perquisites. The Company agrees that: (i) during the Term,
-----------
the Company shall furnish to the Executive an automobile of a type mutually
acceptable to the Company and the Executive and the Company shall pay all of the
expenses for gasoline, insurance, maintenance and repairs for such automobile,
and (ii) at such time, and for so long as, the Board, in its discretion,
determines necessary or appropriate, the Company will pay the monthly assessment
and/or other monthly charges of the Executive for his existing membership in
Algonquin Golf Club.
(d) Vacations. During the Term, the Executive shall be entitled
---------
to four (4) weeks of vacation for each year of employment.
6. Expenses. The Company agrees to directly pay or reimburse Executive
for necessary and reasonable travel, entertainment and other business expenses
actually incurred by Executive in connection with Executive's duties hereunder
and approved by the Company pursuant to the Company's existing practices. The
Company shall reimburse Executive for such approved business expenses within a
reasonable time after submission by Executive of true and correct supporting
documentation as may be required by the Company.
7. Confidentiality. Executive acknowledges and agrees that:
(a) Executive has created and will continue to create, has and will
continue to have access to, and has received and will continue to receive
information, documents, and materials of a confidential and proprietary nature
to the Company and which may contain trade secrets of the Company or the
Company's customers, including, without limitation, designs, drawings, formulas,
plans, financial information, processes, methods, customer lists, prospective
customers and other prospects, business plans and other information
(collectively, "Confidential Information"), which would not have been or be
disclosed to Executive except for Executive's employment with the Company.
(b) Executive hereby acknowledges and agrees that Confidential
Information is an asset of the Company, is of a confidential nature and is not
generally known to the public, and, in order to protect and preserve the
goodwill of the Company, must be kept strictly confidential and used only in the
conduct of the Company's business from time to time.
<PAGE>
(c) Executive hereby agrees that during his lifetime he will not
disclose or reveal in any manner whatsoever any of the Confidential Information
to any third party, except in the course of and during Executive's employment
with the Company. Executive shall not use any of the Confidential Information
in any manner for his own benefit or for the benefit of any other person or
entity.
(d) Executive will promptly return to the Company all written or
recorded Confidential Information, including all copies and reproductions
thereof in Executive's possession or under Executive's control, upon the earlier
of the Company's request or upon the termination of Executive's employment with
the Company. At such time, Executive shall also give the Company all notes,
summaries and analyses prepared by Executive which relate to or include
Confidential Information.
8. Survival of Confidentiality Provisions. Executive acknowledges and
agrees that the provisions of paragraph 7 herein will survive the termination of
Executive's employment hereunder and will continue in full force and effect
during and throughout Executive's lifetime.
9. Covenants Against Competition and Solicitation. Executive covenants
and agrees that, at all times while he is employed by the Company hereunder and
for a period of two (2) years after the effective date of the termination of
Executive's employment (whether or not such occurs after the Term of this
Agreement), he will not, directly or indirectly, in association or in
combination with any other person or entity, as an officer, director or
shareholder of a corporation, as a member or manager of a limited liability
company, or as an employee, agent, independent contractor, consultant, advisor,
joint venturer, partner or otherwise, whether or not for pecuniary benefit,
whether or not alone or in association with any person or entity:
(a) Carry on, be engaged in, concerned or take part in, or render
services, advise or lend money to any person or entity engaged in the Business
currently engaged in by the Company or any business in which the Company may
engage while Executive is employed by the Company hereunder; provided, however,
--------- --------
and notwithstanding the foregoing, after the Executive is no longer employed
with the Company, Executive may carry on, be engaged in, concerned or take part
in, or render services, advise or lend money to any person or entity engaged in
the business of manufacturing respiratory products which do not compete,
directly or indirectly, in any manner with any product or service of the Company
which, individually or in the aggregate, generated gross revenues to the Company
in excess of Five Hundred Thousand Dollars ($500,000) as of the effective date
of Executive's termination of employment with the Company.
(b) Engage in or own, in whole or in part, manage, provide
financing to, operate or otherwise carry on the business of designing,
manufacturing and distributing respiratory products used in the health care
industry and which, individually or in the aggregate, generated annual gross
revenues to the Company in excess of Five Hundred Thousand Dollars ($500,000),
except: (i) in the course of Executive's performance of his duties during his
employment and then only for the benefit of the Company; and (ii) as a holder of
less than 1% of the stock of any corporation whose securities are traded on a
national securities exchange.
(c) Solicit, assist the solicitation of, or encourage any employee
or independent contractor of the Company to terminate or otherwise modify that
person's or entity's employment with or retention by the Company for the purpose
of encouraging that person or entity to become employed or retained by any other
person or entity unrelated to the Company.
(d) Solicit, assist the solicitation of, or encourage any person
or entity who was a customer of the Company within the one (1) year period
immediately preceding the date as of which Executive's employment is terminated
hereunder, to: (i) provide the same or similar services as provided by the
Company in competition with the Company; (ii) modify in any manner that person's
or entity's business relationship with the Company; or (iii) modify the terms or
reduce the volume of business which that person or entity transacts with the
Company.
(e) The geographic scope of the covenants contained in
subparagraphs (a) and (b) above shall extend to any state, county, municipality
or other locality within or without the United States wherein the Company sold
or actively attempted to sell products which, individually or in the aggregate,
generated annual gross revenues to the Company in excess of Five Hundred
Thousand Dollars ($500,000) at anytime during Executive's employment hereunder.
<PAGE>
(f) If Executive terminates his employment with the Company for
Good Reason (other than and excluding on account of a Change of Control), and
irrevocably and unconditionally waives, in writing, his right to the payment and
other benefits set forth in Section 12(d) hereof, then the covenants contained
in this Section 9 shall terminate.
10. Discoveries and Inventions. Executive agrees that all
developments, discoveries and inventions relating to the Company's Business
(collectively referred to as the "Inventions") which Executive conceives or
makes while employed by the Company shall be the exclusive property of the
Company whether the Company, in its sole discretion, decides to pursue or not to
pursue a patent, copyright, trademark, service mark or other registered
embodiment of any kind of any country for such Invention. Whenever requested
by the Company, whether during or subsequent to Executive's employment with the
Company, Executive shall execute patent applications and other instruments
considered necessary by the Company to apply for and obtain patents of the
United States and foreign countries covering any such developments, discoveries
or inventions. Executive agrees to assign, and does hereby assign to the
Company, all title, interest and rights, including intellectual property rights,
in and to any and all Inventions, and Executive agrees to assign to the Company
any patents or patent applications arising from any such Inventions, and agrees
to execute and deliver all such assignments, patents, patent applications and
other documents as the Company may direct. Executive agrees to cooperate fully
with the Company, both during and after Executive's employment with the Company
is terminated, to enable the Company to secure and maintain rights in any such
Inventions in any and all countries. Without limiting the foregoing, Executive
hereby acknowledges that all works of authorship or invention which relate in
any manner to the Company's Business which are developed or written during the
term of Executive's employment with the Company are "works made for hire".
Accordingly, Executive agrees to assign, and does hereby assign to the Company,
any and all copyright rights and all other rights and all material prepared by
Executive during the term of Executive's employment which relate to the Business
of the Company.
11. Employer's Remedy. Executive acknowledges and agrees that the
covenants set forth in paragraphs 7, 8, 9 and 10 are necessary to protect the
Company's legitimate business interests, including, without limitation, the
Company's strong interest in the Confidential Information and Inventions and the
Company's strong interest in maintaining an undisrupted work place. Executive
acknowledges and agrees that the covenants are reasonable in scope, area, and
duration, particularly in light of Executive's responsibilities and the
international scope of the Company's business. Executive acknowledges that the
services to be rendered by him in accordance with the provisions of this
Agreement are of a special and unique character, and that the restrictions and
obligations on his activities as contained in paragraphs 7, 8, 9 and 10 are
reasonable and are required for the Company's protection. Executive hereby
agrees that if he violates any of the provisions contained in paragraphs 7, 8, 9
and 10, the Company may seek, at law or in equity, damages without regard to
paragraph 13 herein. The Company may also seek, without regard to paragraph 13
herein, to enjoin Executive from engaging in any activity in violation of this
Agreement. All rights and remedies of the Company hereunder, at law or in
equity, are cumulative in nature and will in no way be, or be deemed to be, the
exclusive rights and remedies of the Company. If any court finds that the
restrictions set forth in paragraphs 7, 8, 9 and 10 are unreasonable, this
Agreement will be interpreted to include the restrictions contained herein to
the extent such restrictions are permissible under law, giving effect to the
intent of the parties that the restrictions contained herein shall be effective
to the fullest extent possible.
12. Termination of Employment.
(a) Termination By Company without Cause. The Company shall have
------------------------------------
the right to terminate Executive's employment hereunder without Cause (as
defined below) upon providing Executive with written notice thereof. Any such
termination of employment shall be effective on the date specified in such
notice, or if no date is specified, then upon receipt by Executive of such
notice. In the event of any such termination of employment, (i) the Company
shall continue to pay to Executive, for the period (the "Continuation Period")
beginning on the effective date of such termination of employment and ending two
(2) years after the effective date of such termination of employment, an amount
per month equal to one-twelfth of Executive's then Annual Salary during the
<PAGE>
Continuation Period in accordance with the provisions of Section 3 hereof; (ii)
throughout the Continuation Period, Executive shall be entitled to continued
participation under all Fringe Benefit programs in which he participates in
accordance with the terms thereof to the extent such participation is allowed
pursuant to the terms thereof and applicable law with no increase in any amounts
payable by the Company with respect thereto as a result of Executive no longer
being employed by the Company, or if Executive is not allowed continued
participation pursuant to the terms thereof and applicable law, then under
another reasonably equivalent plan providing for the same or similar coverage
but with no increase in any amounts payable by the Company with respect thereto
as a result of Executive no longer being employed by the Company; (iii) the
Company shall pay to Executive his unpaid Annual Salary, if any, earned prior to
the effective date of the termination of Executive's employment in accordance
with the Company's normal policies for same; (iv) the Company shall pay to
Executive any incentive compensation payments to which Executive is entitled as
of the effective date of the termination of Executive's employment in accordance
with the Company's normal policies for same; and (v) the Company shall pay to
Executive any business expenses remaining unpaid on the effective date of the
termination of Executive's employment for which Executive is entitled to be
reimbursed under Section 6 of this Agreement; provided, however,that without
-------- --------
limiting any other remedy available hereunder, such payments shall immediately
terminate upon a breach or violation by Executive of the provisions of Sections
7, 8, 9 or 10 hereof and, in such event, the Company shall be entitled, in
addition to any other remedies it may have, to reimbursement from Executive of
the amount paid by the Company to Executive during the Continuation Period
pursuant to subparagraph (i) above.
(b) Termination by Company for Cause. The Company shall have the
---------------------------------
right to terminate Executive's employment hereunder for Cause (as defined below)
upon providing Executive with written notice thereof. Any such termination of
employment shall be effective on the date specified in such notice, or if no
date is specified, then upon receipt by Executive of such notice. In the event
of such termination of employment, the Company shall pay to Executive (i) his
unpaid Annual Salary through the effective date of such termination of
employment, and (ii) any business expenses remaining unpaid on the effective
date of such termination of employment for which Executive is entitled to be
reimbursed under Section 6 of this Agreement.
(c) Death or Disability. Executive's employment with the Company
---------------------
shall terminate upon the death or Disability (as hereinafter defined), of
Executive. Such termination of employment shall be effective as of the date of
Executive's death, or in the event of Executive's Disability, upon the Company's
giving Executive written notice thereof. In the event of such termination of
employment due to death or Disability, Executive (or his estate or other
designated beneficiary upon his death) shall be entitled to receive: (i) his
Annual Salary and accrued expense reimbursements earned or accrued through the
effective date of the termination of Executive's employment, (ii) any incentive
compensation payments to which Executive is entitled as of the effective date of
the termination of Executive's employment; and (iii) such payments, if any, as
may be provided for pursuant to all Fringe Benefit programs in which Executive
is participating as of the effective date of the termination of Executive's
employment. All such Annual Salary, incentive compensation and/or Fringe
Benefit payments payable upon termination of Executive's employment as aforesaid
shall be paid at or following the date of such termination of employment in
accordance with the Company's normal policies.
(d) Termination by Executive for Good Reason. Executive shall
-------------------------------------------
have the right to terminate his employment hereunder for Good Reason (as defined
below), if (A) Executive shall have given the Company prior written notice of
the reason therefor and (B) a period of thirty (30) days following receipt by
the Company of such notice shall have lapsed and, except for the occurrence of a
Change of Control (as hereinafter defined), the matters which constitute or give
rise to such "Good Reason" shall not have been cured or eliminated by the
Company; provided, however if such matters are of a nature that the same cannot
-------- -------
be cured or eliminated within such thirty (30) day period, such period shall be
extended for so long as the Company shall be endeavoring in good faith to cure
or eliminate such matters, provided, further, however, that for the first such
-------- ------- -------
failure during each calendar year during the Term, the Company shall have thirty
(30) days after receipt of written notice of such failure to cure such failure,
and thereafter during that calendar year no such notice and cure period shall be
given. In the event the Company shall not take such actions within such period,
Executive may send another notice to the Company electing to terminate his
employment hereunder and, in such event, Employee's employment hereunder shall
terminate and the effective date of such termination of employment shall be the
third business day after the Company shall have received such notice. In the
event of any such termination of employment, Executive shall be entitled to
receive the same payments and benefits, subject to the same conditions and
limitations, as provided in Section 12(a) hereof.
<PAGE>
(e) Termination by Executive without Good Reason. Executive shall
--------------------------------------------
have the right to terminate his employment hereunder without Good Reason by
giving the Company thirty (30) days prior written notice to that effect. Such
termination of employment shall be effective on the date specified in such
notice. In the event of such termination of employment, then the Company shall
pay to Executive: (i) his unpaid Annual Salary through the effective date of
such termination of employment, and (ii) any business expenses remaining unpaid
on the effective date of such termination of employment for which Executive is
entitled to be reimbursed under Section 6 of this Agreement.
(f) Expiration of the Term. Upon the termination of Executive's
------------------------
employment at the Expiration Date, Executive shall be entitled to receive: (i)
his Annual Salary and accrued expense reimbursements earned or accrued through
the effective date of such termination of Executive's employment, (ii) any
incentive compensation payments to which Executive is entitled as of the
effective date of such termination of Executive's employment; and (iii) such
payments as may be provided for pursuant to all Fringe Benefit programs in which
Executive is participating as of the effective date of the termination of
Executive's employment. All such Annual Salary, incentive compensation and/or
Fringe Benefit payments payable upon termination of Executive's employment as
aforesaid shall be paid at or following the date of such termination of
employment in accordance with the Company's normal policies.
(g) Definitions:
-----------
(i) "Cause" shall mean: (A) theft, embezzlement, fraud or
misappropriation of funds of the Company; (B) conviction of a felony or
other crime involving moral turpitude; (C) chemical or alcohol dependency
which adversely affects performance of Executive's duties; (D) failure to
substantially perform (other than as a result of physical or mental
illness) the duties required under Section 2 hereof in any material manner,
provided, however, that for the first such failure during each calendar
-------- -------
year during the Term, Executive shall have thirty (30) days after receipt
of written notice of such failure to cure such failure, and thereafter
during that calendar year no such notice and cure period shall be given;
(E) a material breach or violation by Executive of Sections 7, 8, 9 or 10
hereof; (F) the Company is convicted of any criminal felony liability due
to actions taken or failed to be taken by Executive without the consent of
the Company; and (G) failure of Executive (other than as a result of
physical or mental illness) to devote substantially all of his working time
to the performance of his duties required hereunder, provided, however,
-------- -------
that for the first such failure during each calendar year during the Term,
Executive shall have thirty (30) days after receipt of written notice of
such failure to cure such failure, and thereafter during that calendar year
no such notice and cure period shall be given.
(ii) "Change of Control" means:
(A) The consummation by the Company of a merger, consolidation or
other reorganization if the percentage of the voting common stock of
the surviving or resulting entity held or received by all persons who
were owners of common stock of the Company immediately prior to such
merger, consolidation or reorganization is less than 50.1% of the
total voting common stock of the surviving or resulting entity
outstanding, on a fully diluted basis, immediately after such merger,
consolidation or reorganization and after giving effect to any
additional issuance of voting common stock contemplated by the plan
for such merger, consolidation or reorganization; or
(B) A majority of the directors of the Company are persons other
than persons (i) for whose election proxies have been solicited by the
Board, or (ii) who are then serving as directors appointed by the
Board to fill vacancies on the Board caused by the death or
resignation (but not removal) or to fill newly-created directorships,
but excluding for purposes of this clause (ii) any such individual
whose initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are used in Rule
14(a)-11 of Regulation 14A promulgated under the Securities Exchange
of 1934, as amended (the "Exchange Act")), or other actual or
threatened solicitation of proxies or consents; or
<PAGE>
(C) The acquisition by any person or group (other than (i)
Executive, or (ii) a group composed solely of persons designated as
proxy-holders in connection with a solicitation by or on behalf of the
Company's management or directors) of ownership or voting rights
(including voting rights pursuant to any revocable or irrevocable
proxy) of a number of shares of the Company's voting common stock
equal to the number of shares of the Company's voting common stock
constituting 50.1% of the number of such shares actually voting in the
election of directors of the Company at the most recent meeting of
shareholders of the Company, and such person or group has made a
filing under Section 13(d) of the Exchange Act affirmatively stating
such persons' or groups' intent to change control of the Company; or
(D) The sale of all or substantially all of the assets of the
Company to another corporation or enterprise that is not a subsidiary,
direct or indirect, or other affiliate of the Company if such other
corporation or enterprise does not make arrangements with Executive
satisfactory to Executive for his employment by such other corporation
or enterprise.
(iii) "Disability" shall mean that, as a result of Executive's
incapacity due to physical or mental illness (as determined by a physician
mutually acceptable to the Company and Executive), Executive shall have
been absent from, or does not perform, his duties as described hereunder on
a substantially full-time basis for 75 days during any consecutive 150 day
period during the Term, and within ten (10) days after the Company notifies
Executive in writing that it intends to replace him, shall not have
returned to the performance of such duties on a full-time basis.
(iv) "Good Reason" shall mean the occurrence of any of the following:
(A) a material breach by the Company in the performance of its obligations
hereunder and the Company's failure to cure said breach within thirty (30)
days after receipt of written notice of such breach; provided, however if
-------- -------
such matters are of a nature that the same cannot be cured or eliminated
within such thirty (30) day period, such period shall be extended for so
long as the Company shall be endeavoring in good faith to cure or eliminate
such matters, provided, further, however, that for the first such failure
-------- ------- -------
during each calendar year during the Term, the Company shall have thirty
(30) days after receipt of written notice of such failure to cure such
failure, and thereafter during that calendar year no such notice and cure
period shall be given; or (B) the occurrence of a Change of Control
provided Executive elects, within one hundred thirty five (135) days after
the effective date of such Change of Control, to terminate his employment
hereunder; said election to be evidenced by written notice of same from
Executive to the Company within said one hundred thirty five (135) day
period; or (C) the Company requests Executive to relocate to an office
outside the St. Louis metropolitan area.
13. Arbitration of Disputes. The Executive and the Company shall
resolve any claim, controversy or dispute whether concerning, arising out of, or
relating to this Agreement, the employment relationship between the parties or
alleging the violation of either a statutory or common law duty or both, by
arbitration, except for the remedy at law or in equity as provided for in
paragraph 11 herein which the Company may determine to be enforced by any court
having applicable jurisdiction. Executive or the Company shall invoke this
right to arbitrate any such claim, controversy or dispute only after first
attempting to resolve it through the exhaustion of any Executive problem solving
policy that the Company may establish from time to time without obtaining a
satisfactory result. The Missouri Uniform Arbitration Act in effect when any
arbitration occurs shall govern the procedures of any arbitration between the
parties. Any arbitration held in accordance with this paragraph shall take
place in St. Louis, Missouri, and shall be conducted by a single arbitrator.
The arbitrator may award full reimbursement to the prevailing party for
out-of-pocket expenses and losses, including, without limitation, reasonable
attorneys' fees, costs, and expenses arising from the preparation and
arbitration of the dispute. "Prevailing party" within the meaning of this
section includes, without limitation, a party who (i) agrees to dismiss an
action upon the other party's payment of all or a substantial portion of the
sums allegedly due or the other party's substantial performance of the covenants
allegedly breached, or (ii) who obtains substantially the relief sought by it.
<PAGE>
14. Prior Agreements. Executive represents and warrants to the Company
that Executive is not presently a party to any agreement containing a
non-competition provision or other restriction with respect to: (a) the nature
of any services or business that Executive is entitled to perform or conduct for
the Company, or (b) the disclosure or use of any information which directly or
indirectly relates to the nature or business of the Company or the services to
be rendered by Executive to the Company. Executive further certifies that he
has not disclosed or used, and will not disclose or use during his employment
with the Company, any confidential information that he acquired as a result of
any previous employment or under a contractual obligation of confidentiality
before Executive's employment by the Company.
15. Notice. Any notice, agreement, or other communication provided for
in this Agreement shall be given in writing and will be considered effectively
given the day of delivery if sent via an overnight delivery service, the actual
time of receipt of a facsimile transmission, or on the third day after mailing
is sent by registered or certified mail, postage prepaid return receipt
requested and addressed to the parties as follows:
If to the Company: with a copy (which shall not
constitute notice) to:
Allied Healthcare Products, Inc. Joseph D. Lehrer, Esq.
1720 Sublette Avenue Greensfelder, Hemker & Gale, P.C.
St. Louis, Missouri 63110 2000 Equitable Building
Attn: Chairman of the Board 10 South Broadway
Fax: (314) 771-1242 St. Louis, Missouri 63102
Fax: (314) 241-8624
If to Executive: with a copy (which shall not
constitute notice) to:
Earl Refsland Kenneth H. Suelthaus, Esq.
7 Algonquin Woods Suelthaus & Walsh, P.C.
Glendale, Missouri 63122 7733 Forsyth Blvd.
St. Louis, Missouri 63105
Facsimile: (314) 727-7166
or to another person or address as the Company or Executive may designate.
16. Governing Law. This Agreement will be governed by, and construed
and interpreted according to, the laws and decisions of the State of Missouri
without regard to the choice of law provisions thereof.
17. Counterparts; Facsimile Signatures. This Agreement may be executed
by the parties hereto on any number of separate counterparts, and all such
counterparts so executed constitute one agreement binding on all the parties
hereto notwithstanding that all the parties hereto are not signatories to the
same counterpart. This Agreement and any other document to be executed in
connection herewith may be delivered by facsimile and documents delivered in
such manner shall be binding as though an original thereof had been delivered.
18. Entire Agreement. This Agreement constitutes the entire agreement
and understanding between the parties with respect to the subject matter hereof,
and supersedes all prior and contemporaneous communications, agreements,
understandings and assurances, whether oral or written. This Agreement may not
be changed, amended, or modified, except in writing signed by all of the parties
hereto.
19. Assignability. This Agreement shall inure to the benefit of the
Company and its successors and assigns. This Agreement is a personal services
agreement and may not be assigned or transferred by Executive.
20. Severability. If any provision contained in this Agreement is held
to be invalid or unenforceable, that provision will be severed from this
Agreement and that invalidity or unenforceability will not affect any other
provision of this Agreement, the balance of which will remain in and have its
<PAGE>
intended full force and affect; provided, however, if any invalid or
unenforceable provision may be modified so as to be valid and enforceable as a
matter of law, that provision will be deemed to have been modified to the extent
necessary so as to be valid and enforceable to the maximum extent permitted by
law.
21. Non-Waiver. Failure to enforce any of the provisions of this
Agreement at any time shall not be interpreted to be a waiver of such provision
or to affect either the validity of this Agreement or the right of either party
thereafter to enforce each and every provision of this Agreement.
22. Consent to Jurisdiction. In connection with the enforcement of
the Company's rights and remedies under Section 11 hereof, Executive hereby
irrevocably submits to the jurisdiction of the Circuit Court of the County of
St. Louis, Missouri, and Executive hereby irrevocably consents to personal
jurisdiction in, and agrees that all claims in respect to such action or
proceeding may be heard and determined in, any such court as selected by the
Company. Executive hereby irrevocably waives any objection he may have to the
jurisdiction or venue of any such action or proceeding and any objection on the
grounds that any such action or proceeding in any such court has been brought in
an inconvenient forum. Nothing within this paragraph shall affect the Company's
right, to bring any action or proceeding arising out of or relating to the
enforcement of the Company's rights and remedies under Section 11 hereof against
Executive in any court of competent jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ALLIED HEALTHCARE PRODUCTS, INC. EXECUTIVE
By: /s/ John D. Weil /s/ Earl R. Refsland
------------------- -----------------------
Name: John D. Weil Earl Refsland
Title: Chairman of the Board
<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
1999 INCENTIVE STOCK OPTION PLAN
August 24, 1999
Mr. Earl Refsland
Allied Healthcare Products, Inc.
1720 Sublette Avenue
St. Louis, Missouri 63110
RE: 1999 INCENTIVE STOCK OPTION
Dear Mr. Refsland:
I am pleased to inform you that Allied Healthcare Products, Inc. (the
"Company") has granted you a non-qualified stock option under the Allied
Healthcare Products, Inc. 1999 Incentive Stock Plan (the "Plan") to purchase
542,000 shares of Common Stock, par value $0.01 per share, of the Company (the
"Option Shares") at a price of $ 2.00 per share (the "Exercise Price"), subject
to the Plan and the provisions set forth below.
This option is granted to you as part of the Company's compensation program
for key employees. The purpose of the Plan is to allow certain key employees,
upon whose efforts the Company is dependent for the successful conduct of its
business, to derive financial benefit from appreciation in the value of the
Company's stock and to encourage them to take a proprietary interest in the
Company and remain in its employ. You are under no obligation to exercise this
option.
Should you exercise your option you will be taxed (including withholding
taxes) on the difference between the fair market value and the exercise price
and your tax basis will be equal to fair market value on the date of exercise.
If you subsequently dispose of the stock, you will be taxed to the extent the
sales proceeds exceed the fair market price on the date of exercise.
Subject to compliance with the terms and conditions of this letter and the
Plan, you will become entitled to exercise your option with respect to the
number of Option Shares and as of the dates indicated in the following vesting
schedule:
DATE OPTION BECOMES EXERCISABLE NUMBER OF OPTION SHARES
December 7, 1999 33,875
March 7, 2000 33,875
June 7, 2000 33,875
September 7, 2000 33,875
December 7, 2000 33,875
March 7, 2001 33,875
June 7, 2001 33,875
September 7, 2001 33,875
December 7, 2001 33,875
March 7, 2002 33,875
June 7, 2002 33,875
September 7, 2002 33,875
December 7, 2002 33,875
March 7, 2003 33,875
June 7, 2003 33,875
September 7, 2003 33,875
<PAGE>
The option will expire at the close of business on August 23, 2009, to the
extent not exercised and the Plan provides that the option may expire at an
earlier date in the event of a termination of your employment with the Company.
As provided in the Plan, in the event that you terminate employment with the
Company and, within six months thereafter, become employed by a competing entity
or you violate any restrictive covenant set forth in that certain Employment
Agreement dated August 24, 1999 (the "Employment Agreement") between you and the
Company, the Company will have the right to reacquire certain shares resulting
from your exercise of the option at a price equal to the Exercise Price;
provided, however, the Company's right to reacquire certain shares resulting
- -------- -------
from your exercise will not exist if the termination of your employment occurs
as a result of a Change of Control (as defined in the Employment Agreement).
Further, in the event of any such Change of Control, or the termination of
Executive's employment by the Company without Cause (as defined in the
Employment Agreement), or the termination of Executive's employment by Executive
for Good Reason (as defined in the Employment Agreement), or in the event of
your death or Disability (as defined in the Employment Agreement) or in the
event the Company pays any cash dividends in respect of its issued and
outstanding Common Stock, then all shares to which this option relates shall
immediately vest in full and will be exercisable until the earlier of: (i)
thirty (30) days following your termination of employment with the Company
(other than for "Cause", as defined in the Employment Agreement, in which case
the option granted hereby shall expire), or (ii) the expiration date set forth
above.
To exercise your option (or any part thereof), you should forward the
letter in substantially the form of Exhibit A attached hereto and incorporated
---------
herein by this reference to the Company, containing the information and payment
required thereby. In addition to payment of the Exercise Price, and prior to
issuance of any shares of common stock hereunder, you are required to deposit
with the Company an amount equal to any federal or state income withholding tax
arising from such exercise. No shares shall be issued until full payment
therefor, including any associated taxes, has been made.
Please note that, although you must return a signed copy of this letter in
order to validate your option, that act does not constitute the exercise of this
option nor does it in any way obligate you to exercise the option.
This letter constitutes an Incentive Stock Option Agreement between you and
the Company and incorporates the Plan by reference. Please indicate your
agreement to the terms and conditions set forth in this letter and in the Plan
by signing the accompanying copy of this letter in the space
indicated below and returning it to the Company, Attention: John D. Weil by
September 30, 1999. No part of this option is exercisable until a signed copy
of this letter is received by the Company.
Very truly yours,
/s/ John D. Weil
-----------------------------
John D. Weil
Chairman of the Board
Enclosure: Copy of the Allied Healthcare Products 1999 Incentive Stock Plan
The undersigned hereby acknowledges receipt of the foregoing letter and
Plan and agrees to be bound by all of the terms and conditions set forth in
this letter and in the Plan.
September 15, 1999 /s/ Earl R. Refsland
- -------------------- -----------------------
(Date) (Signature)
<PAGE>
EXHIBIT A
Allied Healthcare Products, Inc.
1720 Sublette Avenue
St. Louis, Missouri 63110
Attn: Chairman
Re: EXERCISE OF 1999 INCENTIVE STOCK OPTION
Gentlemen:
I hereby exercise the Option granted to me under the Incentive Stock Option
Agreement dated ___________________, to purchase ______ shares of Allied
Healthcare Products, Inc. common stock, $0.01 par value per share (the "Common
Stock"), with respect to _______ shares of Common Stock for an aggregate
purchase price of $_________. As consideration for such shares, I have enclosed
payment in the amount of $__________.
I understand that I am required to deposit with the Company the amount of
federal and/or state income withholding tax arising from such exercise. Upon
receipt of this letter, the Company will advise me of the amount of such taxes,
and I agree to promptly, and not more than two business days thereafter, deposit
the same with the Company.
I agree that failure to deposit the amount of taxes required by the Company
within the time required thereby shall render this exercise null and void. I
also understand and agree that no shares will be issued until full payment
therefor, including any associated taxes, has been made.
Upon your receipt of full payment as aforesaid, please issue in my name and
send the certificates representing the shares purchased by my exercise of this
Option to me at the address indicated below.
Date:_________________ _______________________________
Optionee, ____________________
_______________________________
_______________________________
_______________________________
Address
<PAGE>
EXHIBIT 10.26
<PAGE>
ALLIED HEALTHCARE PRODUCTS, INC.
1999 INCENTIVE STOCK PLAN
The 1999 Incentive Stock Plan ("ISP") of Allied Healthcare Products,
Inc. (the "Company") is established to encourage eligible employees of the
Company, and its subsidiaries to acquire Common Stock in the Company. It is
believed that the ISP will (i) stimulate employees' efforts on the
Company's behalf, (ii) tend to maintain and strengthen their desire to
remain with the Company, (iii) be in the interest of the Company and its
Stockholders, (iv) encourage such employees to have a greater personal
financial investment in the Company through ownership of its Common Stock,
and (v) aid the Company in recruiting and retaining qualified executive
employees.
1. ADMINISTRATION
The ISP shall be administered by the Board of Directors of the Company
which may delegate power to grant awards to a committee (the "Committee")
consisting of two or more Non-Employee Directors as that term is defined in Rule
16b-3 of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Board or such Committee is authorized, subject to the provisions of the ISP,
to establish such rules and regulations as it deems necessary for the proper
administration of the ISP, and to make such determinations and to take such
action in connection therewith or in relation to the ISP as it deems necessary
or advisable, consistent with the ISP. Except as otherwise provided herein, the
Board may delegate some or all of its power and authority hereunder with respect
to matters other than the grant of awards to the Chief Executive Officer or to
such other senior member of management as the Board deems appropriate; provided,
however, that no such delegation shall be applicable with regard to any matter
or action affecting an officer subject to Section 16 of the Exchange Act.
For the purpose of this section and all subsequent sections, the ISP shall
be deemed to include this plan and any comparable sub-plans established by
subsidiaries which, in the aggregate, shall constitute one plan governed by the
terms set forth herein.
2. ELIGIBILITY
Regular full-time employees of the Company and its subsidiaries, including
officers, whether or not directors of the Company, shall be eligible to
participate in the ISP ("Eligible Employees") if designated by the Board or the
Committee. Directors who are not regular employees are not eligible. It is
intended that awards will be made principally to those employees who are key
officers or management employees of the Company or a subsidiary, including
employees subject to Section 16 of the Exchange Act, and who are in a position
to have significant impact or achievement of the Company's long term objectives.
3. INCENTIVES
Incentives under the ISP may be granted in any one or a combination of (i)
Nonqualified Stock Options; (ii) Reload or Stock Appreciation Right features in
conjunction with such Nonqualified Options; (iii) Performance Share Awards; and
(iv) Restricted Stock Grants (collectively "Incentives") not qualifying for
treatment as statutory incentive stock options. All Incentives shall be subject
to the terms and conditions set forth herein and to such other terms and
conditions as may be established by the Committee. Determinations by the
Committee under the ISP including without limitation, determinations of the
Eligible Employees, the form, amount and timing of Incentives, the terms and
provisions of Incentives, and the agreements evidencing Incentives, need not be
uniform and may be made selectively among Eligible Employees who receive, or are
eligible to receive, Incentives hereunder, whether or not such Eligible
Employees are similarly situated.
<PAGE>
4. SHARES AVAILABLE FOR INCENTIVES
(a) Shares Subject to Issuance or Transfer. There is hereby reserved
----------------------------------------
for issuance under the ISP an aggregate of 1,000,000 shares of the Company's
Common Stock ("Common Stock).
In the event of a lapse, expiration, termination or cancellation of
any Incentive granted under the ISP without the issuance of shares or
payment of cash, or if shares are issued under a Restricted Stock Grant
hereunder and are reacquired by the Company pursuant to rights reserved
upon the issuance thereof, the shares subject to or reserved for such
Incentive may again be used for new Incentives hereunder; provided that in
no event may the number of shares issued hereunder exceed the total number
of shares reserved for issuance.
(b) Limitations on Individual Awards. In any given year, no eligible
----------------------------------
employee may be granted Incentives covering more than ten percent (10%) of the
number of fully-diluted shares of the Company's Common Stock outstanding as of
the first business day of the Company's fiscal year.
(c) Recapitalization Adjustment. In the event of a reorganization,
----------------------------
recapitalization, stock split, stock dividend, combination of shares, merger,
consolidation, rights offering, or any other change in the corporate structure
or shares of Common Stock of the Company, the Board of Directors shall (to the
extent that the grant or award does not already mandate adjustments) make a
corresponding adjustment in the number and kind of shares authorized by the ISP,
in the number and kind of shares covered by Incentives granted, and, in the case
of Stock Options, in the option price.
5. NON-QUALIFIED STOCK OPTIONS
Non-Qualified Stock Options ("Stock Options") shall be subject to the
following terms and conditions and such other terms and conditions as the Board
of Directors or Committee may prescribe:
(a) Option Price. The option price per share with respect to each
-------------
Stock Option shall be not be less than 90% of the fair market value of the
Common Stock on the date the Stock Option is granted. During any period in
which the Common Stock is listed for trading on a registered national securities
exchange or on the NASDAQ National Market System, the fair market value per
share of the Company's Common Stock shall be the lower of (i) the last reported
sales price on the date of grant or (ii) the average of the high and low
reported sales prices on the date of grant. At any other time the fair market
value per share of the Company's Common Stock shall be as determined in good
faith by Board of Directors of the Company.
(b) Period of Option. The duration of each Stock Option shall be fixed
----------------
at the time of grant, except that no Stock Option granted shall be exercisable
more than ten (10) years after the date so granted.
(c) Payment. The option price shall be payable at the time the Stock
-------
Option is exercised in cash, provided, however, that at the discretion of the
Company or if provided in connection with the grant of any Stock Option award
payment of the exercise price may be made in whole or in part in the form of
shares of Common Stock already owned by the grantee (based on the fair market
value of the Common Stock on the date the option is exercised as determined in a
manner consistent with the establishment of fair market value per share on the
date of grant). In addition to payment of the exercise price, the Company may
condition the exercise of any Stock Option upon the grantee's deposit with the
Company of funds in addition to the exercise price in an amount equal to any
federal or state income withholding tax arising from such exercise. No shares
shall be issued until full payment therefor, including any associated taxes, has
been made. A grantee of a Stock Option shall have none of the rights of a
stockholder until the shares are issued.
(d) Exercise of Option. The shares covered by a Stock Option may be
--------------------
purchased in such installments and on such exercise dates as may be provided and
set forth in the grant or award. In the absence of any terms so provided, a
Stock Option shall vest ratably over its term on an annual basis first becoming
exercisable in part on the first anniversary of the date of grant and becoming
<PAGE>
exercisable in full on the anniversary of the date of grant next preceding the
expiration date of the option. Any shares not purchased on the applicable
exercise date may be purchased thereafter at any time prior to the final
expiration of the Stock Option. In no event (including those specified in
paragraphs (e), (f ) and (g) of this section below) shall any Stock Option be
exercisable after its specified expiration period.
(e) Termination of Employment. Upon the termination of a Stock Option
---------------------------
grantee's employment (for any reason other than retirement, death or termination
for deliberate, willful or gross misconduct, or "for cause" as may be defined in
any employment or other agreement with such Stock Option grantee), Stock Option
privileges shall be limited to the shares which were immediately exercisable at
the date of such termination of employment. The Board of Directors and/or
Committee may in its discretion provide that any Stock Options outstanding but
not yet exercisable as of the termination of employment of a Stock Option
grantee may become exercisable in accordance with a schedule to be determined by
the Board of Directors or Committee. If a Stock Option grantee's employment is
terminated for deliberate, willful or gross misconduct, or for "cause" as may be
defined in any employment or other agreement with such Stock Option grantee, as
determined by the Company, all rights under the Stock Option shall expire upon
receipt of the notice of such termination of employment. Unless otherwise
provided in the award of a Stock Option, any exercisable portion of such Stock
Option shall lapse and expire upon the earlier to occur of: (i) the stated
expiration date of such option, or (ii) thirty days after the date of any such
termination of employment.
(f) Retirement. Upon retirement of the Stock Option grantee, Stock Option
----------
privileges shall be limited to those shares immediately exercisable at the date
of retirement. The Board of Directors or Committee, however, in its discretion,
may provide that any Stock Options outstanding but not yet exercisable upon the
retirement of the Stock Option grantee may become exercisable in accordance with
a schedule to be determined by the Board of Directors or the Committee. Stock
Option privileges shall expire unless exercised within such period of time as
may be established by the Board of Directors or the Committee . Unless otherwise
provided in the award of a Stock Option, any exercisable portion of such Stock
Option shall lapse and expire upon the earlier to occur of (i) the stated
expiration date of such option or (ii) 180 days after the date of any such
retirement.
(g) Death. Upon the death of a Stock Option grantee, Stock Option
-----
privileges shall be limited to those shares which were immediately exercisable
at the time of death. The Board of Directors, however, in its discretion, may
provide that any Stock Options outstanding but not yet exercisable upon the
death of a Stock Option grantee may become exercisable in accordance with a
schedule to be determined by the Board of Directors. Such privileges shall
expire unless exercised by legal representatives within a period of time as
determined by the Board of Directors but in no event later than the date of the
expiration of the Stock option. Unless otherwise provided in the award of a
Stock Option, any exercisable portion of such Stock Option shall lapse and
expire upon the earlier to occur of (i) the stated expiration date of such
option or (ii) ten months after the date of death of the employee.
(h) Acceleration of Vesting and other rights following a Change of Control.
-----------------------------------------------------------------------
Any Stock Option granted or awarded pursuant to this Plan may provide that it
will become exercisable in full in the event of a Change of Control of the
Company as may be defined in such grant or award. In the event of an exercise
of the Stock Option subsequent to a Change of Control (whether or not such
Change of Control has resulted in acceleration of vesting) the holder of a Stock
Option may elect in lieu of exercising the option for cash as provided herein to
receive from the Company in cash an amount equal to the amount by which the fair
market value exceeds the exercise price, reduced by the amount of any
withholding taxes required to be collected by the Company as a result of such
exercise.
(i) Forfeiture of Certain Option Benefits. Unless otherwise provide in
---------------------------------------
connection with the grant or award of a Stock Option, the Company shall have the
right to repurchase shares of its Common Stock acquired upon exercise of a Stock
Option at a price equal to the exercise price per share in the event that the
employee holding such shares shall, within six months of terminating employment
with the Company, commences employment which the Board of Directors reasonably
believes, in its discretion, to be competitive with the Company or in violation
<PAGE>
of any employment or other agreement between the Company and such employee,
provided, however, that (i) such repurchase right shall only be applicable to
shares acquired upon exercise of the Stock Option occurring on or after a date
which is six months prior to such grantee's termination of employment with the
Company and (ii) such right of repurchase shall not be applicable with respect
to shares of the Company's Common Stock acquired upon exercise of a Stock Option
if the termination of employment occurred at the election of the employee
following a "change of control" of the Company pursuant to rights granted to
such employee under a written employment agreement or in the terms of the option
grant or award.
(j) Reload Provisions. Any Stock Option which by its terms includes
------------------
provisions permitting the exercise of the option by means of an exchange of
previously-owned shares of the Company's common Stock held by the optionee may
also include so-called "reload provisions" resulting in the grant of a new
option to the employee covering a number of shares of the Company's Common Stock
equal to the number of shares of stock surrendered to the Company in connection
with such exchange exercise; having a price per share for such new option equal
to the fair market value per share of the shares so surrendered as of the date
of such surrender and expiring as of the later of five years following the date
of such exchange exercise or the date upon which the original option expires.
The rights under such "reload option" shall vest immediately but all terms of
such option shall (other than price, number of shares and vesting) be consistent
with the terms of the original option.
(k) Tandem Stock Appreciation Right Provisions. The Company may include
--------------------------------------------
with any Stock Option granted hereunder so-called tandem stock appreciation
rights allowing the optionee to receive, in lieu of the exercise of such option,
the value of the option as evidenced by the amount by which the fair market
value exceeds the exercise price. In connection with the grant of any such
tandem stock appreciation rights, the option grant shall specify whether such
right (if exercised) shall be payable in cash or in shares of the Company's
Common Stock or in a combination thereof.
6. PERFORMANCE SHARE AWARDS
The Company may grant awards under which payment may be made in shares of
Common Stock, cash or any combination of shares and cash if the performance of
the Company or any subsidiary or division of the Company selected by the
Committee during the Award Period meets certain goals established by the Board
of Directors or Committee ("Performance Share Awards"). Such Performance Share
Awards shall be subject to the following terms and conditions and such other
terms and conditions as the Board of Directors or Committee may prescribe:
(a) Award Period and Performance Goals. The Company shall determine
-------------------------------------
and include in a Performance Share Award grant the period of time for which a
Performance Share Award is made ("Award Period"). The Company shall also
establish performance objectives ("Performance Goals") to be met by the Company,
subsidiary or division during the Award Period as a condition to payment of the
Performance Share Award. The Performance Goals may include earnings per share,
return on stockholder equity, return on assets, net income, or any other
financial or other measurement established by the Company. The Performance
Goals may include minimum and optimum objectives or a single set of objectives.
(b) Payment of Performance Share Awards. The Company shall establish the
-----------------------------------
method of calculating the amount of payment to be made under a Performance Share
Award if the Performance Goals are met, including the fixing of a
maximum-payment. The Performance Share Award shall be expressed in terms of
shares of Common Stock and referred to as "Performance Shares". After the
completion of an Award Period, the performance of the Company, subsidiary or
division shall be measured against the Performance Goals, and Board of Directors
or the Committee shall determine whether all, none or any portion of a
Performance Share Award shall be paid. The Committee, in its discretion, may
elect to make payment in shares of Common Stock, cash or a combination of shares
and cash. Any cash payment shall be based on the fair market value of
Performance Shares on, or as soon as practicable prior to, the date of payment.
(c) Revision of Performance Goals. At any time prior to the end of an
------------------------------
Award Period, the Committee may revise the Performance Goals and the computation
of payment if unforeseen events occur which have a substantial effect on the
<PAGE>
performance of the Company, subsidiary or division and which in the judgment of
the Board of Directors or the Committee make the application of the Performance
Goals unfair unless a revision is made.
(d) Requirement of Employment. A grantee of a Performance Share Award
--------------------------
must remain in the employment of the Company until the completion of the Award
Period in-order to be entitled to payment under the Performance Share Award;
provided that the Board of Directors or the Committee may, in its sole
discretion, provide for a partial payment where such an exception is deemed
equitable.
(e) Dividends. The Board of Directors or the Committee may, in its
---------
discretion, at the time of the granting of a Performance Share Award, provide
that any dividends declared on the Common Stock during the Award Period, and
which would have been paid with respect to Performance Shares had they been
owned by a grantee, be (i) paid to the grantee, or (ii) accumulated for the
benefit of the grantee and used to increase the number of Performance Shares of
the grantee
7. RESTRICTED STOCK GRANTS
The Board of Directors or the Committee may issue shares of Common Stock to
A grantee which shares shall be subject to the following terms and conditions
and such other terms and conditions as the Committee may prescribe ("Restricted
Stock Grant"):
(a) Requirement of Employment. A grantee of a Restricted Stock Grant
---------------------------
must remain in the employment of the Company during a period designated by the
Committee ("Restriction Period"). If the grantee leaves the employment of the
Company prior to the end of the Restriction Period, the Restricted Stock Grant
shall terminate and the shares of Common Stock shall be returned immediately to
the Company, provided that the Committee may, at the time of the grant, provide
for the employment restriction to lapse with respect to a portion or portions of
the Restricted Stock Grant at different times during the Restriction Period.
The Board of Directors or the Committee may, in its discretion, also provide for
such complete or partial exceptions to the employment restriction as it deems
equitable.
(b) Restrictions on Transfer and Legend on Stock Certificates. During the
---------------------------------------------------------
Restriction Period, the grantee may not sell, assign, transfer, pledge, or
otherwise dispose of the shares of Common Stock except to a successor under
Section 9 hereof. Each certificate for shares of Common Stock issued hereunder
shall contain a legend giving appropriate notice of the restrictions in the
grant.
(c) Escrow Agreement. The Company may require the grantee to enter
-----------------
into an escrow agreement providing that the certificates representing the
Restricted Stock Grant will remain in the physical custody of an escrow holder
until all restrictions are removed or expire.
(d) Lapse of Restrictions. All restrictions imposed under the
-----------------------
Restricted Stock Grant shall lapse upon the expiration of the Restriction Period
if the conditions as to employment set forth above have been met. The grantee
shall then be entitled to have the legend removed from the certificates.
(e) Dividends. The Board of Directors or Committee may, in its
---------
discretion, at the time of the Restricted Stock Grant, provide that any
dividends declared on the Common Stock during the Restriction Period shall
either be (i) paid to the grantee, or (ii) accumulated for the benefit of the
grantee and paid to the grantee only after the expiration of the Restriction
Period.
8. DISCONTINUANCE OR AMENDMENT OF THE PLAN.
The Board of Directors may discontinue the ISP at any time and may from
time to time amend or revise the terms of the ISP as permitted by applicable
statutes except that it may not revoke or alter, in a manner unfavorable to the
grantees of any Incentives hereunder, any Incentives then outstanding, nor may
the Board amend the ISP without stockholder approval, if the effect of such
amendment or absence of such stockholder approval would cause the Plan to fail
<PAGE>
to comply with Rule 16b-3 under the Exchange Act, or any other requirement of
applicable law or regulation. No incentive shall be granted under the ISP after
June 30, 2009 but Incentives granted theretofore may extend beyond that date.
9. NONTRANSFERABILITY
Each Incentive granted under the ISP shall not be transferable other than
by will or the laws of descent and distribution, and with respect to Stock
Options, shall be exercisable, during the grantee's lifetime, only by the
grantee or the grantee's guardian or legal representative.
10. NO RIGHT OF EMPLOYMENT
ISP and the Incentives granted hereunder shall not confer upon any Eligible
Employee the right to continued employment with the Company or affect in any way
the right of the Company to terminate the employment of an Eligible Employee at
any time and for any or no reason.
11. TAXES
The Company shall be entitled to withhold the amount of any tax
attributable to any amount payable or shares deliverable under the ISP after
giving the person entitled to receive such amount or shares notice as far in
advance as practicable and may condition delivery of certificates evidencing
shares awarded or purchased under the ISP upon receipt of funds to effect such
withholding.
12. LISTING AND REGISTRATION OF THE SHARES
Each option issued hereunder shall be subject to the requirement that if at
any time the Company shall determine that the listing, registration or
qualification of the shares subject to the option upon any securities exchange
or under any state or federal law, or the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of, or in
connection with, the granting of such option or the issue or purchase of shares
thereunder, such option may not be exercised in whole or in part unless and
until such listing, registration, qualification consent or approval shall have
been effected or obtained free of any conditions not acceptable to the
Committee. In the absence of any such registration or qualification the Company
may place the following legend on the certificates representing any shares
issued under this Plan.
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
----------------------------------------------------------------------
1933 AS AMENDED OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
----------------------------------------------------------------------
TRANSFERRED WITHOUT AN OPINION OF COUNSEL SATISFACTORY IN FORM AND
----------------------------------------------------------------------
SUBSTANCE TO THE COMPANY THAT SUCH TRANSFER MAY BE LAWFULLY EFFECTED
----------------------------------------------------------------------
IN THE ABSENCE OF SUCH REGISTRATION."
-----------------------------------
13. EFFECTIVE DATE
The Plan shall be effective as of July 15, 1999.
<PAGE>
EXHIBIT 13
<PAGE>
Dear Shareholders:
Allied's results for 1999 were very disappointing and our new senior management
team enters the 2000 fiscal year ready to take on the difficult challenges that
the company must overcome. Very clearly, we need to take action to deliver the
value that you, our owners, deserve.
KEY ACHIEVEMENTS AND CHALLENGES IN 1999
A number of events and developments had an impact-positive and negative-on
Allied's performance during fiscal 1999. Some of the most significant
achievements and challenges during the year included:
- - B&F MEDICAL RELOCATION-Early in fiscal 1999, Allied began moving production
of B&F Medical home care products to St. Louis. The move resulted in an
after-tax charge of $0.5 million, or 6 cents per share, in the first
quarter. In addition, difficulties associated with the move created
shipping delays that affected home care product sales and cost savings were
not realized.
- - LSP OXYGEN REGULATORS-In cooperation with the U.S. Food and Drug
Administration, Allied voluntarily recalled all aluminum oxygen regulators
sold under the Life Support Products (LSP) brand. To cover costs associated
with the recall, Allied took an after-tax charge of $0.9 million, or 12
cents per share, in the second quarter of fiscal 1999. Shipments of new LSP
regulators were also halted in conjunction with the February 1999 recall,
which affected current revenues until a new all-brass regulator was
introduced in May.
- - PREMIER AGREEMENT-Allied signed an important agreement with Premier, Inc.,
effective June 1, 1999, that makes the company one of two exclusive
providers of medical gas construction products for the approximately 1,700
hospitals and healthcare systems that are part of Premier. The agreement
with Premier could generate $12 million to $15 million in revenue for
Allied over the contract's three-year period.
- - HSI SALE-In June, Allied sold its underperforming Hospital Systems Inc.
(HSI) division, which manufactures pre-fabricated headwall units used by
medical facilities when remodeling patient rooms and intensive care areas.
This sale allows Allied to focus on maintaining and expanding its strong
market presence in the respiratory care, medical gas and emergency medical
products segments.
- - NEW MANAGEMENT AND BOARD MEMBERS-During fiscal 1999 and immediately after
the end of the year, Allied experienced changes in several key senior
management and board positions. John D. Weil was named chairman of Allied's
board following the untimely death of Dennis Sheehan in late March. In
August 1999, Earl R. Refsland, was named president, chief executive officer
and a director of the company, replacing Uma N. Aggarwal, who resigned in
July. Mr. Refsland was previously president and CEO of Allied from 1986 to
1993. Finally, Thomas A. Jenuleson joined the company as chief financial
officer in March.
<PAGE>
1999 Letter to Shareholders
Page 2
1999 FINANCIAL PERFORMANCE
Allied reported revenues of $72.8 million for the fiscal year ended June 30,
1999, compared to revenues of $96.5 million in fiscal 1998. Allied's loss for
fiscal 1999 was $4.1 million, or 53 cents per share, versus a loss of $7.4
million, or 95 cents per share, in fiscal 1998.
Approximately $10.4 million of the revenue decrease is attributable to fiscal
1998 revenues generated by Bear Medical prior to its sale in October 1998. Home
care product sales in fiscal 1999 suffered due to the B&F relocation, emergency
product sales were hurt by the LSP oxygen regulator recall and sales of headwall
units manufactured by Allied's HSI division were down throughout the year.
Allied's results in fiscal 1999 were affected by several one-time events,
including provisions for the B&F relocation and the LSP oxygen regulator recall.
Likewise, the company recorded several non-recurring items in fiscal 1998,
including a gain on the sale of Bear Medical Systems and its subsidiary BiCore
Monitoring Systems, a large tax provision on this gain and charges recorded for
the impairment of goodwill.
Allied's after-tax net loss for the fiscal year ended June 30, 1999, excluding
one-time items, was $2.8 million, or 36 cents per share. In fiscal 1998 the
company reported a net loss of $2.0 million, or 26 cents per share, when the
impact of all non-recurring items and the contributions of Bear Medical are
excluded.
Without question, the deteriorating operating performance and one-time events
have had a detrimental effect on the company's results. Allied's senior
management, our board and the entire Allied team is committed to taking decisive
action to address the challenges we face and earn the confidence of our
shareholders.
Sincerely,
/s/ Earl R. Refsland /s/ John D. Weil
Earl R. Refsland John D. Weil
President and Chief Executive Officer Chairman
<PAGE>
<TABLE>
<CAPTION>
[GRAPHIC OMITED]
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data)
For years ended June 30
1999 1998 1997
<S> <C> <C> <C>
OPERATING RESULTS
Net sales $72,799 $96,467 $118,118
Operating income (loss)
(4,030) 6,503 1,843
Income (loss) before income taxes
and extraordinary items
rdinary items (5,991) 2,153 (5,949)
Net loss (4,118) (7,396) (4,521)
Net loss as a % of sales 5.7% 7.7% 3.8%
FINANCIAL POSITION
Working capital $22,619 $21,308 $ 18,743
Total assets 74,275 80,180 126,343
Total debt 17,238 18,415 46,932
Shareholders equity 47,919 52,037 59,365
Current ratio 3.30:1 2.67:1 1.57:1
PER SHARE DATA
Net loss $ (0.53) $ (0.95) $ (0.58)
Book Value 6.14 6.67 7.61
</TABLE>
EXECUTIVE OFFICERS
Earl R. Refsland
President and Chief Executive Officer
David A. Grabowski
Vice President-Sales and Marketing
Thomas A. Jenuleson
Vice President-Finance
Chief Financial Officer, Secretary and Treasurer
Gabriel S. Kohn
Vice President-Engineering
<PAGE>
FORM 10-K
A copy of the annual report on Form 10-K for the year ended June 30, 1999, which
was submitted by Allied Healthcare Products, Inc. to the Securities and Exchange
Commission, is included with this letter. Additional copies can be obtained by
any shareholder of the company, at no charge, upon request in writing to:
INVESTOR RELATIONS
Allied Healthcare Products, Inc.
1720 Sublette Avenue
St. Louis, Missouri 63110
(314) 771-2400
Fax: (314) 771-0650
<PAGE>
EXHIBIT 21
<PAGE>
Companies owned by Allied Healthcare Products, Inc. as follows:
Parent Co./Allied Healthcare Product, Inc.
B&F Medical Products, Inc.
Life Support Products
Omni-Tech Medical, Inc.
<PAGE>
EXHIBIT 23
<PAGE>
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 10-K
(which 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 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
September 21, 1998
AHP8-CON.DOC - 01653-001-1
AHP8-CON.DOC - 01653-001-1
<PAGE>
EXHIBIT 24
<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 1999 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/ Brent D. Baird
---------------------
Brent D. Baird
Date: July 14, 1999.
<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 1999 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: July 15, 1999.
<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 1999 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. Hickey, Jr.
----------------------------
James B. Hickey, Jr.
Date: August 3, 1999.
<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 1999 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: July 15, 1999.
<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 1999 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: July 22, 1999.
<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 1999 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/ Earl R. Refsland
-----------------------
Earl R. Refsland
Date: August 30, 1999.
<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 1999 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: July 12, 1999.
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ALLIED HEALTHCARE PRODUCTS, INC. Article 5 of Regulation S-X
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 587
<SECURITIES> 0
<RECEIVABLES> 13436
<ALLOWANCES> (835)
<INVENTORY> 17500
<CURRENT-ASSETS> 32463
<PP&E> 33404
<DEPRECIATION> (19117)
<TOTAL-ASSETS> 74275
<CURRENT-LIABILITIES> 9843
<BONDS> 17238
0
0
<COMMON> 101
<OTHER-SE> 47818
<TOTAL-LIABILITY-AND-EQUITY> 74275
<SALES> 18621
<TOTAL-REVENUES> 18621
<CGS> (14455)
<TOTAL-COSTS> (14455)
<OTHER-EXPENSES> (4451)
<LOSS-PROVISION> (37)
<INTEREST-EXPENSE> (480)
<INCOME-PRETAX> (766)
<INCOME-TAX> (27)
<INCOME-CONTINUING> (738)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (738)
<EPS-BASIC> (.10)
<EPS-DILUTED> 0
</TABLE>
