| Item 1.01. | Entry into a Material Definitive Agreement. |
On May 7, 2023, Allied
Healthcare Products, Inc. (the “Company”) entered into a stalking horse asset purchase agreement (the “STL Purchase
Agreement”) with Allied Medical, LLC (“Purchaser”), for the sale of certain assets related to the Company’s business
operated at the Company’s St. Louis Facility (the “STL Assets”) to Purchaser as described in the STL Purchase Agreement
(the “STL Sale”), and a stalking horse asset purchase agreement (the “NY Purchase Agreement”) with Purchaser,
for the sale of certain assets related to the Company’s business operated at the Company’s New York Facility (the “NY
Assets”) to Purchaser as described in the NY Purchase Agreement (the “NY Sale”). As disclosed in Item 1.03 below, the
Company has filed a voluntary petition for relief under Chapter 11 of title 11 of the United States Code in the United States Bankruptcy
Court for the Eastern District of Missouri (the “Bankruptcy Court”) on May 8, 2023.
Each of the proposed
STL Sale and the proposed NY Sale will be conducted through a Bankruptcy Court-supervised process pursuant to Bankruptcy Court-approved
bidding procedures, and is subject to the receipt of higher or better offers from competing bidders at an auction, approval of the sale
by the Bankruptcy Court, and the satisfaction of certain conditions. As the stalking horse bidder, the Purchaser’s offer to purchase
the Purchased Assets and assume the Assumed Liabilities with respect to each of the STL Sale (as illustrated by the terms and conditions
of the STL Purchase Agreement) and the NY Sale (as illustrated by the terms and conditions of the NY Purchase Agreement) would be the
standard against which any other qualifying bids would be evaluated.
Pursuant to the terms
and subject to the conditions of the STL Purchase Agreement, and subject to section 363(k) of the Bankruptcy Code, the STL Purchase Agreement
provides for consideration that consists of (a) $4,500,000, plus (b) the sum of any overbid amounts (net of the amount of certain Purchaser’s
reimbursable expenses, less payment of the Company’s reimbursable expenses) as described in the STL Purchase Agreement, plus (c)
an amount equal to 95% of the aggregate total of the Company’s Receivables (as defined in the STL Purchase Agreement) less the Zero
Rated Receivables (as defined in the STL Purchase Agreement), minus (d) Customer Credits (as defined in the STL Purchase Agreement) as
of the Closing (as defined below), and plus (e) the potential assumption of certain liabilities.
Pursuant to the terms
and subject to the conditions of the NY Purchase Agreement, and subject to section 363(k) of the Bankruptcy Code, the NY Purchase Agreement
provides for consideration that consists of (a) $3,150,000, plus (b) the sum of any overbid amounts (net of the amount of the certain
Purchaser’s reimbursable expenses, less payment of the Company’s reimbursable expenses) as described in the NY Purchase Agreement,
plus (c) an amount equal to 95% of the aggregate total of the Company’s Receivables (as defined in the NY Purchase Agreement) less
the Zero Rated Receivables (as defined in the NY Purchase Agreement), minus (d) Customer Credits (as defined in the NY Purchase Agreement)
as of the Closing, and plus (e) the potential assumption of certain liabilities.
Each of the STL Purchase
Agreement and the NY Purchase Agreement contains certain customary representations and warranties made by each party, which are qualified
by confidential disclosures provided to the Purchaser in connection with each of the STL Purchase Agreement and the NY Purchase Agreement,
respectively. The Company and the Purchaser have agreed to various customary covenants, including, among others, covenants regarding the
conduct of the Sellers’ business prior to the consummation of each of the STL Sale and the NY Sale (the “Closing”).
Each of the STL Purchase
Agreement and the NY Purchase Agreement provides the Purchaser with certain bid protections that remain subject to the approval of the
Bankruptcy Court. In particular, if the STL Purchase Agreement is terminated for certain reasons, including if the Company enters into
a definitive agreement with respect to, or consummates, an Alternative Transaction (as defined in each of the STL Purchase Agreement),
or if the Bankruptcy Court enters an order approving an Alternative Transaction, the Company may be required to reimburse the Purchaser
for certain of its reasonable expenses up to 3.5% of the Aggregate Purchase Price (as defined in the STL Purchase Agreement). In addition,
if the NY Purchase Agreement is terminated for certain reasons, including if the Company enters into a definitive agreement with respect
to, or consummates, an Alternative Transaction (as defined in the NY Purchase Agreement), or if the Bankruptcy Court enters an order approving
an Alternative Transaction, the Company may be required to reimburse Purchaser for certain of its reasonable expenses up to 3.5% of the
Aggregate Purchase Price (as defined in the NY Purchase Agreement).
The Purchaser will
make an earnest money deposit of $450,000 in connection with the STL Sale, which will be held in escrow by Morris Anderson & Associates,
Ltd. (“Escrow Agent”). The Purchaser will make an earnest money deposit of $315,000 in connection with the NY Sale, which
will be held in escrow by the Escrow Agent. In addition, Flexicare Medical Asia Limited (“Guarantor”) has guaranteed the due
and punctual performance of all obligations, covenants and agreements of Purchaser under each of the STL Purchase Agreement and the NY
Purchase Agreement.
The Closing of the
proposed STL Sale is scheduled to be held on the date of the satisfaction or waiver of the conditions set forth in the STL Purchase Agreement.
The Closing of the proposed NY Sale is scheduled to be held on the date of the satisfaction or waiver of the conditions set forth in the
NY Purchase Agreement.
The foregoing description
of the STL Purchase Agreement is qualified in its entirety by reference to the full text of the STL Purchase Agreement, a copy of which
is attached hereto as Exhibit 10.1 and incorporated herein in its entirety by reference. The representations, warranties and covenants
contained in the STL Purchase Agreement were made only for purposes of the STL Purchase Agreement and as of specific dates, were solely
for the benefit of the parties to the STL Purchase Agreement, and may be subject to limitations agreed upon by the contracting parties.
The foregoing description
of the NY Purchase Agreement is qualified in its entirety by reference to the full text of the NY Purchase Agreement, a copy of which
is attached hereto as Exhibit 10.2 and incorporated herein in its entirety by reference. The representations, warranties and covenants
contained in the NY Purchase Agreement were made only for purposes of the NY Purchase Agreement and as of specific dates, were solely
for the benefit of the parties to the NY Purchase Agreement, and may be subject to limitations agreed upon by the contracting parties.
The information set
forth under Item 1.03 of this Current Report on Form 8-K regarding the DIP Credit Agreement (as defined below) is incorporated herein
by reference. The description of the DIP Credit Agreement set forth below is qualified in its entirety by reference to the full text of
the DIP Credit Agreement, a copy of which is attached hereto as Exhibit 10.3 and incorporated herein in its entirety by reference. The
representations, warranties and covenants contained in the DIP Credit Agreement were made only for purposes of the DIP Credit Agreement
and as of specific dates, were solely for the benefit of the parties to the DIP Credit Agreement, and may be subject to limitations agreed
upon by the contracting parties.
Item 1.03 Bankruptcy or Receivership.
Voluntary Petition for Bankruptcy
On May 8, 2023 (the
“Petition Date”), the Company filed a voluntary petition (Case No. 23-41607) (the “Chapter 11 Case”) for relief
under Chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the
Eastern District of Missouri (the “Bankruptcy Court”). As disclosed above in Item 1.01, on May 7, 2023, the Company entered
the STL Purchase Agreement and the NY Purchase Agreement with Purchaser for the sale of the STL Assets and NY Assets, respectively. Each
of the proposed STL Sale and the proposed NY Sale will be conducted through a Bankruptcy Court-supervised process pursuant to Bankruptcy
Court-approved bidding procedures, and is subject to the receipt of higher or better offers from competing bidders at an auction, approval
of the sale by the Bankruptcy Court, and the satisfaction of certain conditions.
The Company continues
to operate its business as a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with
the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Company has sought approval of a variety of “first
day” motions containing customary relief intended to enable the Debtor to continue ordinary course operations during the Chapter
11 Case. In addition, the Company filed with the Bankruptcy Court a motion seeking approval (“Interim DIP Order”) of debtor-in-possession
financing (“DIP Financing”) in the form of the DIP Credit Agreement (as defined and described below).
The Company cannot
give any assurance that holders of the Company’s common stock will receive any payment or other distribution on account of those
shares following the Chapter 11 Case.
DIP Credit Agreement
Subject to the approval
of the Bankruptcy Court following the entry of the Interim DIP Order, the Company and Sterling Commercial Credit, LLC (the “DIP
Lender”) have agreed to enter into a senior secured super-priority debtor-in-possession term loan credit facility in a maximum loan
amount of $4,000,000 subject to the terms and conditions set forth therein (the “DIP Credit Agreement”). The Bankruptcy Court
approved the DIP Credit Agreement on an interim basis, with a final hearing scheduled for June 1, 2023. Pursuant to the DIP Credit Agreement,
the DIP Lender is providing a senior secured super-priority debtor-in-possession term loan facility (the “DIP Facility”),
consisting of (1) a new money single draw term loan facility in the amount of approximately $2,700,000, and (2) a roll-up of
obligations under the existing prepetition credit agreement between the Company and the DIP Lender in the amount of approximately $1,300,000
together with a revolving line of credit up to the maximum loan amount, subject to the terms of the DIP Credit Agreement and Interim DIP
Order. The DIP Credit Agreement has various customary covenants, as well as covenants mandating compliance by the Company with a 13-week
budget, variance testing and reporting requirements, among others. The proceeds of all or a portion of the proposed DIP Credit Agreements
may be used for, among other things, post-petition working capital for the Company and its subsidiaries, payment of costs to administer
the Chapter 11 Case, payment of expenses and fees of the transactions contemplated by the Chapter 11 Case, payment of court-approved adequate
protection obligations under the DIP Credit Agreement, and payment of other costs, in each case, subject to an approved budget and such
other purposes permitted under the DIP Credit Agreement and the Interim DIP Order or any other order of the Bankruptcy Court.
The DIP Credit Agreement
has been approved on an interim basis and is subject to final approval by the Bankruptcy Court. On May 9, 2023, the Company received interim
approval of the DIP Facility and availability of the DIP Facility. A final hearing to approve the DIP Facility is currently set for June
1, 2023.
Additional information
on the Chapter 11 Case (including copies of all documents filed in the Chapter 11 Case) can be found at: https://cases.stretto.com/AlliedHPI