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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
For the Transition period from to
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COMMISSION FILE NUMBER 0-20328
AMTROL INC
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
RHODE ISLAND 05-0246955
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1400 DIVISION ROAD, WEST WARWICK, RI 02893
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (401) 884-6300
Securities registered pursuant to Section 12(b) of the Act: NONE.
Securities registered pursuant to Section 12(g) of the Act: NONE
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 .
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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. [X]
---
As of March 7, 1998, the aggregate market value of the Registrant's voting stock
held by non-affiliates was none.
As of March 26, 1998, 100 shares of Common Stock $0.01 par value, of the
Registrant were outstanding.
Documents Incorporated by Reference: NONE
The Exhibit Index for this document appears on page 59 hereof.
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PART I
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ITEM 1. BUSINESS
OVERVIEW
AMTROL Inc ("AMTROL" or the "Company"), is a leading designer,
manufacturer and marketer of flow and control products used in the water
systems markets and selected sectors of the HVAC market. The Company's
principal products include well water accumulators, hot water expansion
controls, water treatment products, indirect-fired water heaters,
returnable and non-returnable pressure-rated cylinders used primarily to
store, transport and dispense refrigerant gases, and returnable cylinders
used to dispense heating and cooking gases. Many of these products are
based on a technology originated and developed by the Company, which uses
a pre-pressurized vessel with an internal diaphragm to handle fluids under
pressure.
The Company believes that its leading market positions in its key product
categories are attributable to the strength of AMTROL's brand names and
product breadth, quality and innovation, as well as its marketing,
distribution and manufacturing expertise. In addition, AMTROL's principal
markets are highly replacement-oriented, with 60% to 70% of the Company's
core business coming from replacement sales. These factors, combined with
the Company's large installed base of products, have enabled AMTROL to
demonstrate sales and earnings stability even during periods of weak
domestic economic activity.
AMTROL's brand names are among the most widely known in its markets. For
example, the Company's key hot water expansion control product, the
Extrol, is so widely recognized that customers frequently refer to any hot
water expansion control as an "Extrol." Other well-known brand names of
the Company include Well-X-Trol, Therm-X-Trol, Hot Water Maker and
CHAMPION. The Company also believes that it is the recognized technology
leader in virtually all of its core product lines. In many of the
Company's major product lines, AMTROL's products are considered the
industry standard, a key marketing advantage, because of their recognized
quality and reliability.
The Company's strong reputation and brand recognition ensure that nearly
every significant wholesaler carries at least one AMTROL product. This
facilitates new product introduction, effectively "pulling" the Company's
new products through its distribution system. AMTROL also offers a broad
range of products, including over 100 models of well water accumulators.
This broad product offering allows AMTROL's customers to consolidate their
suppliers and to purchase and manage inventory more efficiently. These
factors have established the Company's products as a preferred brand and
allow the Company to realize premium pricing on most of its branded
products. During its 50-year history, the Company has built a strong
franchise with wholesalers and OEMs, resulting in a broad distribution
network serving more than 5,000 customers throughout North America. In
addition, the Company continues to focus its efforts to better serve the
DIY market, a rapidly growing channel of distribution, primarily through
private label
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arrangements with Lowe's Companies, Menards, Cotter & Company (True Value)
and Ace Hardware.
In June 1997, the Company acquired Petroleo Mecanica Alfa ("Alfa"),
located in Guimaraes, Portugal. Alfa is Europe's largest manufacturer of
reusable steel gas cylinders and supplies Europe, the Middle East and
Africa, as well as the Far East, with containers for storing cooking,
heating and refrigerant gases. Alfa provides the Company with a low-cost
international manufacturing base for all of AMTROL's products and will be
an important source of supply for the Company's international customers.
With the acquisition of Alfa, approximately 22.3% of the Company's net
sales in 1997 were derived from international markets, compared to 12.6%
in 1996.
On August 28, 1996, AMTROL entered into a merger agreement (the "Merger
Agreement") with AMTROL Holdings, Inc. ("Holdings") and its wholly-owned
subsidiary, AMTROL Acquisition, Inc. ("Acquisition"), providing for the
merger of AMTROL with Acquisition, with AMTROL continuing as the surviving
corporation (the "Surviving Corporation"). The Merger Agreement was
approved at a special meeting of shareholders of AMTROL held on November
12, 1996, and Acquisition was merged with and into AMTROL on November 13,
1996 (the "Merger"). Each share of common stock of Acquisition was
converted into and exchanged into one share of common stock of the
Surviving Corporation, with the result that AMTROL became a wholly-owned
subsidiary of Holdings, a Delaware corporation controlled by The Cypress
Group L.L.C. ("Cypress").
The Company was incorporated in Rhode Island in 1973, and is the successor
to all of the assets and liabilities of a predecessor Rhode island
corporation which was incorporated in 1946. The Company's principal
executive offices are located at 1400 Division Road, West Warwick, Rhode
Island 02893 (telephone number: (401) 884-6300).
BUSINESS STRATEGY
Upon the Merger, Mr. John P. (Jack) Cashman became the Chairman, Chief
Executive Officer and President of the Company and worked closely with key
members of AMTROL's management to develop a new strategic plan.
During 1997, the Company has been executing the new strategic plan, which
was designed to reduce costs and capitalize on AMTROL's position as a
technological and market leader. The new strategic plan consists of the
following key elements: (i) reduce operating expenses, (ii) enhance sales
and profitability of core product offerings, and (iii) grow
internationally and introduce new products.
REDUCE OPERATING EXPENSES
In 1996 and 1997, the Company initiated a series of actions designed to
immediately reduce operating expenses and to establish new managerial and
organizational accountability. Actions already implemented or in the
process of being implemented are expected to generate significant cost
savings. The cost savings estimates described herein are forward-looking
statements based on management budgets. Realization of these
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savings depends upon the effectiveness and timing of the planned actions
and there can be no assurance that such cost savings can be achieved.
Reduce Corporate Overhead Expenses. In connection with the Merger, the
Company restructured its general and administrative staff and consolidated
its three autonomous strategic business units to eliminate redundant and
unnecessary functions, resulting in significant cost savings. These
actions generated permanent annual cost savings aggregating approximately
$4.0 million, including non-personnel expense reductions commencing in
1997. As a result of the headcount reductions undertaken in 1996 and 1997,
the number of persons employed at corporate headquarters as of December
31, 1997 has decreased by approximately 15% since January 1, 1996.
One-time costs related to these measures totaled approximately $2.5
million, which was anticipated and accounted for as part of purchase
accounting associated with the Merger.
Continue To Rationalize Manufacturing Facilities. The Company continued
its rationalization of its manufacturing facilities in 1997 with the sale
of its pump and accessory businesses and the closure of two of its
manufacturing plants. The Company sold its Peru, Indiana facility and
related pump business in May 1997, relocated production of certain
products to other facilities and outsourced the production of other
products. Costs associated with this action approximated $500,000. Also in
May 1997, the Company sold its accessories business, American Granby Inc.,
which had little strategic overlap with AMTROL's core water systems and
HVAC product lines, in order to focus on its core products. The Company
closed its Singapore production facility in September 1997. The decision
to close Singapore was assisted by the acquisition of Alfa, a low-cost
international manufacturing facility, which will absorb the non-returnable
chemical container production from the Singapore facility. In December
1997, the Company closed its production facility in Nashville, Tennessee
and relocated most of the Nashville production to the Company's West
Warwick, R.I. facility. Much of the production in Nashville represented
redundant capacity which, due to significant improvements in manufacturing
efficiency and productivity, the West Warwick plant will be able to absorb
with insignificant incremental costs. The Company recorded a $2.5 million
pre-tax charge in connection with the Singapore closure and a $3.0 million
pre-tax charge in connection with the Nashville closure.
Reduce Manufacturing Costs. The Company intends to continue to reduce
labor costs through automating certain labor-intensive manufacturing
processes and redesigning existing product lines. For example, the Company
in 1997 automated its small vessel manufacturing line in its West Warwick,
Rhode Island facility. The Company has identified and intends to implement
several other manufacturing improvement projects which are expected to
yield additional annual savings by the end of 1998.
ENHANCE SALES AND PROFITABILITY OF CORE PRODUCT OFFERINGS
The Company continues to look at initiatives to reinvigorate sales growth
and increase profitability of its core product offerings. To accomplish
this, the Company seeks agreements with major pump and boiler OEMs to
incorporate AMTROL products into complete systems solutions and modifies
current products to enhance appearance,
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facilitate installation or meet the requirements of specific domestic and
international markets. The Company continually educates its customers
about the benefits of AMTROL products. These actions help to maintain
demand for AMTROL's core products and allow AMTROL to continue to realize
premium pricing and a favorable product mix, especially in international
markets.
EXPAND INTERNATIONALLY AND INTRODUCE NEW PRODUCTS
By establishing an international presence through strategic alliances and
acquisitions, management believes the Company's strong brand names, broad
product offerings and core water systems expertise will allow it to
capitalize on growing global demand for enhanced water pressure control
and improved water quality and refrigerant systems. The 1997 acquisition
of Alfa increased the Company's international presence significantly:
international net sales were 22.3% of total net sales in 1997, compared to
12.6% in 1996. Alfa presents the Company with a low-cost platform from
which it can expand distribution of its wide variety of products in
Europe, the Middle East/Africa and the Far East. The Company will continue
to selectively pursue OEM alliances and strategic acquisitions, such as
the acquisition of Alfa. The Company believes that establishing local
manufacturing and distribution facilities in international markets is
critical to the Company's ability to build strong customer relationships,
understand local product preferences and be price competitive while
maintaining appropriate profit margins. In addition, strategic
acquisitions, both domestic and international, provide the Company with an
effective means of identifying and introducing new products and
technologies in markets where it already has a strong presence. The
Company will focus its international expansion on the target markets of
Western Europe, Latin America, and to a lesser extent, the regions of Asia
Pacific and Eastern Europe.
EUROPE. In Europe, the large hydronic heating market (believed by the
Company to be ten times the size of the U.S. market) and the general lack
of adequate water pressure in municipal systems represent excellent
opportunities for the Company in light of its core products expertise. The
Company's brand names are already well recognized in Europe. The Company
plans to apply its technical expertise to the special needs of the
European market and to build on Alfa's product and distribution presence
in the market for returnable pressure rated cylinders for heating and
cooking gases. The Company plans to accelerate European growth through
selective acquisitions, strategic joint ventures and distribution
agreements.
LATIN AMERICA. The Company intends to establish local sales, distribution
and service capability in this region, which will enable the Company to
better service its existing customers and provide a base for new business.
ASIA/PACIFIC. Although the recent economic instability in this region
decreased demand for the Company's products in 1997, and the Company's
1998 plans do not anticipate a significant rebound, the Company continues
to maintain and invest in its sales and distribution presence in the
region, and is prepared to pursue its opportunities in the Asia Pacific
region when economic conditions improve.
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PRODUCTS AND MARKETS
The Extrol, the first product to utilize the technology developed by
AMTROL for handling fluid under pressure in hydronic heating systems,
redefined the standards for controlling the expansion of water in these
systems. Older systems consisted simply of a vessel containing air,
resulting in excessive pressure, less efficiency and excessive corrosion.
AMTROL developed a technology which uses a flexible diaphragm inside a
pre-pressurized vessel to maintain the separation of air and water in the
vessel, and has applied this technology in both HVAC products and water
systems products.
HVAC PRODUCTS
AMTROL's net sales to selected sectors of the HVAC market, which include
net sales of products such as expansion accumulators, water heaters and
pressure-rated cylinders for heating and refrigerant gases, accounted for
approximately $91.8 million (or 52.0%) of the Company's total net sales in
1997. AMTROL's residential HVAC products include expansion vessels for
heated water, potable water heaters and other accessories used in
residential HVAC systems. AMTROL's commercial HVAC products are
substantially identical in function to those used in residential
applications, with the most significant difference being variations
required by design codes to meet the higher operating pressures of larger
systems. AMTROL's pressure-rated cylinders for refrigerant gases are used
in the storage, transport and dispensing of gases used in air conditioning
and refrigeration systems. In addition, with the acquisition of Alfa, the
Company's products include returnable pressure-rated cylinders for storing
gas used in residential and commercial heating and cooking applications.
EXTROLS. Extrol expansion accumulators, the first AMTROL product line to
incorporate the Company's diaphragm technology for handling fluid under
pressure, are used in conjunction with hydronic heating systems, which
provide heat by circulating hot water through baseboard piping and
radiators. The Extrol product eliminates the corrosive effects of oxygen
in the heating system and eliminates problems related to hot water
expansion by allowing the volume of water to increase as the temperature
of the water increases within a closed system, preventing operating
problems resulting from excessive or deficient water pressure in the
system.
THERM-X-TROLS. Therm-X-Trols accumulate expanded hot water escaping from
potable water heaters that has been prevented from flowing back into the
public water supply by backflow prevention devices. In response to the
Clean Water Act of 1984 certain jurisdictions established local codes to
require owners of commercial and residential buildings to install backflow
prevention devices in order to prevent the contamination of the public
water supply. Local codes adopted by organizations that set standards for
approximately 90% of the United States also require a separate device to
handle the expanded water prevented from flowing back into the public
water supply. The principal alternatives are relief valves, which permit
water to drain inside the building, and thermal expansion accumulators,
such as the Therm-X-Trol, which capture the water. Therm-X-Trol satisfies
these code requirements, as well as the codes of cities that specifically
require a thermal expansion accumulator. Additionally, the two largest
domestic water
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heater manufacturers will void their warranties if thermal expansion
accumulators are not used in conjunction with their products where
backflow prevention devices are installed.
INDIRECT-FIRED WATER HEATERS. In response to market demands for energy
conservation, AMTROL has developed a line of indirect-fired residential
and commercial water heaters, which it manufactures and distributes under
the brand name Hot Water Maker. Used in conjunction with a new or existing
boiler installed to heat living and work areas, these water heaters offer
an alternative to conventional gas and electric potable water heaters and
tankless coils by generating hot water through the use of heat exchangers
and circulators which circulate heated water from the boiler through a
coil in the core of the water heater's reservoir. Hot Water Makers are
sold for use in both commercial and residential applications. In addition
to selling products under its own brand name, AMTROL is presently pursuing
an OEM partnership strategy in this business whereby the Company supplies
hydronic products manufacturers with private branded indirect-fired water
heaters.
PRESSURE-RATED CYLINDERS. The Company's Alfa subsidiary, located in
Portugal, produces and distributes reusable liquid propane gas ("LPG") and
reusable refrigerant cylinders. It is the largest producer of reusable
steel gas cylinders in Europe. Reusable LPG cylinders are typically
purchased by major gas companies or their distributors who fill the
cylinders for customers who use the gas for heating and cooking in
residential and commercial applications. AMTROL is one of two of the
world's most significant manufacturers of non-returnable pressure-rated
cylinders used in the storage, transport and dispensing of refrigerant
gases for air conditioning and refrigeration systems. These gases include
chlorofluorocarbons ("CFC's") and hydrochlorofluorocarbons ("HCFC's"), as
well as newly developed alternative refrigerants designed to mimic the
desirable characteristics of CFC's and HCFC's. The Montreal Protocol on
Substances that deplete the Ozone Layer (to which 140 countries are
signatories) required the phase out of CFC production by the end of 1995
and established an HCFC consumption limit beginning January 1, 1996, with
a complete phase out of HCFC's by 2030. The United States has accelerated
the HCFC phase out, requiring the phase out of certain HCFC's by 2003,
others by 2020 and the remainder by 2030. During the past three years,
these regulatory phase outs and consumption limits on CFC's and HCFC's
have created disruptions in the market and have resulted in uneven and
less predictable demand for the Company's pressure-rated cylinders. These
conditions may continue during the transition to new alternative
refrigerant gases until the aftermarket service demand for the new
alternative refrigerant gases grows to previous CFC levels. However, the
Company believes that the increasing use of refrigeration and air
conditioning in developing nations will generate increased international
sales of refrigerant gas cylinders.
WATER SYSTEMS PRODUCTS
AMTROL's net sales of its water systems products accounted for
approximately $84.6 million (or 48.0%) of the Company's total net sales in
1997. These products consist primarily of water accumulators for
residential and commercial well water systems and systems and components
for residential water softening and purification.
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WELL WATER SYSTEMS. AMTROL produces and sells well water accumulators for
both residential and commercial applications under the brand names
Well-X-Trol and CHAMPION, as well as under several private label programs.
Virtually all of the water accumulators sold by the Company incorporate an
internally mounted rubber diaphragm that seals an air charge and allows
pressure to increase as water fills the plastic lined vessel. This design
serves to control pressure while maintaining the separation of air and
water in the vessel, thereby eliminating water logging (absorption of air
into water) as well as reducing wear on switches, pump motors and other
system components caused by unnecessary on/off cycling. A typical well
water system consists of a submersible or jet pump located in the well
that is attached to an AMTROL pre-pressurized vessel.
The pre-pressurized vessel is connected to the plumbing system in order to
provide water on demand at a constant pressure. As the water level and
pressure in the vessel lowers, the diaphragm flexes, which in turn causes
the pump to cycle on until a sufficient level of water pressure is
achieved in the system.
WATER TREATMENT/FILTRATION PRODUCTS. AMTROL offers a range of products to
meet increasing global demand for improved water quality and water
pressure. AMTROL manufactures and markets water softeners, reverse osmosis
accumulators and other related systems that may be utilized to purify or
treat residential municipal-supplied and well water. The Company also
manufactures and markets products that address the need to boost water
pressure in many domestic and international locations where the available
pressure is not adequate.
DISTRIBUTION AND MARKETING
AMTROL's principal channel of distribution is plumbing, heating and pump
specialty wholesalers. The Company maintains its presence in the United
States and Canadian wholesale markets through a network of approximately
40 independent firms that represent multiple manufacturers, arranging
sales on a commission basis, as well as approximately 20 salaried direct
sales professionals. To service its customers with greater efficiency, the
Company has streamlined its representative network and, through
consolidation of multiple lines of business, has brought a broader range
of products to its wholesalers. The Company also provides certain of its
products to the rapidly growing DIY market segment through a separate
sales force and marketing division. AMTROL has private label arrangements
with Lowe's Companies, Menards, Cotter & Company (True Value) and Ace
Hardware.
At its Education Center, which is an integral part of the Company's
marketing organization, and at Company-sponsored seminars throughout the
United States and selected international locations, AMTROL provides
education and training to wholesalers, contractors and engineers,
independent sales representatives and their employees to assist them in
understanding the technical aspects of their respective customers'
requirements and AMTROL's product lines. By educating customers about the
benefits of AMTROL's products, the Company's products are effectively
"pulled" through its distribution system.
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Non-returnable refrigerant pressure-rated cylinders are also sold to major
chemical companies, which produce and package refrigerant gases, and to
independent contractors that purchase bulk refrigerants and fill the
cylinders. Alfa's major customers for reusable LPG cylinders are the major
European gas companies or their distributors.
Except for one customer to whom sales were approximately 6%, no single
customer represented more than 5% of the Company's net sales in 1997.
INTERNATIONAL SALES
Sales in geographic regions outside of the United States and Canada,
primarily Western Europe, Asia and Mexico, accounted for 13.2%, 12.6% and
22.3% of the Company's total net sales in fiscal years 1995, 1996 and 1997
respectively. The majority of these sales were refrigerant gas
pressure-rated cylinders sold into Europe in 1997 and the sales of its
newly acquired Alfa subsidiary.
Over the last three years, AMTROL has opened international sales offices
in Hong Kong and Singapore. In May 1997, the Company opened a sales office
in Europe. In addition to these initiatives, AMTROL is building
distribution networks in the Asia/Pacific region and Latin America/Mexico.
To further penetrate European markets, AMTROL is selectively pursuing
acquisitions and distribution, OEM and manufacturing alliances which
complement its recent acquisition of Alfa.
Previous management at the Company commenced manufacturing activities at
leased facilities in Singapore in 1996 in order to expand its
international presence. However, the acquisition of Alfa in 1997 made the
Singapore facility unnecessary, particularly in light of the higher than
anticipated cost structure, lack of an adequate local steel supply and an
increasingly unstable economic environment. Accordingly, the Company
closed its Singapore facility and ceased production in September 1997. A
continued focus on international expansion is a key part of the Company's
growth strategy. See "--New Management and Business Strategy--Expand
Internationally."
MANUFACTURING, RAW MATERIALS AND SUPPLIERS
The Company manufactures water systems and HVAC products using components
produced in its own facilities, as well as those of outside suppliers. To
assure quality in its product lines and to enable the Company to respond
quickly to changing market demands, AMTROL manufactures most critical
components in its own facilities. The Company has a "Continuous
Improvement Program" for quality control directed at producing higher
yields, lower controllable costs per unit, higher order fill rates, better
on-time delivery and decreased warranty claims. AMTROL believes it has
developed substantial manufacturing expertise related to its technology
and its expertise in high quality, low cost manufacturing. This expertise,
combined with its extensive knowledge of the manufacturing tolerances
required to handle fluids under pressure, provides a competitive
advantage. Principal manufacturing processes include thin-wall steel deep
drawing, welding and rubber injection molding.
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The Company's engineering and development efforts are focused on improving
the performance, quality and manufacturing cost of its products. In
addition, the Company pursues opportunities to develop new products and
processes, and adapt existing products for new applications.
In September 1997, the Company ceased production operations in Singapore
and transferred production equipment to its newly acquired production
facility in Portugal. The unanticipated high cost structure in Singapore
and the flexibility provided by the Alfa acquisition were the prime
factors leading to this decision. In addition, as a result of productivity
gains achieved at its West Warwick, Rhode Island production facility and
as part of the Company's strategic initiative to reduce manufacturing
costs and optimize the utilization of its worldwide manufacturing
capacity, the Company decided in December 1997 to close its Nashville,
Tennessee production facility and relocate production to the Rhode Island
facility.
Previously, due to significant productivity gains achieved at its
principal manufacturing facilities, the Company decided to close two
production facilities which were no longer necessary. The Company's Plano,
Texas plant ceased operations in September 1995 and the Rogers, Arkansas
plant ceased operations in April 1996. Production requirements were
transferred to other manufacturing facilities.
In addition to its ongoing facilities rationalization program, AMTROL has
implemented a significant capital improvement program with the intention
of further reducing manufacturing costs. During 1997, the Company spent
$8.5 million on capital expenditures. Most significantly, the Company has
spent approximately $2.4 million over the past two years to automate the
small diameter vessel production line in West Warwick, Rhode Island, and
approximately $2.0 million in conjunction with the acquisition of Alfa for
productivity improvement and capacity expansion.
AMTROL's three principal manufacturing facilities hold ISO 9001
Certification, the most complete certification in the ISO 9000 Series from
the International Organization for Standardization ("ISO"). ISO
certification requires periodic audits of AMTROL's systems for product
design, development, production, installation and servicing, and has
become the international standard of quality required for manufacturers
serving the European Economic Community, Southeast Asia, the Middle East
and Latin America.
Raw material suppliers generally offer commodities used by the Company,
such as steel, synthetic rubber and plastic resins, to all manufacturers
on substantially similar terms. Significant increases in raw material
prices can adversely impact margins if the Company is unable to pass on
such increases to its customers. In 1995, the Company experienced
increased raw material costs, particularly steel and corrugated paper,
which it was unable to offset and, as a result, its gross margin was
adversely impacted. During 1996, the Company experienced reductions in raw
material prices offsetting many of the increases experienced in the prior
year. Manufacturers of component parts also generally offer their products
to others on substantially similar terms. Although certain components are
only available from a limited number of manufacturers, the Company
anticipates that it will be able to purchase all of the components it
requires without disruption. The Company believes that its relationships
with its suppliers are good.
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SEASONALITY; BACKLOG
Although AMTROL's sales are related to general economic activity and sales
of certain of its products are seasonal, its overall business is not
seasonal to any significant extent. Due to the generally short lead time
in orders, the Company historically has not carried any material backlog.
PATENTS, TRADEMARKS AND LICENSES
While the Company owns a number of patents that are important to its
business, the Company believes that its position in its markets depends
primarily on factors such as manufacturing expertise, technological
leadership, superior service and quality and strong brand name
recognition, rather than on patent protection. The Company believes that
foreign and domestic competitors have been unable to match the quality of
AMTROL's branded products. The Company licenses certain of its technology
to manufacturers in the Asia/Pacific region.
The Company also has a number of registered and unregistered trademarks
for its products. The Company believes the following registered
trademarks, which appear on its products and are widely recognized in its
markets, are material to its business: the AMTROL(R) name, Well-X-Trol(R),
Therm-X-Trol(R), Extrol(R), Hot Water Maker(R) and CHAMPION(R).
COMPETITION
Although the Company experiences substantial competition from a limited
number of competitors in each of its markets, the Company believes that it
is a market leader in its core products. The principal means of
competition in the water systems products and HVAC markets are technology,
quality, service and price. AMTROL brand name products generally compete
on the basis of technology, quality, service and product line breadth and
generally do not compete on the basis of price. No single company competes
with AMTROL over a significant number of its product lines. As the Company
expands into international markets, it may experience competition from
local companies.
EMPLOYEES
As of December 31, 1997, the Company had approximately 1,650 employees,
none of whom were represented by collective bargaining units. AMTROL
considers relations with its employees to be good.
ENVIRONMENTAL MATTERS
Some of the Company's operations generate waste materials that may give
rise to liability under environmental laws. Some risk of environmental and
other damage is inherent in these operations, and certain of the Company's
operations have been named a party in government enforcement and private
actions associated with hazardous waste sites (including several sites
under the federal Comprehensive Environmental Response, Compensation and
Liability Act, known as "Superfund") and, in several matters, have been
identified as being potentially responsible for a share of cleanup costs
associated
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with such sites. Based upon the Company's experience in such matters, the
amount of hazardous waste shipped to such sites attributable to the
Company and the status of settlement proceedings, the Company estimates
that its share of the aggregate cleanup costs for all of these sites will
not be material. In addition, the Company is in the process of remediating
contaminants discovered at its Plano, Texas facility, but does not
anticipate that the costs associated with such remediation will be
material. There can be no assurance that such liability arising from, for
example, contamination at facilities the Company (or an entity or business
the Company has acquired or disposed of) currently owns or operates or
formerly owned or operated, or locations at which wastes or contaminants
generated by the Company (or an entity or business the Company has
acquired or disposed of) have been disposed of, will not arise or be
asserted against the Company or entities for which the Company may be
responsible in a manner that could materially and adversely affect the
Company.
The Company monitors and reviews its procedures and policies for
compliance with environmental laws. Based upon the Company's experience to
date, the Company operates in substantial compliance with environmental
laws, and the cost of compliance with existing regulations is not expected
to have a material adverse effect on the Company's results of operations,
financial condition or competitive position. However, future events, such
as changes in existing laws and regulations or enforcement policies, may
give rise to additional compliance costs which could have a material
adverse effect on the Company's results of operations, financial condition
or competitive position.
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ITEM 2. PROPERTIES
The following table sets forth information regarding the Company's
principal properties each of which is owned by the Company unless
otherwise indicated:
<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE PRINCIPAL USE
- -------- -------------- -------------
(approximate)
<S> <C> <C>
West Warwick, RI 270,000 Corporate Headquarters, Manufacturing
All AMTROL Product Lines, Education Center
Guimaraes, Portugal 196,000 Manufacturing Pressure-rated Cylinders
North Kingstown, RI(a) 126,000 Distribution Center for all AMTROL Products
North Kingstown, RI(a) 80,000 Warehouse for Raw Materials And Finished Goods
Paducah, KY 46,300 Manufacturing Pressure-rated Cylinders
Mansfield, OH(a) 45,000 Distribution Center for Do-It-Yourself Market
Baltimore, MD 37,000 Manufacturing Metal Stampings
Ashland, OH(a) 37,000 Manufacturing Water Treatment/Filtration Products
Kitchener, Ontario(a) 18,400 Distribution
Singapore(a) 600 Sales Office for Southeastern Asia
Hong Kong(a) 600 Sales Office for Northern Asia
Antwerp, Belgium(b) -- Distribution
Nashville, TN 121,600 Held for Sale
Plano, TX 40,000 Held for Sale
---------
TOTAL 1,018,500
</TABLE>
(a) Leased facilities
(b) The distribution center in Antwerp operates under a lease for space on an
as-needed basis.
AMTROL believes that its properties and equipment are generally well
maintained, in good operating condition and adequate for its present
needs. The Company regularly evaluates its manufacturing
requirements and believes that it has sufficient capacity to meet
its current and anticipated needs. The inability to renew any
short-term real property lease would not have a material adverse
effect on AMTROL's results of operations.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is named as a defendant in legal
actions arising in the normal course of business. The Company is not
a party to any pending legal proceeding the resolution of which
management believes will have a material adverse effect on the
Company's results of operations or financial condition or to any
pending legal proceedings other than ordinary, routine litigation
incidental to its business. See "Item 1, Business--Environmental
Matters."
ITEM 4. SUBMISSION OF MATTERS TO SECURITY HOLDERS
Not applicable.
13
<PAGE> 14
PART II
- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
All of the Common Stock of the Company is owned by Holdings; thus,
no trading market exists for such stock. Similarly, all of the
common stock of Holdings is held by affiliates of Cypress and
certain officers of the Company, and no trading market exists for
such stock. See Item 12, "Security Ownership of Certain Beneficial
Owners and Management".
14
<PAGE> 15
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for and as of each of
the years and periods in the five-calendar-year period ended December 31, 1997
have been derived from the Consolidated Financial Statements of the Company,
including the related notes thereto, which have been audited by Arthur Andersen
LLP, independent public accountants. The selected consolidated balance sheet
data for November 12, 1996 have been derived from unaudited consolidated
financial statements of the Company which, in the opinion of management, include
all adjustments (consisting only of normal recurring items) necessary for a fair
and consistent presentation of such data. The information set forth below should
be read in conjunction with "Management's Discussion and Analysis of Results of
Operations and Financial Condition and with the Consolidated Financial
Statements of the Company, including the related notes thereto, appearing
elsewhere in this Annual Report.
<TABLE>
<CAPTION>
Predecessor Company Successor Company
-------------------------------------------------- ------------------------------
PERIOD
ENDED PERIOD ENDED YEAR ENDED
YEAR ENDED DECEMBER 31, NOVEMBER 12, DECEMBER 31, DECEMBER 31,
1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ----
(In Thousands, except ratio data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $ 164,295 $ 173,472 $ 172,454 $ 152,193 $ 18,628 $ 176,432
Cost of goods sold 116,180 123,184 124,303 110,582 15,108(c) 131,180
--------- --------- --------- --------- --------- ---------
Gross profit 48,115 50,288 48,151 41,611 3,520 45,252
Selling, general and
administrative expenses 29,099 30,402 29,943 25,796 3,508 25,723
Amortization of goodwill -- -- -- -- 313 3,995
Plant closing charges -- -- 3,825 -- -- 5,500
Capitalized in-process
research and development -- -- -- -- 1,000 --
--------- --------- --------- --------- --------- ---------
Income (loss) from
operations 19,016 19,886 14,383 15,815 (1,301) 10,034
Interest income (expense),
net (805) (7) 60 53 (2,224) (18,256)
License and distributorship
fees 254 254 258 181 25 245
Other income (expense), net (141) (179) 65 (175) (99) 299
--------- --------- --------- --------- --------- ---------
Income (loss) before
provision for income
taxes and extraordinary
item 18,324 19,954 14,766 15,874 (3,599) (7,678)
Provision (benefit) for
income taxes 7,149 7,683 5,681 6,152 (1,310) (30)
--------- --------- --------- --------- --------- ---------
Income (loss) before
extraordinary item 11,175 12,271 9,085 9,722 (2,289) (7,648)
Extraordinary item (911)(a) -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 10,264 $ 12,271 $ 9,085 $ 9,722 $ (2,289) $ (7,648)
========= ========= ========= ========= ========= =========
Other Data:
Depreciation and amortization $ 4,520 $ 4,330 $ 4,673 $ 4,586 $ 598 $ 11,541
Capital expenditures 7,382 4,902 5,492 9,260 1,662 8,489
EBITDA(b) 23,790 24,470 23,139 20,582 (678) 26,886
Balance Sheet Data (at period end):
Working capital $ 28,454 $ 37,293 $ 43,303 $ 41,778 $ 35,047 $ 24,376
Total assets 82,612 91,634 93,909 96,280 254,883 293,000
Long-term debt, less current
installments 3,333 2,381 -- -- 159,175 184,164
Shareholders' equity 53,017 64,174 70,206 75,783 67,037 59,104
</TABLE>
(a) Reflects an extraordinary loss of $1.5 million ($.9 million net of tax
benefits) in 1993 from the early extinguishment of debt.
(b) EBITDA represents income (loss) from operations before plant closing
charges, plus depreciation and amortization and license and
distributorship fees and other income related to operations. EBITDA is
presented because it is a widely accepted indicator of a company's ability
to incur and service indebtedness. EBITDA (subject to certain adjustments)
will be used to determine compliance with certain covenants in the
Indenture. EBITDA, however, should not be considered as an alternative to
net income, as a measure of the Company's operating results, or as an
alternative to cash flow as a measure of liquidity.
(c) Reflects a $1.0 million charge related to the upward revision of the
Company's Workers' Compensation reserve estimate.
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The discussion in this section should be read in conjunction with the
Consolidated Financial Statements of the Company included elsewhere
herein.
This Annual Report includes "forward-looking statements" within the
meaning of the securities laws. All statements other than statements of
historical facts included in this Annual Report regarding the Company's
financial position and cost cutting and strategic plans are
forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable,
it can give no assurance that such expectations will prove to have been
correct. Important factors that could cause actual results to differ
materially from such expectations include, but are not limited to, the
Company's ability to successfully implement its new business strategy and
to achieve the estimated cost savings, the availability and cost of raw
materials, changes in government regulation or enforcement policies,
particularly related to refrigerant gases, development of competing
technologies, acceptance of the Company's existing and planned new
products in international markets, competition in the Company's markets,
the rate of growth of developing economies and demand for the Company's
products, and general economic, financial and business conditions, both
domestically and internationally.
SIGNIFICANT DEVELOPMENTS
Following the acquisition of the Company by affiliates of Cypress in 1996,
management began the execution of a new strategic plan to immediately
reduce costs and capitalize on AMTROL's position as a technological and
market leader. Consistent with this strategy, in 1997 the Company sold its
American Granby accessory business and its Peru, Indiana production
facility and the related pump business. In addition, the Company closed
manufacturing facilities in Singapore and Nashville, Tennessee. Management
believes that the sale of the less profitable accessories and pump
businesses will allow management to focus greater resources on its core
water systems and HVAC businesses, and that consolidation of manufacturing
activities previously conducted at the Singapore and Nashville plants into
other AMTROL facilities will promote operational efficiencies and lower
the Company's overall cost structure.
In 1997, AMTROL completed the acquisition of Petroleo Mecanica ALFA, S.A.
("Alfa") based in Guimaraes, Portugal. Alfa is Europe's largest
manufacturer of reusable steel gas cylinders used to store cooking,
heating and refrigerant gases. The Company expects to integrate its
international water and HVAC systems business with Alfa's manufacturing
and distribution operations. The acquisition of Alfa provides the Company
with a significant low cost manufacturing base for AMTROL products for
distribution in Europe and the Far East.
16
<PAGE> 17
OVERVIEW
AMTROL's principal markets are highly replacement-oriented with 60% to 70%
of the Company's core business coming from replacement sales. The
installed base of AMTROL's products in these core markets, combined with
their stable nature, provide the Company with a consistent and predictable
base business. Although generally stable, sales are affected by weather,
as well as general economic activity. The Company monitors well water pump
sales, existing home sales and boiler shipments in order to gauge activity
in its markets. Although sales of certain of AMTROL's product lines are
seasonal in nature, its overall business is not seasonal to any
significant extent, as seasonal variations of individual product lines
tend to offset each other.
NET SALES. Net sales of the Company's HVAC products accounted for
approximately 52.0% of the Company's total net sales in 1997, with the
balance represented by sales of water systems products. While the
percentage of water systems net sales to total net sales has been fairly
constant, the acquisition of Alfa which supplies the HVAC market and the
disposition of American Granby which supplied the water systems market
caused a decrease in the percentage of the Company's business represented
by water systems sales in 1997. Water systems sales would have accounted
for approximately 51.0% of total 1997 sales without Alfa and American
Granby, which is comparable to recent prior years.
AMTROL's well water accumulators, marketed under the brand names
Well-X-Trol and CHAMPION, account for approximately two-thirds of the
Company's total water systems net sales and generally carry higher gross
profit margins than other product sales. These pre-pressurized vessels are
distributed through a network of pump specialty and plumbing and heating
wholesalers and the DIY retail network. The market is continuing to
experience a modest shift in the channels of distribution from wholesalers
to DIY retailers, which generally generate slightly lower gross margins.
Sales of water system accumulators are generally correlated to shipments
of well water pumps. The Company's HVAC products include indirect-fired
water heaters and water expansion accumulators for hydronic heating
systems, non-returnable pressure-rated cylinders for refrigerant gas and
returnable cylinders for cooking, heating and refrigeration gases. AMTROL
believes it has opportunities to increase its sales in Europe, currently
the world's largest hydronic heating market, through a combination of new
products and strategic acquisitions. In particular, the acquisition of
Alfa, based in Guimaraes, Portugal, provides the Company with a low cost
manufacturing base conveniently situated for distribution of AMTROL's
products in Europe, the Middle East and Africa. The Company believes that
Therm-X-Trol product sales combined with planned new product introductions
will provide growth opportunities in the plumbing and heating component of
the HVAC product group.
The market for refrigerant gas pressure-rated cylinders is seasonal in
nature, with roughly 60% of annual sales coming in the first six months of
the year as producers build inventory in preparation for air conditioner
use in the summer season. An unseasonal hot spring and early summer
favorably impact unit volume demand.
17
<PAGE> 18
COST OF GOODS SOLD. The principal elements comprising the Company's cost
of goods sold are raw materials, labor and manufacturing overhead. The
major raw materials used by the Company in its production process are
steel, corrugated paper, plastic resins and synthetic rubber. Significant
increases in raw material prices can adversely impact margins if the
Company is unable to pass on such increases to its customers. The Company
has an infrastructure of capital equipment, buildings and related support
costs and, accordingly, decreases in volume can have a significant adverse
effect on margins. Cost of goods sold can also be significantly affected
by changes in product mix.
The Company has significantly reduced its manufacturing cost base in
recent years by closing less efficient plants or plants with redundant,
excess capacity. Production at the closed facilities has been transferred
to other existing production plants with the anticipated effect of
lowering the Company's total cost structure and increasing the absorption
of fixed manufacturing overhead through higher production volume at the
remaining plants. The Company closed plants in Singapore and Nashville,
Tennessee in 1997. Production of water systems products at the Nashville
facility has been transferred to the Company's West Warwick, Rhode Island
facility, and production of disposable gas containers at the Singapore
facility has been transferred to the Company's new Alfa facility in
Portugal. In the past, the Company has experienced certain inefficiencies
and additional costs as it assimilates the transferred production into
other facilities, and such costs have often delayed the realization of
expected savings associated with the transfer. The Company expects it will
have similar experiences in the first half of 1998, particularly in
relation to the relocation of Nashville production.
The Company made significant capital investments in 1997 to enhance
production capabilities, eliminate production bottlenecks and improve
production yield. Although these investments caused certain production
inefficiencies in 1997 due to disruption of the manufacturing process
during installation, the Company expects a significant improvement in
efficiencies in 1998 and beyond as a result of these investments.
Historically, the Company's labor rate increases have been cost of living
adjustments generally in line with inflation. However, the Company is
transitioning to a pay-for-performance merit system based on skills,
which may cause future labor cost increases to no longer track inflation.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. An important element of the
new strategic plan developed in connection with the acquisition of the
Company by affiliates of Cypress was a program to immediately reduce
operating expenses and to establish new managerial and organizational
accountability. Personnel reductions in 1996 and early 1997, in connection
with the program, reduced by approximately 15% total personnel at the
Company's corporate headquarters compared to the end of 1995. Other
actions taken in 1996 and 1997 included consolidating the Company's three
autonomous strategic business units to eliminate redundant and unnecessary
functions. The cost reduction program generated approximately $4.0 million
of annualized savings in 1997. At the same time, new initiatives
undertaken by the Company in 1997 included increased investment in
engineering and development as well increased spending in marketing to
support the Company's planned expansion in international markets.
18
<PAGE> 19
As a result of the Merger, the Company's amortization and
interest expense have increased significantly in 1997.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items included in the Company's
statement of operations:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0%
Cost of goods sold 72.1% 73.6% 74.4%
----- ----- -----
Gross profit 27.9% 26.4% 25.6%
Selling, general and administrative expenses 17.4% 17.8% 14.6%
Plant closing charges 2.2% 0.0% 3.1%
Amortization of goodwill 0.0% 0.1% 2.3%
----- ----- -----
Income from operations 8.3% 8.5% 5.6%
Interest income (expense), net .1% (1.3%) (10.3%)
Other income, net .2% 0.0% 0.4%
----- ----- -----
Income before provision for income taxes 8.6% 7.2% (4.3%)
Provision (benefit) for income taxes 3.3% 2.8% 0.0%
----- ----- -----
Net Income (Loss) 5.3% 4.4% (4.3%)
===== ===== =====
</TABLE>
Results for 1997 were impacted by: (i) the acquisition of Alfa on June 30,
1997 as sales and income from this subsidiary were included in 1997
beginning on July 1, but were not included in the comparable period in
1996; (ii) the divestiture of the American Granby accessory business and
the Peru, Indiana pump business in May 1997 as 1997 did not include sales
and income from these businesses subsequent to May which were included in
the comparable period in 1996; (iii) the closing of the Company's
Singapore production facility in the third quarter and the Company's
Nashville, Tennessee production facility in the fourth quarter which,
combined, resulted in a pre-tax charge of $5.5 million to operating
expenses; and (iv) higher amortization and interest expense as a result of
the Merger.
The composition of net sales, adjusted to exclude American Granby sales in
all years, for the Company's HVAC and water systems products for the
periods indicated is listed below:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
HVAC $ 76.1 49.8% $ 74.5 49.3% $ 91.8 54.4%
Water Systems 76.8 50.2% 76.7 50.7% 77.0 45.6%
------ ------ ------ ------ ------ ------
Net Sales $152.9 100.0% $151.2 100.0% $168.8 100.0%
====== ====== ====== ====== ====== ======
</TABLE>
The amounts and percentage relationships in the above tables for 1996
combine the results of the predecessor for the period ended November 12,
1996 and the results of the successor for the period ended December 31,
1996. The increase in the percentage of sales represented by HVAC products
in 1997 is due to the inclusion of Alfa sales.
19
<PAGE> 20
COMPARABILITY OF FINANCIAL STATEMENTS. The consolidated financial
statements of the Company for the periods prior to November 13, 1996 have
been prepared on the historical cost basis. The Merger was accounted for
as a purchase transaction. Operating results subsequent to the Merger are
comparable to prior periods, with the exception of cost of sales (due to a
$ 1.0 million charge in 1996 related to the reserve estimate), and
purchase accounting related changes due to amortization of intangible
assets and capitalized in-process research and development. The net impact
of changes in amortization on 1997 operating income compared to 1996 was
approximately $3.7 million.
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1996.
NET SALES. Net sales in 1997 increased $5.6 million or 3.3% to $176.4
million from $170.8 million in 1996. This increase was primarily due to
$17.8 million of sales attributable to Alfa, partially offset by the
absence of American Granby's sales for eight months in 1997. Excluding the
impact of the sale of American Granby, net comparable sales attributable
to the Company's water systems products were virtually flat in 1997 at
$77.0 million as increased sales of water well accumulators were offset by
decreased sales of water treatment products. Net sales of HVAC products,
with Alfa included in 1997, increased $17.3 million compared to 1996.
Without Alfa, HVAC sales would have decreased by $.5 million in 1997.
Container product sales for the year increased approximately $1.2 million,
resulting from higher volumes, while net sales of other HVAC products
decreased $1.7 million. The decrease was partly caused by an unusually
high level of hot water maker product returns experienced in 1997
resulting from a manufacturing process problem which has since been
corrected. These incremental product returns are gradually diminishing,
and the Company expects product returns will approximate normal,
historical levels by the end of 1998. In addition, the sale of the
Company's Peru, Indiana production facility and the related pump business
in May 1997 resulted in the discontinuation of a number of products,
further contributing to the decline HVAC net sales.
GROSS PROFIT. Gross profit increased $0.1 million or 0.3% in 1997 to $45.2
million from $45.1 million in 1996. As a percentage of sales, gross profit
in 1997 decreased to 25.6% from 26.4% in 1996. The inclusion of the
operating results of Alfa deflated the gross margin percentage in 1997 as
the margins on reusable steel gas cylinders produced at this facility are
lower than many other AMTROL products. Excluding Alfa and American Granby,
gross profit in 1997 decreased $1.3 million (or 3.2%) to $41.2 million
from $42.5 million in 1996, and as a percentage of sales decreased to
27.3% from 28.1% in 1996. The lower margin percentage this year was the
result of: (i) unusually high product returns associated with a
manufacturing process problem (as discussed above); (ii) unanticipated
higher costs associated with the Singapore production facility through the
end of August (when the facility was closed); and (iii) inefficiencies
associated with the disruption of the manufacturing process during
installation of certain major upgrades to manufacturing equipment and
processes in 1997. The Company believes that it has successfully
maintained market position and sales volume in the refrigerant container
business, despite increased competition as well as the movement of
refrigerant container
20
<PAGE> 21
customers towards long-term single source contracts. However, competitive
pricing actions have adversely affected margins in this market, conditions
which the Company expects will continue for the foreseeable future.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $4.6 million (or 15.1%) in 1997 to $25.7
million from $30.3 million in 1996. As a percentage of net sales, selling,
general and administrative expenses decreased in 1997 to 14.6% as compared
to 17.7% in 1996. The decrease would have been even greater, $5.7 million
(or 18.9%) if the results of Alfa were excluded. The decrease in selling,
general and administrative expenses was primarily due to reductions in
corporate overhead and restructuring of the Company's general and
administrative staff, in connection with implementing the Company's new
business strategy. In addition, expenses in 1996 included a one-time
purchase accounting charge related to capitalized in-process research and
development of $1.0 million.
PLANT CLOSING CHARGES. In 1997, the Company recorded a $5.5 million
pre-tax charge to operating expenses for severance and other costs
associated with the closures of its plants in Nashville, Tennessee and
Singapore.
INCOME FROM OPERATIONS. For the reasons set forth above, income from
operations decreased $4.5 million in 1997 to $10.0 million (after plant
closing charges of $5.5 million) from $14.5 million in 1996. The inclusion
of Alfa in the results for 1997 increased operating income by $1.9
million. Excluding the effects of goodwill amortization, plant closing
charges and the acquisition of Alfa on 1997 results, and the effect of the
write-off of capitalized in-process research and development and goodwill
on 1996 results, operating income in 1997 would have increased $1.8
million (or 11.4%) to $17.6 million from $15.8 million in 1996.
EARNINGS BEFORE INTEREST EXPENSE, DEPRECIATION AND AMORTIZATION (EBITDA)
EBITDA in 1997 was $26.9 million compared to $19.9 million in 1996, an
increase of $7.0 million. EBITDA represents income (loss) from operations
before plant closing charges, plus depreciation and amortization, license
and distributorship fees, and other income related to operations. EBITDA
is presented because it is a widely accepted indicator of a company's
ability to incur and service indebtedness. EBITDA (subject to certain
adjustments) will be used to determine compliance with certain covenants
in the Indenture governing the Company's Senior Subordinated Notes. (See
"Liquidity and Capital Resources"). EBITDA, however, should not be
considered as an alternative to net income, as a measure of the Company's
operating results or as an alternative to cash flow as a measure of
liquidity.
INTEREST INCOME (EXPENSE), NET. Net interest expense increased $16.1
million in 1997 from 1996 due to borrowing costs related to the financing
of the Merger.
INCOME TAXES. Income tax expense decreased $4.9 million in 1997 as
compared to 1996.
NET INCOME (LOSS). The net loss in 1997 of $7.6 million compares to net
income in 1996 of $7.4 million, an absolute change of $15.1 million.
21
<PAGE> 22
FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1995.
NET SALES. Net sales decreased $1.7 million (or .1%) in 1996 to $170.8
million from $172.5 million in 1995. This decrease was primarily
attributable to weak domestic demand for refrigerant pressure-rated
cylinders partially offset by increased sales of residential plumbing and
heating products due to stronger demand in the new and replacement
hydronic heating market. Net sales attributable to the Company's water
systems products were virtually flat in 1996 at $96.3 million as increased
sales of water well accumulators were offset by decreased sales of water
treatment products. Net sales attributable to the Company's HVAC products
decreased $1.6 million (or 2.1%) to $74.5 million in 1996, primarily due
to a decrease in sales of refrigerant pressure-rated cylinders resulting
from a pre-buy of domestic non-returnable cylinders in 1995, offset by
increased sales of the Company's core HVAC products. The decline in
domestic sales of non-returnable pressure-rated cylinders also reflects
the continued transition from CFCs to new alternative refrigerant gases
which is expected to continue until the after-market service demand for
new refrigerant gases grows to previous CFC levels.
GROSS PROFIT. Gross profit decreased $3.1 million (or 6.4%) to $45.1
million from $48.2 million in 1995. As a percentage of sales, gross profit
decreased to 26.4% from 27.9% in 1995. A purchase accounting related
charge to cost of sales of $1.0 million for worker compensation reserves
was the most significant cause of the decline. In addition, inefficiencies
associated with assimilating production requirements of the two
manufacturing facilities closed during the prior fifteen months, and the
cost of production interruptions associated with inclement weather
contributed to the decline.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $.4 million (or 1.3%) in 1996 to $30.3
million from $29.9 million in 1995. As a percentage of net sales, selling,
general and administrative expenses increased in 1996 to 17.7% as compared
to 17.4% in 1995. This increase was due to a purchase accounting charge
related to capitalized in-process research and development of $1.9
million, offset in part by reduced administrative expenses associated with
the Chairman's office. Excluding capitalized in-process research and
development, selling, general and administrative expenses decreased $.6
million (or 2.1%) in 1996 to $29.3 million from $29.9 million.
INCOME FROM OPERATIONS. For the reasons set forth above, income from
operations increased $.1 million in 1996 to $14.5 million from $14.4
million (after plant closing charges of $3.8 million) in 1995. Excluding
the effects of goodwill amortization and capitalized in-process research
and development in 1996 and the plant closing charges in 1995, income from
operations decreased $2.4 million in 1996 to $15.8 million from $18.2
million in 1995. This decrease was primarily due to the lower gross profit
percentage.
EARNINGS BEFORE INTEREST EXPENSE, DEPRECIATION AND AMORTIZATION (EBITDA).
EBITDA in 1996 was $19.9 million compared to $23.1 million in 1995, a
decrease of $3.2 million.
22
<PAGE> 23
INTEREST INCOME (EXPENSE), NET. Net interest expense increased $2.2
million in 1996 from 1995 due to borrowing costs related to the financing
of the Merger.
INCOME TAXES. Income tax expenses decreased $.8 million in 1996 as
compared to 1995.
NET INCOME. Net income decreased $1.7 million (or 18.7%) in 1996 to $7.4
million from $9.1 million (including plant closing charges (net of tax
benefit) of $1.9 million) in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows from operating activities were approximately
$11.9 million, $14.7 million and $3.7 million for the years ended December
31, 1995, 1996 and 1997, respectively.
The Company's cash balance decreased $5.8 million at December 31, 1997 to
$0.5 million from $6.3 million in 1996. The lower cash balance in 1997 is
consistent with the Company's cash management policy which anticipates
maintaining only enough cash to meet current operating needs. Although the
Company has available up to $30 million from its revolving credit facility
to meet short term working capital needs, it uses its excess cash to keep
borrowing under the revolver to a minimum. Proceeds from the sale of the
Company's American Granby accessories business and Peru, Indiana pump
business approximated $6.0 million and were used to fund a portion of the
cost to acquire Alfa.
Working capital at December 31, 1997 was $24.4 million and the ratio of
current assets to current liabilities was 1.6 to 1.0. This compares with
working capital of $35.0 million in 1996 and a current ratio of 2.47 to
1.0. The decrease in working capital was primarily the result of the lower
cash balance in 1997, representative of the Company's cash management
policy, as well as an increase in notes payable to banks of $4.4 million
assumed by the Company in connection with the Alfa acquisition. Accounts
receivable were higher due to the inclusion of the new Alfa subsidiary in
1997. Inventory and accounts payable were also higher in 1997 as a result
of the inclusion of Alfa, as well as to increased production in the last
two months in anticipation of the closure of the Nashville plant. Higher
levels of inventory were necessary to assure the availability of adequate
supplies to meet customer demand during the relocation of Nashville
production to West Warwick. The Company expects inventory to return to
historical levels in 1998.
Capital expenditures were $5.5 million, $10.9 million and $8.5 million in
the years ended December 31, 1995, 1996 and 1997, respectively. These
expenditures related primarily to ongoing maintenance and upgrading of the
Company's manufacturing technology. Significant expenditures in 1997
included approximately $2.0 million at the new Alfa facility intended to
exploit opportunities for improving productivity at that location and
approximately $2.0 million related to improving the productivity of the
Company's small tank production line. Capital expenditures in 1996
included $2.0 million related to the establishment of the Company's
Singapore facility. Total capital expenditures are expected to be
approximately $10.0 million in 1998 and $8.0 million in 1999. The
23
<PAGE> 24
Company is currently in the process of implementing a new Enterprise
Resource Planning System ("ERP"). The ERP Project, which uses database
architecture and applications provided by Oracle Information Systems, will
provide the Company with a wide-range of operational and administrative
efficiencies and will assure that the Company's core information systems
are Year 2000 compliant (See "Year 2000 Compliance").
Upon consummation of the Merger on November 13, 1996, the Company became
party to the Bank Credit Facility. The Bank Credit Facility was amended in
June and December 1997, primarily to permit the acquisition of Alfa,
convert borrowings under the Company's revolving credit facility in
connection with the acquisition to additional Tranche B Term Loans and to
permit the closure of the Nashville, Tennessee production facility. The
Bank Credit Facility, as amended, (the "Facility") consists of $65.0
million of senior term loans (the "Term Loans") and a $30.0 million
revolving credit facility (the "Revolving Credit Facility"). A portion
($20.0 million) of the Term Loans (the "Tranche A Term Loans") will mature
five and one-half years after the effective date of the Merger, with
quarterly amortization payments during the term of such loans. The
remainder ($45.0 million) of the Term Loans (the "Tranche B Term Loans")
will mature seven and one-half years after the effective date of the
Merger, with nominal quarterly amortization prior to the maturity of the
Tranche A Term Loans and with the remaining amounts amortizing on a
quarterly basis thereafter. The Revolving Credit Facility includes a
sublimit providing for up to $20.0 million of availability on a revolving
credit basis to finance permitted acquisitions. The commitments under the
Revolving Credit Facility and the acquisition sublimit will each reduce by
$5.0 million in the fourth year and $10.0 million in the fifth year after
the effective date of the Merger. The Revolving Credit Facility will
mature five and one-half years after the effective date of the Merger. The
Bank Credit Facility is secured by substantially all assets of the Company
and its domestic subsidiaries.
In connection with the Merger, AMTROL issued $115.0 million of Senior
Subordinated Notes due 2006 (the "Notes") issued under an Indenture dated
as of November 13, 1996. The Notes are unsecured obligations of AMTROL.
The Notes bear interest at a rate of 10.625% per annum and are payable
semi-annually on each June 30 and December 31 commencing on June 30, 1997.
The Notes are redeemable at the option of AMTROL on or after December 31,
2001. From and after December 31, 2001, the Notes will be subject to
redemption at the option of AMTROL, in whole or in part, at various
redemption prices, declining from 105.313% of the principal amount to par
on and after December 31, 2003. In addition, on or prior to December 31,
1999, the Company may use the net cash proceeds of one or more public
equity offerings to redeem up to 35% of the aggregate principal amount of
the Notes originally issued at a redemption price of 110.625% of the
principal amount thereof plus accrued interest to the date of redemption.
Upon a "Change of Control" (as defined in the Indenture), each Note holder
has the right to require the Company to repurchase such holder's Notes at
a purchase price of 101% of the principal amount plus accrued interest.
The Indenture contains certain affirmative and negative covenants and
restrictions. As of December 31, 1997, AMTROL is in compliance with the
various covenants of the Indenture.
24
<PAGE> 25
The Company intends to fund its future working capital, capital
expenditures and debt service requirements through cash flows generated
from operations and borrowings under the Revolving Credit Facility
(described above). Management believes that cash generated from
operations, together with borrowings available under the Revolving Credit
Facility, will be sufficient to meet the Company's working capital and
capital expenditure needs in the foreseeable future. The Company may
consider other options available to it in connection with funding future
working capital and capital expenditure needs, including the issuance of
additional debt and equity securities.
INFLATION
The Company believes that inflation does not have a material effect on its
results of operations or financial condition. To insulate against
fluctuating prices, the Company has negotiated annual contracts with
suppliers of certain key raw materials (primarily steel) for a significant
percentage of its expected usage through 1998. However, in 1995, the
Company experienced increased raw material costs, particularly steel and
corrugated paper. During 1996, the Company experienced reductions in raw
material prices, offsetting many of the increases experienced in the prior
year.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per
Share" establishes standards for computing and presenting earnings per
share (EPS). This standard simplifies and supersedes the existing EPS
computation and presentation rules and is effective for years ending after
December 31, 1997. This new accounting pronouncement will have no impact
on the Company as it does not report earnings per share.
SFAS No. 130 "Reporting Comprehensive Income" establishes standards for
reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. The objective of the
statement is to report a measure of all changes in equity of an enterprise
that result from transactions and other economic events of the period
other than transactions with owners ("comprehensive income"). SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information"
introduces a new accounting model (the "management approach") for
identifying and reporting on business segments. This approach replaces the
notion of industry and geographic segments in earlier standards and
requires a finer partitioning of geographic disclosures. Both statements
130 and 131 are effective for years beginning after December 15, 1997. As
these new accounting standards require additional disclosures only, they
will have no impact on the Company's financial condition, results of
operations or cash flows, nor will the implementation of these standards
in the Company's financial statements require the Company to incur
material costs.
25
<PAGE> 26
YEAR 2000 COMPLIANCE
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may
recognize a date using "00" as the Year 1900 rather than the Year 2000.
This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar
normal business activities.
The Company is in the process of implementing a new Enterprise Resource
Planning System (ERP) which, in addition to providing the Company with a
wide-range of operational and administrative efficiencies, will assure
that virtually all of the Company's core business systems are Year 2000
compliant. The Company anticipates the completion of significant portions
of this project before the end of 1998. The estimated cost of this project
is $5.0 million through 1999. Costs incurred in 1997 were not significant.
The Company will begin to initiate formal communications with all of its
significant suppliers and large customers in 1998 to determine the extent
to which the Company's interface systems are vulnerable to those third
parties' failure to remediate their own Year 2000 Issues. While there can
be no guarantee that the systems of other companies on which the Company's
system rely will be timely converted and would not have an adverse effect
on the Company's systems, the Company does not believe that its operations
are materially vulnerable to the failure of any vendor or customer to
properly address the Year 2000 Issue. The Company has determined it has no
exposure to contingencies related to the Year 2000 issue for the products
it has sold.
The costs of and the date on which the Company believes it will complete
the ERP Project are based on management's best estimates. However, there
can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The index to financial statements is included on page 36 of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
26
<PAGE> 27
PART III
- --------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding each of the
directors and executive officers of the Company:
NAME AGE POSITION
---- --- --------
John P. Cashman 57 Chairman of the Board, Chief
Executive Officer and President
Samuel L. Daniels 49 Executive Vice President and
Director
Clifford A. Peterson 62 Senior Vice President-Operations &
Technology and Director
Edward J. Cooney 50 Senior Vice President, Chief
Financial Officer, Treasurer and
Secretary
Donald W. Reilly 39 Vice President - Finance
David P. Spalding 43 Director
James A. Stern 47 Director
Anthony D. Tutrone 33 Director
John P. ("Jack") Cashman became Chairman of the Board, Chief Executive Officer
and President upon the Merger. Mr. Cashman has over 30 years of general
industrial management experience in the filtration, minerals, building products
and pharmaceutical industries. From 1989 until March 1996, Mr. Cashman served as
Chairman and Co-Chief Executive Officer of R. P. Scherer Corporation ("R P.
Scherer"). Mr. Cashman joined R. P. Scherer concurrent with that company's
leveraged buyout in 1989. Prior to R. P. Scherer, Mr. Cashman had an extensive
career at Johns-Manville Corporation as the President of Manville International,
President of Manville Canada Inc. and Senior Vice President of Manville
Corporation, as well as numerous other positions in general management,
marketing and operations.
Samuel L. Daniels, Executive Vice President, has been with the Company since
1987 and became a director upon the Merger. From 1993 to 1996, Mr. Daniels
served as Vice President-Water Systems. From 1991 to 1993, he served as General
Manager of all AMTROL subsidiaries, and from 1989 to 1991, he was General
Manager of the Company's Clayton Mark subsidiary He originally joined the
Company in 1987 as Vice President of Marketing for Clayton Mark Inc. Prior to
joining the Company, he was Vice President of Mueller Pump.
27
<PAGE> 28
Clifford A. Peterson, Senior Vice President-Operations & Technology, joined the
Company in July 1995 as Vice President of Technology and became a director upon
the Merger. Mr. Peterson served as Executive Vice President and Chief Operating
Officer from February to September 1996. From 1989 to 1994, he was Vice
President-General Manager of the Production Mail Division of Pitney Bowes Inc.
Prior to that, he served as Vice President-Operations of the Dictaphone
Corporation.
Edward J. Cooney, Senior Vice President, Chief Financial Officer and Treasurer,
joined the Company in 1978, serving as Chief Financial Officer since 1991, as
Senior Vice President-Operations from 1988 to 1991, as Vice President from 1985
to 1988 and as Treasurer since 1982. Prior to joining the Company, Mr. Cooney
was associated for nine years with Arthur Andersen LLP, independent public
accountants.
Donald W. Reilly, Vice President-Finance, joined the Company in October 1997.
From May 1992 to October 1997, he was Director of Finance and Corporate
Controller of the A. T. Cross Company; and from 1981 to 1992, Mr. Reilly was
associated with Ernst and Young LLP, independent public accountants.
David P. Spalding became a director of the Company upon the Merger. Mr. Spalding
has been Vice Chairman of Cypress since its formation in April 1994. Prior to
joining Cypress, he was Managing Director in the Merchant Banking Group of
Lehman Brothers Inc. from February 1991. Previously, he held the position of
Senior Vice President of Lehman Brothers Inc. from September 1988 to February
1991. From April 1987 to September 1988, he was Senior Vice President of General
Electric Capital Corporation Corporate Finance Group, Inc. Prior to 1987 he was
a Vice President of The First National Bank of Chicago. Mr. Spalding is also a
director of Lear Corporation, William Scotsman, Inc., and Frank's Nursery &
Craft, Inc.
James A. Stern became a director of the Company upon the Merger. Mr. Stern has
been Chairman of Cypress since its formation in April 1994. Prior to joining
Cypress, Mr. Stern spent his entire career with Lehman Brothers Inc., most
recently as head of the Merchant Banking Group. He also, at various times,
served as head of Lehman's High Yield and Primary Capital Markets Groups, and
was co-head of Investment Banking. In addition, Mr. Stern was a member of the
firm's Operating Committee. Mr. Stern is a director of Noel Group, Inc., Lear
Corporation, Cinemark USA, Inc., R.P. Scherer, Genesis ElderCare Corp. and
Frank's Nursery & Craft, Inc.
Anthony D. Tutrone became a director of the Company upon the Merger. Mr. Tutrone
has been a Principal of Cypress since its formation in April 1994. Prior to
joining Cypress, he was a member of the Merchant Banking Group of Lehman
Brothers, Inc. from 1986 to 1994, except from 1990 to 1992 when he attended
Harvard Business School.
28
<PAGE> 29
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934.
Prior to the Merger, AMTROL Common Stock was registered pursuant to Section 12
of the Securities Exchange Act of 1934 as amended (the "Exchange Act"). Section
16(a) of the Exchange Act requires the Company's officers, directors and persons
who beneficially own more than ten percent of a registered class of the
Company's equity securities to file reports of securities ownership and changes
in such ownership with the Securities and Exchange Commission.
On November 13, 1996, pursuant to Rule 12h-3 under the Exchange Act, AMTROL
filed with the Securities and Exchange Commission a certification on Form 15,
suspending its obligations under Section 15(d) to file reports required by
Section 13(a) of the Exchange Act with respect to AMTROL Common Stock, and
terminating the registration of AMTROL Common Stock under Section 12(g) of the
Exchange Act. Accordingly, officers, directors and greater than ten-percent
beneficial owners are no longer required to file reports under Section 16(a) of
the Exchange Act.
29
<PAGE> 30
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by the
Company to its Chief Executive Officer and each of its executive officers
(in addition to its Chief Executive Officer) who earned more than $100,000
in salary and bonus in 1997 in each case for services rendered in all
capacities to the Company during 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
LONG TERM
ANNUAL ---------
------ COMPENSATION
COMPENSATION(a) ------------
--------------- AWARDS
------
NAME AND PRINCIPAL SECURITIES
------------------ UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS OPTIONS/SARS(c) COMPENSATION(d)
-------- ---- ------ ----- --------------- ---------------
<S> <C> <C> <C> <C> <C>
John P. Cashman 1997 $440,000 $49,720 44,796 $17,000
Chairman, President and 1996 -- -- -- --
CEO(e) 1995 -- -- -- --
Samuel L. Daniels(b) 1997 240,000 27,120 6,838 7,486
Executive Vice President 1996 149,192 39,600 20,000 8,395
1995 129,000 27,500 10,000 6,285
Clifford A. Peterson(b)
Clifford A. Peterson(b) 1997 200,000 22,600 6,838 12,766
Senior Vice President- 1996 159,521 44,010 15,000 8,682
Operations & Technology 1995 115,731 31,500 10,000 718
Edward J. Cooney(b) 1997 180,000 20,340 6,838 8,862
Senior Vice President- 1996 169,329 44,010 12,000 8,795
Chief Financial Officer 1995 162,500 34,200 10,000 8,792
</TABLE>
(a) Any perquisite or other personal benefits received from the Company by any
of the named executives were substantially less than the reporting
thresholds established by the Securities and Exchange Commission (the
lesser of $50,000 or 10% of the individual's cash compensation).
(b) Includes portion of salary deferred under the Company's 401(k) Plan.
(c) Numbers for 1997 represent options to purchase common stock of Holdings,
the parent corporation of AMTROL. Numbers for 1995 and 1996 represent
options to purchase common stock of AMTROL, which, in connection with the
Merger, were either canceled in exchange for cash equal to the spread
between the option exercise price and $28.25 per share (the per share
Merger consideration) or exchanged for options exercisable for Holdings'
common stock based on a conversion ratio of .2825 per share of Holdings'
common stock for each share of AMTROL common stock.
30
<PAGE> 31
(d) Amounts paid in 1997 include the Company's contributions under the
Company's 401(k) Plan in the amount of $17,000, $6,616, $9,256 and $7,304
for Messrs. Cashman, Daniels, Peterson and Cooney, respectively, and
premiums paid by the Company with respect to term life insurance purchased
for such executive officers and not made available generally to salaried
employees in the amount of $870, $3,510 and $1,558 for Messrs. Daniels,
Peterson and Cooney , respectively.
(e) Mr. Cashman joined the Company on November 13, 1996, upon consummation of
the Merger, but received no compensation until 1997.
OPTION PLANS
The following table sets forth, for the named executive officers,
information regarding stock options granted during 1997 pursuant to the
Holdings 1997 Incentive Stock Plan, which was approved on December 16,
1997.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
-------------------------------------
% OF TOTAL
NUMBER OF OPTIONS/
SECURITIES SARS GRANTED
UNDERLYING TO EMPLOYEES EXERCISE OR
OPTIONS/SARS IN FISCAL BASE PRICE EXPIRATION GRANT DATA
NAME GRANTED(A) YEAR ($/SH) DATE PRESENT VALUE (c)
- ---- ---------- ---- ------ ---- -----------------
<S> <C> <C> <C> <C> <C>
John P. Cashman 44,796(a) 68.5% $100 12/16/2007 $21.55
Samuel L. Daniels 6,838(b) 10.5% $100 12/16/2007 $21.55
Clifford A. Peterson 6,838(b) 10.5% $100 12/16/2007 $21.55
Edward J. Cooney 6,838(b) 10.5% $100 12/16/2007 $21.55
</TABLE>
(a) These are non-qualified options which are immediately exercisable. Shares
purchased under the options are subject to repurchase by Holdings at the
exercise price upon certain circumstances. Options for 22,398 shares are
released from restrictions based upon continued employment, with 7,454
shares released immediately and 14,944 shares released in 32 equal monthly
installments though August 2000. Options for 22,398 shares are released
from restrictions based upon relative achievement of management's business
plan for fiscal years 1997 through 2001. One-half of such
performance-based options are released from restriction based upon annual
performance and one-half based upon cumulative performance. Restrictions
lapse upon a public offering or sale of Holdings, AMTROL or substantially
all of the assets of AMTROL (a "Triggering Event").
(b) One-half (3,419 shares) of these options are incentive stock options which
vest 1,000 shares on date of grant, 218 shares in January 1998 and the
balance in 31 equal monthly installments of 71 shares through August 2000.
One-half (3,419 shares) of these options are non qualified stock options
which are immediately exercisable, provided that purchased shares are
subject to repurchase by Holdings at the exercise price until such shares
vest based upon relative achievement of management's business plan for
fiscal years 1997 through 2001. One-half of such performance based options
vest based upon annual performance and one-half based upon cumulative
performance. Options vest and restrictions lapse upon a Triggering Event.
31
<PAGE> 32
(c) Computed using the Black-Scholes option valuation model. The following
assumptions have been used in the calculation: volatility, 0; expected
option life, 3 years; risk-free interest, 5.0%. The Black-Scholes option
pricing model was designed to value readily tradeable stock options with
relatively short lives. The options granted are not tradeable. However,
management believes that the assumptions used and the model applied to
value the awards yield a reasonable estimate of the fair value of the
option grants under the circumstances.
The following table sets forth certain information regarding stock options
exercised during 1997 and currently outstanding options held by the named
executive officers as of December 31, 1997. No options were exercised by the
named executives during 1997.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION/SAR VALUES
----------------------------------------------------------------------------------
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
NUMBER OF OPTION/SARS AT
SECURITIES FISCAL YEAR END
UNDERLYING 1997 (a) VALUE OF UNEXERCISED
OPTIONS/SARS EXERCISABLE/ IN-THE-MONEY
NAME EXERCISED VALUE REALIZED($) UNEXERCISABLE OPTIONS/SAR($)(b)
- ---- --------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
John P. Cashman 0 0 44,796/0 0/0
Samuel L. Daniels 0 0 9,081/2,419 200,036/0
Clifford A. Peterson 0 0 11,481/2,419 316,250/0
Edward J. Cooney 0 0 7,258/2,419 100,003/0
</TABLE>
(a) Immediately prior to the Merger, Messrs. Daniels, Peterson, and Cooney
exchanged options exercisable for AMTROL Common Stock for options
exercisable for Holdings Common Stock ("Amended Options") based on a
conversion ratio of .2825 share of Holdings Common Stock for each share of
AMTROL Common Stock subject to the option. Includes 4,662, 7,062 and 2,839
shares of Holdings Common Stock subject to Amended Options received by
Messrs. Daniels, Peterson and Cooney, respectively, in the exchange. All
Amended Options are fully exercisable.
(b) Based on the market value of $100 per share (determined by the Holdings
Board of Directors to be the purchase price of Holdings common stock
issued in connection with the Merger) less the exercise price of the
options.
32
<PAGE> 33
SUPPLEMENTAL RETIREMENT PLANS
The Company maintains two Supplemental Retirement Plans: Supplemental
Retirement Plan I which covers a former officer and director and
Supplemental Retirement Plan II which covers Mr. Cooney and two former
officers. Under Supplemental Retirement Plan I, the former officer is
entitled to receive an annual benefit of $150,000 per year for 15 years
following his retirement. In January 1997, he began to receive the annual
benefit in equal quarterly installments. Mr. Cooney is entitled to receive
an annual benefit of $50,000 per year for a period of 15 years upon
retirement on or after age 62. The retirement benefit is forfeited in its
entirety if he terminates employment or dies prior to age 62. In the event
a participant in either Supplemental Retirement Plan dies after
retirement, his beneficiary will receive any remaining benefits which such
participant was entitled to receive at the time of his death.
EMPLOYMENT AGREEMENTS AND OTHER TRANSACTIONS
The Company, either directly or through its subsidiaries, has entered into
employment agreements (each referred to individually as an "Agreement" and
collectively as the "Agreements"), with Messrs. Cashman, Daniels, Peterson
and Cooney to secure their continued employment with the Company. The
Agreements provide for annual base salaries of $440,000 for Mr. Cashman,
$240,000 for Mr. Daniels, $200,000 for Mr. Peterson and $180,000 for Mr.
Cooney, subject to adjustments annually commencing in January 1998. In
addition, the executives are entitled to participate in incentive
compensation plans and all employee benefit arrangements generally
appropriate to such executive's responsibilities. In the event the
executive's employment is terminated without cause by the Company or with
Good Reason by the executive, such executive is entitled to; (i) a monthly
amount, for 24 months after termination, equal to one-twelfth of the
executive's annual average salary for the prior 24 months (the
"Termination Benefit"); (ii) the pro rata portion of any bonus or
incentive compensation otherwise payable for the fiscal period in which
such termination occurs; and (iii) maintenance for 24 months of all life,
disability, medical and health insurance benefits to which the executive
was entitled immediately prior to termination. In the case of Mr. Cashman,
the Agreement provides that in the event of his death, his estate is
entitled to receive an amount equal to the monthly Termination Benefit for
24 months, reduced by any amounts payable under any insurance or other
plan providing a death benefit which is maintained by the Company. The
Agreements also prohibit the executive, for a period of two years after
the termination of his employment, from directly or indirectly, advising,
assisting or being connected with any enterprise which competes with the
Company.
In addition, under separate Management Stockholder's Agreements between
Holdings and Messrs. Cashman, Daniels, Peterson, and Cooney, if prior to a
public offering of the common stock of Holdings, the executive dies or
becomes disabled while employed by the Company or following normal
retirement or the executive's employment is terminated without Cause by
the Company or with Good Reason by the executive (as such terms are
defined in the agreements), the executive has the right to require
Holdings to purchase all or any portion of Holdings common stock then held
by the executive at the repurchase price specified in the agreement and to
pay the executive the amount by
33
<PAGE> 34
which the repurchase price exceeds the exercise price of any options then
held by the executive. If there exists and is continuing an event of
default on the part of the Company under any loan guarantee or other
agreement under which the Company has borrowed money or such repurchase
would result in an event of default, the Company shall not be obligated to
repurchase any of the common stock. The repurchase price is $100 if the
repurchase occurs prior to November 13, 1999, and the market price of the
Holdings common stock thereafter. If an executive's employment is
terminated for Cause by the Company or without Good Reason by the
executive, Holdings has the right to purchase all, but not less than all,
Holdings common stock then held by the executive at a price equal to the
lesser of $100 or the market price of the Holdings common stock, provided
that if the executive's employment is terminated by the executive without
Good Reason following a public offering, the repurchase price is the
market price of the Holdings common stock. If Holdings exercises its
repurchase right it must also pay the executive an amount equal to the
excess of the repurchase price over the exercise price of any options held
by the executive in cancellation of such options. Good Reason includes
certain significant changes in the nature of the executive's employment
including certain reductions in compensation and changes in
responsibilities and powers.
34
<PAGE> 35
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The Company is a direct, wholly owned subsidiary of Holdings. The
following table sets forth information with respect to the beneficial
ownership of Holdings common stock by (i) each person known to the Company
to beneficially own more than 5% of Holdings' outstanding common stock,
(ii) each of the Company's directors and certain executive officers and
(iii) all directors and executive officers of the Company as a group.
Unless otherwise indicated below, the persons and entities named in the
table have sole voting and investment power with respect to all shares
beneficially owned.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
-------------------
NAME AND ADDRESS OF BENEFICIAL OWNER HOLDINGS COMMON STOCK PERCENTAGE
------------------------------------ --------------------- ----------
<S> <C> <C>
Cypress Merchant Banking Partners L.P. (a) 637,957 93.0%
c/o The Cypress Group L.L.C.
65 East 55th Street, 19th Floor
New York, NY 10022
Cypress Offshore Partners L.P. (a) 33,043 4.8%
c/o The Cypress Group L.L.C.
65 East 55th Street, 19th Floor
New York, NY 10022
John P. Cashman(c) 59,796 8.2%
Samuel L. Daniels(b)(c) 9,583 1.4%
Clifford A. Peterson(b)(c) 11,983 1.7%
Edward J. Cooney(b)(c) 7,760 1.1%
David P. Spalding(a) -- --
James A. Stern(a) -- --
All directors and executive officers as a group 89,122 11.5%
(consisting of 7 persons)
</TABLE>
(a) Cypress Merchant Banking Partners L.P. and Cypress Offshore Partners L.P.
are affiliates of The Cypress Group L.L.C. Messrs. Spalding and Stern are
executives of The Cypress Group L.L.C. and may be deemed to share
beneficial ownership of the shares shown as beneficially owned by such
Cypress entities. Each of such individuals disclaims beneficial ownership
of such shares. SEE, Item 10, "Directors and Executive Officers of the
Registrant."
(b) Immediately prior to the Merger, each of these individuals exchanged
options exercisable for AMTROL Common Stock for options exercisable for
Holdings common stock. Includes 4,662, 7,062 and 2,839 shares of common
stock issuable upon exercise of such options by Messrs. Daniels, Peterson
and Cooney, respectively. See, Item 11, "Executive Compensation".
(c) Includes 44,796, 4,921, 4,921, and 4,921 shares of Common Stock issuable
upon exercise of options granted to Messrs. Cashman, Daniels, Peterson and
Cooney, respectively, which will become exercisable within 60 days. See
Item 11, "Executive Compensation".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
35
<PAGE> 36
PART IV
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE & REPORT ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C>
(a)(1) FINANCIAL STATEMENTS
The following financial statements are included in a separate
section of this Report commencing on the page numbers specified
below:
PAGE
----
Reports of Independent Public Accountants 38
Consolidated Balance Sheets as of December 31, 1997 and 1996 (Successor) 40
Consolidated Statements of Operations for the Fiscal Year Ended
December 31, 1997 and the Period Ended December 31, 1996
(Successor); and the Period Ended November 12, 1996 and the Fiscal
Year Ended December 31, 1995 (Predecessor) 41
Consolidated Statements of Shareholders' Equity for the Fiscal Year
Ended December 31, 1997 and the Period Ended December 31, 1996
(Successor); and the Period Ended November 12, 1996 and Fiscal Year
Ended December 31, 1995 (Predecessor) 42
Consolidated Statements of Cash Flows for the Fiscal Year ended
December 31, 1997 and the Period Ended December 31, 1996
(Successor); and the Period Ended November 12,1996 and Fiscal Year
Ended December 31, 1995 (Predecessor) 43
Notes to Consolidated Financial Statements 44
(a)(2) FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts and Reserves for the
Fiscal Year Ended December 31, 1997 and the Period Ended December
31, 1996 (Successor); and the period Ended November 12, 1996 and
Fiscal Year Ended December 31, 1995 (Predecessor). 57
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
36
<PAGE> 37
(a)(3) EXHIBITS
See List of Exhibits
(b) REPORT FILED ON FORM 8-K
On January 6, 1998, the Company filed a Form 8-K reporting the
completion of the acquisition of Petroleo Mecanica Alfa, SA on
December 22, 1997 and the amendment of its existing Bank Credit
agreement.
37
<PAGE> 38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMTROL Inc.:
We have audited the accompanying consolidated balance sheets of AMTROL Inc. (the
Successor), (a Rhode Island corporation and wholly-owned subsidiary of AMTROL
Holdings Inc.), and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the year ended December 31, 1997 and for the period from November 13,
1996 to December 31, 1996. 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 in accordance with generally accepted auditing
standards. Those standards 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AMTROL Inc. and subsidiaries as
of December 31, 1997 and 1996, and the results of their operations and their
cash flows for the year ended December 31, 1997 and the period from November 13,
1996 to December 31, 1996 in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financials statements taken as a whole. The financial statement
schedule listed in item 14(a)(2) is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects, the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
Boston, Massachusetts
March 13, 1998
38
<PAGE> 39
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMTROL Inc.:
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of AMTROL Inc. (the Predecessor) (a Rhode
Island corporation), and subsidiaries for the year ended December 31, 1995 and
period ended November 12, 1996. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of AMTROL Inc. and subsidiaries' operations
and their cash flows for the year ended December 31, 1995, and period ended
November 12, 1996, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financials statements taken as a whole. The financial statement
schedule listed in item 14(a)(2) is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements, in our opinion, fairly states in all material
respects, the financial data required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.
Boston, Massachusetts
March 6, 1997
39
<PAGE> 40
AMTROL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
1996 1997
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 6,383 $ 544
Accounts receivable, less allowance for
doubtful accounts of $1,055
and $1,088 in 1996 and 1997,
respectively 21,861 30,180
Inventories 24,783 31,285
Income tax refund receivable 2,000 323
Prepaid income taxes 1,734 2,495
Prepaid expenses and other 691 1,089
Assets held for sale 1,500 1,533
-------- --------
Total current assets 58,952 67,449
-------- --------
Property, Plant and Equipment, at cost
Land 4,153 3,669
Buildings and improvements 8,081 6,432
Machinery and equipment 20,048 39,891
Furniture and fixtures 907 888
Construction-in-progress and other 4,277 1,804
-------- --------
37,466 52,684
Less-accumulated depreciation and
amortization 577 6,997
-------- --------
36,889 45,687
-------- --------
Other Assets:
Goodwill 147,756 169,784
Debt financing costs 8,387 7,762
Cash surrender value of officers' life
insurance 1,614 523
Deferred income taxes -- 419
Other 1,285 1,376
-------- --------
159,042 179,864
-------- --------
$254,883 $293,000
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Current installments of long-term debt $ 825 $ 3,498
Notes payable to banks -- 4,397
Accounts payable 5,794 15,718
Accrued expenses 14,472 15,779
Accrued interest 2,232 608
Accrued income taxes 582 3,073
--------- ---------
Total current liabilities 23,905 43,073
--------- ---------
Other Noncurrent Liabilities 4,544 6,659
--------- ---------
Deferred Income Taxes 222 --
--------- ---------
Long-Term Debt, less current installments 159,175 184,164
--------- ---------
Commitments and Contingencies -- --
Shareholders' Equity:
Common stock $.01 par value-
Authorized-1,000 shares;
Issued-100 shares -- --
Additional paid-in capital 69,326 69,326
Retained earnings (2,289) (9,937)
Cumulative translation adjustment -- (285)
--------- ---------
Total shareholder's equity 67,037 59,104
--------- ---------
$ 254,883 $ 293,000
========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
40
<PAGE> 41
AMTROL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
--------------------------------------------------------------------
YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, NOVEMBER 12, DECEMBER 31, DECEMBER 31,
1995 1996 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 172,454 $ 152,193 $ 18,628 $ 176,432
Cost of Goods Sold 124,303 110,582 15,108 131,180
--------- --------- --------- ---------
Gross profit 48,151 41,611 3,520 45,252
Operating Expenses:
Selling 15,171 14,236 1,997 13,175
General and administrative 14,772 11,560 1,511 12,548
Plant closing charges 3,825 -- -- 5,500
Amortization of Goodwill -- -- 313 3,995
Capitalized in-process research
and development -- -- 1,000 --
--------- --------- --------- ---------
Income (loss) from operations 14,383 15,815 (1,301) 10,034
Other Income (Expense):
Interest expense (195) (151) (2,263) (18,684)
Interest income 255 204 39 428
License and distributorship fees 258 181 25 245
Other, net 65 (175) (99) 299
--------- --------- --------- ---------
Income (loss) before provision
for income taxes 14,766 15,874 (3,599) (7,678)
Provision (Benefit) for Income Taxes 5,681 6,152 (1,310) (30)
--------- --------- --------- ---------
Net Income (Loss) $ 9,085 $ 9,722 $ (2,289) $ (7,648)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
41
<PAGE> 42
AMTROL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(In thousands)
<TABLE>
<CAPTION>
TREASURY STOCK
----------------------------
ADDITIONAL CUMULATIVE
COMMON PAID-IN TRANSLATION RETAINED NUMBER OF
STOCK CAPITAL ADJUSTMENT EARNINGS SHARES COST
----- ------- ---------- -------- ------ ----
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY
Balance, December 31, 1994 $ 76 $ 28,377 -- $ 36,728 67 $ 1,007
Net income -- -- -- 9,085 -- --
Dividend -- -- -- (1,500) -- --
Exercise of stock options -- 598 -- -- -- --
Repurchase of common stock -- -- -- -- 146 2,259
Tax effect of disqualifying
dispositions on stock options -- 108 -- -- -- --
-------- -------- -------- -------- -------- --------
Balance, December 31, 1995 $ 76 $ 29,083 -- $ 44,313 213 $ 3,266
Net income -- -- -- 9,722 -- --
Dividend -- -- -- (6,694) -- --
Exercise of stock options -- 191 -- -- -- --
Repurchase of common stock -- -- -- -- 1 15
-------- -------- -------- -------- -------- --------
Balance, November 12, 1996 $ 76 $ 29,274 -- $ 47,341 214 $ 3,281
======== ======== ======== ======== ======== ========
SUCCESSOR COMPANY
Net loss -- -- -- $ (2,289) -- --
Issuance of common stock in
connection with Merger, net -- $ 69,326 -- -- -- --
-------- -------- -------- -------- -------- --------
Balance, December 31, 1996 $ -- $ 69,326 -- $ (2,289) -- $ --
======== ======== ======== ======== ======== ========
Net loss -- -- -- $ (7,648) -- --
Cumulative Translation adjustment -- -- $ (285) -- -- --
-------- -------- -------- -------- -------- --------
Balance, December 31, 1997 $ -- $ 69,326 $ (285) $ (9,937) -- $ --
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
42
<PAGE> 43
AMTROL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
------------------- -----------------
YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, NOVEMBER 12, DECEMBER 31, DECEMBER 31,
1995 1996 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash Flows Provided by Operating Activities:
Net income (loss) $ 9,085 $ 9,722 $ (2,289) $ (7,648)
--------- --------- --------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Depreciation and amortization 4,673 4,586 598 11,541
Writedown of assets held for sale to realizable value 980 -- -- --
Provision for losses on accounts receivable 93 172 91 370
Loss (gain) on sale of fixed assets 83 92 (106) 2
Capitalized in-process research and development -- -- 1,000 --
Changes in assets and liabilities-
(Increase) decrease in assets-
Accounts receivable, net (532) (1,215) 3,199 (2,376)
Income tax refund receivable -- -- (2,000) 2,581
Inventory (498) (3,573) 2,633 (1,474)
Prepaid income taxes (685) 1,090 (31) (761)
Prepaid expenses and other current assets (284) 577 736 (331)
Other assets (602) (520) 331 (838)
Increase (decrease) in liabilities-
Accounts payable 369 2,443 (3,175) 4,547
Accrued expenses and current liabilities 123 (1,990) 3,085 (1,152)
Other noncurrent liabilities (965) (283) (65) (71)
Deferred income taxes 48 (389) -- (641)
--------- --------- --------- ---------
2,803 990 6,296 11,397
--------- --------- --------- ---------
Net cash provided by operating activities 11,888 10,712 4,007 3,749
--------- --------- --------- ---------
Cash Flows From Investing Activities:
Acquisition of Alfa -- -- -- (25,500)
Cash paid for Merger -- -- (218,200) --
Proceeds from sale of property, plant and equipment 30 1,991 9 681
Capital expenditures (5,492) (9,260) (1,662) (8,489)
--------- --------- --------- ---------
Net cash used in investing activities (5,462) (7,269) (219,853) (33,308)
--------- --------- --------- ---------
Cash Flows from Financing Activities:
Cash dividends (1,500) (6,694) --
Repayment of long-term debt (4,948) (3,500) -- (5,367)
Issuance of long-term debt 1,615 3,500 -- 29,150
Proceeds from sale of notes -- -- 115,000 --
Proceeds from term loan -- -- 45,000 --
Payment of transaction financing costs -- -- (13,100) --
Issuance of common stock in connection with Merger -- -- 69,326 --
Issuance of common stock - exercise of stock options 598 191 -- --
Repurchase of treasury stock (2,259) (15) -- --
Tax effect of disqualifying dispositions of incentive
stock options 108 -- -- --
--------- --------- --------- ---------
Net cash (used in) provided by financing
activities (6,386) (6,518) 216,226 23,783
--------- --------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 40 (3,075) 380 (5,776)
Effect of exchange rate changes on cash and cash
equivalents -- -- -- (63)
Cash and Cash Equivalents, beginning of period 9,038 9,078 6,003 6,383
--------- --------- --------- ---------
Cash and Cash Equivalents, end of period $ 9,078 $ 6,003 $ 6,383 $ 544
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
43
<PAGE> 44
(1) BASIS OF PRESENTATION
For periods prior to November 13, 1996, the accompanying financial
statements represent the consolidated results and financial position of
AMTROL Inc. and Subsidiaries (the Predecessor). On November 13, 1996, the
Predecessor merged with AMTROL Acquisition, Inc., a wholly-owned
subsidiary of AMTROL Holdings, Inc., a Delaware corporation organized by
The Cypress Group L.L.C. as more fully described in Note 3 (the Merger).
Financial statements for periods subsequent to November 12, 1996 represent
the consolidated financial statements of AMTROL Inc. and Subsidiaries (the
Successor) after giving effect to the Merger. References to the Company
refer to the Predecessor prior to the Merger and the Successor
post-Merger.
(2) ORGANIZATION AND OPERATIONS
The Company designs, manufactures and markets products used principally in
flow control, storage, heating and other treatment of fluids in the water
systems market and selected sectors of the heating, ventilating and air
conditioning ("HVAC") market. The Company offers a broad product line of
quality fluid handling products and services marketed under widely
recognized brand names.
(3) MERGER AND FINANCING
AMTROL Acquisition Inc. ("Acquisition") and AMTROL Holdings, Inc.
("Holdings") were formed by The Cypress Group L.L.C. ("Cypress") in 1996
to effect the acquisition of all of the outstanding common stock of the
Predecessor through the Merger of Acquisition with and into the Successor.
Upon consummation of the Merger on November 13, 1996, all of the
outstanding common stock of Acquisition was converted into common stock of
the Successor and the Successor became a wholly-owned subsidiary of
Holdings. The Successor, as the surviving entity, continues to be named
AMTROL Inc. Holdings has no other material assets, liabilities or
operations other than those that result from its ownership of the common
stock of the Successor.
The Merger was accounted for as a purchase transaction effective as of
November 13, 1996, in accordance with Accounting Principles Board Opinion
No. 16, Business Combinations, and EITF Issue No. 88-16, Basis in
Leveraged Buyout Transactions and, accordingly, the consolidated financial
statements for the periods subsequent to November 12, 1996 reflect the
purchase price, including transaction costs, allocated to tangible and
intangible assets acquired and liabilities assumed, based on their
estimated fair values as of November 12, 1996. The excess of the purchase
price over the fair value of net assets acquired has been allocated to
goodwill.
44
<PAGE> 45
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
AMTROL Inc. and its wholly owned subsidiaries (the "Company"). All
material intercompany balances and transactions have been eliminated in
consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
FISCAL YEAR
The Company uses a calendar fiscal year and four quarterly interim periods
ending on Saturday of the thirteenth week of the quarter.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and short-term investments
that are readily convertible into cash with an original maturity to the
Company of three months or less.
DEPRECIABLE PROPERTY AND EQUIPMENT
The Company provides for depreciation by charges to income (computed on
the straight-line method) in amounts estimated to amortize the cost of
properties over their estimated useful lives which generally fall within
the following ranges:
<TABLE>
<S> <C>
Building and improvements 10-40 years
Machinery and equipment 3-12 years
Furniture and fixtures 5-20 years
Other 3-10 years
</TABLE>
Leasehold improvements are amortized over the life of the lease or the
estimated useful life of the improvement, whichever is shorter.
Interest costs, during the construction period, on borrowings used to
finance construction of buildings and related property are included in the
cost of the constructed property.
45
<PAGE> 46
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
The Company's inventories are stated at the lower of cost or market
including material, labor and manufacturing overhead (see Note 8.)
GOODWILL
The excess of purchase price over the fair value of net assets acquired is
allocated to goodwill and is included in other assets. Goodwill is being
amortized over 40 years. The Company accounts for long-lived and
intangible assets in accordance with Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. The Company
continually reviews its intangible assets for events or changes in
circumstances which might indicate the carrying amount of the assets may
not be recoverable. The Company assesses the recoverability of the assets
by determining whether the amortization of such intangibles over their
remaining lives can be recovered through projected undiscounted future
cash flows. The amount of impairment, if any, is measured based on
projected discounted future cash flows using a discount rate reflecting
the Company's average cost of funds. At December 31, 1997, no such
impairment of assets was indicated.
FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with the requirements of SFAS No. 107, Disclosures About
Fair Value of Financial Instruments, the Company has determined the
estimated fair value of its financial instruments using appropriate market
information and valuation methodologies. Considerable judgment is required
to develop the estimates of fair value; thus, the estimates are not
necessarily indicative of the amounts that could be realized in a current
market exchange. The Company's financial instruments consist of cash,
accounts receivable, accounts payable, senior subordinated notes and bank
debt. The carrying value of these assets and liabilities is a reasonable
estimate of their fair market value at December 31, 1997.
ENGINEERING AND DEVELOPMENT EXPENSES
All costs for engineering and development, which amounted to approximately
$.9 million, $.8 million, $.1 million and $1.0 million for fiscal 1995,
the periods ended November 12 and December 31, 1996, and fiscal 1997,
respectively, are charged to general and administrative expense as
incurred.
46
<PAGE> 47
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTEREST RATE SWAP AGREEMENTS
The Company uses interest rate swap agreements to manage interest rate
cost and the risks associated with changing interest rates. The
differential to be paid or received is accrued as interest rates change
and is recognized in interest expense over the life of the contact. The
counter-party to the interest rate swap agreements is a major financial
institution. Credit loss from counter-party non-performance is not
anticipated.
DEFERRED FINANCING COSTS
Deferred financing costs are stated at cost as a component of other assets
and amortized over the life of the related debt using the effective
interest method. Amortization of deferred financing costs is included in
interest expense.
ACCRUED EXPENSES
Certain customers are allowed a rebate if agreed upon sales targets are
achieved for a given year. At December 31, 1996 and 1997, the Company has
accrued $3.6 million and $3.3 million, respectively, for such volume
allowances. These amounts are included in accrued expenses in the
accompanying consolidated balance sheets.
INTERNATIONAL SALES
In fiscal 1995, the periods ended November 12 and December 31, 1996, and
in fiscal 1997, net sales to customers in various geographic areas outside
the United States and Canada, primarily Mexico, Western Europe and Asia,
amounted to $22.6 million, $19.7 million, $1.9 million and $39.4 million,
respectively.
FOREIGN CURRENCY TRANSLATION
The accounts of Alfa (see note 5) have been translated into United States
Dollars. Assets and liabilities have been translated at the year-end rate
of exchange, stockholder's equity at historical rates and income statement
accounts at the average exchange rates prevailing during the year. The
cumulative effect of the resulting translation is reflected as a separate
component of stockholder's equity.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 130 "Reporting Comprehensive Income" establishes standards for
reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. The objective of the
statement is to report a measure of all changes in equity of an enterprise
that result from transactions and other economic events of the period
other than transactions with owners ("comprehensive income"). SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information"
introduces a new accounting model (the "management approach") for
identifying and reporting on
47
<PAGE> 48
business segments. This approach replaces the notion of industry and
geographic segments in earlier standards and requires a finer partitioning
of geographic disclosures. Both SFAS 130 and SFAS 131 are effective for
years beginning after December 15, 1997. As these new accounting standards
require additional disclosures only, they will have no impact on the
Company's financial condition, results of operations or cash flows, nor
will the implementation of these standards in the Company's financial
statements require the Company to incur material costs.
STOCK OPTIONS
The Company accounts for employee stock options in accordance with SFAS
No. 123, "Accounting for Stock Based Compensation" (SFAS No. 123). As
permitted under SFAS No. 123, the Company applies Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" to
account for its stock option plans.
RECLASSIFICATION
Certain prior year balances have been reclassified to conform with the
current year presentation.
(5) ACQUISITION
On June 30, 1997, the Company entered into a Promissory Agreement and a
Complementary Document to the Promissory Agreement (collectively, the
"Purchase Agreements") to acquire all the outstanding capital shares of
Petroleo Mecanica Alfa, S.A., a corporation organized under the laws of
Portugal ("Alfa"), for $25.5 million (United States Dollars) plus assumed
debt of $8.7 million. The Company assumed immediate management control of
Alfa and, accordingly, the operating results and financial position of
Alfa are included in the Company's consolidated results of operations and
consolidated balance sheets from July 1, 1997. The Company paid $20
million of the purchase price on June 30, 1997 from borrowings available
under its revolving credit facility and paid the remaining $5.5 million
upon final closure of the transaction in December 1997. The Company's 1997
income from operations includes $1.9 million relating to the operations of
Alfa subsequent to July 1, 1997. The following represents pro forma net
sales and net income as though the acquisition of Alfa ocurred as of
January 1, 1997: Net sales $192,068, net loss $8,600.
48
<PAGE> 49
(6) SALE OF ASSETS
In May 1997, the Company sold all of the assets, subject to substantially
all liabilities, of its American Granby Inc. subsidiary. Accordingly, the
results of American Granby included in the accompanying consolidated
statements of operations are as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
------------------- -----------------
YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, NOVEMBER 12, DECEMBER 31, DECEMBER 31,
1995 1996 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $19,539 $17,980 $ 1,592 $ 7,576
Operating income $ 302 $ 130 $ 1 $ 23
</TABLE>
Also in May 1997, the Company sold its Peru, Indiana production facility
and the related pump business. AMTROL transferred certain production
activities performed in Peru to the Company's West Warwick, Rhode Island
facility. The Company believes that the operational efficiencies gained
through production consolidation will offset lost contribution from the
pump business.
The Company utilized the net proceeds of the sales of approximately $6.0
million to fund seasonal working capital demands as well as the
acquisition of Alfa (see Note 5).
(7) PLANT CLOSINGS
In September 1997, the Company ceased operations at its Singapore
production facility. The Company relocated its production of
non-returnable chemical containers to other facilities, including its
newly acquired Alfa facility in Guimaraes, Portugal. In December 1997, the
Company ceased operations at its Nashville, Tennessee production facility.
The Nashville facility manufactured water systems and pressure rated
cylinders. Many of the product lines manufactured in the Nashville
facility are also manufactured in the Company's West Warwick, Rhode Island
facility which will absorb most of the Nashville production.
The Company's 1997 results include a pre-tax charge to operating expenses
of $5.5 million in connection with the closures of the Singapore and
Nashville facilities, including approximately $1.5 million of severance
costs (of which $.3 million was paid at December 31, 1997). Included in
current assets as "Assets Held for Sale" is approximately $1.2 million
representing the net market value of land and buildings used in the
Nashville operation.
49
<PAGE> 50
(8) INVENTORIES
Inventories were as follows at December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Raw materials and work in process $ 9,429 $13,670
Finished goods 15,354 17,615
------- -------
$24,783 $31,285
======= =======
</TABLE>
Inventories valued under the last-in, first-out (LIFO) cost method
comprised approximately 60.5% of the 1996 totals and 68.2% of the 1997
totals. The value of inventories under the LIFO method is substantially
the same as if the first-in, first-out (FIFO) cost method of inventory
accounting had been used.
(9) LONG-TERM DEBT AND NOTES PAYABLE TO BANKS
Long-term debt consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Revolving credit facility $ -- $ 4,000
Tranche A Term Loan 20,000 19,425
Tranche B Term Loan 25,000 44,698
Senior subordinated notes, due 2006, 10.625% 115,000 115,000
Other -- 4,539
-------- --------
160,000 187,662
Less-Current portion of long-term debt 825 3,498
-------- --------
Total $159,175 $184,164
======== ========
</TABLE>
REVOLVING CREDIT AND TERM LOANS
The Company entered into a Bank Credit Agreement in November 1996, amended
in June and December 1997 (the Agreement), that provides for secured
borrowings from a syndicate of lenders. The Agreement, as amended,
consists of: (i) a five and one-half year revolving credit facility
providing for up to $30 million in revolving loans, $5.0 million of which
may be used for letters of credit (the Revolving Credit Facility); and
(ii) a term loan facility providing for $65.0 million in term loans,
consisting of a five and one-half year Tranche A Term Loan of $20.0
million and a seven and one half year Tranche B Term Loan for $45.0
million (collectively, the Term Loans).
The Revolving Credit Facility includes a $20.0 million sublimit which is
available to finance permitted acquisitions. The highest amount
outstanding during 1997 was $20.0 million which was used in connection
with the acquisition of Alfa, as discussed in Note 5. This amount was
repaid in December 1997 concurrent with an amendment to the Agreement
whereby borrowings under the Tranche B facility were increased by $20
million. At December 31, 1997, borrowings of $4.0 million were outstanding
on the Revolving Credit Facility.
50
<PAGE> 51
The loans under the Agreement bear interest, at the Company's option, at
either (A) a "base rate" equal to the higher of (i) the federal funds rate
plus .5% or (ii) the bank's prime lending rate plus (x) in the case of
Tranche A Term Loans and loans under the Revolving Credit Facility, an
applicable spread ranging from .75% to 1.50% (determined based on the
Company's leverage ratio) or (y) in the case of Tranche B Term Loans,
2.00%; or (B) a `Eurodollar rate" plus (x) in the case of Tranche A Term
Loans and loans under the Revolving Credit Facility, an applicable spread
ranging from 1.75% to 2.50% (determined based on the Company's leverage
ratio), or (y) in the case of Tranche B Term Loans, 3.00%. Swingline Loans
may only be "base rate" loans.
Tranche A Term Loans amortize on a quarterly basis over the term of the
loans. The Tranche B Term Loans have nominal quarterly amortization prior
to the maturity of the Tranche A Term Loans, and will amortize remaining
amounts on a quarterly basis thereafter. The commitments under the
Revolving Credit Facility and the acquisition sublimit will each reduce by
$5.0 million in the fourth year and $10.0 million in the fifth year after
the date of the Merger. The Revolving Credit Facility will mature five and
one-half years after the date of the Merger. In addition, the Agreement
provides for mandatory prepayments, subject to certain exceptions, of the
Term Loans with the net proceeds of certain asset sales, with the net
proceeds of certain debt and equity issuances and from a portion of the
Company's excess cash flow.
The Revolving Credit Facility also requires the Company to pay a
commitment fee on the average daily aggregate unutilized portion of the
Revolving Credit Facility at a rate of .50% per annum, payable quarterly
in arrears, as well as a commission on trade and standby letters of credit
of 1.25% per annum of the amount to be drawn under the Agreement. Amounts
outstanding under the Revolving Credit Facility are due on May 12, 2002.
The Agreement contains a number of covenants that, among other things,
restrict the ability of the Company and its subsidiaries to dispose of
assets, incur additional indebtedness, incur guaranty obligations, repay
other indebtedness or amend other debt instruments, pay dividends, create
liens on assets, enter into leases, make investments, make acquisitions,
engage in mergers or consolidations, make capital expenditures, engage in
certain transactions with subsidiaries and affiliates and otherwise
restrict corporate activities. In addition, the Agreement requires
compliance with certain financial covenants, including requiring the
Company to maintain a minimum level of earnings before income taxes,
depreciation and amortization (i.e., "EBITDA"), a minimum ratio of EBITDA
to interest expense and a maximum ratio of Indebtedness to EBITDA, in each
case tested at the end of each fiscal quarter of the Company.
The Company's obligations under the Agreement are guaranteed by Holdings
and each direct and indirect domestic subsidiary of the Company. The
Company's obligations under the Agreement are secured by substantially all
assets of the Company and its subsidiaries.
51
<PAGE> 52
The Company has entered into interest rate swap agreements which have
effectively converted $13.0 million of floating rate borrowings to fixed
borrowings for a three-year period. The agreements are contracts to
periodically exchange floating interest rate payments for fixed rate
payments over the life of the agreements and are used to manage the
Company's interest rate exposure.
SENIOR SUBORDINATED NOTES
In connection with the Merger, the Company issued $115.0 million of Senior
Subordinated Notes due in 2006 (the "Notes"). The Notes are unsecured
obligations of the Company. The Notes bear interest at a rate of 10.625%
per annum and are payable semi-annually on each June 30 and December 31
commencing on June 30, 1997.
The Notes are redeemable at the option of the Company on or after December
31, 2001. The Notes will be subject to redemption at the option of the
Company, in whole or in part, at various redemption prices, declining from
105.313% of the principal amount to par on and after December 31, 2003. In
addition, on or prior to December 31, 1999, the Company may use the net
cash proceeds of one or more equity offerings to redeem up to 35% of the
aggregate principal amount of the Notes originally issued at a redemption
price of 110.625% of the principal amount thereof plus accrued interest to
the date of redemption. Upon a change of control, each Note holder has the
right to require the Company to repurchase such holder's Notes at a
purchase price of 110% of the principle amount plus accrued interest.
The Note Indenture contains certain affirmative and negative covenants and
restrictions.
As of December 31, 1997, the Company was in compliance with the various
covenants of the Note Indenture and the credit agreement.
OTHER LONG-TERM DEBT
Other long-term debt represents borrowings assumed by the Company in
connection with the 1997 acquisition of Alfa. They are comprised of the
equivalent of approximately $4.5 million of loans payable to the
Industrial Development Fund of Portugal as well as several local
Portuguese banks. The loans amortize in roughly equal installments through
2000 and accrue interest at LIBOR plus a premium ranging from 1.25% to
1.5%, adjusted quarterly or semi-annually. The loans are secured by
substantially all property and equipment owned by Alfa. Alfa also has
available revolving credit facilities with local banks providing for
short-term working capital loans of up to the equivalent of approximately
$6.5 million. Borrowings under these agreements accrue interest at LIBOR
plus a premium ranging from .375% to 1.375%. The highest amount
outstanding under these facilities in 1997 was approximately $5.4 million,
and the balance outstanding at December 31 was $4.4 million. Cash paid for
interest amounted to $0.1 million, $0.1 million , $0 and $20.3 million for
fiscal 1995, the periods ended November 12, 1996 and December 31, 1996,
and fiscal 1997, respectively.
52
<PAGE> 53
(10) INCOME TAXES
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
----------------------------- ----------------------------
YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, NOVEMBER 12, DECEMBER 31, DECEMBER 31,
1995 1996 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current:
Federal $ 5,798 $ 5,233 $(1,376) $ --
State 586 258 (23) --
Foreign -- -- -- 714
------- ------- ------- -------
6,384 5,491 (1,399) 714
Deferred:
Federal (591) 622 82 (625)
State (112) 39 7 (119)
------- ------- ------- -------
(703) 661 89 (744)
------- ------- ------- -------
$ 5,681 $ 6,152 $(1,310) $ (30)
======= ======= ======= =======
</TABLE>
The deferred income tax provision resulted primarily from temporary
differences due to the use of accelerated depreciation for income tax
purposes and straight-line depreciation for financial statement purposes,
temporary differences related to deferred compensation and the reversal of
temporary differences related to safe-harbor lease transactions that had
previously transferred tax benefits to the Company.
The difference between a provision computed using the respective statutory
U.S. federal income tax rate and the provision for income taxes in the
accompanying consolidated financial statements is primarily the result of
state taxes, net of federal benefit, non-deductible goodwill amortization
and foreign losses for which no benefit is available.
Significant items giving rise to deferred tax assets and deferred tax
liabilities at December 31, 1996 and 1997 are as follows (in thousands) :
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Prepaid Income Taxes:
Warranty reserves - current $ 145 $ 239
Allowance for doubtful accounts 351 354
Plant closing reserve -- 744
Accrued vacation 278 187
UNICAP adjustment 253 365
Other 707 606
------ ------
$1,734 $2,495
====== ======
</TABLE>
53
<PAGE> 54
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Deferred Income Taxes:
Net operating loss carry forward $ -- $(1,617)
Accelerated depreciation 1,265 2,553
Safe harbor leases 492 163
Warranty reserves-long-term (781) (780)
Deferred compensation and restricted stock plan (724) (676)
Other (30) (62)
------- -------
$ 222 $ (419)
======= =======
</TABLE>
Cash paid (received) for income taxes amounted to $7.1 million and $4.3
million for fiscal 1995 and the period ended November 12, 1997,
respectively, and $0 for the period ended December 31, 1996 and fiscal
1997, respectively.
(11) PENSION AND PROFIT SHARING PLANS
The Company has a defined contribution 401(k) plan covering substantially
all of its U.S. employees. Under the Plan, eligible employees are
permitted to contribute up to 10% of gross pay, not to exceed the maximum
allowed under the Internal Revenue Code. The Company matches each employee
contribution up to 6% of gross pay at a rate of $.25 per $1 of employee
contribution. The Company also contributes 3% of each employee's gross pay
up to the Social Security taxable wage base and 4% of amounts in excess of
that level up to approximately $.2 million of wages. Company contributions
to the 401(k) plan totaled approximately $1.1 million in 1995, $.9 million
and $.1 million for the periods ending November 12 and December 31, 1996,
respectively, and $1.1 million in 1997.
(12) LEASE COMMITMENTS
The Company leases certain plant facilities and equipment. Total rental
expenses charged to operations approximated $.8 million in fiscal 1995,
$1.0 million and $.2 million for the periods ended November 12 and
December 31, 1996, and $1.5 million in fiscal 1997, respectively. Minimum
rental commitments under all non-cancelable operating leases are as
follows (in thousands):
<TABLE>
<S> <C>
1998 $ 1,063
1999 600
2000 582
2001 573
2002 553
--------
$ 3,371
========
</TABLE>
Certain of the leases provide for renewal options.
54
<PAGE> 55
(13) COMMITMENTS AND CONTINGENCIES
At December 31, 1997, the Revolving Credit Facility contains a sublimit to
support the issuance of letters of credit in the amount of $5.0 million
with approximately $.2 million outstanding.
The Company is involved in various legal proceedings which, in the opinion
of management, will not result in a material adverse effect on its
financial condition or results of operations.
The Company has received three "Notice Letters" from the Environmental
Protection Agency ("EPA") stating that it is one of several potential
responsible parties pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, and that it will be required to share in
the cost of cleaning up the sites identified by the EPA. The Company's
degree of responsibility, if any, is not presently determinable in all
cases; however, management is of the opinion that these will not have a
material adverse effect on the accompanying consolidated financial
statements.
(14) STOCK PLANS
On December 16, 1997, the board of directors of the Company's parent,
Amtrol Holdings, Inc., approved the Holdings 1997 Incentive Stock Plan and
immediately granted to certain key employees options to purchase 65,310
shares of the common stock of Holdings for $100 per share, the fair value
of the options at the date of the grant. The options include 32,655
non-qualified options which are exercisable immediately provided that
purchased shares are subject to repurchase by Holdings at the exercise
price until such shares vest based on relative achievement of management's
business plan for fiscal years 1997 through 2001. An additional 22,398
non-qualified options are also immediately exercisable but are subject to
repurchase by Holdings, in monthly diminishing amounts, if the holder
terminates employment before August 2000. The remaining 10,257 options are
incentive stock options of which 3,000 vest immediately, 654 are released
from restrictions in January 1998 and the remainder are released from
restrictions ratably through August 2000.
The Company applies APB opinion No. 25 to account for its stock option
plans. Accordingly, pursuant to the terms of the 1997 Holdings Incentive
Stock Plan, no compensation cost related to the issuance of stock options
has been recognized in the Company's financial statements. However, if the
Company had determined compensation cost for options issued in 1997 under
the provisions of SFAS No. 123, the Company's net loss in 1997 would have
increased by approximately $0.6 million. The fair value of the options
granted in 1997 were estimated using the Black-Scholes option pricing
model. The following key assumptions were used to value the options
granted in 1997: volatility, 0; weighted average risk free rate, 5.00%;
average expected life, 3 years. The weighted average fair value per share
of the stock options granted in 1997 amounted to $13.62. It should be
noted that the option pricing model used was designed to value readily
tradeable stock options with relatively short lives. The options granted
are not tradeable. However, management believes that the assumptions used
and the model applied to value
55
<PAGE> 56
the awards yield a reasonable estimate of the fair value of the options
grants under the circumstances.
In connection with the Merger, certain holders of options to purchase
shares of the common stock of the predecessor exchanged such options for
Amended Options to purchase an aggregate of 17,041 shares of Holdings
common stock with weighted average exercise price of $57.38 per share. All
such options are immediately exercisable. No options from any source were
exercised in 1997.
56
<PAGE> 57
ITEM 14(A)(2) SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES
(In thousands)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END OF
CONSOLIDATED OF PERIOD PROVISION RECOVERIES WRITE-OFFS PERIOD
------------ --------- --------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C>
PREDECESSOR
Year Ended December 31, 1995
Allowance for doubtful accounts 1,094 93 2 (199) 990
Period Ended November 12, 1996
Allowance for doubtful accounts 990 172 21 (108) 1,075
SUCCESSOR
Period Ended December 31, 1996
Allowance for doubtful accounts 1,075 91 4 (115) 1,055
Year Ended December 31, 1997 1,055 370 3 (340)* 1,088
</TABLE>
*Includes $135 related to the disposition of the Company's American Granby
subsidiary in May 1997.
57
<PAGE> 58
SIGNATURES
Pursuant to the requirements of Section 13 or 5(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, in West Warwick, Rhode
Island, on the 25th day of March 1998.
AMTROL Inc.
By: s/s Edward J. Cooney
------------------------------
Edward J. Cooney
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1934, this registration
statement has been signed by the following persons in the capacities and on the
date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
s/s John P. Cashman Chairman of the Board, President March 25, 1998
- ---------------------------------------- and Chief Executive Officer (principal
John P. Cashman executive officer) and Director
s/s Samuel L. Daniels Executive Vice President and Director March 25, 1998
- ----------------------------------------
Samuel L. Daniels
s/s Clifford A. Peterson Senior Vice President and Director March 25, 1998
- ----------------------------------------
Clifford A. Peterson
s/s Edward J. Cooney Senior Vice President, Chief Financial March 25, 1998
- ---------------------------------------- Officer and Treasurer (principal
Edward J. Cooney financial officer)
s/s Donald W. Reilly Vice President Finance (principal March 25, 1998
- ---------------------------------------- accounting officer)
Donald W. Reilly
s/s David P. Spalding Director March 25, 1998
- ----------------------------------------
David P. Spalding
s/s James A. Stern Director March 25, 1998
- ----------------------------------------
James A. Stern
s/s Anthony D. Tutrone Director March 25, 1998
- ----------------------------------------
Anthony D. Tutrone
</TABLE>
58
<PAGE> 59
EXHIBIT INDEX
EXHIBIT # DOCUMENT DESCRIPTION
- --------- --------------------
3.1 Restated Articles of Incorporation of AMTROL Inc. (incorporated by
reference from the Company's Registration Statement on Form S-4,
Registration No. 333-18075, declared effective by the Securities and
Exchange Commission on January 2, 1997).
3.2 Bylaws of AMTROL Inc. (incorporated by reference from the Company's
Registration Statement on Form S-4, Registration No. 333-18075, declared
effective by the Securities and Exchange Commission on January 2, 1997).
4.1 Indenture, dated as of November 1, 1996 between AMTROL Acquisition, Inc.
and The Bank of New York (incorporated by reference from the Company's
Registration Statement on Form S-4, Registration No. 333-18075, declared
effective by the Securities and Exchange Commission on January 2, 1997).
4.2 Form of 10-5/8% Senior Subordinated Notes due 2006 (included in Exhibit
4.1) (incorporated by reference from the Company's Registration
Statement on Form S-4, Registration No. 333-18075, declared effective by
the Securities and Exchange Commission on January 2, 1997).
4.3 First Supplemental Indenture, dated as of November 13, 1996, between
AMTROL Inc. and The Bank of New York (incorporated by reference from the
Company's Registration Statement on Form S-4, Registration No.
333-18075, declared effective by the Securities and Exchange Commission
on January 2, 1997).
10.1 Credit Agreement, dated as of November 13, 1996, among AMTROL
Acquisition, Inc. and AMTROL Holdings, Inc., various lending
institutions party thereto, Morgan Stanley Senior Funding, Inc. as
documentation agent, and Bankers Trust Company, as administrative agent
(incorporated by reference from the Company's Registration Statement on
Form S-4, Registration No. 333-18075, declared effective by the
Securities and Exchange Commission on January 2, 1997).
10.1.1 First Amendment to Credit Agreement, dated as of June 24, 1997
(incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended July 5, 1997).
10.1.2 Second Amendment to Credit Agreement, dated as of December 12, 1997
(incorporated by reference to Exhibit 7(c) in the Company's Current
Report on Form 8-K dated December 22, 1997).
10.2 AMTROL Inc. Pension Plan and Trust (incorporated by reference from the
Company's Registration Statement on Form S-1, Registration No. 33-48413,
declared effective by the Commission on March 18, 1993).*
10.3 Amendments to AMTROL Inc. Pension Plan and Trust (incorporated by
reference from the Company's Registration Statement on Form S-1,
Registration No. 33-48413, declared effective by the Securities and
Exchange Commission on March 18, 1993).*
10.4 AMTROL Inc. Executive Cash Bonus Plan (incorporated by reference from
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994).*
10.5 AMTROL Inc. Supplemental Retirement Plan II (incorporated by reference
from the Company's Registration Statement on Form S-1, Registration No.
33-48413, declared effective by the Commission on March 18, 1993).*
59
<PAGE> 60
10.6 First Amendment to AMTROL Inc. Supplemental Retirement Plan II
(incorporated by reference from the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).*
10.7 Employment Agreement dated January 19, 1997 by and between AMTROL Inc.
and Samuel L. Daniels. (incorporated by reference to the Company's
Annual Report on Form 10-K for the period ended December 31, 1996).*
10.8 Employment Agreement dated January 19, 1997 by and between AMTROL Inc.
and Clifford A. Peterson. (incorporated by reference to the Company's
Annual Report on Form 10-K for the period ended December 31, 1996).*
10.9 Employment Agreement dated January 19, 1997 by and between AMTROL Inc.
and Edward J. Cooney. (incorporated by reference to the Company's Annual
Report on Form 10-K for the period ended December 31, 1996).*
10.10 Employment Agreement dated as of April 22, 1997 by and between John P.
Cashman and AMTROL Management International Inc.*
10.11 AMTROL Holdings Inc. 1997 Incentive Stock Plan dated December 16, 1997.*
21 Subsidiaries of AMTROL Inc.
27 Financial Data Schedule
60
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement"), dated as of April 22, 1997 between
John P. Cashman, an individual with a residence address of 83 Ailesbury Road,
Dublin 4 Ireland (the "Employee") and AMTROL Management International Inc., a
Rhode Island corporation with a principal place of business at 1400 Division
Road, West Warwick, Rhode Island 02893 (the "Company").
WHEREAS, the Company desires to assure itself of the benefit of the
Employee's services and experience for a period of time in order to fulfill its
obligations under that certain Executive Management Agreement of even date by
and between AMTROL Inc. ("AMTROL") and the Company (the "Management Agreement"),
and the Employee is willing to enter into an agreement to that end upon the
terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and covenants herein
contained, the parties hereto agree as follows:
1. TERM OF AGREEMENT. Subject to the terms and conditions hereof, the term
of this Agreement shall commence on the date hereof and, subject to earlier
termination by the Employee or the Company as hereinafter provided, shall
continue for a period of two (2) years beginning on the first day of each month
after the date hereof. Such term of employment is hereinafter referred to as the
"Employment Period."
2. SERVICES TO BE RENDERED.
(a) During the Employment Period, the Employee shall serve the
Company as its Chairman, President and Chief Executive Officer and consistent
with the Company's obligations under the Management Agreement, shall serve as
the Chairman, President and Chief Executive Officer of AMTROL.
(b) The Employee agrees that he will, during the Employment Period,
devote substantially all of his business time and attention and his full ability
to the business of the Company and the fulfillment of the Company's obligations
to AMTROL under the Management
1
<PAGE> 2
Agreement as the Chairman, President and Chief Executive Officer of the Company
and AMTROL and shall well and faithfully serve the Company and AMTROL and its
subsidiaries and shall exercise the powers and authorities and fulfill the
responsibilities hereby conferred upon him honestly, diligently, in good faith
and in the best interest of the Company and AMTROL and its subsidiaries and use
his best efforts to promote their interests. The Employee may, however, serve as
an outside director of any other corporation provided Employee obtains the prior
written consent of the Company and the Board of Directors of AMTROL, which shall
not be unreasonably withheld.
3. COMPENSATION.
(a) In full payment for services rendered to the Company under this
Agreement, the Company shall pay the Employee a salary of $440,000 per year
during the first year of the Employment Period ("Base Salary"), payable in equal
monthly installments. The Compensation Committee of the Board of Directors of
the Company or in the absence of a Compensation Committee, the full Board of
Directors of the Company shall determine the salary to be paid to the Employee
during subsequent years of the Employment Period.
(b) In addition to the compensation otherwise provided for in this
Section 3, during the Employment Period, the Employee also shall be entitled to:
(i) participate in the Company's and AMTROL's stock option plans, in accordance
with the terms thereof, as from time to time may be in effect; (ii) by
resolution of the Compensation Committee, participate in the Company's and
AMTROL's incentive compensation plans, in accordance with the terms thereof, as
from time to time may be in effect; (iii) participate in the Company's and
AMTROL's retirement plans, in accordance with the terms thereof, as from time to
time may be in effect or in some similar plan at the same or less cost to the
Company; and (iv) participate in such group life, disability, accident, hospital
and medical insurance plans ("Welfare Plans") in accordance with the terms
thereof, as from time to time may be in effect; provided, that any such
participation is generally appropriate to Employee's responsibilities hereunder;
and provided, further, that benefits and terms of participation under the
Welfare Plans may be changed by the Company from time to time in its sole
discretion. To the extent stock options are to be granted in
2
<PAGE> 3
accordance with a Company or AMTROL stock option plan for the Company fiscal
year ending within the year Employee's employment with the Company terminates,
Employee shall be entitled to such options in accordance with the plan's terms.
(c) The Employee shall be entitled, during the Employment Period, to
vacations and fringe benefits consistent with the policies and practices of the
Company, which shall be the same as the policies and practices of AMTROL.
(d) The Company shall provide the Employee, during the Employment
Period, with the use of a Company-owned or leased automobile, and will pay all
taxes and insurance on said vehicle, or will pay an allowance, grossed-up for
any income tax on a formula consistent with the R.P. Scherer Corporation plan.
4. DISABILITY, DEATH AND TERMINATION.
(a) In the event of the Employee's inability to perform the
principal duties of his job at the Company due to physical or mental condition,
as determined by a physician ("Permanent Incapacitating Disability") for any
consecutive period of at least six (6) months with or without accommodation, the
Company may, at its election, terminate the Employee's employment hereunder. The
date of Permanent Incapacitating Disability shall be on the last day of such
period. In the event of any such termination, the Company shall be obligated (i)
for compensation earned by the Employee hereunder, but not yet paid, prior to
such termination, and (ii) to pay the Employee each month, for twenty-four (24)
consecutive months, an amount equal to the monthly Termination Benefit (the
"Disability Benefit"); provided, however, that the amount of the Disability
Benefit shall be reduced by any amounts received by the Employee in respect of
the Employee's disability from any employee benefit or disability plans
maintained by the Company (including any plans maintained by AMTROL in which the
Employee participates as an Employee of the Company or, pursuant to the
Management Agreement, as an officer of AMTROL).
(b) Except as provided in this Section 4(b), the obligations of the
Company under this Agreement shall terminate upon the death of the Employee. In
the event of the Employee's death during the term of this Agreement, the Company
shall be obligated (i) for
3
<PAGE> 4
compensation earned by the Employee hereunder, but not yet paid, prior to the
Employee's death, and (ii) to pay the Employee's estate each month, for
twenty-four (24) consecutive months, an amount equal to the monthly Termination
Benefit (the "Death Benefit"); provided, however, that the amount of the Death
Benefit shall be reduced by any amounts payable to the Employee's estate or
heirs in respect of the Employee's death from any insurance or plan maintained
by the Company which provides a death benefit to the Employee (including any
such insurance or plans maintained by AMTROL in which the Employee participates
as an Employee of the Company or, pursuant to the Management Agreement, as an
officer of AMTROL).
(c) The Employee may terminate this Agreement at any time by
providing written notice to the Company. In the event that (i) the Employee
voluntarily terminates employment with the Company without Good Reason, or (ii)
the Company terminates the Employee's employment for Cause, the Company's
obligations hereunder shall terminate and no further payments of any kind (other
than in respect of compensation earned by the Employee as determined hereunder
prior to such termination) shall thereafter be made by the Company to the
Employee hereunder.
4
<PAGE> 5
"Cause" as used within this Agreement means:
(i) any act or acts of the Employee constituting a felony (or its
equivalent) under the laws of the United States, any state thereof or any
foreign jurisdiction;
(ii) any material breach by the Employee of any employment agreement
with the Company or the policies of the Company or AMTROL or any of its
subsidiaries or the willful and persistent (after written notice to the
Employee) failure or refusal of the Employee to perform his duties of
employment or comply with any lawful directives of the Board of Directors
of the Company;
(iii) a course of conduct amounting to gross neglect, willful
misconduct or dishonesty; or
(iv) any misappropriation of material property of the Company by the
Employee or any misappropriation of a corporate or business opportunity of
the Company or its affiliates by the Employee.
"Good Reason" as used within this Agreement means:
(i) any material reduction by the Company of such Employee's duties,
responsibilities or titles;
(ii) any involuntary removal of such Employee from any position
previously held (except in connection with a promotion or a termination
for Cause, death or disability, or the voluntary termination by the
Employee other than for Good Reason);
(iii) within six months after a Change in Control; or
(iv) such other reasons (including non-employment-related reasons)
as may be approved by the Company, in its sole discretion, from time to
time.
provided, however, that a Good Reason shall not be deemed to have
occurred under clause (i) or (ii) unless the Employee notifies the Company
that he believes one of such events has occurred within 60 days after he
has knowledge of it and if it has, the Company shall not have cured it
within 60 days of receipt of such notice.
(d) The Company may terminate Employee's employment at any time
without Cause by providing written notice to the Employee. If the Company
terminates the Employee's employment without Cause or if the Employee
voluntarily terminates employment with the Company for Good Reason, the Company
shall:
(1) pay the Employee a monthly amount, for twenty-four (24)
consecutive months after termination, equal to one twelfth of the
Employee's
5
<PAGE> 6
annual average salary as computed by the Company for the prior
twenty-four (24) consecutive months, or if the Employee has not been
employed for twenty-four (24) consecutive months, for the number of
consecutive months employed, preceding the date of termination (the
"Termination Benefit") until the Termination Benefit is paid in
full;
(2) pay, on the date otherwise due and payable, the pro-rata
portion of any bonus or incentive compensation otherwise payable to
the Employee without regard to his termination with respect to the
fiscal period in which such termination occurs; and
(3) provide Employee with benefits in accordance with Section
3(b) (iv) and Section 3(d) for a period of twenty-four (24)
consecutive months after termination.
5. CONFIDENTIALITY. For purposes of this Agreement, "proprietary
information" shall mean any information relating to the business of the Company
or AMTROL or any of its subsidiaries that has not previously been publicly
released by duly authorized representatives of the Company or AMTROL and shall
include (but shall not be limited to) AMTROL information encompassed in all
research, product development, designs, plans, formulations and formulating
techniques, proposals, marketing and sales plans, financial information, costs,
pricing information, strategic business plans, customer information, and all
methods, concepts, or ideas in or reasonably related to the business of AMTROL.
The Employee agrees to regard and preserve as confidential all proprietary
information pertaining to AMTROL's business that has been or may be obtained by
the Employee in the course of his employment with the Company or its provision
of services under the Management Agreement, whether he has such information in
his memory or in writing or other physical form. The Employee will not, without
prior written authority from the Company to do so, use for his benefit or
purposes, or disclose to any other person, firm, partnership, corporation or
other entity, either during the term of his employment hereunder or thereafter,
any proprietary information connected with the business or developments of the
Company or AMTROL, except as required in connection with the performance by the
Employee of his duties and responsibilities as an employee of the Company. This
provision shall not apply after the proprietary information has been voluntarily
disclosed to the public, independently developed and disclosed by others, or
otherwise enters the public domain through lawful means.
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6. REMOVAL OF DOCUMENTS OR OBJECTS. The Employee agrees not to remove from
the premises of the Company or AMTROL, except as an employee of the Company in
pursuit of the business of the Company or AMTROL or any of its subsidiaries, or
except as specifically permitted in writing by the Company, any document
(regardless of the medium on which it is recorded), object, computer program,
computer source code, object code or data (the "Documents") containing or
reflecting any proprietary information of the Company or AMTROL. The Employee
recognizes that all such Documents, whether developed by him or by someone else,
are the exclusive property of the Company or AMTROL, as the case may be.
7. NON-COMPETITION. The Employee agrees that during the Employment Period
and for a period of two (2) years after such Employment Period terminates or is
terminated, he will not in any way, directly or indirectly, manage, operate,
control, solicit officers or employees of AMTROL, accept employment, a
directorship or a consulting position with or otherwise advise or assist or be
connected with or own or have any other interest in or right with respect to
(other than through ownership of not more than one percent (1%) of the
outstanding shares of a corporation's stock which is listed on a national
securities exchange) any enterprise which competes or shall compete with AMTROL,
by engaging in or otherwise carrying on the research, development, manufacture
or sale of any product of any type developed, manufactured or sold by AMTROL or
any subsidiary thereof, whether now or hereafter (to the extent that any such
product is under consideration by the Board of Directors of AMTROL at the time
the Employee's employment terminates or is terminated).
8. CORPORATE OPPORTUNITIES. The Employee agrees that during the Employment
Period he will not take any action which might divert from AMTROL or any
subsidiary of AMTROL any opportunity which would be within the scope of any of
the present or future businesses of AMTROL or any of its subsidiaries (which
future businesses are then under consideration by the Board of Directors of
AMTROL), the loss of which has or would have had, in the reasonable judgment of
the Board of Directors of AMTROL, an adverse effect upon AMTROL, unless the
Board of Directors of AMTROL has given prior written approval.
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9. RELIEF. It is understood and agreed by and between the parties hereto
that the service to be rendered by the Employee hereunder, and the rights and
privileges granted to the Company by the Employee hereunder, are of a special,
unique, extraordinary and intellectual character, which gives them a peculiar
value, the loss of which cannot be reasonably or adequately compensated in
damages in any action at law, and that a breach by the Employee of any of the
provisions contained in this Agreement will cause the Company great irreparable
injury and damage.
The Employee hereby expressly agrees that the Company shall be entitled to
the remedies of injunction, specific performance and other equitable relief to
prevent a breach of this Agreement by the Employee. The Employee further
expressly agrees that in the event the Employee breaches the non-competition
provisions of Section 7 of this Agreement or the confidentiality provisions of
Section 5 of this Agreement, the balance of any payments due under this
Agreement shall be forfeited by the Employee. The provisions of this Section 9
shall not, however, be construed as a waiver of any of the rights which the
Company may have for damages or otherwise.
10. WARRANTY. The Employee hereby warrants that he is free to enter into
this Agreement and to render his services pursuant hereto.
11. NON-ASSIGNABILITY. Except as otherwise provided herein, this Agreement
may not be assigned by either the Company or the Employee, except that Employee
may assign his rights to receive compensation or other payments hereunder to a
financial institution as collateral for a loan incurred to purchase stock of
AMTROL or AMTROL Holdings, Inc..
12. MERGER OR CONSOLIDATION. In the event of a "Change of Control" (as
such term is defined in the Indenture dated as of November 1, 1996 between
AMTROL Acquisition, Inc. and the Bank of New York, as Trustee, as amended by the
First Supplemental Indenture date November 13, 1996), this Agreement may be
assigned and transferred to such successor in interest as an asset of the
Company upon such assignee assuming the Company's obligations hereunder, in
which event the Employee agrees to continue to perform his duties and
obligations
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according to the terms and conditions hereof for such assignee or transferee of
this Agreement subject to Employee's right to terminate for Good Reason in
accordance with Section 4(c)(iii).
13. WITHHOLDING. The Company shall have the right to withhold the amount
of taxes, which in the determination of the Company, are required to be withheld
under law with respect to any amount due or paid under this Agreement.
14. NOTICES. All notices and other communications which are required or
may be given under this Agreement shall be in writing and shall be deemed to
have been given if delivered personally or sent by registered or certified mail,
return receipt requested, postage prepaid:
(a) If to the Company,
AMTROL Management International Inc.
1400 Division Road
West Warwick, Rhode Island 02893
Attention: President
With a copy to:
Hinckley, Allen & Snyder
1500 Fleet Center
Providence, Rhode Island 02903
Attention: Margaret D. Farrell, Esq.
(b) If to the Employee, to him at such address as set forth on the
title page hereof or as he shall otherwise have specified by notice in writing
to the Company.
15. GOVERNMENTAL REGULATION. Nothing contained in this Agreement shall be
construed so as to require the commission of any act contrary to law and
wherever there is any conflict between any provision of this Agreement and any
statute, law, ordinance, order or regulation, the latter shall prevail, but in
such event any such provision of this Agreement shall be curtailed and limited
only to the extent necessary to bring it within the legal requirements.
16. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and
construed in accordance with the laws of the State of Rhode Island. Any suit,
action or proceeding against the Employee with respect to this Agreement, or any
judgment entered by any
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<PAGE> 10
court in respect of any thereof, may be brought in any court of competent
jurisdiction in the State of Rhode Island and the Employee hereby submits to the
exclusive jurisdiction of such courts for the purpose of any such suit, action,
proceeding or judgment. The Employee hereby irrevocably waives any objections
which he may now or hereafter have to the laying of the venue of any suit,
action or proceeding arising out of or relating to this Agreement brought in any
court of competent jurisdiction in the State of Rhode Island and hereby further
irrevocably waives any claim that any such suit, action or proceeding brought in
any such court has been brought in any inconvenient forum. No suit, action or
proceeding against the Company with respect to this Agreement may be brought in
any court, domestic or foreign, or before any similar domestic or foreign
authority other than in a court of competent jurisdiction in the State of Rhode
Island, and the Employee hereby irrevocably waives any right which he may
otherwise have had to bring such an action in any other court, domestic or
foreign, or before any similar domestic or foreign authority. The Company hereby
submits to the jurisdiction of such courts for the purpose of any such suit,
action or proceeding. The Employee irrevocably waives his right to trial by jury
with regard to any suit, action, or proceeding with respect to this Agreement;
provided, however, that if such waiver of the right to jury trial shall be held
unenforceable, the invalidity or unenforceability of this provision shall not
impair the validity or enforceability of any other provision of this Agreement.
17. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding
of the parties in respect of the subject matter contained herein and supersedes
all prior agreements, arrangements and understandings relating to the subject
matter, but specifically excluding that certain Management Stockholder's
Agreement by and between AMTROL Holdings, Inc. and the Employee dated November
13, 1996.
18. AMENDMENT. This Agreement may not be modified or amended or any term
or provision waived or discharged except in writing, signed by both parties
hereto or their duly authorized representatives.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
Employee: Company:
AMTROL MANAGEMENT
- ---------------------------------- INTERNATIONAL INC.
By: DAVID P. SPALDING
------------------------------
Title: DIRECTOR
---------------------------
11
<PAGE> 1
EXHIBIT 10.11
AMTROL HOLDINGS, INC.
1997 INCENTIVE STOCK PLAN
EFFECTIVE: DECEMBER 16, 1997
<PAGE> 2
AMTROL HOLDINGS, INC.
1997 INCENTIVE STOCK PLAN
1. Purpose
AMTROL Holdings, Inc. (the "Company") desires to attract and retain
the best available talent and encourage the highest level of performance by
employees and other persons who perform services for the Company in order to
serve the best interests of the Company and stockholders. By affording eligible
persons the opportunity to acquire proprietary interests in the Company and by
providing them incentives to put forth maximum efforts for the success of the
Company's business, the AMTROL Holdings, Inc. 1997 Incentive Stock Plan (the
"1997 Plan") is expected to contribute to the attainment of those objectives.
2. Scope and Duration
Awards under the 1997 Plan may be granted in the form of incentive
stock options ("incentive stock options") as provided in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), in the form of
non-qualified stock options ("non-qualified options") (unless otherwise
indicated, references in the 1997 Plan to "options" include incentive stock
options and non-qualified options), in the form of shares of the common stock,
par value $.01 per share, of the Company (the "Common Stock") that are
restricted as provided in paragraph 9 ("restricted shares"). The maximum
aggregate number of shares of Common Stock as to which awards may be granted
from time to time under the 1997 Plan is 65,310 shares, subject to adjustment as
provided in paragraph 12. The shares available may be in whole or in part, as
the Board of Directors of the Company (the "Board of Directors") shall from time
to time determine, authorized but unissued shares or issued shares reacquired by
the Company. Unless otherwise provided by the Stock Committee, shares covered by
expired or terminated options and forfeited restricted shares will be available
for subsequent awards under the 1997 Plan, except to the extent prohibited by
Rule 16b-3, as amended, or any successor provision thereto ("Rule 16b-3"), or
other applicable rules under Section 16(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Any shares issued by the Company in
respect of the assumption or substitution of outstanding awards from a
corporation or other business entity by the Company shall not reduce the number
of shares available for awards under the 1997 Plan. No incentive stock option
shall be granted more than 10 years after the Effective Date.
3. Administration
(a) The 1997 Plan shall be administered by the Board of Directors
or, in the discretion of the Board of Directors, a committee of directors
designated by the Board of Directors, until such time as the Company has a class
of securities registered pursuant to Section 12 of the Exchange Act, at which
time the 1997 Plan shall be administered by a committee (the "Stock Committee")
consisting of not less than two members who shall qualify as "Non-Employee
Directors " within the meaning of Rule 16b-3 (unless Rule 16b-3 shall permit
fewer than two members to so qualify); PROVIDED, HOWEVER, that, with respect to
individual participants who are not subject to Section 16(b) of the Exchange
Act, the Stock Committee of the Board of Directors may delegate authority to
administer the 1997 Plan to another committee of directors
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(the "Employee Committee") which committee may include directors who do not meet
the standards set forth immediately above. Unless the context otherwise
requires, the term "Committee" shall refer to the Board of Directors or
committee designated to administer the 1997 Plan, as the case may be, until such
time as the Stock Committee has been constituted and, thereafter, to both the
Stock Committee and the Employee Committee.
(b) The Committee shall have plenary authority in its discretion,
subject to and not inconsistent with the express provisions of the 1997 Plan to
grant options, to determine the purchase price of the shares of Common Stock
covered by each option, the term of each option, the persons to whom, and the
time or times at which options shall be granted, and the number of shares to be
covered by each option; to designate options as incentive stock options or
non-qualified options; to grant restricted shares and to determine the term of
the restricted period and other conditions applicable to such shares, the
persons to whom, and the time or times at which, restricted shares shall be
granted and the number of shares to be covered by each grant; to interpret the
1997 Plan; to prescribe, amend and rescind rules and regulations relating to the
1997 Plan; to determine the terms and provisions of the option agreements (which
need not be identical) and the restricted share agreements (which need not be
identical) entered into in connection with awards under the 1997 Plan; and to
make all other determinations deemed necessary or advisable for the
administration of the 1997 Plan. The Committee may delegate to one or more of
its members or to one or more agents such administrative duties as it may deem
advisable, and the Committee or any person to whom it has delegated duties as
aforesaid may employ one or more persons to render advice with respect to any
responsibility the Committee or such person may have under the 1997 Plan.
(c) The Committee may employ attorneys, consultants, accountants or
other persons and the Committee, the Company and its officers and directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee in good faith shall be final and binding upon all persons who have
received awards, the Company and all other interested persons. No member or
agent of the Committee shall be personally liable for any action, determination
or interpretation taken or made in good faith with respect to the 1997 Plan or
awards made thereunder, and all members and agents of the Committee shall be
fully indemnified and protected by the Company in respect of any such action,
determination or interpretation.
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4. Eligibility; Factors to be Considered in Granting Awards
(a) Awards will be limited to officers and other key employees of
the Company and its subsidiaries, and except in the case of incentive stock
options, any other non-employees who may provide services to the Company or its
subsidiaries (all such persons being hereinafter referred to as "employees"). In
determining the employees to whom awards shall be granted and the number of
shares or units to be covered by each award, the Committee shall take into
account the nature of the employees' duties, their present and potential
contributions to the success of the Company and such other factors as it shall
deem relevant in connection with accomplishing the purposes of the 1997 Plan. A
director of the Company or of a subsidiary who is not also an employee of the
Company (or deemed to be an employee of the Company as provided above) will not
be eligible to receive an award.
(b) Awards may be granted singly, in combination or in tandem and
may be made in combination or in tandem with, in replacement of, or as
alternatives to, awards or grants under any other employee plan maintained by
the Company, its present and future subsidiaries. An employee who has been
granted an award or awards under the 1997 Plan may be granted an additional
award or awards, subject to such limitations as may be imposed by the Code on
the grant of incentive stock options. No award of incentive stock options shall
result in the aggregate fair market value of Common Stock with respect to which
incentive stock options are exercisable for the first time by any employee
during any calendar year (determined at the time the incentive stock option is
granted) exceeding $100,000. The Committee, in its sole discretion, may grant to
an employee who has been granted an award under the 1997 Plan or any other
employee plan maintained by the Company or its subsidiaries, or any predecessors
or successors thereto, in exchange for the surrender and cancellation of such
award, a new award in the same or a different form and containing such terms,
including without limitation a price which is different (either higher or lower)
than any price provided in the award so surrendered and canceled, as the
Committee may deem appropriate.
5. Option Price
The purchase price of the Common Stock covered by each option shall
be determined by the Committee, but in the case of an incentive stock option
shall not be less than 100% of the fair market value (110% in the case of a 10%
shareholder of the Company) of the Common Stock on the date the option is
granted, as determined in good faith by the Board of Directors (the "Market
Value") for the date on which the option is granted. The Committee shall
determine the date on which an option is granted, PROVIDED that such date is
consistent with the Code and any applicable rules or regulations thereunder. In
the absence of such determination, the date on which the Committee adopts a
resolution granting an option shall be considered the date on which such option
is granted, PROVIDED the employee to whom the option is granted is promptly
notified of the grant and an option agreement is duly executed as of the date of
the resolution. The purchase price shall be subject to adjustment as provided in
paragraph 12.
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6. Terms of Options
The term of each incentive stock option granted under the 1997 Plan
shall not be more than 10 years (5 years in the case of a 10% shareholder of the
Company) from the date of grant, as the Committee shall determine, subject to
earlier termination as provided in paragraphs 10 and 11. The term of each
non-qualified stock option granted under the 1997 Plan shall be such period of
time as the Committee shall determine, subject to earlier termination as
provided in paragraphs 10 and 11.
7. Exercise of Options; Loans
(a) Subject to the provisions of the 1997 Plan, an option granted
under the 1997 Plan shall become vested as determined by the Committee. The
Committee may, in its discretion, determine as a condition of any option, that
all or a stated percentage of the options shall become exercisable, in
installments or otherwise, only after completion of a specified service
requirement. The Committee may also, in its discretion, accelerate the
exercisability of any option at any time and provide, in any option agreement,
that the option shall become immediately exercisable as to all shares of Common
Stock remaining subject to the option on or following either (i) December 31,
2001, (ii) a Change of Control (as defined in this paragraph), or (iii) an
underwritten primary public offering of common stock of the Company or AMTROL
Inc. ("AMTROL") pursuant to an effective registration statement under the
Securities Act (the date upon which an event described in clause (i), (ii) or
(iii) of this paragraph 7(a) occurs shall be referred to herein as an
"acceleration date"). "Change of Control" means the occurrence of any of the
following events: (1) the Company ceases to own directly 100% on a fully diluted
basis of the economic and voting interest in AMTROL's capital stock; or (2) the
Permitted Holders cease to be the "beneficial owner" (as defined in Rules 13d-3
and 13d-5 under the Exchange Act), directly or indirectly, of a majority in the
aggregate of the total voting power of the Voting Stock of the Company or
AMTROL, whether as a result of issuance of securities of the Company or AMTROL,
any merger, consolidation, liquidation or dissolution of the Company or AMTROL,
any direct or indirect transfer of securities or otherwise (for purposes of this
clause (2) the Permitted Holders shall be deemed to beneficially own any Voting
Stock of a corporation (the "specified corporation") so long as the Permitted
Holders beneficially own (as so defined), directly or indirectly, in the
aggregate a majority of the voting power of the Voting Stock of the parent
corporation); or (3) the merger or consolidation of the Company or AMTROL with
or into another person or the merger of another Person with or into the Company
or AMTROL, or the sale of all or substantially all the assets of the Company or
AMTROL to another Person (other than a person that is controlled by the
Permitted Holders), and, in the case of any such merger or consolidation, the
securities of the Company or AMTROL, that are outstanding immediately prior to
such transaction and which represent 100% of the aggregate voting power of the
Voting Stock of the Company or AMTROL, as the case may be, are changed into or
exchanged for cash, securities or property, unless pursuant to such transaction
such securities are changed into or exchanged for, in addition to any other
consideration, securities of the surviving corporation that represent,
immediately after such transaction, at least a majority of the aggregate voting
power of the Voting Stock of the surviving corporation. As used herein,
"Permitted Holders" means (i) Cypress Merchant Banking Partners L.P., Cypress
Offshore Partners L.P. and any person who, on the Effective Date, is directly or
indirectly, controlling, controlled by or under common control with either of
the foregoing and (ii) any person who is a member of the senior
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management of the Company or AMTROL and a stockholder of the Company, on the
Effective Date. "Voting Stock" means securities having ordinary voting power for
the election of directors of the Company or AMTROL, respectively.
(b) An option may be exercised at any time or from time to time
(subject, in the case of an incentive stock option, to such restrictions as may
be imposed by the Code), as to any or all full shares as to which the option has
become exercisable. Notwithstanding the foregoing provision, no option may be
exercised without the prior consent of the Committee by an employee who is
subject to Section 16(b) of the Exchange Act until the expiration of six months
from the date of the grant of the option.
(c) The purchase price of the shares as to which an option is
exercised shall be paid in full at the time of exercise; payment may be made in
cash, which may be paid by check, or other instrument acceptable to the Company,
or, with the consent of the Committee, in shares of the Common Stock, valued at
the Market Value on the date of exercise, or if there were no sales on such
date, on the next preceding day on which there were sales or (if permitted by
the Committee and subject to such terms and conditions as it may determine) by
surrender of outstanding awards under the 1997 Plan. In addition, any amount
necessary to satisfy applicable federal, state or local tax requirements shall
be paid promptly upon notification of the amount due. The Committee may permit
such amount to be paid in shares of Common Stock previously owned by the
employee, or a portion of the shares of Common Stock that otherwise would be
distributed to such employee upon exercise of the option, or a combination of
cash and shares of such Common Stock.
(d) Except as provided in paragraphs 8, 10 and 11, no option may be
exercised at any time unless the holder thereof is then an employee of or
performing services for the Company or one of its subsidiaries. For this
purpose, "subsidiary" shall include, as under Treasury Regulations Section
1.421-7(h)(3) and (4), Example (3), any corporation that is a subsidiary of the
Company during the entire portion of the requisite period of employment during
which it is the employer of the holder.
(e) Subject to any terms and conditions that the Committee may
determine in respect of the exercise of options involving the surrender of
outstanding awards, upon, but not until, the exercise of an option or portion
thereof in accordance with the 1997 Plan, the option agreement and such rules
and regulations as may be established by the Committee, the holder thereof shall
have the rights of a stockholder with respect to the shares issued as a result
of such exercise.
(f) The Company may make loans to such option holders as the
Committee, in its discretion, may determine (including a holder who is a
director or officer of the Company) in connection with the exercise of options
granted under the 1997 Plan; PROVIDED, HOWEVER, that the Committee shall not
authorize the making of any loan where the possession of such discretion or the
making of such loan would result in a "modification" (as defined in Section 424
of the Code) of any incentive stock option. Such loans shall be subject to the
following terms and conditions and such other terms and conditions as the
Committee shall determine not inconsistent with the 1997 Plan. Such loans shall
bear interest at such rates as the Committee shall determine from time to time,
which rates may be below then current market rates (except in the case of
incentive
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stock options). In no event may any such loan exceed the fair market value, at
the date of exercise, of the shares covered by the option, or portion thereof,
exercised by the holder. No loan shall have an initial term exceeding five
years, but any such loan may be renewable at the discretion of the Committee.
When a loan shall have been made, shares of Common Stock having a fair market
value at least equal to the principal amount of the loan shall be pledged by the
holder to the Company as security for payment of the unpaid balance of the loan.
Every loan shall comply with all applicable laws, regulations and rules of the
Board of Governors of the Federal Reserve System and any other governmental
agency having jurisdiction.
8. Transferability of Options
(a) Incentive stock options granted under the 1997 Plan shall not be
transferable otherwise than by will or the laws of descent and distribution, or
pursuant to a qualified domestic relations order as defined by Section 414(p) of
the Code. Incentive stock options may be exercised during the lifetime of the
employee only by the employee or by the employee's guardian or legal
representative (unless such exercise would disqualify an option as an incentive
stock option).
(b) No transfer of an option or restricted shares by will or the
laws of descent and distribution shall be effective to bind the Company unless
the Committee shall have been furnished with (i) written notice thereof and with
a copy of the will and/or such evidence as the Committee may deem necessary to
establish the validity of the transfer and (ii) an agreement by the transferee
to comply with all the terms and conditions of the option or restricted share
award that are or would have been applicable to the employee to whom the award
was granted and to be bound by the acknowledgments made by the employee in
connection with the grant of the option or restricted shares.
(c) During an employee's lifetime, the Committee may permit the
transfer, assignment or other encumbrance of an outstanding option, unless such
option is an incentive stock option and the Committee and the employee intend
that it shall retain such status. With the approval of the Committee and subject
to such conditions as the Committee may prescribe, an employee may, upon
providing written notice to the Secretary of the Company, elect to transfer any
or all such non-qualified stock options granted under the 1997 Plan to members
of his or her immediate family, including, but not limited to, the employee's
spouse, children, grandchildren and the spouses of children and grandchildren or
to trusts for the benefit of the employee and/or such immediate family members
or to partnerships in which the employee and/or such family members are the only
partners ("Permitted Transferees"); provided, however, that no such transfer by
any participant may be made in exchange for consideration.
9. Award and Delivery of Restricted Shares
(a) At the time an award of restricted shares is made, the Committee
shall establish a period of time (the "Restricted Period") applicable to such
award. Each award of restricted shares may have a different Restricted Period.
The Committee may, in its sole discretion, at the time an award is made,
prescribe conditions for the incremental lapse of restrictions during the
Restricted Period, for the lapse or termination of restrictions upon the
satisfaction of other conditions in addition to or other than the expiration of
the Restricted Period
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with respect to all or any portion of the restricted shares and provide for the
lapse of all restrictions with respect to all restricted shares covered by the
award upon the occurrence of an acceleration date as defined in paragraph 7(a).
The Committee may also, in its sole discretion, shorten or terminate the
Restricted Period or waive any conditions for the lapse or termination of
restrictions with respect to all or any portion of the restricted shares.
(b) Upon the grant of an award of restricted shares, a stock
certificate representing a number of shares of Common Stock equal to the number
of restricted shares granted to an employee shall be registered in the
employee's name but shall be held in custody by the Company for the employee's
account. The employee shall generally have the rights and privileges of a
stockholder as to such restricted shares, including the right to vote such
restricted shares, except that, subject to the provisions of paragraph 10, the
following restrictions shall apply: (i) the employee shall not be entitled to
delivery of the certificate until the expiration or termination of the
Restricted Period and the satisfaction of any other conditions prescribed by the
Committee; (ii) none of the restricted shares may be sold, transferred,
assigned, pledged, or otherwise encumbered or disposed of during the Restricted
Period and until the satisfaction of any other conditions prescribed by the
Committee; and (iii) all of the restricted shares shall be forfeited and all
rights of the employee to such restricted shares shall terminate without further
obligation on the part of the Company unless the employee has remained an
employee of the Company or any of its subsidiaries or any combination thereof
until the expiration or termination of the Restricted Period and the
satisfaction of any other conditions prescribed by the Committee applicable to
such restricted shares. At the discretion of the Committee, cash and stock
dividends with respect to the restricted shares may be either currently paid or
withheld by the Company for the employee's account subject to the expiration or
termination of the Restricted Period and the satisfaction of any other
conditions prescribed by the Committee, and interest may be paid on the amount
of cash dividends withheld at a rate and subject to such terms as determined by
the Committee. Upon the forfeiture of any restricted shares, such forfeited
restricted shares and any cash or stock dividends withheld for the employee's
account shall be transferred to the Company without further action by the
employee. The employee shall have the same rights and privileges, and be subject
to the same restrictions, with respect to any shares received pursuant to
paragraph 12.
(c) Upon the expiration or termination of the Restricted Period and
the satisfaction of any other conditions prescribed by the Committee or at such
earlier time as provided for in paragraph 10, the restrictions applicable to the
restricted shares shall lapse and a stock certificate for the number of shares
of Common Stock with respect to which the restrictions have lapsed shall be
delivered, free of all such restrictions, except any that may be imposed by law,
to the employee or the employee's beneficiary or estate, as the case may be. The
Company shall not be required to deliver any fractional share of Common Stock
but will pay, in lieu thereof, the fair market value (determined as of the date
the restrictions lapse) of such fractional share to the employee or the
employee's beneficiary or estate, as the case may be. No payment will be
required from the employee upon the issuance or delivery of any restricted
shares, except that any amount necessary to satisfy applicable federal, state or
local tax requirements shall be withheld or paid promptly upon notification of
the amount due and prior to or concurrently with the issuance or delivery of a
certificate representing such shares. The Committee may permit such amount to be
paid in (i) shares of Common Stock previously owned by the employee, (ii) a
portion of the shares of Common Stock that otherwise would be distributed to
such employee
7
<PAGE> 9
upon the lapse of the restrictions applicable to the restricted shares, or (iii)
a combination of cash and shares of such Common Stock; PROVIDED, HOWEVER, unless
otherwise approved by the Committee, that an election by an employee subject to
Section 16(b) of the Exchange Act to use shares of Common Stock described in
clause (ii) above to satisfy any federal, state or local tax requirement shall
be made only during the period commencing on the third business day following
the date of release for publication of any annual or quarterly summary
statements of the Company's sales and earnings and ending on the twelfth
business day following such date (a "Window Period"), and PROVIDED FURTHER that
the Committee shall have sole discretion to consent to or disapprove of any such
election (which consent or disapproval may be given at any time after the
election to which it relates).
10. Termination of Employment
(a) Unless otherwise determined by the Committee, and subject to
such restrictions as may be imposed by the Code in the case of any incentive
stock options, in the event that the employment of an employee to whom an option
has been granted under the 1997 Plan shall be terminated (except as set forth in
paragraph 11), such option may, subject to the provisions of the 1997 Plan, be
exercised (to the extent that the employee was entitled to do so at the
termination of his employment) at any time within three months after such
termination, or, in the case of an employee whose termination results from
retirement from active employment at or after age 55 within one year after such
termination, but in no case later than the date on which the option terminates;
PROVIDED, HOWEVER, that any option held by an employee whose employment is
terminated for cause shall forthwith terminate, to the extent not theretofore
exercised.
(b) Unless otherwise determined by the Committee, if an employee to
whom restricted shares have been granted ceases to be an employee of the Company
or of a subsidiary prior to the end of the Restricted Period and the
satisfaction of any other conditions prescribed by the Committee for any reason
other than death or total disability (as defined in paragraph 11), the employee
shall immediately forfeit all restricted shares. Awards granted under the 1997
Plan shall not be affected by any change of duties or position so long as the
holder continues to be an employee of the Company or any of its subsidiaries.
Any option or restricted share agreement, or any rules and regulations relating
to the 1997 Plan, may contain such provisions as the Committee shall approve
with reference to the determination of the date employment terminates and the
effect of leaves of absence. Any such rules and regulations with reference to
any option agreement shall be consistent with the provisions of the Code and any
applicable rules and regulations thereunder. Nothing in the 1997 Plan or in any
award granted pursuant to the 1997 Plan shall confer upon any employee any right
to continue in the employ of the Company or any of its subsidiaries or interfere
in any way with the right of the Company or any such subsidiary to terminate
such employment at any time.
(c) Notwithstanding anything else in the 1997 Plan to the contrary,
if the corporation employing an individual to whom an option or restricted share
has been granted under the 1997 Plan ceases to be a subsidiary of the Company,
then the Committee may provide that service with such employer or its direct or
indirect or subsidiaries in any capacity shall be considered employment with the
Company for purposes of the 1997 Plan.
8
<PAGE> 10
11. Death or Total Disability of Employee
If an employee to whom an option has been granted under the 1997 Plan
shall die or suffer a "total disability" while employed by the Company or its
subsidiaries or within three months (or, in the case of an employee whose
termination results from retirement from active employment at or after age 55,
within one year) after the termination of such employment (other than
termination for cause), such option may be exercised, to the extent that the
employee or a Permitted Transferee of the option was entitled to do so at the
termination of employment (including by reason of death or total disability), as
set forth herein (subject to the restrictions set forth in paragraphs 7 and 8
with respect to persons subject to Section 16(b) of the Exchange Act) by the
employee, the legal guardian of the employee (unless such exercise would
disqualify an option as an incentive stock option), a legatee or legatees of the
employee under the employee's last will, by the employee's personal
representatives or distributees or by the Permitted Transferee, whichever is
applicable, at any time within one year after the date of the employee's death
or total disability, but in no case later than the date on which the option
terminates. For purposes hereof, "total disability" is defined as the permanent
inability of an employee, as a result of accident or sickness, to perform any
and every duty pertaining to such employee's occupation or employment for which
the employee is suited by reason of the employee's previous training, education
and experience.
12. Adjustment upon Changes in Capitalization, etc.
(a) Notwithstanding any other provision of the 1997 Plan, the Committee
may at any time, in its sole discretion, make or provide for such adjustments to
the 1997 Plan, to the number and class of shares available thereunder or to any
outstanding options or restricted shares as it may deem appropriate to prevent
dilution or enlargement of rights, including adjustments in the event of
distributions to holders of Common Stock other than a normal cash dividend,
changes in the outstanding Common Stock by reason of stock dividends, split-ups,
recapitalizations, mergers, consolidations, combinations or exchanges of shares,
separations, reorganizations, liquidations and the like. In the event of any
offer to holders of Common Stock generally relating to the acquisition of their
shares, the Committee may, in its sole discretion, make any adjustment as it
deems equitable in respect of outstanding options including in the Committee's
discretion revision of outstanding options so that they may be exercisable for
or payable in the consideration payable in the acquisition transaction. Any such
determination by the Committee shall be conclusive. No adjustment shall be made
in respect of an incentive stock option if such adjustment would disqualify such
option as an incentive stock option under Section 422 of the Code and the
Treasury Regulations thereunder. No adjustment shall be made in the minimum
number of shares with respect to which an option may be exercised at any time.
Any fractional shares resulting from such adjustments to options shall be
eliminated.
(b) In the event the Company issues any Common Stock (other than as a
stock dividend or stock split or pursuant to the 1997 Plan), the number of
shares of Common Stock as to which awards may be granted from time to time under
the 1997 Plan shall be increased by such number of shares of Common Stock as the
Board shall determine to permit additional grants of stock awards based upon the
terms of the new equity for which such additional shares of Common Stock were
issued.
9
<PAGE> 11
13. Effective Date
The 1997 Plan shall be effective as of December 16, 1997 (the
"Effective Date"), provided that the adoption of the 1997 Plan shall have been
approved by the stockholders of the Company. The Committee thereafter may, in
its discretion, grant awards under the 1997 Plan, the grant, exercise or payment
of which shall be expressly subject to the conditions that, to the extent
required at the time of grant, exercise or payment, (i) if the Company deems it
necessary or desirable, a Registration Statement under the Securities Act of
1933 with respect to such shares shall be effective, and (ii) any requisite
approval or consent of any governmental authority of any kind having
jurisdiction over awards granted under the 1997 Plan shall be obtained.
14. Termination and Amendment
The Board of Directors of the Company may suspend, terminate, modify
or amend the 1997 Plan, provided that any amendment that would increase the
aggregate number of shares that may be issued under the 1997 Plan, materially
increase the benefits accruing to participants under the 1997 Plan, or
materially modify the requirements as to eligibility for participation in the
1997 Plan shall be subject to the approval of the Company's stockholders to the
extent required by Rule 16b-3, applicable law or any other governing rules or
regulations, except that any such increase or modification that may result from
adjustments authorized by paragraph 12 does not require such approval. If the
1997 Plan is terminated, the terms of the 1997 Plan shall, notwithstanding such
termination, continue to apply to awards granted prior to such termination. In
addition, no suspension, termination, modification or amendment of the 1997 Plan
may, without the consent of the employee to whom an award shall theretofore have
been granted, adversely affect the rights of such employee under such award.
15. Written Agreements
Each award of options or restricted shares shall be evidenced by a
written agreement, executed by the employee and the Company, which shall contain
such restrictions, terms and conditions as the Committee may require.
10
<PAGE> 12
16. Effect on Other Stock Plans
The adoption of the 1997 Plan shall have no effect on awards made or
to be made pursuant to other stock plans covering employees of the Company or
its subsidiaries, or any predecessors or successors thereto.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this Plan as of the ____ day of December, 1997.
AMTROL HOLDINGS, INC.
By:
---------------------------
Title:
------------------------
11
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF AMTROL INC.
NAME OF SUBSIDIARY PLACE OF INCORPORATION
- ------------------ ----------------------
Petroleo Mecanica Alfa, S.A. Guimaraes, Portugal
AMTROL Asia Pacific Ltd. Hong Kong
AMTROL Canada Ltd. Ontario, Canada
AMTROL Export Sales Inc. Barbados
AMTROL International Inc. Rhode Island
AMTROL Ltd. Delaware
Water Soft Inc. Rhode Island
AMTROL Holdings Portugal, SGPS, Unipessoal, Lda. Guimaraes, Portugal
AMTROL Investment Inc. Rhode Island
AMTROL Management International Inc. Rhode Island
AGI Holdings Inc. Rhode Island
AMTROL Europe Ltd. Rhode Island
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<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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