As filed with the Securities and Exchange Commission on May 14, 1996
Registration No. 333-2314
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 3 to
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
ASAHI/AMERICA, INC.
(Exact Name Of Registrant As Specified In Its Charter)
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Massachusetts 3084 04-2621836
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
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19 Green Street, Malden, Massachusetts 02148 (617) 321-5409
(Address, Including Zip Code, and Telephone Number,
Including Area Code of Registrant's Principal Executive Offices)
LESLIE B. LEWIS
President and Chief Executive Officer
ASAHI/AMERICA, INC.
19 Green Street
Malden, Massachusetts 02148
(617) 321-5409
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
The Commission is requested to send copies of all communications to:
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MARIANNE GILLERAN, ESQ. JEFFREY P. SOMERS, ESQ. ROSLYN G. DAUM, ESQ.
Gadsby & Hannah Morse, Barnes-Brown & Pendleton, P.C. Choate, Hall & Stewart
125 Summer Street 1601 Trapelo Road 53 State Street
Boston, Massachusetts 02110 Waltham, Massachusetts 02154 Boston, Massachusetts 02109
(617) 345-7000 (617) 622-5930 (617) 248-5000
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Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
effective registration statement for the same offering [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement will thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a) may determine.
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ASAHI/AMERICA, INC.
Cross-Reference Sheet Showing Location in Prospectus of
Information Required by Items of Form S-1
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Form S-1 Registration Statement Item and Heading Location in Prospectus
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Item 1. Forepart of Registration Statement and Outside Forepart of Registration Statement and outside front
Front Cover Page of Prospectus cover page of Prospectus
Item 2. Inside Front and Outside Back Cover Pages of Inside front and outside back cover pages of
Prospectus Prospectus
Item 3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges "Prospectus Summary"
Item 4. Use of Proceeds "Use of Proceeds"
Item 5. Determination of Offering Price "Underwriting"
Item 6. Dilution "Dilution"
Item 7. Selling Security Holders "Principal and Selling Stockholders"
Item 8. Plan of Distribution Cover Page and "Underwriting"
Item 9. Description of Securities to be Registered "Description of Capital Stock"
Item 10. Interests of Named Experts and Counsel "Legal Matters" and "Experts"
Item 11. Information with Respect to the Registrant "Prospectus Summary--The Company" and "--Summary
Consolidated Financial Information;" "Capitalization;"
"Selected Consolidated Financial Information;"
"Management's Discussion and Analysis of Financial
Condition and Results of Operations;" "Business;"
"Management;" "Principal and Selling Stockholders;"
"Certain Transactions;" and "Experts"
Item 12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Not applicable
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED MAY 14, 1996
PROSPECTUS
[logo] ASAHI/AMERICA((R))
1,160,000 Shares
ASAHI/AMERICA, INC.
Common Stock
Of the 1,160,000 shares of Common Stock offered hereby, 1,000,000 shares
are being sold by Asahi/America, Inc. (the "Company") and 160,000 shares are
being sold by the Selling Stockholders. The Company will not receive any of
the proceeds from the sale of shares by the Selling Stockholders. See
"Principal and Selling Stockholders." Prior to this offering, there has been
no public market for the Company's Common Stock. The Company has applied to
list the Common Stock on the Nasdaq National Market under the symbol "ASAM."
It is currently estimated that the initial public offering price will be in
the range of $7.00 to $9.00 per share. See "Underwriting" for a discussion of
the factors that will be considered in determining the initial public
offering price.
See "Risk Factors" beginning on page 5 for certain information which should
be carefully considered by investors before purchasing shares of the Common
Stock offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions (1) Company (2) Stockholders
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Per Share $ $ $ $
Total (3) $ $ $ $
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $470,000.
(3) The Selling Stockholders have granted the Underwriters an option,
exercisable within 30 days from the date of this Prospectus, to purchase
up to 174,000 additional shares of Common Stock, on the terms set forth
above, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Selling Stockholders will be $ , $ , and
$ , respectively. The Company will receive no proceeds from the
exercise of such option. See "Principal and Selling Stockholders" and
"Underwriting."
The shares of Common Stock offered by this Prospectus are offered by the
several Underwriters, subject to prior sale, when, as and if delivered to and
accepted by them, and subject to the right of the Underwriters to reject
orders in whole or in part. It is expected that certificates for the shares
of Common Stock will be available for delivery at the offices of Fechtor,
Detwiler & Co., Inc. in Boston, Massachusetts on or about ,
1996.
Daiwa Securities America Inc. Fechtor, Detwiler & Co., Inc.
The date of this Prospectus is , 1996
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMPANY'S COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL
MARKET AND OTHER MARKETS. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Investors should carefully consider the
information set forth under the heading "Risk Factors." Unless otherwise
indicated, all Common Stock share and per share data and information in this
Prospectus (i) have been adjusted to give effect to an approximately
836-for-1 stock split (the "Stock Split") to be effective immediately prior
to the effectiveness of the registration statement of which this Prospectus
is a part and (ii) assume no exercise of the Underwriters' over-allotment
option. Unless the context otherwise requires, references in this Prospectus
to the "Company" include Asahi/America, Inc., its predecessor, and the
Company's wholly-owned subsidiary, Asahi Engineered Products, Inc.
The Company
Asahi/America, Inc. markets and sells thermoplastic valves, piping systems
and components manufactured by the Company and others for use in a variety of
environmentally sensitive and industrial applications, including
semiconductor manufacturing, chemical processing, waste treatment processing
and pharmaceutical manufacturing. The Company, an ISO 9001 quality control
certified manufacturer, makes electric and pneumatic valve actuators and
controls, proprietary double containment thermoplastic piping systems, and
custom fabricated fittings and specialty products. The Company offers a broad
selection of industrial thermoplastic valves in, and, based on a
Company-commissioned market study prepared by an unaffiliated firm, believes
it has one of the largest shares of the United States industrial
thermoplastic valve market.
The Company is the exclusive master distributor in the United States,
Latin America and the Caribbean for Asahi Yukizai Kogyo Co., Ltd. ("AYK"), a
large Japanese manufacturer of thermoplastic valves. The Company is also the
exclusive master distributor in the United States for Alois-Gruber GmbH
(together with its United States subsidiary, "Agru"), an Austrian
manufacturer of thermoplastic pipe and fittings. The Company distributes its
products under the brand names Asahi, DuoPro and PolyFlo, among others.
As a master distributor for AYK since 1974 and for Agru since 1985, the
Company has developed a network of more than 400 United States and
approximately 20 foreign distributors. Initially developed as the
distribution channel for products purchased by the Company from AYK and Agru,
this extensive distribution network also supports increasing sales of the
higher margin products manufactured by the Company. From 1993 to 1995, annual
sales of valve actuators and controls, custom valves and piping systems
manufactured by the Company have increased by 64% from approximately $7.6
million to approximately $12.4 million and from 30% to 36% of total sales.
During the past three years, the Company acquired the rights to three new
product lines, which broadened the array of products manufactured by the
Company and sold through its distribution network. The new product lines
include the patented PolyFlo extruded double containment piping system, a
line of pressure relief valves and a line of patented industrial filtration
equipment. The Company intends to use a portion of the proceeds of this
offering to acquire additional complementary product lines and businesses as
opportunities are identified.
Advances in thermoplastic technology have made it practical to substitute
thermoplastic products for metal products in a variety of industrial valve
and piping applications, creating an opportunity to increase the market share
of thermoplastic products. End users of the Company's products often specify
thermoplastic valves and piping systems instead of metal because
thermoplastics resist corrosion and do not contaminate the transported fluids
or gases. The Company's products combine the benefits associated with all
plastic valve and piping products, such as light weight, ease of
installation, long life and low installed cost, with the additional benefits
of thermoplastic products, such as resistance to damage from temperature and
corrosion. The Company seeks to identify industrial applications where the
end users' requirements justify the use of industrial thermoplastics.
Examples include double containment corrosion-resistant piping systems that
meet Environmental Protection Agency ("EPA") regulations, piping systems for
compressed air and gases, and high purity pipe and valves to assure
contaminant free processing of liquids. The Company sells its products to
distributors who sell to end users. Representative end users during the past
year include Motorola, WMX Technologies, Micron Technology, the Corps of
Engineers, Browning Ferris Industries, IBM, Schering-Plough, Estee Lauder,
Rhone Poulenc and DuPont, none of which individually represents a material
portion of the Company's sales.
AYK, Nichimen Corporation and its affiliate, Nichimen America Inc.
("Nichimen America"), are principal stockholders of the Company. Nichimen
Corporation, one of the largest Japanese trading companies, and Nichimen
America, provide credit and import services to the Company in connection with
its purchases from AYK.
3
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The Company's predecessor was established as a division of Conant
Controls, Inc. in 1974, and the Company was incorporated in The Commonwealth
of Massachusetts on August 18, 1977. The Company's principal executive
offices are located at 19 Green Street, Malden, Massachusetts 02148, and its
telephone number is (617) 321-5409.
The Offering
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Common Stock Offered by the Company 1,000,000 shares
Common Stock Offered by the Selling Stockholders 160,000 shares
Common Stock to be outstanding after the
offering (1) 3,340,000 shares
Use of Proceeds To expand the Company's manufacturing and warehouse
capacity, to repay short-term bank debt in full, and
for general corporate purposes, including
acquisitions of complementary businesses and product
lines as opportunities are identified. See "Use of
Proceeds."
Risk Factors The securities offered hereby involve a high degree
of risk and immediate substantial dilution. See
"Risk Factors" and "Dilution."
Proposed Nasdaq symbol "ASAM"
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(1) Does not include a total of 350,000 shares of Common Stock reserved for
issuance upon the exercise of stock options granted under the Company's
Equity Incentive Plan and Independent Directors' Stock Option Plan. See
"Management" and "Principal and Selling Stockholders."
Summary Consolidated Financial Information
(in thousands, except per share and footnote data)
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Three months ended
Year ended December 31, March 31
--------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
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Consolidated Statements of
Operations Data:
Net sales $21,495 $22,670 $25,514 $28,518 $34,998 $7,807 $9,651
Cost of goods sold 16,245 15,449 17,021 18,608 23,409 5,178 6,409
Foreign currency (gains) losses (351) 126 48 47 (391) 108 (105)
Gross profit 5,601 7,095 8,445 9,863 11,980 2,521 3,347
Income (loss) from operations (1,864) 434 1,244 2,250 3,298 447 981
Income (loss) before provision
(benefit) for income taxes (2,811) (340) 787 1,714 2,585 269 867
Net income (loss) (2,721) (26) 619 1,118 1,585 165 508
Net income (loss) per common share $ (2.58) $ (.02) $ .30 $ .48 $ .68 $ .07 $ .22
Weighted average number of common
shares outstanding 1,056 1,146 2,048 2,340 2,340 2,340 2,340
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March 31, 1996
-------------------------------
Actual As Adjusted (1)
-------- -------------------
Consolidated Balance Sheet Data:
Working capital $ 4,310 $ 8,737
Total assets $22,630 $27,735
Long-term liabilities $ 5,214 $ 5,214
Total liabilities $14,688 $12,866
Stockholders' equity $ 7,942 $14,869
(1) Adjusted to give effect to the sale by the Company of 1,000,000 shares of
Common Stock at an assumed initial public offering price of $8.00 per
share and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."
4
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RISK FACTORS
The shares of Common Stock offered hereby involve a high degree of risk.
Prospective investors should carefully consider the following factors, in
addition to the other information set forth herein, in evaluating the Company
and its business before purchasing shares of the Common Stock offered hereby.
Dependence on Two Suppliers. The Company purchases substantially all of
its requirements for valves from AYK, and a large percentage of the pipe and
fittings sold by the Company are supplied by Agru. Substantially all of the
Company's sales are from products supplied by these suppliers and Company
manufactured products incorporating products supplied by them. The Company
has exclusive contracts of supply and distribution in defined territories
with both AYK and Agru that extend through 1999. Under the terms of these
contracts, the Company is not permitted to sell or distribute any products
manufactured by others that compete with the products for which the Company
is the exclusive distributor of AYK or Agru. The Company has agreed to
purchase at least $140 million of product over the term of its agreement with
AYK. There are no minimum annual purchase requirements, but there are annual
guidelines attached to the contract. Through December 31, 1995, the end of
the sixth year of the current term, the Company had purchased approximately
$51.4 million of product from AYK, which was approximately $16.3 million
behind the annual guidelines on a cumulative basis. The Company's contract
with AYK may be terminated only for cause, including breach of the contract
or the bankruptcy of a party. The Company's contract with Agru renews
automatically for an additional five year period unless either party gives
notice of termination no less than 12 months prior to the end of the term.
Although there are alternative sources of supply to both AYK and Agru, the
Company's rights to use them are limited by contract, and several of the
potential sources of supply have exclusive supply arrangements with others in
one or more of the Company's markets, which would preclude them from selling
products to the Company. Suppliers that are not restricted from supplying the
Company might not be able to supply the quantity, quality and variety of
inventory that the Company requires in a timely manner or on terms as
favorable as those afforded the Company by AYK and Agru. Therefore, the loss
of either AYK or Agru as a source of supply would have a material adverse
effect on the Company. See "Business--Products" and "--Suppliers."
Dependence on Foreign Sources of Supply; Exchange Rate Risk. The Company
is subject to various risks beyond the control of the Company inherent in
dependence on foreign sources of supply, including adverse fluctuations in
foreign exchange rates, economic or political instability, shipping delays,
changes in custom duties and import quotas, increases in transportation costs
and other trade restrictions, all of which could have a significant impact on
the Company's ability to maintain profitability, obtain supplies and deliver
its products to its customers on a timely and competitive basis.
Due to its dependence on AYK and Agru as its principal sources of supply,
the Company is subject to the effects of adverse fluctuations in the United
States dollar/Japanese yen and the United States dollar/Austrian schilling
exchange rates. There was a significant adverse decline in the exchange rate
between the United States dollar and the Japanese yen over the three-year
period ended December 31, 1995. The average exchange rate in the first
quarter of 1993 was approximately 121 yen/dollar and declined to average
approximately 84 yen/dollar in the second quarter of 1995 before recovering
to an average of approximately 102 yen/dollar in the fourth quarter of 1995.
The average daily exchange rate was approximately 111 yen/dollar in 1993, 102
yen/dollar in 1994, and 94 yen/dollar in 1995, a decline of approximately 15%
over the three-year period. Due to this extended adverse trend in the
yen/dollar exchange rate, the Company has been obligated to pay higher
prices, in terms of United States dollars, for its inventory. If this trend
were to continue, there can be no assurance that the Company will be able to
pass on the higher cost of its inventory to its customers. See
"Business--Suppliers" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Foreign Currency Transactions Risk. Under its payment terms with Nichimen
America, the Company has 180 days from the date of shipment to pay for
approximately 95% of the valves purchased from AYK. Prior to April 1995,
Nichimen Corporation priced the Company's orders in United States dollars
using a 180 day forward exchange rate for the Japanese yen on the date of
shipment. In April 1995, the Company began purchasing valves in Japanese yen,
thereby assuming the currency exchange rate risk. As a result, the Company is
exposed to fluctuations in the exchange rate during the period from the date
of shipment to the payment due date. The Company
5
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often purchases foreign currency contracts at some point during such period
to hedge its yen payment commitments. However, the Company is at risk with
respect to its unhedged commitments unless and until it purchases foreign
currency contracts. The Company intends to continue its current practices,
which means that the Company may have unhedged commitments, which could be
significant, from time to time. The Company recognized net currency gains of
$391,000 in 1995. There is no assurance that the Company will be able to
avoid foreign currency losses in the future. The Company did not hedge the
currency risk associated with purchases in Austrian schillings, and since
August 1995, purchases from Agru have been denominated in United States
dollars. See "Business--Suppliers," "Management's Discussion and Analysis of
Financial Conditions and Results of Operations," and Note 9 of Notes to
Consolidated Financial Statements.
Dependence on Principal Distributor. For fiscal years 1993, 1994 and 1995,
one of the Company's distributors, Harrington Industrial Plastics
("Harrington"), accounted for approximately 17.7%, 18.5% and 25.7%,
respectively, of the Company's net sales. Harrington's territory (which is
exclusive as to certain products only) has historically included the greater
Chicago area and the area from El Paso north to Denver and west through
California. However, Harrington recently acquired one of the Company's other
distributors whose territory is comprised of Michigan, Ohio, Kentucky,
Indiana, Western Pennsylvania and part of Tennesee. For fiscal years 1993,
1994 and 1995, the acquired distributor accounted for approximately 5.0%,
2.8% and 3.7%, respectively, of the Company's net sales. The Company does not
have a contract with Harrington, which also sells products that are
competitive with the products supplied by the Company. The loss of this
distributor could have a material adverse effect on the Company. See
"Business--Distribution and Marketing."
Possible Fluctuations in Operating Results. Over the past three years, the
Company increased its sales of complete piping systems. Although these sales
are typically high in dollar value, they involve long sales cycles, including
design and engineering support to the end user. Concurrently, the size of the
average order for the Company's other products has also increased. The
Company expects these trends to continue. The Company's gross margins are
significantly affected by the mix of products that it sells in any period.
The timing and amount of piping system sales and large orders, as well as the
mix of products sold, can be expected to cause fluctuations in the Company's
period-to-period results of operations and will make it more difficult for
the Company to plan with accuracy its financial requirements from period to
period. In addition, the timing of a shipment of a single large order could
have a significant impact on the Company's sales and results of operations
for a particular financial period. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Many of the end user purchasers of the Company's products are engaged in
cyclical businesses that can be significantly affected by general economic
conditions or other factors. As a result, a general downturn in the economy
or other factors could affect the purchasing decisions of these end users,
which in turn could adversely affect the Company's net sales. See
"Business--Customers."
Under generally accepted accounting principles, the Company may adjust its
LIFO reserve each quarter based on the Company's expectations of its
inventory position at the end of the year. If the Company incorrectly
forecasts its year end inventory position, there may be substantial
adjustments in the inventory reserve for the fourth quarter of a year, which
could result in significant changes to the Company's operating results for
that quarter. See Note 3 of Notes to Consolidated Financial Statements.
Risk of Product Liability Claims. Due to the nature of the products it
sells and their intended uses, including the transport of toxic and corrosive
materials, flammable materials, and materials under high pressure, the
Company may be exposed to potential product liability claims by distributors
and end users, with the attendant risk of substantial damage awards. The
Company maintains general liability insurance, which includes product
liability coverage of $36 million per occurrence and per year in the
aggregate. In addition, the Company is named as an insured on a product
liability insurance policy maintained by AYK that includes product liability
coverage of $3 million per occurrence and in the aggregate. The Company's
principal supplier of pipe and fittings is not required by its contract with
the Company to maintain such coverage. Although there have been no
substantial product liability claims asserted against the Company to date,
there can be no assurance that such insurance will be sufficient to cover
potential claims or that the present level of coverage will be available in
the future at reasonable cost. A successful product liability claim against
the Company that is not fully insured could have a material adverse effect on
the Company. See "Business--Suppliers."
6
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Substantial Investment in Inventory. Due to the long lead times required
to obtain inventory from its principal suppliers, the Company is required to
maintain a large level of inventory of valves, pipe and accessories in
relation to its sales in order to meet demands for prompt delivery to its
customers. Also, to meet customer requirements for a broad selection of
products, the Company stocks more than 8,000 SKUs. As a result, a significant
portion of the Company's financial resources is invested in inventory and
cannot be used for other corporate purposes. In addition, the large inventory
level makes the Company vulnerable to possible write downs or write-offs of
inventory if the Company is unable to sell items in inventory or if items in
inventory become obsolete. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Single Facility. The Company's manufacturing operations are conducted
from, and its entire inventory is maintained in, a single facility in Malden,
Massachusetts. Any significant casualty loss to, or extended interruption of
operations at, this facility would have a material adverse effect on the
Company. See "Business--Property."
Competition; Market Acceptance. The industrial valve and pipe industry in
which the Company operates is very competitive. The Company must compete with
suppliers of metal valves and pipe, which have a substantial majority of the
total market, as well as with other suppliers of plastic valves and pipe.
Many of the entities with which the Company competes, particularly
manufacturers of metal valves and pipe, have substantially greater financial
and other resources than the Company. Achieving greater market acceptance for
thermoplastic valves and pipe requires substantial educational, marketing and
sales efforts to create greater awareness of and demand for the Company's
products. There can be no assurance that the Company's products will be able
to compete successfully with other products available for the same
applications or that the Company will achieve further market acceptance of
its products. See "Business--Competition."
Impact of Changes In Environmental Regulations. Demand for the Company's
double containment piping systems has been created in part by Government laws
and regulations mandating the installation of secondary containment and
corrosion-resistant systems in certain applications. Any relaxation in these
regulations or in the enforcement of them could adversely affect the demand
for these products and, therefore, the Company's net sales in the future.
Significant Foreign Sales. During the past three years, sales by the
Company to foreign markets have been significant, accounting for
approximately 14%, 12% and 5%, respectively, of net sales for fiscal years
1993, 1994 and 1995. The Company believes that foreign sales will continue to
be significant, and as a result, the Company will be subject to the risks
associated with foreign sales, including economic or political instability in
its foreign markets, shipping delays, and fluctuations in foreign currency
exchange rates that may make its products more expensive in its foreign
markets, all of which could have a significant impact on the Company's
ability to sell its products on a timely and competitive basis in foreign
markets. The imposition of, or significant increases in customs duties,
import quotas or other trade restrictions could also have a material adverse
effect on the Company. See "Business--Distribution and Marketing" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Intellectual Property. The Company has a number of registered trademarks,
owns several patents relating to its products, and owns copyright
registrations for the printed circuit boards incorporated in some of its
actuators. The Company believes that trademark, patent and copyright
("intellectual property") protection is important to its business and
anticipates that it will seek additional protection for newly developed
intellectual property as deemed appropriate. There can be no assurance as to
the breadth or degree of protection which existing or future trademarks,
patents and copyrights may afford the Company, that any trademark or patent
application will result in issued trademarks or patents, or that the
Company's intellectual property will not be circumvented or invalidated.
Foreign intellectual property laws may not protect the Company's intellectual
property adequately. There can be no assurance that the Company's products do
not or will not violate the proprietary rights of others, that the Company's
intellectual property would be upheld if challenged, or that the Company
would not be prevented from using its intellectual property, any of which
occurrences could have an adverse effect on the Company. In addition, the
Company may not have the financial resources necessary to enforce or defend
its trademarks, patents and copyrights at the time of any apparent
infringement or of any challenge. The validity of one of the Company's
patents relating to its DuoPro double containment piping system is the
subject of pending litigation. See "Business--Distribution and Marketing" and
"--Patents and Trademarks."
7
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Dependence Upon Key Personnel. The success of the Company will be largely
dependent on the personal efforts of Leslie B. Lewis, President and Chief
Executive Officer, and Timothy L. Robinson, Executive Vice President and
Chief Operating Officer. Although the Company has employment agreements with
each of Messrs. Lewis and Robinson, the loss of the services of either of
them would have a material adverse effect on the Company's business and
prospects. The Company is the owner and beneficiary of a "key man" life
insurance policy on Mr. Lewis in the amount of $5 million. See "Management."
Control by Existing Stockholders. Upon the consummation of this offering,
Leslie B. Lewis, President and Chief Executive Officer, AYK, Nichimen
Corporation and Nichimen America will continue to own beneficially
approximately 65% (approximately 60% if the Underwriters' over-allotment
option is exercised in full) of the outstanding shares of Common Stock
(assuming no exercise of outstanding stock options). Accordingly, these
stockholders, acting together, will be able to elect all of the Company's
directors and, generally, to direct the affairs of the Company. Each of Mr.
Lewis and his spouse and a designee of each of AYK, Nichimen Corporation and
Nichimen America is currently a Director of the Company and together they
will constitute a majority of the Board of Directors following the offering.
In addition, AYK, Nichimen Corporation and Nichimen America, voting together,
could effectively block, and Mr. Lewis, voting separately, could block any
major corporate transaction, such as a merger or sale of substantially all of
the Company's assets, that under Massachusetts law requires the vote of
two-thirds of the outstanding Common Stock of the Company. See "Management,"
"Principal and Selling Stockholders" and "Description of Capital Stock."
Immediate Substantial Dilution. Purchasers of shares of Common Stock in
this offering will experience immediate and substantial dilution in net
tangible book value per share from the initial public offering price. Such
dilution at March 31, 1996, would have been equal to $3.97 per share or 49.6%
of an assumed initial public offering price of $8.00 per share. See
"Dilution."
Absence of Public Market; Arbitrary Determination of Public Offering
Price; Possible Volatility of Share Price. Prior to this offering, there has
been no public market for the Company's Common Stock. The initial public
offering price has been determined by negotiations between the Company and
the Underwriters. There can be no assurance that an active trading market
will develop and continue after completion of this offering or that the
market price of the Common Stock will not decline below the public offering
price. Stock prices for many companies fluctuate widely for reasons which can
be unrelated to operating results. These fluctuations, as well as general
economic, political and market conditions, such as a recession or military
conflict, may have a material adverse effect on the market price for the
Company's Common Stock. See "Underwriting."
Shares Eligible for Future Sale. Sales of substantial amounts of Common
Stock in the public market following the completion of this offering could
have an adverse effect on the market price of the Common Stock. There will be
3,340,000 shares of Common Stock outstanding immediately after the offering,
including the 1,160,000 shares offered hereby. Upon completion of this
offering, all of the shares of Common Stock offered hereby will be eligible
for public sale without restriction, except for shares purchased by
affiliates of the Company. The 2,180,000 shares of Common Stock that will be
owned by the Company's current stockholders following this offering are
"restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act of 1933, as amended (the "Securities Act"). Subject
to the volume limitations of Rule 144, all of such shares will be eligible
for sale under Rule 144 beginning 90 days after the date of this Prospectus.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated), who has owned
restricted shares of Common Stock beneficially for at least two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of one percent (1%) of the total number of outstanding
shares of the same class or, if the Common Stock is quoted on Nasdaq, the
average weekly trading volume during the four calendar weeks preceding the
sale. A person who has not been an affiliate of the Company for at least the
three months immediately preceding the sale and who has beneficially owned
shares of Common Stock for at least three years is entitled to sell such
shares under Rule 144(k) without regard to any of the limitations described
above. Beginning on the date of this Prospectus, 207,257 shares of Common
Stock would be eligible for sale under Rule 144(k). The holders of all shares
of Common Stock outstanding as of the date of this Prospectus have agreed not
to sell or otherwise dispose of any of their shares of Common Stock for a
period of 180 days from the date of this Prospectus without the prior written
consent of the Representative of the Underwriters. The possibility that
substantial amounts
8
<PAGE>
of Common Stock may be sold in the public market may adversely affect the
prevailing market price for the Common Stock and could impair the Company's
ability to raise capital through the sale of its equity securities. See
"Shares Eligible for Future Sale."
Dividends. To date, the Company has not paid any dividends on its Common
Stock, and the Company will not pay any dividends for a period of at least 12
months following this offering. In subsequent periods, if the Company has
funds legally available for the payment of dividends, the Board of Directors
intends to consider the payment of dividends. The payment of dividends is
within the discretion of the Board of Directors and will depend upon the
Company's earnings, its capital requirements and financial condition, and
other relevant factors. Under the terms of its bank loan agreements, the
Company may not pay dividends without the consent of the bank. See
"Description of Capital Stock--Dividends."
Anti-Takeover Provisions; Possible Issuance of Preferred Stock. The
Company's Articles of Organization and By-laws contain provisions that
provide for a classified Board of Directors, undesignated Preferred Stock and
a so-called "fair price provision." These provisions may make it more
difficult for a third party to acquire, or may discourage acquisition bids
for, the Company. These provisions also may limit the price that certain
investors may be willing to pay in the future for shares of the Company's
Common Stock or make the payment of a premium to stockholders in connection
with an attempted change in control less likely. In addition, shares of the
Company's Preferred Stock may be issued in the future without further
stockholder approval and upon such terms and conditions, and having such
rights, privileges and preferences, as the Board of Directors may determine.
Such rights, privileges and preferences could include preferential voting
rights, dividend rights in excess of those provided to holders of Common
Stock, and conversion rights, redemption privileges or liquidation
preferences not available to holders of Common Stock. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire, or discouraging a third party from acquiring, a majority of the
outstanding voting stock of the Company. The Company has no present plans to
issue any shares of its Preferred Stock. The "fair price provision" requires
that, in the event of a merger or consolidation, each Company stockholder, if
the stockholder so elects, must be paid the same price in the same form of
consideration as the highest price paid by the acquiror for any shares of the
same class of the Company's stock. This provision could deter or discourage
acquisition bids for the Company that are structured in two steps, such as a
cash tender offer followed by a merger for stock or other securities.
Finally, the Company's Articles of Organization contain an election by the
Company not to be governed by the Massachusetts Control Share Acquisition
statute. In general, this statute provides that any stockholder of a
corporation subject to the statute who acquires beneficial ownership of 20%
or more of the outstanding voting stock of a corporation may not vote such
stock unless the holders of a majority of the capital stock (excluding the
interested shares) of a corporation so authorize. If the Company's
stockholders were to amend the Articles of Organization to permit the Company
to be governed by this statute, the price that certain investors may be
willing to pay for the Company's Common Stock may be limited. See
"Description of Capital Stock."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock offered by it hereunder at an assumed initial public offering
price of $8.00 per share are estimated to be approximately $6.9 million,
after deducting underwriting discounts and commissions and estimated offering
expenses of approximately $470,000 payable by the Company. The Company
intends to use the net proceeds to expand its manufacturing and warehouse
capacity through the purchase of the land (approximately 2.3 acres) and
building adjacent to the Company's facility in Malden, Massachusetts, and
related capital improvements (aggregating approximately $1.75 million), to
purchase additional manufacturing equipment (approximately $750,000), to
repay short-term bank debt in full, and for general corporate purposes,
including possible acquisitions of complementary businesses and product
lines. The Company is not currently engaged in any negotiations, and has no
arrangements or understandings with respect to any possible acquisitions.
Pending the uses described above, the proceeds of the offering will be
invested in short and medium term investment grade, interest-bearing
securities. See "Business--Property."
9
<PAGE>
The Company's short-term bank debt consists of borrowings under a line of
credit established pursuant to a Loan and Security Agreement dated September
23, 1993, as amended. Borrowings under the credit line are limited to an
amount equal to 80% of eligible receivables plus the lesser of $3.5 million
or 50% of eligible inventory, with a maximum borrowing limit of $7.0 million.
Borrowings under the line are due on the earlier to occur of June 30, 1996 or
upon an event of default by the Company. Borrowings under the line currently
bear interest at the bank lender's prime rate. At April 15, 1996, the balance
outstanding was approximately $2.6 million. The funds drawn on the credit
line are used to meet working capital requirements.
DILUTION
The difference between the public offering price per share of Common Stock
and the pro forma net tangible book value per share of the Company after this
offering constitutes the dilution per share to investors in this offering.
Net tangible book value per share is determined by dividing the net tangible
book value of the Company (total tangible assets less total liabilities) by
the number of outstanding shares of Common Stock.
At March 31, 1996, the net tangible book value of the Company was
approximately $6,535,000 or $2.79 per share of Common Stock. After giving
effect to the sale by the Company of 1,000,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $8.00 per share (less
underwriting discounts and commissions and estimated expenses of this
offering), the pro forma net tangible book value of the Company at March 31,
1996, would have been approximately $13,462,000, or $4.03 per share,
representing an immediate increase in net tangible book value of $1.24 per
share to existing stockholders and an immediate dilution of $3.97 per share
to investors in the offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share $8.00
Net tangible book value at March 31, 1996 2.79
Increase per share attributable to new investors 1.24
Pro forma net tangible book value per share after offering 4.03
-------
Dilution of pro forma net tangible book value per share to new investors $3.97
=======
</TABLE>
The following table sets forth on a pro forma basis at March 31, 1996, a
comparison of the number of shares of Common Stock purchased from the
Company, the total consideration paid, and the average price per share paid
by existing stockholders and to be paid by new investors purchasing Common
Stock in this offering at an assumed initial public offering price of $8.00:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
-------------------------- -------------------------- Price per
Number Percent Amount Percent Share
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1) 2,340,000 70.1% $ 7,358,446 47.9% $3.14
New investors (1) 1,000,000 29.9 8,000,000 52.1 $8.00
--------- --------- --------- ---------
Total 3,340,000 100.0% $15,358,446 100.0%
========= ========= ========= =========
</TABLE>
(1) Sales by the Selling Stockholders in this offering will reduce the number
of shares of Common Stock held by the existing stockholders to 2,180,000
or 65.3% of the total number of shares of Common Stock to be outstanding
after this offering (2,006,000 shares and 60.1% if the Underwriters'
over-allotment option is exercised in full), and will increase the number
of shares of Common Stock held by new investors to 1,160,000 or 34.7% of
the total number of shares of Common Stock to be outstanding (1,334,000
shares and 39.9% if the Underwriters' over-allotment option is exercised
in full). See "Principal and Selling Stockholders."
The information set forth in the preceding table assumes no exercise of a
total of up to 350,000 options to purchase Common Stock that have been
granted or may be granted in the future under the Company's Equity Incentive
10
<PAGE>
Plan and Independent Directors' Stock Option Plan effective as of the date of
this Prospectus. See "Management--Stock Option Plans."
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996, and as adjusted to give effect to the sale of the 1,000,000 shares
of Common Stock offered by the Company at an assumed initial public offering
price of $8.00 per share and the application of the estimated net proceeds
therefrom as described in "Use of Proceeds." The information set forth below
should be read in conjunction with the financial statements and notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1996
--------------------------
Actual As Adjusted
---------- ------------
(In thousands, except
share data)
<S> <C> <C>
Demand note payable to a bank $ 1,822 $ --
Long-term debt and capital lease obligations 4,036 4,036
Stockholders' equity (1):
Preferred stock, $10.00 par value; 1,000,000 shares authorized;
no shares outstanding -- --
Common stock, no par value; 10,000,000 shares authorized;
2,340,000 shares outstanding; 3,340,000 shares outstanding, as
adjusted 7,358 14,285
Retained earnings 934 934
Note receivable from stockholder/officer (350) (350)
-------- ----------
Total stockholders' equity 7,942 14,869
-------- ----------
Total capitalization $13,800 $18,905
======== ==========
</TABLE>
(1) Does not include (i) 330,000 shares of Common Stock reserved for issuance
upon exercise of options granted under the Company's Equity Incentive
Plan effective as of the date of this Prospectus and (ii) 20,000 shares
of Common Stock reserved for issuance upon exercise of options available
for grant under the Company's Independent Directors' Stock Option Plan.
See "Management--Compensation of Directors" and "--Stock Option Plans."
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial data set forth below for each of the
years ended December 31, 1993, 1994 and 1995 and at December 31, 1994 and
1995 are derived from the consolidated financial statements of the Company
audited by Arthur Andersen LLP, independent public accountants, which are
included elsewhere in this Prospectus. The selected consolidated financial
data set forth below for the years ended December 31, 1991 and 1992 and at
December 31, 1991, 1992 and 1993 are derived from the consolidated financial
statements of the Company audited by Arthur Andersen LLP, independent public
accountants, which are not included in this Prospectus. The selected
consolidated financial data set forth below for the quarters ended March 31,
1995 and 1996 and at March 31, 1996 are derived from the unaudited
consolidated financial statements of the Company which, in the opinion of the
Company's management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of financial
position and the results of operations. The operating results for the quarter
ended March 31, 1996, are not necessarily indicative of the operating results
for the entire year. The selected consolidated financial data set forth below
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto and with Management's Discussion and Analysis of Financial
Condition and Results of Operations appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Three months ended
Year ended December 31, March 31
----------------------------------------------------------- -----------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ----------
(In thousands, except per share and footnote data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales $21,495 $22,670 $25,514 $28,518 $34,998 $7,807 $9,651
Cost of goods sold 16,245 15,449 17,021 18,608 23,409 5,178 6,409
Foreign currency (gains) losses (351) 126 48 47 (391) 108 (105)
------- ------- ------- ------- ------- ------- ---------
Gross profit 5,601 7,095 8,445 9,863 11,980 2,521 3,347
Selling, general and administrative
expenses 7,465 6,661 7,201 7,613 8,682 2,074 2,366
------- ------- ------- ------- ------- ------- ---------
Income (loss) from operations (1,864) 434 1,244 2,250 3,298 447 981
Interest expense, net 937 764 391 536 713 178 114
------- ------- ------- ------- ------- ------- ---------
Income (loss) before minority
interest and provision (benefit)
for income taxes (2,801) (330) 853 1,714 2,585 269 867
Minority interest in income of
consolidated joint venture (10) (10) (66) -- -- -- --
------- ------- ------- ------- ------- ------- ---------
Income (loss) before provision
(benefit) for income taxes (2,811) (340) 787 1,714 2,585 269 867
Provision (benefit) for income
taxes (90) (314) 168 596 1,000 104 359
------- ------- ------- ------- ------- ------- ---------
Net income (loss) (1) $(2,721) $ (26) $ 619 $ 1,118 $ 1,585 $ 165 $ 508
======= ======= ======= ======= ======= ======= =========
Net income (loss) per
common share (1) $ (2.58) $ (.02) $ .30 $ .48 $ .68 $ .07 $ .22
======= ======= ======= ======= ======= ======= =========
Weighted average number of
common shares outstanding (1) 1,056 1,146 2,048 2,340 2,340 2,340 2,340
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
December 31, March 31
------------------------------------------------------- ----------
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheets Data:
Working capital (deficit) $(1,374) $(1,742) $ 2,902 $ 2,116 $ 3,850 $ 4,310
Total assets 16,389 13,311 13,023 21,308 22,452 22,630
Long-term liabilities 1,025 691 490 4,583 5,313 5,214
Total liabilities 16,193 13,142 8,312 15,479 15,018 14,688
Retained earnings (deficit) (2,870) (2,896) (2,278) (1,160) 426 934
Stockholders' equity 196 169 4,711 5,829 7,434 7,942
</TABLE>
(1) After giving pro forma effect to (i) the sale as of December 31, 1995 and
March 31, 1996, of 422,125 and 227,792 shares, respectively, of Common
Stock offered hereby by the Company at an assumed public offering price
of $8.00 per share and the use of the net proceeds therefrom to repay
indebtedness totaling $3,377,000 and $1,822,340 as of December 31, 1995
and March 31, 1996, respectively, and (ii) the resulting reduction in
interest expense, net of income tax, the pro forma net income and net
income per common share for the year ended December 31, 1995 and the
three months ended March 31, 1996, would have been approximately
$1,785,866 and $.65 and $532,035 and $.21, respectively. See "Use of
Proceeds."
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company is a manufacturer and master distributor of thermoplastic
valves, pipe, piping systems and components for use in a wide variety of
applications across numerous industries. Manufactured products include valve
actuators and controls, specialized valve assemblies and double containment
piping systems. Distributed products consist principally of thermoplastic
valves, pipe and fittings, which are purchased from two major foreign
suppliers. The Company also realizes revenue for the rental and sale to
contractors and end user customers of specialized welding equipment that is
used in connection with the installation of the Company's piping systems. The
Company expects sales of both distributed and manufactured products to
continue to grow, with the sales of manufactured products continuing to
experience higher rates of growth for the foreseeable future.
The Company distributes its products through an extensive network of
domestic and foreign distributors, which are supported by ten
Company-employed sales representatives and two sales managers. The
distributors and the Company's sales force, assisted by the Company's
in-house engineering department, jointly pursue opportunities for larger
piping systems sales. Piping systems, which may incorporate both manufactured
and distributed products, are designed to meet the process flow
specifications of a particular end user.
The Company is party to a long-term master distributor and supply
agreement for thermoplastic valves with AYK, Nichimen Corporation and
Nichimen America, which are principal stockholders of the Company. Under this
agreement, AYK manufactures the thermoplastic valves that are supplied to the
Company, but the Company purchases the valves through Nichimen Corporation
and Nichimen America at AYK's list price. Nichimen Corporation and Nichimen
America are responsible for all export (from Japan) and import (into the
United States) arrangements, including all documentation, transportation
arrangements and custom clearance in Japan. Nichimen America sells the valves
to the Company on open account, eliminating the costly letter of credit
arrangements previously required in connection with direct purchases from
AYK, which the Company had financed with bank borrowings. As a result of the
new arrangement, the Company has been able to reduce substantially its bank
borrowings. For their services, Nichimen Corporation and Nichimen America are
paid by AYK a combined mark-up of approximately 8% of the invoiced price of
the Company's purchases from AYK.
Substantially all of the Company's purchases of valves are transacted in
yen, and therefore, the Company is exposed to fluctuations in foreign
currency exchange rates. In addition, the decline in the value of the United
States dollar against the yen over the past several years has resulted in
increased inventory costs in terms of United States dollars. The Company may
enter into foreign currency contracts at any time up to the payment date to
hedge its foreign currency commitments for shipments from its Japanese
supplier. However, the Company is at risk with respect to its unhedged
commitments unless and until it purchases foreign currency contracts. The
Company also purchases pipe and fittings from an Austrian supplier. Since
August 1995, purchases from the Company's Austrian supplier have been
denominated in United States dollars.
Results of Operations
The following table sets forth, for the periods indicated, the Company's
net sales as well as certain income and expense items expressed as a
percentage of net sales:
<TABLE>
<CAPTION>
Three months
ended
Year ended December 31, March 31
----------------------- ----------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 66.7 65.3 66.9 66.3 66.4
Foreign currency (gains) losses 0.2 0.1 (1.1) 1.4 (1.1)
Gross profit 33.1 34.6 34.2 32.3 34.7
Selling, general and administrative
expenses 28.2 26.7 24.8 26.6 24.5
Income from operations 4.9 7.9 9.4 5.7 10.2
Interest expense, net 1.5 1.9 2.0 2.3 1.2
Income before provision for income taxes 3.1 6.0 7.4 3.4 9.0
Provision for income taxes 0.7 2.1 2.9 1.3 3.7
Net income 2.4 3.9 4.5 2.1 5.3
</TABLE>
14
<PAGE>
Years Ended December 31, 1993, 1994 and 1995
Sales
For the year ended December 31, 1995, the Company's net sales increased by
22.7% to $35.0 million from $28.5 million in 1994, while sales in 1994
increased by 11.8% over 1993 sales of $25.5 million. Sales of the Company's
manufactured products increased by 29.5% to $12.4 million in 1995 from $9.6
million in 1994, and by 26.4% in 1994 from $7.6 million in 1993. During the
same period, sales of distributed products increased by 15.7% to $21.2
million in 1995 from $18.3 million in 1994, and by 3.2% in 1994 from $17.8
million in 1993. The increase in sales was due primarily to continued strong
demand for the Company's products in the chemical processing industry coupled
with significant increases in sales to new markets, particularly in the
semiconductor manufacturing industry. The Company estimates that sales to end
users in these two industries each accounted for approximately 24% of sales
in 1995. The sales increase was also partially attributable to price
increases effected in early 1994 and 1995 and a second price increase
effected in July 1995, which was intended to offset, in part, the impact of
the adverse trend in the exchange rate of the United States dollar versus the
yen and versus the Austrian schilling over the prior few years. Sales in 1995
were adversely affected by a decline in export sales.
Sales to the Company's principal domestic distributor accounted for
approximately 17.7%, 18.5% and 25.7% of total sales for the three years ended
December 31, 1995. Export sales, primarily to Latin America, represented
approximately 14%, 12% and 5% of total sales during the same period.
Gross Profit
The Company's gross profit as a percentage of sales ("gross margin")
increased from 33.1% in 1993 to 34.6% in 1994 and declined to 34.2% in 1995.
The primary factor contributing to the lower gross margin in 1995 was an
increase in inventory costs attributable to the decline in the value of the
United States dollar versus the yen. On average, the value of the dollar
declined 7.9% and 8.1% against the yen in 1995 and 1994, respectively,
causing corresponding increases in the cost of Japanese purchases. Purchases
from the Company's Japanese supplier were approximately $9.9 million in 1995
and $10.3 million in 1994. A secondary factor contributing to the lower gross
margin in 1995 was increased sales of distributed single wall pipe, which is
a lower margin product for the Company.
Changes in the Company's product mix contributed to the increase in gross
margin in 1994 and partially offset the decline in gross margin in 1995, as
sales of the Company's higher margin manufactured products accounted for a
greater portion of total sales. These products include the PolyFlo line,
which was acquired in mid 1994 and contributed a full year of sales in 1995.
In line with expectations, the PolyFlo product line had a nominally negative
impact on income from operations for the year ended December 31, 1995. Other
factors which partially offset the decline in gross margin in 1995 were price
increases effected in January and July.
The Company recognized net foreign currency gains of $391,000 in 1995. The
foreign currency gains occurred following a change in the Company's
purchasing arrangements with Nichimen America. Prior to April 1995, the
Company purchased valves through Nichimen America in United States dollars at
a price based on the 180 day forward exchange rate for the yen on the date of
shipment. In April 1995, the Company began purchasing valves through Nichimen
America in yen, which gave the Company flexibility in the timing of its
purchases of currency contracts. Under this new arrangement, the Company
benefited from gains in the United States dollar against the yen between the
dates that valves were shipped and the dates that the Company fixed the
amount of the obligation through the purchase of foreign currency contracts.
See "Risk Factors--Dependence on Foreign Sources of Supply; Exchange Rate
Risk," "--Foreign Currency Transactions Risk" and Note 9 of Notes to
Consolidated Financial Statements.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased in dollar amount
over the three years ended December 31, 1995, but declined to 24.8% of sales
in 1995 from 28.2% in 1993 and 26.7% in 1994. The dollar increase was due
mainly to higher selling, marketing and product handling costs associated
with significantly improved sales volume. Increased spending on systems
support also contributed to the increase in 1994 over 1993. During the three
year period,
15
<PAGE>
the Company's distribution network supported significant sales growth with
only moderate headcount and expense increases for the Company-employed sales
force and related administrative support. The Company expects moderate
increases in engineering related expenses to support development of new
manufactured products, assistance of end users in the design and engineering
of piping systems, and development of improved manufacturing processes.
Control of administrative spending also contributed to the improvement in
selling, general and administrative expenses as a percentage of sales. The
Company resumed contributions to its profit-sharing plan in 1994, which added
$100,000 of expense in each of 1994 and 1995. Moderate personnel increases
are anticipated in line with expected sales growth.
Interest Expense
Interest expense, net is comprised principally of interest expense on the
Company's revolving bank line of credit and Industrial Revenue Bonds.
Borrowings under the line of credit are limited to defined availability and
currently bear interest at the bank lender's prime rate. The Industrial
Revenue Bonds bear interest at rates ranging from 4.2% to 5.1% and such rates
are adjustable in 1999, 2004 and 2009. Interest expense, net increased
$177,000 in 1995 over 1994 due to an increase of approximately $1 million in
average borrowings and an increase in the average interest rate under the
bank line of credit. Interest expense, net for 1994 increased $145,000 over
1993 due mainly to the increase in debt resulting from the $4.2 million
Industrial Revenue Bond financing in March 1994.
Quarters Ended March 31, 1995 and 1996
Sales
Net sales of $9.7 million for the first quarter of 1996 were $1.8 million
or 23.6% greater than sales for the comparable quarter of 1995. The increase
was due to higher sales volume of distributed and manufactured products as
well as increased welding equipment revenues. Sales of distributed products
increased approximately $800,000 (14.8%) while sales of manufactured products
increased approximately $344,000 (13.9%). First quarter 1996 sales also
benefited from a July 1995 price increase. Revenues from welding equipment,
which is sold or rented for use in installing the Company's piping systems,
totaled approximately $871,000 in the first quarter of 1996 as compared to
$144,000 for the prior year first quarter. The increase was largely due to a
significant sale to a single customer.
Gross Profit
First quarter 1996 gross profit increased compared to the first quarter of
1995 principally due to improved sales. Foreign currency exchange gains also
contributed to the increased gross profit.
Cost of sales as a percentage of sales for the first quarter 1996 was 0.1
percentage point higher than the prior year first quarter as price increases
partially offset a slightly less favorable product mix. The PolyFlo product
line continued to have a nominally negative impact on income from operations
in the first quarter of 1996.
The strengthening of the dollar versus the yen resulted in a net foreign
currency exchange gain of approximately $105,000 during the first quarter of
1996. This compares to a $108,000 foreign currency exchange loss in the first
quarter of 1995 resulting mainly from unfavorable movement of the Austrian
schilling. Since August 1995, purchases from the Company's Austrian supplier
have been denominated in United States dollars.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the first quarter of 1996
increased $292,000 or 14.1% on a 23.6% increase in sales, as compared to the
first quarter of 1995. As a result, first quarter selling, general and
administrative expenses as a percentage of sales decreased from 26.6% in 1995
to 24.5% in 1996.
Interest Expense
Interest expense, net decreased $64,000 as compared to the prior year
first quarter due to lower average borrowing and a negotiated reduction in
the interest rate under the Company's bank line of credit.
16
<PAGE>
Quarterly Results of Operations
The following table presents certain unaudited consolidated quarterly
results of operation for each of the five quarters during the period ended
March 31, 1996. In the opinion of the Company's management, this information
has been prepared on the same basis as the Consolidated Financial Statements
appearing elsewhere in this Prospectus and includes all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
the financial results set forth therein. Results of operations for any prior
quarter are not necessarily indicative of results for any future quarter.
<TABLE>
<CAPTION>
Quarter ended
-----------------------------------------------------------------------------------
1995 1996
---------------------------------------------------------------- ---------------
March 31 June 30 September 30 December 31 March 31
------------- ------------- ------------- ------------- ---------------
$ % $ % $ % $ % $ %
----- ---- ----- ---- ----- ---- ----- ---- ----- ------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $7,807 100.0 $8,451 100.0 $9,093 100.0 $9,646 100.0 $9,651 100.0
Cost of goods sold 5,178 66.3 5,713 67.6 6,235 68.6 6,283 65.1 6,409 66.4
Foreign currency (gains) losses 108 1.4 (22) (0.3) (416) (4.6) (61) (0.6) (105) (1.1)
--- -- --- -- --- -- --- -- --- ----
Gross profit 2,521 32.3 2,760 32.7 3,274 36.0 3,424 35.5 3,347 34.7
Selling, general and
administrative expenses 2,074 26.6 2,054 24.3 2,164 23.8 2,389 24.8 2,366 24.5
--- -- --- -- --- -- --- -- --- ----
Income from operations 447 5.7 706 8.4 1,110 12.2 1,035 10.7 981 10.2
Interest expense, net 178 2.3 201 2.4 178 1.9 156 1.6 114 1.2
--- -- --- -- --- -- --- -- --- ----
Income before provision for
income taxes 269 3.4 505 6.0 932 10.3 879 9.1 867 9.0
Provision for income taxes 104 1.3 195 2.3 361 4.0 340 3.5 359 3.7
--- -- --- -- --- -- --- -- --- ----
Net income $ 165 2.1 $ 310 3.7 $ 571 6.3 $ 539 5.6 $ 508 5.3
=== == === == === == === == === ====
</TABLE>
The Company's operations may be subject to significant quarterly
fluctuations due to a number of factors including: the state of end user
markets; pricing and competitive conditions; the timing of large orders,
especially those for larger piping systems; variations in the Company's
product mix; possible adjustments in the Company's LIFO reserve; general
economic conditions; and fluctuations in foreign currency exchange rates. The
Company's sales are generally not considered seasonal in nature; however, the
impact of weather on construction projects in certain geographical areas
could potentially impact the timing of large piping system sales.
The Company experienced increased sales during each quarter, from $7.8
million in the first quarter of 1995 to $9.7 million in the first quarter of
1996. The growth was due primarily to volume increases. Sales for the third
and fourth quarter of 1995 and first quarter of 1996 also benefited from an
additional price increase implemented on July 1, 1995.
In the fourth quarter of 1995, cost of goods sold declined to 65.1% of net
sales due to price increases implemented by the Company on July 1, sales of
higher margin manufactured products, and the strengthening of the dollar
versus the yen in the second half of the year. Fourth quarter 1995 margin
benefited from increased shipments of fabricated pipe in connection with a
large construction project. The Company recognized a foreign currency loss of
approximately $108,000 in the first quarter of 1995 due to fluctuations in
the exchange rate of the dollar versus the Austrian schilling. Since August
1995, purchases from the Company's Austrian supplier have been denominated in
United States dollars. The foreign currency gain of approximately $416,000 in
the third quarter of 1995 was due to the strengthening of the dollar versus
the yen during the time the Company was unhedged on certain significant
purchases from its Japanese supplier. Favorable movement in the dollar versus
the yen also resulted in smaller currency gains in the following two
quarters.
Quarterly operating expenses increased from $2.1 million in the first
quarter of 1995 to $2.4 million in the first quarter of 1996. Operating
expenses, as a percentage of sales, declined from 26.6% in the first quarter
to 24.5% in the 1996 first quarter due to controlled spending and the
leverage of the Company's distribution network.
17
<PAGE>
Liquidity and Capital Resources
The Company has financed its operations through the sale of equity
securities, totaling $7.4 million since inception, including the sale of $3.9
million in Common Stock in March 1993, bank borrowings, an Industrial Revenue
Bond financing in March 1994, and cash flow from operations. In addition, the
Company has benefited from more favorable payment terms extended by Nichimen
America in connection with the Company's purchases of valves from AYK.
Beginning in September 1993, Nichimen America permitted the Company to make
purchases on open account up to $1 million, which was increased to $4 million
in September 1994 and $6 million in September 1995. In addition, since
September 1995, payments to Nichimen America for ocean shipments, which
comprise most of the Company's deliveries of valves, are due 180 days from
ship date.
Working capital at March 31, 1996 was $4.3 million as compared to working
capital of $3.9 million at December 31, 1995 and $2.1 million at December 31,
1994. At March 31, 1996, cash was $62,000 while borrowing availability under
the line of credit was $5.0 million.
Profitable operating activities generated an aggregate of $7.6 million of
cash during the three year period ended December 31, 1995. Cash flow from
operating activities increased $1.1 million in 1994 as compared to 1993 and
$681,000 in 1995 as compared to 1994. Operating activities generated an
additional $1.7 million during the quarter ended March 31, 1996.
Inventory purchases from the Company's principal suppliers require long
lead times and substantially all of the Company's purchases from these
companies are shipped by sea to minimize freight costs. As a result, the
Company must maintain significant inventory levels to meet anticipated
customer demand on a timely basis. The Company has been able to mitigate the
additional cash requirement for increased inventory that accompanied
significant sales growth over the past 13 quarters through new payment terms
negotiated with its principal valve supplier, as discussed above, and
improved management of inventories. Approximately $3.3 million of accounts
payable at March 31, 1996 were for purchases of valves from the Company's
principal Japanese supplier through Nichimen America. Inventory turnover
improved from 2.4 turns in 1993 to 2.6 turns in 1994 and 3.0 turns in 1995.
Improving cash flow from operations was also due in part to revised
customer payment terms implemented in 1995 and improved receivables
collection results. The new payment terms provide for a 2% discount for
customer payments made within 15 days of sale, with the net balance due
within 30 days of sale. The Company has historically enjoyed favorable
collection experience and at March 31, 1996 less than 4.4% of the Company's
receivables were more than 60 days past due. The Company's receivables
balance can vary from month to month as a result of the timing of large
shipments. The Company's receivables balance at December 31, 1994 was
affected by a major shipment of valves at the end of 1994. The Company
generally requires that foreign sales be paid by letter of credit until such
time as a satisfactory credit experience is established with the customer.
The Company used $8.6 million in investing activities over the three year
period ended December 31, 1995. Investing activities included capital
expenditures aggregating $6 million consisting largely of the building
facility purchased in 1994 and investment in manufacturing equipment.
Investing activities also included the acquisition of the PolyFlo product
line for $1.6 million in 1994 and increases to other assets consisting mainly
of expenditures for software, patents and other intangibles.
Financing activities during the three year period ended December 31, 1995
provided $1.2 million of net cash. The Company raised $8.1 million of cash
from the issuance of $3.9 million of Common Stock in 1993 and a $4.2 million
Industrial Revenue Bond financing in 1994. During this three year period, the
Company used $6.6 million to reduce demand notes payable to a bank under the
revolving credit agreement. An additional $277,000 of cash was used to make
scheduled principal repayments under the Industrial Revenue Bond and capital
lease obligations. Financing activities used $1.6 million of cash in the
first quarter of 1996 principally due to a reduction of outstanding amounts
under the bank line of credit.
The Company has entered into an agreement to purchase the land and
building adjoining its existing facility, which will provide needed expansion
of manufacturing and warehouse capacity. The real estate purchase and related
capital improvements at an estimated cost of $1.75 million and the purchase
of additional manufacturing equipment at an aggregate approximate cost of
$750,000 will be funded with a portion of the net proceeds of this
18
<PAGE>
offering. The Company does not anticipate any disruption in operations as a
result of the expansion. The Company is also continually seeking
opportunities to expand its product base through the acquisition of
complementary product lines and businesses, which may require additional
capital investment. Other than the real estate purchase and related capital
improvements, the Company has no commitments for any significant capital
expenditures in 1996. The Company has no commitments at this time with
respect to any acquisitions.
The Company's bank line of credit which is secured by all assets of the
Company provides for borrowing of up to $7 million. Availability under the
line is determined by a formula based on the amount and quality of the
Company's receivables and inventory. The Company is charged an annual fee
based on the unused availability under the line. The Company's borrowing
availability at March 31, 1996, was $5.2 million. The average outstanding
balance during 1995 was $4.4 million, with a weighted average interest rate
of 9.73%. Effective February 1996, the interest rate on the line was reduced
to the bank's prime rate. All amounts outstanding under the line will be
repaid with a portion of the net proceeds of this offering. The line of
credit expires on June 30, 1996. The Company intends to negotiate a new
working capital line of credit.
In 1994, the Company financed the purchase of its Malden, Massachusetts
facility, which it had previously leased, with an issue of 20 year tax-exempt
Industrial Revenue Bonds through the Massachusetts Industrial Finance Agency.
Obligations under the bonds are secured by a letter of credit issued by a
bank. The letter of credit is secured by substantially all assets of the
Company. The total borrowing was $4.15 million, consisting of six separate
bond series, each with differing interest rates and maturities. Interest
rates range from 4.2% to 5.1%. The weighted average interest rate during 1995
was approximately 5%. The interest rates are subject to adjustment in 1999,
2004 and 2009. The required principal payment for 1996 is $130,000 and the
maximum principal payment in any one year is $320,000 payable in 2014.
Interest is paid quarterly and principal is paid on a semi-annual basis. In
order to maintain the tax-exempt status of the bonds, the amount of the bonds
plus the Company's aggregate capital expenditures in Malden, Massachusetts
for the period March 16, 1991 through March 16, 1997 (other than those
capital expenditures financed by the bonds) may not exceed $10,000,000. If
the bonds lose their tax-exempt status, the Company must redeem the bonds.
Accordingly, the Company would be required to refinance the remaining
obligations outstanding and a new facility would not provide the favorable
tax-exempt bond interest rates. Through March 31, 1996 the Company's capital
expenditures aggregated approximately $6,796,000. As a result of the
anticipated real estate acquisition, related improvements and equipment
purchases, additional capital expenditures will approximate $2.5 million. The
Company intends to maintain its capital expenditures below the $10,000,000
ceiling through March 16, 1997.
The Company leases certain office space, vehicles and equipment under
operating leases. The obligations under such leases aggregate $200,000 over
the next three years. The amount outstanding under capital leases was
approximately $406,000 at December 31, 1995.
The Company believes that the net proceeds from this offering, together
with cash generated by operations and lease financing, will be sufficient to
fund the Company's operations and debt service for at least one year
following the completion of the offering. However, in the event that the
Company exceeds its sales plan or identifies significant acquisition
opportunities, it may require additional sources of debt or equity financing,
which have not yet been secured.
Other
At December 31, 1995, the Company had available for income tax purposes
net operating loss carryforwards of $554,000. The carryforwards expire
through 2007 and, as a result of an ownership change in 1993, the benefit of
the carryforwards is limited to $429,000 in any year.
The Company has exclusive distributor agreements with its two principal
foreign suppliers which call for minimum levels of purchases over defined
periods of time. The Company substantially exceeded the minimum purchase
requirement in 1995 under the contract with Agru, its Austrian supplier, and
expects to continue to meet the requirements of that contract. On a
cumulative basis, the Company is behind the annual purchase guidelines under
the contract with AYK, its Japanese supplier, but the Company does not
anticipate that unusually large purchases will be required in order to meet
the purchase requirements under the agreement. There are no other known
contingent liabilities or commitments which may impact the Company's future
liquidity.
19
<PAGE>
BUSINESS
Introduction
Asahi/America, Inc. markets and sells thermoplastic valves, piping systems
and components manufactured by the Company and others for use in a variety of
environmentally sensitive and industrial applications, including
semiconductor manufacturing, chemical processing, waste treatment processing
and pharmaceutical manufacturing. The Company, an ISO 9001 quality control
certified manufacturer, makes electric and pneumatic valve actuators and
controls, proprietary double containment thermoplastic piping systems, and
custom fabricated fittings and specialty products. The Company offers a broad
selection of industrial thermoplastic valves in, and, based on a market study
prepared by the unaffiliated firm of Sommers Marketing, Inc. ("Sommers"),
believes it has one of the largest shares of, the United States industrial
thermoplastic valve market. The Sommers study was commissioned by the Company
and Sommers was paid $7,500 for its services.
The Company is the exclusive master distributor in the United States,
Latin America and the Caribbean for AYK, a large Japanese manufacturer of
thermoplastic valves. The Company is also the exclusive master distributor in
the United States for Agru, an Austrian manufacturer of thermoplastic pipe
and fittings. The Company distributes its products under the brand names
Asahi, DuoPro and PolyFlo, among others.
As a master distributor for AYK since 1974 and for Agru since 1985, the
Company has developed a network of more than 400 United States and
approximately 20 foreign distributors. Initially developed as the
distribution channel for the products purchased by the Company from AYK and
Agru, this extensive distribution network also supports increasing sales of
the higher margin products manufactured by the Company. From 1993 to 1995,
sales of valve actuators and controls, custom valves and piping systems
manufactured by the Company have increased by 64% from approximately $7.6
million to approximately $12.4 million and from 30% to 36% of total sales.
End users of the Company's products often specify thermoplastic valves and
piping systems instead of metal because thermoplastics resist corrosion and
do not contaminate transported fluids or gases. The Company's products
combine the benefits associated with all plastic valve and piping products,
such as light weight, ease of installation, long life and low installed cost,
with the additional benefits of thermoplastic products, such as resistance to
damage from temperature and corrosion. The Company seeks to identify
industrial applications where the end users' requirements justify the use of
industrial thermoplastics. Examples include double containment
corrosion-resistant piping systems that meet EPA regulations, piping systems
for compressed air and gases, and high purity pipe and valves to assure
contaminant free processing of liquids. The Company sells its products to
distributors which sell to end users. Representative end users include
Motorola, WMX Technologies, Micron Technology, the Corps of Engineers,
Browning Ferris Industries, IBM, Schering-Plough, Estee Lauder, Rhone Poulenc
and DuPont, none of which individually represents a material portion of the
Company's sales.
The Company was originally founded to be the exclusive master distributor
in the United States, Latin America and the Caribbean for AYK. Since the
early 1980s, the Company has pursued a program to broaden its product lines
and customer base in order to sell higher margin products that are
complementary to the valves supplied by AYK. Highlights in the implementation
of this program include the following:
The addition of thermoplastic pipe. In 1985, the Company became the
exclusive master distributor in the United States of thermoplastic pipe
manufactured by Agru, which enabled the Company to supply all of the
components for complete thermoplastic piping systems. With the development
of its own engineering and manufacturing capabilities, the Company is able
to provide custom designed piping systems.
The development of new products. The Company has developed a number of new
higher margin products, including the introduction in 1980 of the
Company's first valve actuator and in 1986 of the Company's patented
double containment piping system, called DuoPro. The Company now
manufactures six types of actuators in a variety of sizes, which permit a
valve to be operated from a remote site or controlled according to a
programmed set of instructions. The Company's DuoPro piping systems are
designed to detect and contain an accidental discharge of hazardous or
toxic material, meet EPA requirements for underground transport of
hazardous liquids, and address customer concerns for worker safety and
protection of the environment.
20
<PAGE>
The acquisition of complementary product lines. The Company has sought to
expand its product offerings by acquiring product lines that are not
available from its principal suppliers. In 1994, the Company acquired its
PolyFlo product line of double containment pipe and fittings that are
extruded or molded in a proprietary, patented one-step process. The
PolyFlo product line is available in internal diameters up to 6 inches and
complements the Company's DuoPro line, which is available in larger
diameters. The Company added a line of pressure relief valves in October
1995, when it acquired an exclusive perpetual license of the technology to
manufacture the valves in thermoplastic. In February 1996, the Company
added a line of industrial filters, which alleviate environmental concerns
relating to cartridge disposal. The filters are sold by a number of the
Company's existing distributors.
The expansion of its distribution network. The expansion of the Company's
product lines enabled the Company to increase sales to existing
distributors and to add distributors serving new markets. In addition, the
Company has initiated a number of programs to support its distributors,
including the addition of an in-house engineering department to provide
technical support, a variety of advertising and promotional programs, and
product education seminars. See "Business--Distribution and Marketing."
The Company was recently awarded ISO 9001 status by the International
Organization for Standardization based in Geneva, Switzerland, which is the
principal international body for establishing guidelines for and certifying
adherence to a stringent set of quality control and assurance standards. The
award is significant in validating the Company's manufacturing standards and
the Company believes that this standard, which is recognized in at least 80
countries, is of increasing importance in the selection of vendors of
industrial products. The Company's two principal suppliers, AYK and Agru, are
also ISO 9001 certified.
Industry Overview
According to industry sources, the United States market in 1995 for
industrial valves was approximately $2.75 billion. Thermoplastic valves
represent approximately 4% of the industrial valve market. Industry sources
estimate that, in 1995, the market for metal valves grew by less than 1%,
while the market for thermoplastic industrial valves grew by approximately 5%
to 7%.
Traditionally, industrial companies have used metal pipe and valves for
the transportation of fluids and gases. As industrial manufacturing processes
have grown more sophisticated and environmental concerns have increased, the
disadvantages of metal valves and piping systems, including weight,
susceptibility to corrosion, and labor intensive fabrication and
installation, have become more apparent. In many applications, metal pipe and
valves will interact with the surrounding environment or the transported
liquid or gas, which may result in corrosion of the piping system, leakage,
or contamination of the transported liquid or gas.
Advances in thermoplastic technology have made possible the manufacture of
thermoplastic valves and piping systems with the strength and temperature
resistance required for many industrial applications. Thermoplastic piping
systems can be used in applications involving pressures up to 230 pounds per
square inch and temperatures up to 300((degree))F and can provide superior
performance to metal systems in many applications. These applications include:
Where the environment is corrosive or corrosive materials are being
transported. The chemical processing industry was an early adopter of
thermoplastic valves and pipe because chemical companies frequently
transport corrosive fluids and gases which can degrade metal systems. In
certain of these applications, thermoplastic systems require less frequent
replacement than metal systems, which can result in a lower lifetime cost
for a thermoplastic system.
Where the potential for damage to the environment is a
consideration. Federal, state and local environmental authorities are
mandating that companies which handle toxic fluids take steps to prevent
leakage into the environment. All owners of underground storage tanks are
required to be in compliance with the EPA's requirements regarding leak
containment and detection by 1998. Owners may comply with these
requirements by using piping systems which are either made of corrosion
resistant material, such as plastic, or are treated
21
<PAGE>
with corrosion resistant coating. Furthermore, the EPA is mandating the
use of double containment systems, such as a "pipe-within-a-pipe"
architecture, to reduce the likelihood of leakage and to detect leaks.
Where the purity of the transported liquid or gas is a concern. In the
semiconductor industry, manufacturers require thermoplastic piping systems
for the transport of ultrapure water for washing computer chips. Likewise,
pharmaceutical and biotechnology manufacturers employ high purity plastic
piping systems to reduce the risk of contamination.
Where installation costs are a significant factor in the total system
cost. Because of the lighter weight of the components and the relatively
easier installation, thermoplastic piping systems often can be installed
more quickly than metal systems and without the use of heavy equipment
that is often required to install comparable metal piping systems.
Eliminating the need for heavy equipment and extensive labor can result in
a lower installed cost for plastic systems than for comparable metal
systems.
Management believes that thermoplastic products will continue to increase
their share of the total market for industrial valves and piping systems. In
management's view, a number of factors drive this increase, including
continued improvement in thermoplastics technology, enforcement of
environmental regulations, more widespread recognition of the benefits of
thermoplastic, and increased familiarity with the skills required to install
thermoplastic piping systems.
Company Strategy
Through its alliances with AYK and Agru, the Company believes it has
established itself as a market leader in thermoplastic industrial valves and
piping systems, as evidenced by the breadth of its product line, industry
recognition of its brand names, and the scope of its distribution network.
The Company's strategy is to:
Provide a thermoplastic alternative to metal valves and piping
systems. The Company considers its primary competitors to be the suppliers
of traditional metal products. The Company believes that a substantial
opportunity exists for suppliers of thermoplastic products to gain a
larger share of the total industrial market for valves and pipe.
Develop and market products manufactured by the Company. As a master
distributor for AYK and Agru, the Company believes it offers a broader
line of thermoplastic valves and pipe than any of its competitors. The
Company seeks to leverage its valve and pipe sales by offering
complementary higher margin products manufactured by the Company. These
products include valve actuators, controls, double containment piping
systems and custom fittings manufactured to customer specifications. The
Company realizes a higher margin on the products it manufactures than on
the products it distributes. From 1993 to 1995, annual sales of products
manufactured by the Company increased by approximately $4.8 million, or
63.7%, versus an increase of 26.0% in all other sales.
Identify and serve markets in diverse industries. The Company seeks to
continue to expand the market for its products and diversify its end user
base by identifying new applications where the benefits of thermoplastics
are superior to metal piping systems. In the early 1980s, virtually all of
the Company's products were sold through distributors to end users in the
chemical processing industry. The Company estimates that in 1995 sales to
the semiconductor and chemical processing industries each accounted for
24% of total sales, while sales to federal and local governmental agencies
(in connection with environmental clean up of government-owned sites and
water treatment facilities, respectively) accounted for 18%, sales to the
waste management industry accounted for 6%, and sales to pharmaceutical
and mining companies and to aquariums accounted for 5% each. The Company's
estimates of sales to the respective industries are based on the Company's
survey of its distributors and on the Company's records of shipments made
directly to end users at the request of distributors. By expanding the
applications for its products, the Company seeks to increase revenues, to
reduce its vulnerability to economic downturns specific to the industries
in which its customers operate, and to benefit from diverse market
developments, including the continued growth of the semiconductor
manufacturing industry, the approaching deadline for compliance with the
EPA's underground storage tank regulations, and continued business concern
for the protection of the environment.
22
<PAGE>
Acquire complementary product lines. The thermoplastic valve and pipe
industry is fragmented, and the Company believes there are opportunities
to expand its product base through acquisitions of complementary
businesses and product lines. The Company believes that its current
network of more than 400 United States and approximately 20 foreign
distributors can serve as a marketing channel for complementary products.
In the last three years, the Company expanded its product offerings with
the acquisition of the PolyFlo product line, the acquisition of a line of
industrial filtration equipment, and a license of the technology for the
manufacture of pressure relief valves. Management intends to seek
acquisitions of complementary product lines that would benefit from
exposure to the Company's broad and established distribution network.
Products
The Company manufactures and sells thermoplastic valve actuators and
controls, custom fabricated valves, and proprietary double containment piping
systems. Products marketed and sold by the Company include thermoplastic
valves and pipe supplied by AYK and Agru, respectively. In addition, the
Company sells and rents specialized welding equipment for use in the
installation of its piping systems. With its broad product base, the Company
is able to offer its end users "one stop shopping" to meet substantially all
of their requirements for thermoplastic industrial valves, pipe and piping
systems.
The following table sets forth information concerning the contribution to
total sales from the Company's principal classes of products (excluding sale
and rental of welding equipment):
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------
1993 1994 1995
-------------- --------------- ----------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Distributed products, including valves, pipe
and fittings $17,755 69.6% $18,332 64.3% $21,212 60.6%
Manufactured products, including actuators and
controls, fabricated valves and piping systems $ 7,585 29.7% $ 9,585 33.6% $12,414 35.5%
</TABLE>
Valves. The valves supplied by the Company are injection molded from one of
four primary resins: Polyvinyl Chloride (PVC); Chlorinated Polyvinyl Chloride
(CPVC); Polypropylene (PP); and Polyvinylidene Flouride (PVDF). Product
selection is based on such criteria as chemical and temperature resistance,
pressure tolerance levels, purity, abrasion resistance and cost. Valves made
from PVC are the lowest in cost. They typically have good chemical resistance,
can withstand temperatures up to 140((degree))F, and are used extensively in
applications for chlorinated water, salt water, and relatively mild chemicals.
CPVC and PP valves can withstand more severe chemicals and tolerate temperatures
up to 200((degree))F and 180((degree))F, respectively. PVDF can be used in
applications with temperatures up to 250((degree))F. It is ideally suited for
halogens, strong acids, mild caustics and is the most commonly specified
material for the transport of distilled water and high purity chemicals in the
semiconductor industry.
The Company markets seven basic valve designs: ball, butterfly, swing
check, gate, globe, ball check and diaphragm. Most valves are available in
all four of the primary resins with a variety of elastomeric sealing
materials as options. With the size range of each valve style and the various
seat, seal and stem materials available, there are a tremendous number of
variations for each valve style. For example, the Company offers over 2,000
butterfly valve configurations. Each valve style addresses specific fluid
flow requirements. Criteria for selecting one model over another include time
to open, the presence of suspended solids in the transported fluid, the
potential for bacterial growth, and line size.
Manual valves range in price from $4.50 for a sampling valve to over
$23,000 for a 24 inch PVDF butterfly valve. A typical valve will sell for $50
to $100. The Company processes approximately 2,500 invoices per month,
indicating a broad-based demand.
Actuators and controls. To meet the growing demands of industry for plant
automation, reduced labor costs and increased productivity, the Company has
developed electric and pneumatic actuators and controls for remote and
23
<PAGE>
programmable operation and control of valves. The Company's actuators and
controls enable the end user to program or remotely adjust valves in response
to, or in order to achieve, specified temperature, pressure, and flow rate of
the transported substance, whether a liquid or gas. These products enable the
end user to actuate and control precisely the valves in a system in response
to process variables. Additionally, valve modifications are custom designed
and fabricated by the Company to meet customer requirements, including
special stems, locking devices, stem extensions, lugs, etc. The Company
currently manufactures six basic types of actuators and controls in a variety
of sizes that are adaptable to a broad spectrum of the valves that it
distributes for AYK. Actuation and special valve modifications can add from
$150 to $1,000 to the price of a manual valve, with a positive effect on the
Company's gross margins.
Pipe and piping systems. As the exclusive United States distributor for
Agru, the Company supplies a line of thermoplastic pipe and fittings. In
addition, the Company fabricates two types of double containment piping
systems, which are sold under the brand names DuoPro and PolyFlo. These
double containment "pipe within a pipe" systems are designed to contain
accidental ruptures and leaks and may be equipped with detection systems that
signal and locate a leak in the system. These systems are designed to meet
environmental regulatory requirements for the transport of certain toxic and
corrosive materials.
The Company supplies thermoplastic piping systems made of PP, PVDF, HDPE
(high density Polyethylene) and Halar. PP systems are offered in sizes from
3/8 inch to 24 inches, with PVDF and Halar offered in sizes from 1/2 inch
through 12 inches. HDPE pipe and fittings are specifically used for
compressed air lines, and are sold under the Company's trade name "Air-Pro".
Typically, piping is sold as a system with the end user purchasing all the
pipe, fittings and valves from one source. Piping system orders average
$10,000 to $15,000, with several each year exceeding $100,000.
In 1986, the Company developed and patented its DuoPro double containment
piping system to meet requirements set forth by the EPA's Underground Storage
Tank Regulations. Pipe and fittings primarily supplied by Agru are fabricated
into systems as large as 18 inch diameter inner pipe by 24 inch diameter
containment pipe. An average DuoPro system sells for $35,000 to $50,000.
With the acquisition of PolyFlo product line in 1994, the Company's double
containment pipe line was expanded to include inner pipe sizes from 1 inch to
6 inches. The PolyFlo line is extruded using a patented manufacturing
process.
Other sources of sales. The Company also rents and sells specialized
welding equipment for use in the installation of its piping systems. In 1995,
revenues from the rental and sale of such equipment totaled approximately
$1.4 million.
During the past three years, the Company has invested in additional
manufacturing equipment and new product development, with the goal of
increasing its production capability and building a broader base of
manufactured products. Products that will enhance the sale of existing pipe
and valve items are targeted for development. Recent new products have
included two electric actuators, a mini pneumatic actuator, printed circuit
boards for more precise control of actuators, a fail safe battery pack, and a
patented stem support assembly for landfill applications. While the Company
will continue to develop new products and accessories and introduce new
product lines, the Company has not incurred a material amount of expense for
research and development during the past two fiscal years.
Distribution and Marketing
Domestic. Substantially all of the Company's sales in the United States
are made through an established network of more than 400 independent
distributors, many of whom have been distributors of the Company's products
for 20 years. Approximately 125 are stocking distributors, which carry an
inventory of the Company's products. One distributor accounted for 18%, 19%
and 26% of the Company's sales in 1993, 1994 and 1995, respectively, and 40
distributors accounted for 79%, 81% and 82%, respectively, of sales during
the same period. The Company's principal distributor estimates that it sold
the Company's products to not fewer than 5,000 end users in 1995.
The Company supports its distributors with ten Company-employed sales
representatives and two sales managers. The Company sales force works jointly
with the Company's distributors and independently to develop
24
<PAGE>
sales leads, which are referred to the distributors. Additional marketing
support is provided by the Company's staff of seven engineers, who are
available to provide technical information on the Company's products, suggest
solutions to customers' requirements and assist in the design and
installation of full piping systems. The Company also promotes its products
through trade shows, customer product seminars, and the use of promotional
materials, including full color product brochures, advertising in trade
journals, and other public relations activities.
The Company has developed an extensive educational program for its
distributors to train them in the use and benefits of its products. This
program includes a series of in-house and regional multi-day seminars, as
well as one-on-one presentations by the Company's sales representatives to
individual distributors and their sales forces. The Company provides its
distributors with extensive written materials relating to its products and
their applications.
The Company does not have contracts with its distributors. None of the
Company's distributors carries the Company's products exclusively. The
Company believes that the use of distributors, which generally specialize in
pipe and valve products and focus on specific industry or geographic markets
and, accordingly, have specific knowledge of and contacts in particular
markets, enhances the scope of the Company's marketing efforts and permits
the Company to penetrate a broader market without the significant costs
associated with a large direct sales force that would otherwise be required.
Foreign. The Company has an established network of approximately 20
independent foreign distributors. For fiscal years 1993, 1994 and 1995, the
Company had export sales of approximately $3.5 million, $3.3 million and $1.8
million, respectively, primarily to Latin America. All of the Company's
export sales are denominated in United States dollars and most are made
against letters of credit issued or confirmed by United States banks or are
prepaid.
End Users
The Company sells substantially all of its products through distributors
to a diversified end user base. A common characteristic of end users is the
need for pipe and valves to control, transport and contain corrosive fluids,
ultrapure liquids, environmentally harmful fluids or flammable gases. No
single end user is responsible for a material portion of the Company's sales.
Principal industries, representative applications and representative end
users for the Company's products include:
<TABLE>
<CAPTION>
Representative
Industry Applications Representative End Users
<S> <C> <C>
Chemical processing Transfer of corrosive and Dow Chemical, DuPont, Rohm & Haas,
environmentally hazardous P.P.G., Clorox, B.F. Goodrich, and
chemicals Kerr McGee
Semiconductor Transfer of deionized water, IBM, Motorola, Texas Instruments,
manufacturing ultra pure chemicals and chemical Micron Technology, Advanced Micro
waste Devices and Intel
Landfill Collection of methane gas and WMX Technologies, and Browning
leachate Ferris Industries
Aquariums Automated circulation of salt New Orleans, Monterey Bay, Tampa,
water Albuquerque and Omaha
The Corps of Engineers Soil remediation and transfer of Aberdeen Proving Grounds, Tinker
hazardous waste Air Force Base, Hill Air Force
Base, Tooele Army Base, Fort
Belvoir Defense Laboratory, Nevada
Test Site and China Lake
25
<PAGE>
Representative
Industry Applications Representative End Users
Mining Transfer of sulfuric acid and Kennecott Utah Copper, Corporacion
cyanide Nacional de Cobre de Chile
(Codelco), Sociedad Contractual
Minera El Abra, and Cypress Mines
Pharmaceutical Transfer of chemical waste Schering-Plough, Eli Lilly, Abbott
Labs, Merck and Bristol-Myers
Squibb
</TABLE>
Suppliers
The Company has exclusive distribution agreements in defined territories
for substantially all of the valves, pipe and fittings sold by the Company.
The Company has been the exclusive master distributor of a broad line of
valves and related accessories for AYK in the United States, Latin America
and the Caribbean since 1977, and is currently in the seventh year of a ten
year agreement with AYK, Nichimen Corporation and Nichimen America which runs
through December 31, 1999. While the agreement is in force, the Company may
not purchase competing products from any other manufacturer. Under the
agreement, the Company must use its best efforts to market AYK's valves in
its territory and has agreed to purchase at least $140 million of products
from AYK over the term of the agreement. There are no minimum annual purchase
requirements, but there are annual guidelines attached to the contract.
Through December 31, 1995, the end of the sixth year of the current term, the
Company had purchased approximately $51.4 million of product from AYK, with
the purchases in the years ended December 31, 1993, 1994 and 1995 totaling
approximately $9.2 million, $10.3 million and $10.0 million respectively.
Total purchases through December 31, 1995, were approximately $16.3 million
behind the annual guidelines on a cumulative basis. The Company's prior
contracts with AYK included similar cumulative and annual purchase
provisions, and AYK has always agreed to extend or enter into a new contract
with the Company regardless of its compliance with such terms. However, no
assurances can be given that AYK will agree to renew its contract with the
Company at the end of the current term. AYK is a principal stockholder of the
Company. See "Principal and Selling Stockholders."
AYK, which manufactures the valves it supplies to the Company at its plant
in Japan, warrants that its products are merchantable and free from defects
in material and workmanship, and indemnifies the Company against losses or
claims arising from the sale of the products. In the case of defective
products, AYK agrees to repair or replace the products. In addition, AYK must
maintain a minimum of $3.0 million of product liability insurance that
includes the Company as a named insured. The Company may not distribute
products produced by third parties that compete with the products it
purchases from AYK. Purchases by the Company are made under written purchase
orders. Once an order is accepted, it may not be canceled except by agreement
of the parties; AYK may not reject an order unreasonably or in bad faith.
Either party may terminate the agreement if the other party defaults and the
default continues for 30 days after notice or if the other party becomes
subject to a bankruptcy or insolvency proceeding. The parties have agreed to
negotiate in good faith during the last six months of the term of the
agreement with a view to extending the agreement.
A large percentage of the pipe and fittings sold by the Company is
supplied by Agru under a five-year distribution agreement, which was amended
and restated effective as of January 1, 1995. Under the agreement, the
Company has exclusive distribution rights in the United States for certain
products (PP, PVDF, and Halar fittings and pipe, and PVDF welding equipment)
and non-exclusive rights for other products. The Company may not purchase
products that compete with the exclusive products unless Agru is unable to
deliver products within four weeks of order. Agru is obligated to repair or
replace any defective product it supplies. The Company is obligated to make
minimum purchases from Agru each year, using 1994 total purchases of $3.1
million as a base. If purchases in any year decline by 20% or more from the
base, Agru may terminate the contract at the end of the following year unless
purchases in that year equal or exceed $3.1 million in which case the
contract continues in force. During the year ended December 31, 1995, the
Company's purchases from Agru totaled approximately $5.9 million. The
agreement is terminable in the event of serious breach which is not cured
within three months
26
<PAGE>
of notice, and in the event of the bankruptcy or insolvency of either party.
Unless either party gives notice of termination not less than 12 months prior
to the end of the terms, the contract automatically extends for five years.
While there are other sources of supply for the products which the Company
purchases from AYK and Agru, the Company is not aware of other single sources
of supply that offer the variety and quality of products they produce. In
addition, several sources of supply have existing exclusive arrangements with
other companies that would preclude dealing with the Company. The Company's
supply arrangements with AYK and Agru are also subject to all of the usual
risks of foreign trade. The loss of either AYK or Agru as a supplier or the
imposition of restrictions on foreign trade could have a material adverse
effect on the Company. The Company believes its relationships with these two
suppliers are excellent.
Manufacturing and Distribution
The Company has an engineering department of seven professionals, who
support the Company's marketing activities and provide solutions to special
end user customer requirements, such as modifications of valves and special
pipe designs. The department has designed a number of actuators and
accessories that are sold in conjunction with the Company's valves. In
addition, the department assists end user customers in the design,
engineering and installation of complete piping systems.
At its Malden, Massachusetts facility, the Company manufactures and
assembles a variety of valve actuators, valve/actuator assemblies and
accessories. The Company also operates a "clean room" for the fabrication of
ultrapure water piping systems for the semiconductor industry. In addition,
the Company fabricates double containment piping systems and assists the end
user customer (or its mechanical contractor) with on-site installation and
testing. The Company rents and sells specialized welding equipment to
customers and contractors for this purpose. A portion of the proceeds of this
offering will be used to expand the Company's manufacturing capacity. See
"Use of Proceeds."
On February 24, 1996, the Company was awarded ISO 9001 certification
following a fourteen month review process. The certification indicates that
the Company's operations meet the stringent standards for quality control and
assurance established by the International Organization for Standardization.
ISO 9001 has been adopted to date in more than 80 countries. It is
anticipated that ISO certification will increasingly become a prerequisite
for doing business with many customers and in many markets.
The Company purchases and maintains an inventory of valves, pipe and
fittings in anticipation of customer orders. The Company has warehouse
facilities at its principal offices in Malden, Massachusetts. Because lead
times for delivery from its principal suppliers are long, the Company carries
significant inventory in relation to sales in order to be able to meet
delivery requirements of its distributors and end user customers.
Approximately 125 of the Company's distributors also stock inventory,
principally valves and valve accessories.
Competition
The industrial valve, pipe and fittings market is very fragmented, with
many manufacturers and suppliers. The Company estimates that there are more
than 100 suppliers of metal valves and at least a dozen suppliers of
thermoplastic valves. There are also many suppliers of both metal and plastic
pipe and fittings. There is no single company that dominates the market for
either thermoplastic industrial valves or pipe. The Company believes that
there are two companies which have significant shares of both markets, and
one additional significant competitor in the valve market and three
additional significant competitors in the pipe market. Of its competitors,
the Company is aware of only one competitor that offers a comparable variety
of thermoplastic valve and pipe products as the Company. Many of the
Company's competitors, especially manufacturers of metal valves and pipe,
have substantially greater financial, marketing, personnel and other
resources than the Company. Based on a study of the market in 1995
commissioned by the Company, the Company believes that it has one of the
largest shares of the United States market for industrial thermoplastic
valves.
Suppliers of industrial valves, pipe and piping systems, whether metal or
plastic, compete primarily on the basis of price, performance and service to
the customer or end user. In applications requiring high performance of the
valves and pipe in terms of temperature, pressure and durability, the Company
believes that its products
27
<PAGE>
compete favorably in terms of performance, price and lifetime cost with metal
products available for the same applications. In certain applications,
alternative plastic products may be available at lower prices than the
Company's products. The Company believes, however, that many end users are
willing to pay higher prices for the Company's products in exchange for the
higher quality and service that the Company offers. The Company believes that
its competitive advantages include the breadth of its valve, actuator and
pipe product lines and its ability to supply complete piping systems,
including custom fabricated components. The Company believes that it has an
advantage over other manufacturers of valve actuation and piping products
because of its ability to offer "one stop shopping" to the end user.
Joint Venture
In February 1990, the Company established a joint venture with Watts
Industries, Inc. ("Watts"), a United States manufacturer of metal valves, for
the development of an electric actuator to supply the partners' respective
needs. The two companies co-funded the tooling of the product, and the
Company manufactures the product for sale by the Company through its regular
distribution network and for sale to Watts at a discounted price. The
employees of both companies executed confidentiality agreements to protect
the confidential and proprietary information possessed by each company and
utilized in the development of the actuator. All technology, information,
material and data developed pursuant to the joint venture as well as any
trademarks, patents, copyrights or other property interest that may result
from the joint venture, is the joint and several property of the Company and
Watts. Development of the product was completed in August 1992, and all
manufacturing of the product line is done in the Company's plant.
Patents and Trademarks
The Company exclusively owns six United States patents relating to its
DuoPro double containment pipe assemblies and seven United States patents
relating to actuators and accessories used in conjunction with plastic
valves, as well as four corresponding Canadian patent applications. All of
the United States patents have issued since December 1985, and extend at
least until 2002. In addition, the Company owns 26 United States trademark
registrations and several pending trademark registrations. The trademark
registrations, which are renewable by their terms in the ordinary course of
business, cover various products offered for sale by the Company. The Company
also owns copyright registration for its catalogs and design guides, as well
as for the printed circuit boards it has developed for use in its valve
actuators.
All of the Company's intellectual property is owned or is held under a
perpetual license, is free and clear of restrictions of any nature and is not
subject to any license, sublicense, agreement or commitment with any third
party, other than a security interest to the Company's bank lender. The
Company's intellectual property rights are important to its business, and the
Company intends to enforce its intellectual property rights. However, the
Company believes that product quality and service are more important to the
success of the Company. Except as discussed below, the Company has not been
engaged in any litigation during the last five years in regard to its
intellectual property rights.
On April 30, 1991, the Company voluntarily filed a Request for
Reexamination by the United States Patent and Trademark Office of a patent
the Company owns (the "ZIU '544 Patent"). The reexamination resulted in the
rejection of certain claims of the ZIU '544 Patent. It is believed that a
competitor which employs a former employee of the Company is currently
manufacturing and selling a piping system that incorporates the subject
matter defined by at least one of the claims in the ZIU '544 Patent rejected
by the examiner. Upon appeal, the Board of Patent Appeals and Interferences
(the "Board") upheld the decision of the examiner. The Company appealed to
the United States Court of Appeals for the Federal Circuit, which decided on
February 24, 1995, to reverse the decision of the Board and to remand the
case to the United States Patent and Trademark Office for further proceedings
in accordance with its decision. The case is pending before the United States
Patent and Trademark Office.
28
<PAGE>
Employees
As of March 31, 1996, the Company had a work force of 111 people, of which
19 are executive and administrative personnel, 26 are engaged in sales and
marketing, nine are engineering staff, and 57 are engaged in manufacturing,
fabricating and warehouse operations. None of the Company's employees is
covered by a collective bargaining agreement. The Company believes its labor
relations to be good.
Properties
The Company's executive offices and manufacturing/warehouse facility is
located in a modern facility in Malden, Massachusetts, of approximately
60,000 square feet, which the Company purchased in March 1994 with the
proceeds of an Industrial Revenue Bond issue. The Company considers its
facility to be in good operating condition and suitable for the purposes for
which it is used.
The Company requires additional manufacturing and warehouse capacity to
accommodate future growth and expansion, and on February 2, 1996, the Company
entered into an agreement to purchase the land (approximately 2.3 acres) and
building (approximately 18,000 square feet) adjacent to its Malden facility
for $1.25 million. The transaction is scheduled to close on or about May 23,
1996, and a portion of the net proceeds from this offering will be used for
the purchase. If the purchase is completed, the Company plans to move its
executive offices to the new building and to expand its manufacturing and
warehouse operations into the remainder of its current facility. Total cost
for these capital improvements and additional manufacturing equipment is
currently estimated to be approximately $1.25 million. See "Use of Proceeds."
29
<PAGE>
MANAGEMENT
Directors and Executive Officers
The current directors and executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
Director
Name Age Position since
- -------------------------------- -- ---------------------------------- --------
<S> <C> <C> <C>
Leslie B. Lewis (1) 55 President, Chief Executive Officer 1977
and Director
Tadashi Kitamura (2) 60 Director 1993
Kazuyuki Sato (2) 49 Director 1996
Kazumitsu Yamaguchi (2) (3) (4) 58 Director 1996
Nannette S. Lewis (1) 46 Director 1989
Kozo Terada 50 Vice President, Treasurer and
Chief Financial Officer
Timothy L. Robinson 46 Executive Vice President and Chief
Operating Officer
</TABLE>
The persons named below have been elected, and have consented to serve as
directors of the Company effective as of the date of this Prospectus:
Jeffrey C. Bloomberg (3) (4) 48 Director elect
Samuel J. Gerson (3) (4) 54 Director elect
(1) Leslie B. Lewis and Nannette S. Lewis are husband and wife.
(2) Messrs. Kitamura, Sato and Yamaguchi were elected to the Board of
Directors as the designees of AYK, Nichimen Corporation and Nichimen
America, respectively, pursuant to the terms of a Stockholders Agreement
among the Company and its stockholders. The agreement terminates upon the
closing of this offering, but Messrs. Kitamura, Sato and Yamaguchi will
continue in office. See "Certain Transactions" and "Principal and Selling
Stockholders."
(3) Member of the Audit Committee effective as of the date of this
Prospectus.
(4) Member of the Compensation Committee effective as of the date of this
Prospectus.
Leslie B. Lewis has served as President and Chief Executive Officer since
November 1989. Prior thereto, for more than 19 years, he served in various
executive management positions with the Company.
Tadashi Kitamura has served as a Director of AYK since June 1992 and as
the General Manager of the Sales Department of AYK since February 1992. Prior
thereto, for more than 30 years, he was employed by Asahi Chemical Industry,
the largest shareholder of AYK, in a number of managerial capacities, last as
Deputy General Manager of the Plastics Department.
Kazuyuki Sato has since October 1993 been the General Manager of the
Plastics Department (polyolefin, PVC and rubber) of Nichimen Corporation,
where he has been continuously employed since 1969.
Kazumitsu Yamaguchi has been the Executive Vice President of Nichimen
America, since July 1995 and prior thereto since 1961 was continuously
employed by Nichimen Corporation in a number of managerial capacities, last
as Senior General Manager of the Lumber Division. He has been a Director of
Nichimen Corporation since June 1992.
Nannette S. Lewis has been the President and principal of Nannette Lewis
Interiors, Inc., which is engaged in providing commercial and residential
interior design services, for more than ten years.
30
<PAGE>
Kozo Terada has served in his current positions since May 1993, and served
as a Director from May 1993 until March 1996, as the designee of Nichimen
America. Mr. Terada is seconded to the Company by Nichimen America, and prior
to assuming his positions with the Company, he held various management
positions with Nichimen Corporation for more than 24 years, last as a manager
in the Plastics Division.
Timothy L. Robinson has served as Executive Vice President and Chief
Operating Officer of the Company since October 1989. Prior thereto, for more
than eleven years, he held various management positions with the Company.
Jeffrey C. Bloomberg has agreed to become a Director of the Company
effective as of the closing of this offering. Mr. Bloomberg is the President
and principal of Bloomberg Associates, Inc., a private investment banking
firm that he founded in January 1994. For 14 years prior thereto, Mr.
Bloomberg was associated with the investment banking firm of Bear, Stearns &
Co., Inc., including as a Senior Managing Director from 1985 through November
1993, and as a General Partner of its predecessor.
Samuel J. Gerson has also agreed to become a Director of the Company
effective as of the closing of this offering. Mr. Gerson has been Chairman of
the Board and Chief Executive Officer of Filene's Basement, Inc. since
January 1984. He is a director of BayBanks, Inc.
Classes of Directors
Pursuant to the Company's Articles of Organization, as amended immediately
prior to the effectiveness of the registration statement of which this
Prospectus is a part, the Company's Board of Directors is composed of three
classes serving staggered three year terms. Messrs. Lewis and Bloomberg are
designated Class I directors with their term expiring in 1997; Mrs. Lewis and
Messrs. Yamaguchi and Gerson are designated Class II directors with their
term expiring in 1998; and Messrs. Kitamura and Sato are designated Class III
directors with their term expiring in 1999. See "Description of Capital
Stock."
Committees of the Board of Directors
The Board has appointed Compensation and Audit Committees effective as of
the date of this Prospectus. Messrs. Yamaguchi, Bloomberg and Gerson will
serve as the members of both committees. The Board has no nominating
committee. The Audit Committee will review the results of operations of the
Company with officers of the Company who are responsible for accounting
matters and, from time to time, with the Company's independent public
accountants. The Compensation Committee will review and evaluate the
compensation and benefits of all officers of the Company, review general
policy matters relating to compensation and benefits of employees of the
Company, and make recommendations concerning these matters to the Board of
Directors. The Compensation Committee will also administer the Company's
Equity Incentive Plan.
Compensation of Directors
Following the closing of this offering, Directors who are not employees of
the Company or affiliated with or related to a principal stockholder of the
Company ("outside Directors") will be paid an annual retainer of $7,500,
payable quarterly, and a fee of $500 for each Board or committee meeting
attended. In addition, the outside Directors have been granted options
effective as of the closing of this offering. See "Management--Stock Option
Plans--Independent Directors' Stock Option Plan." All Directors are
reimbursed by the Company for their out-of-pocket expenses incurred in
connection with attendance at Board and committee meetings or otherwise in
the performance of their services as a Director.
Bloomberg Associates, Inc., of which Mr. Bloomberg is the principal, has a
consulting contract with the Company pursuant to which it provides financial
advisory services to the Company in connection with this offering and other
matters. For services to the Company, Bloomberg Associates bills the Company
at hourly rates. In addition, the Company reimburses Bloomberg Associates,
Inc. for its out of pocket expenses incurred in connection with the
performance of services for the Company. Under the contract, Bloomberg
Associates, Inc. is entitled to receive a fee equal to 0.75% of the gross
proceeds of this offering, reduced by the amount of any fees for services
that have been previously paid.
31
<PAGE>
Executive Compensation
The following table sets forth certain information concerning the
compensation of the Company's Chief Executive Officer and the one other
executive officer of the Company whose annual compensation exceeded $100,000
in 1995:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
-------------------------------------
Other
Salary Bonus annual All other
Name and principal position ($) ($) compensation($) compensation($)
- -------------------------------------- ------- ------ ---------------- --------------
<S> <C> <C> <C> <C>
Leslie B. Lewis, President and Chief
Executive Officer 300,000 100,000 63,328 (1) 15,026 (2)
Timothy L. Robinson, Executive Vice
President and Chief Operating
Officer 160,000 25,000 23,837 (1) 15,026 (2)
</TABLE>
(1) Includes $40,384 for Mr. Lewis and $6,153 for Mr. Robinson for Company
buyout of accrued but unused vacation time as a result of a change in
Company policy to limit the amount of unused vacation time that employees
may carry forward from year to year. Also includes nonaccountable travel
allowance, car allowance, automobile insurance, personal travel expenses
(Mr. Lewis only) and payment of health care expenses not covered by the
Company's employee health plan.
(2) Includes $9,240 contributed by the Company to the Company's 401(k) plan
and $5,786 to the Company's Profit Sharing Plan for the account of each
individual. Does not include any amount related to a ten-year variable
premium life insurance policy on the life of Mr. Lewis of which the
Company is the owner and beneficiary. If Mr. Lewis remains in the employ
of the Company for ten years, the cash surrender value of the policy, if
any, in excess of total premiums paid (which will be reimbursed to the
Company) will be used to fund a retirement benefit for Mr. Lewis, and he
has the right thereafter, at the time he leaves the employ of the
Company, to designate the beneficiary under the policy.
During 1995, although he worked full-time for the Company, Kozo Terada,
the Company's Vice President, Treasurer and Chief Financial Officer, was an
employee of Nichimen America, one of the Company's principal stockholders.
The Company paid a total of $160,000 to Nichimen America in 1995 for
management fees, which included Mr. Terada's services. Nichimen America paid
Mr. Terada his salary and provided any employee benefits to which he was
entitled under its plans.
Stock Option Plans
Equity Incentive Plan. The Company's Equity Incentive Plan ("Equity Plan")
was adopted by the Board of Directors and stockholders of the Company on
March 11, 1996, and is effective as of the closing of this offering. A total
of 330,000 shares of Common Stock have been reserved for awards under the
Equity Plan. The Equity Plan is intended to be an incentive to the key
employees of, and persons who provide services to, the Company by enabling
them to acquire or increase their proprietary interest in the Company. The
Equity Plan is administered by the Compensation Committee of the Company's
Board of Directors ("Committee"). The Committee may make awards under the
Equity Plan in the form of stock options (both qualified and non-qualified),
stock appreciation rights, performance shares, restricted stock or stock
units. The Committee has complete authority to designate persons to receive
awards, to grant the awards, to determine the form of the award and to fix
all terms of any awards granted. Qualified stock options (which are intended
to qualify as incentive stock options under section 422 of the Internal
Revenue Code) may be granted only to employees of the Company and must have
an exercise price of not less than 100% of the fair market value of the
Company's Common Stock on the date of grant (110% for qualified options
granted to any 10% stockholder of the Company). The aggregate exercise price
of the shares as to which a qualified stock option becomes exercisable in any
year may not exceed $100,000. The term of qualified stock options may not
exceed ten years (five years in the case of options granted to any 10%
stockholder of the Company). Non-qualified stock options and other stock
awards may be granted on such terms (as to date
32
<PAGE>
of grant, vesting, number of shares, exercise price in the case of options,
purchase price, restrictions on transfer, forfeiture and other provisions) as
the Committee may determine. The Equity Plan may be suspended or discontinued
by the Board and may be amended by the Board, except that the stockholders of
the Company must approve any amendment if such approval is required to comply
with any applicable tax or regulatory requirement.
Effective as of the closing of this offering, the Company has granted ten
year non-qualified options under the Equity Plan to Timothy Robinson and Kozo
Terada for 50,000 and 25,000 shares, respectively, of Common Stock
exercisable at the initial public offering price. The options vest in three
equal annual installments beginning on the anniversary of the date of grant.
Independent Directors' Stock Option Plan. The Board of Directors adopted
an Independent Directors' Stock Option Plan which was approved by the
Company's stockholders on March 11, 1996, effective as of the closing of this
offering. An aggregate of 20,000 shares of Common Stock are reserved under
the plan. This plan authorized the issuance of an option to each director who
is neither an employee of the Company nor the holder of, or affiliated with a
holder of, five percent or more of the Company's Common Stock, to purchase up
to 10,000 shares of the Company's Common Stock at a purchase price equal to
the fair market value of the Common Stock on the date of election to the
Board of Directors. The plan and the options granted to Jeffrey C. Bloomberg
and Samuel J. Gerson are effective as of the closing of this offering.
Pursuant to the plan, each of Messrs. Bloomberg and Gerson will receive a
five-year fully vested option to purchase 10,000 shares of Common Stock at
the initial public offering price.
Employment Agreements
The Company has entered into employment agreements with Leslie B. Lewis,
Timothy L. Robinson and Kozo Terada. The employment agreement with Mr. Lewis
is for a term of three years commencing on January 1, 1996, which may be
extended at Mr. Lewis' option, for an additional period of up to three years,
two years or one year if the Company achieves or exceeds on a cumulative
basis 80%, 70% or 60%, respectively, of target net operating income ("Target
NOI") specified in the agreement for the three year period ended December 31,
1998. Mr. Lewis' agreement provides for an annual salary of $300,000
($330,000 during any extension period). Mr. Lewis is also eligible to receive
an annual bonus equal to the sum of (i) $100,000 multiplied by a fraction
(not greater than one), the numerator of which is the Company's net operating
income ("NOI") and the denominator of which is Target NOI for the year plus
(ii) an amount equal to 10% of the amount by which NOI for the year exceeds
Target NOI for the year. For purposes of the agreement, NOI is the Company's
net income before taxes, depreciation, amortization and certain other defined
expenses. To the extent that NOI exceeds Target NOI for any year, the excess
is carried forward and added to NOI in the following year. For 1996, there is
a carryforward amount of NOI of $195,550, representing the amount by which
NOI exceeded Target NOI during the three year period ended December 31, 1995.
Pursuant to the agreement, the Company is obligated to maintain life
insurance on Mr. Lewis in the amount of $5 million, and if Mr. Lewis is still
employed with the Company on December 31, 2005, to use the accumulated cash
surrender value of the policy, if any, in excess of total premiums paid
(which will be refunded to the Company) to fund a retirement benefit for Mr.
Lewis, and he has the right thereafter, at the time he leaves the employ of
the Company, to designate the beneficiary under the policy.
The Company's employment agreement with Mr. Robinson commenced as of
November 1, 1995, and terminates on December 31, 1998. Under the agreement,
Mr. Robinson is entitled to base compensation of $165,000 in 1996, with
annual increases of $5,000 thereafter. Mr. Robinson will be entitled to
receive bonuses at such times and in such amounts as the Board of Directors
may determine in its discretion.
The Company's employment agreement with Mr. Terada commences on May 1,
1996 and terminates on December 31, 1998. Under the agreement, Mr. Terada is
entitled to base compensation of $140,000 with annual increases of $5,000
thereafter. Mr. Terada will be entitled to receive bonuses at such times and
in such amounts as the Board of Directors may determine in its discretion.
Each of the agreements with Messrs. Lewis and Robinson contains provisions
regarding confidentiality of the Company's proprietary information and
nonsolicitation of customers and employees. In addition, the agreements
require each of them to transfer to the Company any inventions or other
intellectual property rights developed by them during the period of
employment.
33
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock, as of March 31, 1996, and as
adjusted for the sale of the shares of Common Stock offered hereby, by each
of the Company's directors, directors elect, named executive officers, all
executive officers and directors as a group, and each person or group known
to the Company to be the beneficial owner of more than five percent of the
Company's Common Stock. Percentage ownership is based on 2,340,000 and
3,340,000 shares of Common Stock outstanding prior to and after the offering,
respectively.
<TABLE>
<CAPTION>
Shares Owned Prior Shares to be Owned
to Offering Shares to be After Offering
---------------------------- Sold in the -----------------------------
Number Percentage Offering (8) Number Percentage
--------------- --------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Leslie B. Lewis (1) 1,193,400 (2) 51.0 81,600 1,111,800 (2) 33.3
President, Chief Executive Officer and
Director
c/o Asahi/America, Inc.
19 Green Street
Malden, MA 02148
Tadashi Kitamura, Director (3) -- -- -- -- --
Kazuyuki Sato, Director (4) -- -- -- -- --
Kazumitsu Yamaguchi, Director (5) -- -- -- -- --
Nannette S. Lewis, Director (1) 1,193,400 (6) 51.0 -- 1,111,800 (6) 33.3
Jeffrey C. Bloomberg, Director elect -- -- -- 10,000 (7) *
Samuel J. Gerson, Director elect -- -- -- 10,000 (7) *
Timothy L. Robinson, Executive Vice -- -- -- -- --
President and Chief Operating Officer
Kozo Terada, Vice President, Treasurer -- -- -- -- --
and Chief Financial Officer
Asahi Yukizai Kogyo Co., Ltd. (3) 573,300 24.5 39,200 534,100 16.0
15-9, Uchikanda 2 Chome
Chiyodaku, Tokyo
Japan
Nichimen Corporation (4) (9) 573,300 24.5 39,200 534,100 16.0
1-23, Shiba 4-Chome
Minato-Ku, Tokyo 108
Japan
Nichimen America Inc. (5) (9) 172,157 7.4 11,771 160,386 4.8
1185 Avenue of the Americas
New York, NY 10036
Wells Fargo Bank, N.A., as executor of the
estate of Alan Baker 207,257 (2) 8.9 -- 207,257 (2) 6.2
Northern California Estate Division
420 Montgomery Street
San Francisco, CA 94104
All directors, directors elect and
executive officers as a group (9 persons) 1,193,400 51.0 81,600 1,131,800 33.7
</TABLE>
* Less than one percent.
(1) Leslie B. Lewis and Nannette S. Lewis are husband and wife.
(2) The shares beneficially owned by Mr. Lewis include 207,257 shares owned
by Wells Fargo Bank, N.A., as executor of the estate of Alan Baker.
Pursuant to a voting trust, Mr. Lewis has voting control over the shares,
and he also holds a currently exercisable option and right of first
refusal to purchase the shares.
34
<PAGE>
(3) Mr. Kitamura is the designee of AYK on the Company's Board of Directors.
(4) Mr. Sato is the designee of Nichimen on the Company's Board of Directors.
(5) Mr. Yamaguchi is the designee of Nichimen America on the Company's Board
of Directors.
(6) Represents shares beneficially owned by Mrs. Lewis' spouse, Leslie B.
Lewis.
(7) Represents shares subject to options that will be granted and exercisable
upon the closing of this offering. See "Management--Stock Option
Plans--Independent Directors' Stock Option Plan."
(8) The Selling Stockholders have granted the Underwriters a 30-day option to
purchase up to 174,000 additional shares to cover over-allotments. See
"Underwriting." The following table sets forth the number of shares of
Common Stock that each Selling Stockholder is obligated to sell to the
Underwriters if the over-allotment is exercised in full. If the option is
exercised as to a lesser amount, the obligation of each Selling
Stockholder will be proportionately reduced.
(9) All Nichimen amounts and percentages include shares owned by Nichimen
America as Nichimen may be deemed to be the beneficial owner of such
shares.
<TABLE>
<CAPTION>
Shares to be owned after the
offering if the
over-allotment option is
Number of shares to be sold exercised in full
if over-allotment option ------------------------------
Name of Selling Stockholder is exercised in full Number Percentage
- -------------------------------- ----------------------------- --------------- -----------
<S> <C> <C> <C>
Leslie B. Lewis 88,740 1,023,060 (1) 30.6
Asahi Yukizai Kogyo Co., Ltd. 42,630 491,470 14.7
Nichimen Corporation (2) 42,630 491,470 14.7
Nichimen America Inc. (2) 12,801 147,585 4.4
</TABLE>
(1) Includes 207,257 shares owned by Wells Fargo Bank, N.A., as executor of
the estate of Alan Baker.
(2) All Nichimen amounts and percentages include shares owned by Nichimen
America as Nichimen may be deemed to be the beneficial owner of such
shares.
CERTAIN TRANSACTIONS
On March 31, 1993, the Company issued and sold an aggregate of 1,287,000
shares of its Common Stock to AYK (643,500 shares), Nichimen Corporation
(450,450 shares) and Nichimen America (193,050 shares) for total cash
consideration of $4 million or approximately $3.11 per share. The purchase
price was determined by negotiation between the Company and the investors. In
connection with the investment, the investors and Mr. Leslie B. Lewis entered
into a Stockholders Agreement which provided, among other things, that the
parties would vote to elect as Directors of the Company two designees named
by Mr. Lewis and a trust that was a stockholder at the time and a designee
named by each of the three investors. Pursuant to this agreement, Messrs.
Kitamura, Sato and Yamaguchi have been elected to the Company's Board of
Directors as designees of the investors. The Stockholders Agreement
terminates by its terms effective as of the closing of this offering.
In connection with the transaction described in the preceding paragraph,
AYK, Nichimen Corporation and Nichimen America granted to Leslie B. Lewis an
option to purchase up to an aggregate of 140,400 shares of Common Stock from
them (in proportion to their ownership interests) for a total of $530,712 or
approximately $3.78 per share which was exercisable only if the Company
achieved a target level of cumulative net income, as defined, for the three
year period ended December 31, 1995. The Company achieved that target, and on
March 11, 1996, Mr. Lewis exercised his option in full.
AYK has been the principal supplier of valves to the Company for more than
20 years. The Company purchased a total of approximately $9.2 million, $10.3
million and $10.0 million of valves from AYK in the years ended December 31,
1993, 1994 and 1995, respectively, and $2.6 million in the three months ended
March 31, 1996. The Company purchases products from AYK at AYK's list price.
Under its contract with the Company, AYK has the right to revise the price
list "in good faith." The Company has a long-term Distributorship Agreement
with AYK. See "Business--Suppliers."
35
<PAGE>
Since August 1992, the Company has purchased valves from AYK through
Nichimen Corporation and Nichimen America. The two companies are responsible
for all export (from Japan) and import (into the United States) arrangements,
including all documentation, transportation arrangements and custom clearance
in Japan, and Nichimen America sells the valves to the Company on open
account, eliminating the costly letter of credit arrangements previously
required in connection with direct purchases from AYK. Prior to this
arrangement with Nichimen Corporation and Nichimen America, the Company had
been required to pay for substantially all shipments from AYK with
irrevocable letters of credit, which the Company financed with bank
borrowing. As a result of the new arrangement, the Company has been able to
reduce substantially its bank borrowing. For their services, Nichimen
Corporation and Nichimen America are paid by AYK a combined mark-up of
approximately 8% of the invoiced price of the Company's purchases from AYK.
For the years ended December 31, 1993, 1994 and 1995, the total mark-up was
approximately $733,440, $824,320 and $797,680, respectively, and for the
three months ended March 31, 1996, was approximately $209,000. Nichimen
Corporation and Nichimen America are parties to the Company's Distributorship
Agreement with AYK. See "Business--Suppliers."
On March 31, 1993, in connection with the investment by AYK, Nichimen
Corporation and Nichimen America in the Company, the Company redeemed 92,764
shares of Common Stock owned by Timothy L. Robinson, the Company's Executive
Vice President and Chief Operating Officer. The consideration for the
redemption was the cancellation of a personal note in the amount of $250,000
from Mr. Robinson to the Company, which Mr. Robinson had issued to the
Company in March 1990 in full payment for the stock. The note would have been
due on February 28, 1995, and bore interest at the rate of 9% per annum,
which accrued and was payable at maturity.
Mr. Leslie B. Lewis, President and Chief Executive Officer of the Company,
is indebted to the Company in the amount of $350,000. The loan to Mr. Lewis,
which was made to him in October 1991, is evidenced by a loan agreement, as
amended, dated March 31, 1993. Under the amended loan agreement, interest
began to accrue on January 1, 1996, at prime plus one percentage point. The
principal, plus accrued interest, is payable in equal quarterly installments
over five years commencing on April 1, 1996.
DESCRIPTION OF CAPITAL STOCK
General
The Company is authorized to issue 1,000,000 shares of Preferred Stock,
$10.00 par value, and 10,000,000 shares of Common Stock, no par value. As of
the date of this Prospectus, no shares of Preferred Stock are outstanding,
and 2,340,000 shares of Common Stock are outstanding.
Preferred Stock
The Board of Directors has the authority to issue the Preferred Stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the
designation of such series, without further vote or action of the
stockholders. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock,
while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or discourage a third party from
acquiring, a majority of the outstanding Common Stock of the Company. The
Company has no present plans to issue any shares of its Preferred Stock.
Common Stock
The holders of Common Stock are entitled to one vote for each share held
of record on all matters to be voted on by stockholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voted for the election of
directors can elect all of the directors. The holders of Common Stock are
entitled to receive dividends when, as and if declared by the Board of
Directors out of funds legally available therefor. In the event of
liquidation, dissolution or winding up of the Company, the
36
<PAGE>
holders of Common Stock are entitled to share ratably in all assets remaining
available for distribution to them after payment of liabilities. Holders of
shares of Common Stock, as such, have no conversion, preemptive or other
subscription rights, and there are no redemption provisions applicable to the
Common Stock. All of the outstanding shares of Common Stock are, and the
shares of Common Stock offered hereby, when issued against the consideration
set forth in this Prospectus, will be, fully paid and nonassessable.
Massachusetts Law and Certain Provisions of the Company's Articles of
Organization and By-Laws; Anti-Takeover Effects
The Company is subject to Chapter 110F of the Massachusetts General Laws,
an anti-takeover law. Under Chapter 110F, a Massachusetts corporation with
200 or more shareholders may not engage in a "business combination" with an
"interested shareholder" for a period of three years after the date of the
transaction in which the person becomes an interested shareholder, unless (i)
prior to such date, the Board of Directors approves either the business
combination or the transaction which results in the shareholder becoming an
interested shareholder, (ii) upon consummation of the transaction which
results in the shareholder becoming an interested shareholder, the interested
shareholder owns at least 90% of the outstanding voting stock of the
corporation (excluding shares held by certain affiliates of the corporation),
or (iii) on or subsequent to such date, the business combination is approved
by both the Board of Directors and the holders of two-thirds of the
outstanding voting stock of the corporation (excluding shares held by the
interested shareholder). An "interested shareholder" is a person who,
together with affiliates and associates, owns (or at any time within the
prior three years did own) 5% or more of the outstanding voting stock of the
corporation. A "business combination" includes a merger, a stock or asset
sale, and certain other specified transactions resulting in a financial
benefit to the interested shareholder.
Massachusetts General Laws Chapter 156B, Section 50A requires that
publicly held Massachusetts corporations have a classified board of directors
consisting of three classes as nearly equal in size as possible, unless the
corporation elects not to be covered by Section 50A. The Company's By-Laws,
as amended, contain provisions which give effect to Section 50A. See
"Management--Directors and Executive Officers." The Articles of Organization,
as amended, also include a provision excluding the Company from the
applicability of Chapter 110D of the Massachusetts General Laws. Under
Chapter 110D, any shareholder of a corporation subject to this statute who
acquires 20% or more of the outstanding voting stock of a corporation subject
to the statute may not vote such stock unless shareholders holding a majority
of the outstanding voting stock (excluding the interested shares) of the
corporation so authorize. The stockholders may amend the Company's By-Laws at
any time to subject the Company to this statute prospectively.
The Company's Articles of Organization, as amended, include a provision
which requires that, in the event of any merger or consolidation of the
Company with any other corporation, each of the Company's stockholders, if
the stockholder so elects, shall receive a price for their shares of stock
that is not less than, and is paid in the same form of consideration as, the
highest price previously paid by the acquiror for any shares of the Company's
stock of the same class. The effect of this provision could be to deter or
discourage acquisition bids for the Company, especially bids that might be
structured in two steps and include a form of payment in the second step that
is equal in value to, but in a different medium than was paid in the first
step, such as a cash tender offer followed by a merger for stock or other
securities.
The Company's By-Laws provide that the directors and officers of the
Company shall be indemnified by the Company to the fullest extent authorized
by Massachusetts law, as it now exists or may in the future be amended,
against all expenses and liabilities reasonably incurred in connection with
service for or on behalf of the Company. In addition, the Company's Articles
of Organization provide that the directors of the Company will not be
personally liable for monetary damages to the Company for breaches of their
fiduciary duty as directors, unless they violated their duty of loyalty to
the Company or its shareholders, acted in bad faith, knowingly or
intentionally violated the law, authorized illegal dividends or redemptions
or derived an improper personal benefit from their action as directors.
37
<PAGE>
Dividends
To date, the Company has not paid any dividends on its Common Stock, and
the Company will not pay any dividends for a period of at least 12 months
following this offering. In subsequent periods, if the Company has funds
legally available for the payment of dividends, the Board of Directors
intends to consider the payment of dividends. The payment of dividends is
within the discretion of the Board of Directors and will depend upon the
Company's earnings, its capital requirements and financial condition, and
other relevant factors. Under the terms of its bank loan agreements, the
Company may not pay dividends without the consent of the bank.
Transfer Agent
The transfer agent for the Company's Common Stock is Boston EquiServe
Limited Partnership, Canton, Massachusetts.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have 3,340,000
shares of Common Stock outstanding. Of these shares, the 1,160,000 shares
sold in this offering will be freely transferable without restriction or
further registration under the Securities Act, except for any shares
purchased by an "affiliate" of the Company (in general, a person who has a
control relationship with the Company) which will be subject to the
limitations of Rule 144 adopted under the Securities Act. The remaining
2,180,000 shares of Common Stock outstanding are deemed to be "restricted
securities," as that term is defined under Rule 144 promulgated under the
Securities Act, in that such shares were issued and sold by the Company in
private transactions not involving a public offering. These shares will be
eligible for sale under Rule 144 beginning 90 days after the date of this
Prospectus.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated), who has owned
restricted shares of Common Stock beneficially for at least two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class or, if the Common Stock is quoted on Nasdaq, the average weekly
trading volume during the four calendar weeks preceding the sale. A person
who has not been an affiliate of the Company for at least the three months
immediately preceding the sale and who has beneficially owned shares of
Common Stock for at least three years is entitled to sell such shares under
Rule 144(k) without regard to any of the limitations described above. Except
for restrictions imposed by the agreement described in the next paragraph,
beginning on the date of this Prospectus, 207,257 shares of Common Stock
owned by Wells Fargo, N.A., as executor of the estate of Alan Baker, after
this offering would be eligible for sale under Rule 144(k).
The holders of all of the shares of the Company's Common Stock have agreed
not to sell or otherwise dispose of their shares of Common Stock, except for
the shares to be sold in this offering, for a period of 180 days from the
date of this Prospectus without the prior written consent of the
Representative of the Underwriters.
Prior to this offering, there has been no market for the Common Stock and
no prediction can be made as to the effect, if any, that market sales of
shares of Common Stock or the availability of such shares for sale will have
on the market prices prevailing from time to time. Nevertheless, the
possibility that substantial amounts of Common Stock may be sold in the
public market may adversely affect prevailing market prices for the Common
Stock and could impair the Company's ability to raise capital through the
sale of its equity securities.
38
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions set forth in the
Underwriting Agreement (the "Underwriting Agreement"), the Company has agreed
to sell to each of the Underwriters named below (the "Underwriters"), and
each of the Underwriters has severally agreed to purchase the respective
number of shares of Common Stock set forth opposite its name below:
Number of
Underwriter Shares
- ----------------------------- ---------
Fechtor, Detwiler & Co., Inc.
Daiwa Securities America Inc.
-------
Total 1,160,000
=======
In the Underwriting Agreement, the Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all the shares of
Common Stock offered hereby if any such shares are purchased. In the event of
a default by an Underwriter, the Underwriting Agreement provides that, in
certain circumstances, such commitments of the non-defaulting Underwriter may
be increased or the Underwriting Agreement may be terminated.
The Underwriters, for whom Fechtor, Detwiler & Co., Inc. is acting as the
representative (the "Representative"), have advised the Company that they
propose initially to offer the shares of Common Stock offered hereby to the
public at the public offering price per share set forth on the cover page of
this Prospectus. The Underwriters may allow a concession of not more than $
per share to selected dealers; and the Underwriters may allow, and such
dealers may reallow, a discount not in excess of $ per share on sales to
certain other dealers. After the initial public offering, the concession to
selected dealers and the reallowance to other dealers may be changed by the
Underwriters. The shares of Common Stock are offered subject to receipt and
acceptance by the Underwriters and to certain other conditions, including the
right to reject orders in whole or in part.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act and the
Securities Exchange Act of 1934, as amended, or to contribute to payments the
Underwriters may be required to make in respect thereof.
The Selling Stockholders have granted to the Underwriters an option to
purchase up to 174,000 additional shares of Common Stock, solely to cover
over-allotments, if any, exercisable within 30 days after the date of this
Prospectus, at the initial public offering price per share of Common Stock
offered hereby, less underwriting discounts and commissions.
The holders of all of the shares of the Company's Common Stock have agreed
not to sell or otherwise dispose of their shares of Common Stock, except for
the shares to be sold in this offering, during the 180-day period following
the date of this Prospectus. The Company has agreed not to offer, sell, grant
any options to purchase or otherwise dispose of any shares of Common Stock
during the 180-day period following the date of this Prospectus, without
prior written consent of the Representative.
The Company has granted the Representatives a right of first refusal to
manage a second underwritten public offering, if any, of the Common Stock,
which right will expire three years from the effective date of this offering.
Prior to this offering, there has been no market for the Common Stock of
the Company. Accordingly, the initial public offering price has been
determined by negotiations between the Company and the Underwriters. Among
the
39
<PAGE>
factors considered in determining the initial public offering price are the
Company's results of operations, the Company's current financial condition,
its future prospects, the state of the markets for its products and services,
the experience of its management, the economics of the industry in general,
the general condition of the equity securities market and the demand for
similar securities of companies considered comparable to the Company.
In addition, Bloomberg Associates, Inc. is entitled to receive a fee equal
to 0.75% of the gross proceeds of this offering in connection with financial
advisory services rendered to the Company.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a
copy of each such agreement which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. See "Additional
Information."
LEGAL MATTERS
The validity of the Common Stock offered by the Company and the Selling
Stockholders will be passed upon for the Company by Gadsby & Hannah, Boston,
Massachusetts, and certain other legal matters will be passed upon for the
Company by Morse, Barnes-Brown & Pendleton, P.C., Waltham, Massachusetts.
Certain legal matters will be passed upon for the Underwriters by Choate,
Hall & Stewart, Boston, Massachusetts.
EXPERTS
The audited consolidated financial statements and schedule of the Company
included or incorporated by reference in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and
are included herein in reliance upon the authority of said firm as experts in
giving said reports.
The Statement of Income of Poly Kinetics, Inc. included in this Prospectus
has been audited by Warburton, Simonyan & Co., independent public
accountants, as indicated in their report with respect thereto, and is
included herein in reliance upon the authority of said firm as experts in
giving said report.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
by this Prospectus. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules
thereto, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and its Common Stock, reference is made to the Registration
Statement, including the exhibits and schedules filed therewith, which may be
inspected without charge at the Commission's Public Reference Room, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at Northwestern
Atrium Center, Suite 1400, 500 West Madison Street, Chicago, Illinois
60661-2511, and Northeast Regional Office, Seven World Trade Center, 13th
floor, New York, New York 10048. Copies of the Registration Statement may be
obtained from the Commission from its Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549 upon payment of prescribed fees.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete and, where the contract or other
document has been filed as an exhibit to the Registration Statement, each
such statement is qualified in all respects by reference to the exhibit filed
with the Commission.
The Company will furnish to its stockholders annual reports containing
audited financial statements accompanied by an opinion thereon of an
independent public accountant, and such other periodic reports as the Company
may determine to be appropriate or as may be required by law.
40
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-------
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996 F-3
Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 and
for the three months ended March 31, 1995 and 1996 F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1993, 1994 and
1995 and for the three months ended March 31, 1996 F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 and
for the three months ended March 31, 1995 and 1996 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
POLY KINETICS, INC.
<TABLE>
<CAPTION>
Page
-------
<S> <C>
Report of Independent Public Accountants F-17
Statement of Income for the Six Months Ended June 30, 1994 F-18
Notes to Statement of Income F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Asahi/America, Inc.:
We have audited the accompanying consolidated balance sheets of
Asahi/America, Inc. (a Massachusetts corporation) and subsidiary as of
December 31, 1994 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years
in the period ended December 31, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Asahi/America, Inc. and subsidiary as of December 31, 1994 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
We have also audited, in accordance with generally accepted auditing
standards, the consolidated balance sheets as of December 31, 1991, 1992 and
1993 and the related consolidated statements of operations, stockholders'
equity and cash flows for the two years ended December 31, 1992, (none of
which are presented herein) and have expressed an unqualified opinion on
those financial statements. In our opinion, the information set forth in the
selected consolidated financial data for each of the five years in the period
ended December 31, 1995, appearing in this Prospectus, is fairly stated, in
all material respects, in relation to the financial statements from which it
has been derived.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 19, 1996
(except with respect to
the matters discussed
in Notes 1 and 15,
as to which the date
is May 13, 1996)
F-2
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
------------------------------
1994 1995 1996
------------- ------------- ---------------
ASSETS (Unaudited)
<S> <C> <C> <C>
Current Assets:
Cash $ 184,522 $ 224,189 $ 61,613
Accounts receivable, less reserves of $311,000 at
December 31, 1994, $245,000 at December 31, 1995
and $225,000 at March 31, 1996 4,886,155 4,446,034 4,580,560
Inventories 7,636,423 8,206,697 8,255,135
Prepaid expenses and other current assets 305,653 678,074 887,240
----------- ----------- -------------
Total current assets 13,012,753 13,554,994 13,784,548
----------- ----------- -------------
Property and Equipment, net 6,465,976 7,203,138 7,072,125
----------- ----------- -------------
Other Assets:
Goodwill, net of accumulated amortization of $929,061
at December 31, 1994, $1,106,469 at December 31,
1995 and $1,150,822 at March 31, 1996 845,018 667,610 623,258
Other, net 984,337 1,026,334 1,150,554
----------- ----------- -------------
Total other assets 1,829,355 1,693,944 1,773,812
----------- ----------- -------------
$21,308,084 $22,452,076 $22,630,485
=========== =========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Demand note payable to a bank $ 5,274,853 $ 3,377,000 $ 1,822,340
Current portion of MIFA obligations 125,000 130,000 135,000
Current portion of capital lease obligations 23,847 104,205 103,696
Accounts payable 4,447,646 5,209,277 6,335,188
Accrued expenses 1,024,959 884,945 1,078,310
----------- ----------- -------------
Total current liabilities 10,896,305 9,705,427 9,474,534
----------- ----------- -------------
MIFA Obligations, less current portion 3,920,833 3,833,336 3,760,000
----------- ----------- -------------
Capital Lease Obligations, less current portion 8,197 301,335 275,966
----------- ----------- -------------
Deferred Income Taxes 654,000 1,178,000 1,178,000
----------- ----------- -------------
Commitments (Notes 8 and 12)
Stockholders' Equity:
Preferred stock, $10.00 par value
Authorized--1,000,000 shares
Issued and outstanding--none -- -- --
Common stock, no par value-
Authorized--10,000,000 shares
Issued and outstanding--2,340,000 shares 7,338,283 7,358,446 7,358,446
Retained earnings (deficit) (1,159,534) 425,532 933,539
----------- ----------- -------------
6,178,749 7,783,978 8,291,985
Less--Notes receivable from stockholder/officer 350,000 350,000 350,000
----------- ----------- -------------
Total stockholders' equity 5,828,749 7,433,978 7,941,985
----------- ----------- -------------
$21,308,084 $22,452,076 $22,630,485
=========== =========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months
Years Ended December 31, Ended March 31,
---------------------------------------------- -------------------------------
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net Sales $25,513,782 $28,517,662 $34,997,567 $7,806,923 $9,651,037
Cost of Goods Sold 17,068,685 18,655,361 23,018,043 5,286,293 6,303,592
----------- ----------- ----------- ----------- -------------
Gross profit 8,445,097 9,862,301 11,979,524 2,520,630 3,347,445
Selling, General and Administrative
Expenses 7,201,419 7,612,559 8,681,252 2,073,641 2,366,153
----------- ----------- ----------- ----------- -------------
Income from operations 1,243,678 2,249,742 3,298,272 446,989 981,292
Interest Income 2,150 22,288 1,140 240 9,362
Interest Expense (393,273) (558,046) (714,346) (178,671) (123,647)
----------- ----------- ----------- ----------- -------------
Income before minority interest
and provision for income taxes 852,555 1,713,984 2,585,066 268,558 867,007
Minority Interest in Income of
Consolidated Joint Venture (65,422) -- -- -- --
----------- ----------- ----------- ----------- -------------
Income before provision for income
taxes 787,133 1,713,984 2,585,066 268,558 867,007
Provision for Income Taxes 168,000 596,000 1,000,000 104,000 359,000
----------- ----------- ----------- ----------- -------------
Net income $ 619,133 $ 1,117,984 $ 1,585,066 $ 164,558 $ 508,007
=========== =========== =========== =========== =============
Net Income per Common Share $ .30 $ .48 $ .68 $ .07 $ .22
=========== =========== =========== =========== =============
Weighted Average Number of Common
Shares Outstanding 2,048,336 2,340,000 2,340,000 2,340,000 2,340,000
=========== =========== =========== =========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Notes
Common Stock Receivable
---------------------------- Retained from Total
Number No Earnings Stockholders/ Stockholders'
of Shares Par Value (Deficit) Officers Equity
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 1,145,764 $3,666,111 $(2,896,651) $(600,000) $ 169,460
Repurchase of stock (92,764) (250,000) -- 250,000 --
Issuance of stock, net of
issuance costs of $77,828 1,287,000 3,922,172 -- -- 3,922,172
Net income -- -- 619,133 -- 619,133
---------- ---------- ---------- ---------- ------------
Balance, December 31, 1993 2,340,000 7,338,283 (2,277,518) (350,000) 4,710,765
Net income -- -- 1,117,984 -- 1,117,984
---------- ---------- ---------- ---------- ------------
Balance, December 31, 1994 2,340,000 7,338,283 (1,159,534) (350,000) 5,828,749
Compensation expense related to
stockholder's stock repurchase
rights -- 20,163 -- -- 20,163
Net income -- -- 1,585,066 -- 1,585,066
---------- ---------- ---------- ---------- ------------
Balance, December 31, 1995 2,340,000 7,358,446 425,532 (350,000) 7,433,978
---------- ---------- ---------- ---------- ------------
Net income (unaudited) -- -- 508,007 -- 508,007
---------- ---------- ---------- ---------- ------------
Balance, March 31, 1996
(unaudited) 2,340,000 $7,358,446 $ 933,539 $(350,000) $7,941,985
========== ========== ========== ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months
Years Ended December 31, Ended March 31,
-------------------------------------- --------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ------------
(Unaudited)
Cash Flows from Operating Activities:
<S> <C> <C> <C> <C> <C>
Net income $ 619,133 $ 1,117,984 $ 1,585,066 $ 164,558 $ 508,007
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 615,397 887,483 1,115,964 264,041 305,944
Compensation expense related to stockholder's stock
repurchase rights -- -- 20,163 -- --
Minority interest 65,422 -- -- -- --
Deferred income taxes -- 164,000 524,000 131,000 --
Changes in assets and liabilities-
Accounts receivable (438,893) (1,333,299) 440,121 336,825 (134,526)
Inventories 624,910 (941,899) (570,274) (23,051) (48,438)
Prepaid expenses and other current assets (124,599) 86,517 (372,421) (227,928) (209,166)
Accounts payable 637,261 2,199,732 761,631 426,093 1,125,911
Accrued expenses (423,025) 502,274 (140,014) (161,102) 193,365
-------- -------- -------- -------- ----------
Net cash provided by operating activities 1,575,606 2,682,792 3,364,236 910,436 1,741,097
-------- -------- -------- -------- ----------
Cash Flows from Investing Activities:
Purchase of property and equipment (138,608) (4,769,029) (1,058,422) (118,453) (94,836)
Acquisition of certain assets of Poly Flowlines -- (1,621,348) -- -- --
Increase in other assets (174,162) (493,293) (224,955) (39,529) (159,963)
Distribution to minority investor (85,921) -- -- -- --
-------- -------- -------- -------- ----------
Net cash used in investing activities (398,691) (6,883,670) (1,283,377) (157,982) (254,799)
-------- -------- -------- -------- ----------
Cash Flows from Financing Activities:
Net proceeds (payments) on demand note payable to a bank (4,998,680) 261,454 (1,897,856) (691,174) (1,554,660)
Payments on capital lease obligations, net (23,284) (6,196) (60,844) (10,655) (25,878)
Proceeds from issuance of MIFA obligations -- 4,150,000 -- -- --
Payments on MIFA obligations -- (104,167) (82,492) (31,250) (68,336)
Net proceeds from issuance of common stock 3,922,172 -- -- -- --
-------- -------- -------- -------- ----------
Net cash provided by (used in) financing activities (1,099,792) 4,301,091 (2,041,192) (733,079) (1,648,874)
-------- -------- -------- -------- ----------
Net Increase in Cash 77,123 100,213 39,667 19,375 (162,576)
Cash, Beginning of Period 7,186 84,309 184,522 184,522 224,189
-------- -------- -------- -------- ----------
Cash, End of Period $ 84,309 $ 184,522 $ 224,189 $ 203,897 $ 61,613
======== ======== ======== ======== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for-
Interest $ 357,253 $ 536,109 $ 713,207 $ 178,431 $ 88,510
======== ======== ======== ======== ==========
Income taxes $ 273,549 $ 111,300 $ 1,032,651 $ 105,000 $ 28,500
======== ======== ======== ======== ==========
Supplemental Schedule of Noncash Investing and Financing
Activities:
Repurchase of common stock and cancellation of note
receivable from officer $ 250,000 $ -- $ -- $ -- $ --
======== ======== ======== ======== ==========
Acquisition of equipment under capital lease obligations $ -- $ -- $ (434,340) $ (41,019) $ --
======== ======== ======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)
(1) ORGANIZATION
(a) Historical Background
Asahi/America, Inc. (the Company) was established on August 18, 1977 as a
Massachusetts corporation and is engaged in the manufacture and distribution
of thermoplastic valves and piping systems for the chemical processing and
other industries in North and South America. The Company has exclusive
distribution agreements with two international manufacturers.
(b) Stock Split
On March 11, 1996, the Board of Directors approved an approximately
836-to-1 stock split of the Company's common stock to be effective
immediately prior to the effective date of the registration statement for the
Company's initial public offering. All share and per share amounts have been
retroactively restated to reflect this stock split.
(c) Redemption of Shares and Recapitalization
During 1989, the Company redeemed and retired all of its issued and
outstanding capital stock, other than shares of non-voting capital stock
owned by Leslie B. Lewis, the Company's chief executive officer, and a trust
of which he was sole beneficiary, in exchange for notes in the aggregate
amount of $3,750,000. In a concurrent recapitalization, the Company issued
845,743 shares of common stock to Mr. Lewis in exchange for his non-voting
capital stock, resulting in a change in control of the Company.
The redemption and retirement of the previously issued and outstanding shares
resulted in a complete change in voting control and thus has been accounted
for as a purchase transaction. The cost in excess of the fair value of the
assets, net of liabilities as of the date of the transaction, has been allocated
to goodwill. Goodwill is being amortized on a straight-line basis over a 10-year
period, which is management's estimate of its useful life.
(d) Acquisition of Poly Flowlines
In July 1994, the Company acquired certain assets of Poly Kinetics, Inc.
d/b/a Poly Flowlines Company and Poly Flow Engineering, Inc. (together, Poly
Flowlines). The total purchase price of approximately $1.62 million was paid
in cash. The Company accounted for the acquisition as a purchase. The
allocation of the purchase price was as follows:
Molds, dies and equipment $1,280,000
Patents 19,000
Goodwill 322,000
---------
$1,621,000
=========
The results of operations related to Poly Flowlines have been included
with those of the Company since July 1, 1994. Unaudited pro forma operating
results for the Company, assuming the acquisition had been made as of January
1, 1994, are as follows:
Pro forma
Year ended
December 31, 1994
--------------------
Revenue $28,782,293
==================
Net Income $ 1,014,530
==================
Net Income per Common Share $ .43
==================
F-7
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including Data Applicable to Unaudited Periods)
(1) ORGANIZATION (Continued)
(e) Issuance of Stock
On March 31, 1993, the Company sold a total of 1,287,000 shares of stock
to its Japanese valve manufacturer, Asahi Yukizai Kogyo Co., Ltd. (AYK), and
Nichimen Corporation, a Japanese trading company, and Nichimen America Inc.,
the Japanese trading company's U.S. affiliate (together, Nichimen).
In connection with the sale of stock, an officer/stockholder has the right
to repurchase from AYK and Nichimen a certain number of the Company's shares
(at a formula-based value) if certain performance milestones are met, as
defined in the stock purchase agreement. The Company is accounting for this
repurchase right in accordance with Accounting Principles Board Opinion No.
25. Accordingly, compensation is measured based on the difference between the
purchase price and the fair market value of the Company's common stock. In
1993 and 1994, no compensation expense was recorded as the formula-based
value was higher than the fair market value. For the year ended December 31,
1995, $20,163 of compensation expense was recorded, as the fair market value
was in excess of the formula-based value and performance milestones had been
met.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application
of certain accounting policies as described below and elsewhere in the notes
to consolidated financial statements. The preparation of these consolidated
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, disclosures 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.
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Asahi Engineered Products, Inc.
(AEP). All significant intercompany balances and transactions have been
eliminated in consolidation.
(b) Revenue Recognition
The Company recognizes revenue on product sales at the time the products
are shipped. Rental revenues, which are less than 10% of total revenues for
all periods presented, are recognized over the related rental period.
(c) Inventories
The Company uses the last-in, first-out (LIFO) method for the costing of
its inventories.
The Company currently purchases a significant portion of its inventory
from two suppliers in Japan and Austria. There are a limited number of
suppliers of these particular types of thermoplastic valves and piping
systems, and a change of supplier could adversely affect the Company's
business due to the time it would take to locate and qualify new vendors.
(d) Depreciation and Amortization
The Company provides for depreciation and amortization using the
straight-line and declining-balance methods and charges to operations amounts
estimated to allocate the cost of the assets over their estimated useful
lives as follows:
F-8
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including Data Applicable to Unaudited Periods)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Estimated
Asset Classification Useful Life
- --------------------------- --------------
Machinery and equipment 5-7 Years
Molds and dies 7 Years
Furniture and fixtures 7 Years
Building 40 Years
Building improvements 7.5 Years
(e) Other Assets
Other assets consist primarily of redemption cost in excess of assets
acquired, debt refinancing costs and the cost of obtaining patents. The
Company provides for amortization using the straight-line method and charges
to operations amounts estimated to allocate the cost of the assets over their
estimated useful lives as follows:
Estimated
Asset Classification Useful Life
- ------------------------------------------------ --------------
Redemption cost in excess of assets acquired 10 Years
Debt refinancing costs 20 Years
Patents 5-11 Years
During March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for
the Impairment of Long-Lived Assets, which is effective for fiscal years
beginning after December 15, 1995. The Company does not expect the adoption
of this standard to have a material effect on its financial position or
results of operations.
(f) Postretirement Benefits
The Company has no significant obligations for postretirement benefits.
(g) Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk are principally cash and accounts receivable.
The Company places its cash in federally insured institutions. Concentration
of credit risk with respect to accounts receivable relates to certain
domestic and international customers to whom the Company makes substantial
sales. To reduce risk, the Company routinely assesses the financial strength
of its customers and obtains letters of credit for most of its international
sales; as a consequence, the Company believes that its accounts receivable
credit risk exposure is limited. The Company maintains an allowance for
potential credit losses, but historically has not experienced any significant
credit losses related to any individual customer or group of customers in any
particular industry or geographic area.
(h) Net Income per Common Share
Net income per common share for the years ended December 31, 1993, 1994
and 1995 and for the three months ended March 31, 1995 and 1996 has been
determined by dividing net income by the weighted average common shares
outstanding during the period.
(i) Interim Financial Statements
The accompanying consolidated balance sheet as of March 31, 1996, the
consolidated statements of operations and cash flows for the three months
ended March 31, 1995 and 1996, and the consolidated statement of
stockholders' equity for the three months ended March 31, 1996, are
unaudited, but in the opinion of
F-9
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including Data Applicable to Unaudited Periods)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
management, include all adjustments (consisting only of normal, recurring
adjustments) necessary for a fair presentation of the results for these
interim periods. The results of operations for the three months ended March
31, 1996 are not necessarily indicative of results to be expected for the
entire year.
(3) INVENTORIES
Inventories consist of the following:
December 31, March 31,
--------------------------
1994 1995 1996
----------- ----------- -------------
(Unaudited)
Raw materials $ 449,621 $ 742,526 $ 751,454
Finished goods 7,544,279 7,946,370 7,910,880
LIFO reserve (357,477) (482,199) (407,199)
--------- --------- -----------
$7,636,423 $8,206,697 $8,255,135
========= ========= ===========
The balance in the Company's allowance for inventory obsolescence was
$377,079 at December 31, 1993 and $527,079 at December 31, 1994 and 1995 and
March 31, 1995 and 1996.
If the first-in, first-out (FIFO) method of inventory costing had been
used by the Company, inventories and net income would have been reported as
follows:
<TABLE>
<CAPTION>
December 31, March 31,
----------------------------------------- ----------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Inventories on a FIFO basis $7,025,498 $7,993,900 $8,688,896 $8,047,951 $8,662,334
========= ========= ========= ========= ===========
Net income on a LIFO basis (as
reported in the accompanying
consolidated financial
statements) $ 619,133 $1,117,984 $1,585,066 $ 164,558 $ 508,007
Current year increase (decrease)
in LIFO reserve, net of current
year related tax effects 155,207 17,288 74,833 18,600 (43,950)
--------- --------- --------- --------- -----------
Net income on a FIFO basis $ 774,340 $1,135,272 $1,659,899 $ 183,158 $ 464,057
========= ========= ========= ========= ===========
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
--------------------------
1994 1995 1996
----------- ----------- -------------
(Unaudited)
<S> <C> <C> <C>
Machinery and equipment $3,194,914 $4,224,017 $4,287,289
Molds and dies 921,217 962,000 962,000
Furniture and fixtures 221,214 299,032 305,446
Building 2,847,125 2,847,125 2,847,125
Building improvements 762,541 793,581 793,581
Land 780,237 780,237 780,237
--------- --------- -----------
8,727,248 9,905,992 9,975,678
Less--Accumulated depreciation and
amortization 2,261,272 2,702,854 2,903,553
--------- --------- -----------
$6,465,976 $7,203,138 $7,072,125
========= ========= ===========
</TABLE>
F-10
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including Data Applicable to Unaudited Periods)
(5) ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31, March 31,
--------------------------
1994 1995 1996
----------- ----------- -------------
(Unaudited)
Accrued payroll/payroll-related $ 476,728 $609,222 $ 404,490
Other accruals 548,231 275,723 673,820
--------- --------- -----------
$1,024,959 $884,945 $1,078,310
========= ========= ===========
(6) INCOME TAXES
The Company accounts for income taxes under the liability method in
accordance with SFAS No. 109, Accounting for Income Taxes. Under SFAS No.
109, deferred tax assets or liabilities are computed based on the differences
between the financial statement and income tax bases of assets and
liabilities as measured by the enacted tax rates. The deferred tax provision
is based on changes in the asset or liability from period to period. The
provision for income taxes consists of the following for the years ended
December 31, 1993, 1994 and 1995:
1993 1994 1995
----------- ----------- -------------
Current--
Federal $122,000 $308,000 $ 364,000
State 46,000 124,000 112,000
--------- --------- -----------
168,000 432,000 476,000
--------- --------- -----------
Deferred--
Federal -- 127,000 495,000
State -- 37,000 29,000
--------- --------- -----------
-- 164,000 524,000
--------- --------- -----------
$168,000 $596,000 $1,000,000
========= ========= ===========
The components of the net deferred tax liability recognized in the
accompanying consolidated balance sheets with the approximate income tax
effect of each type of temporary difference are as follows:
1994 1995
----------- -------------
Nondeductible reserves $ 378,135 $ 497,000
Net operating loss carryforwards 395,678 223,000
Depreciation 111,549 (10,000)
LIFO reserve (1,389,632) (1,734,000)
Other temporary differences 41,270 (54,000)
--------- -----------
(463,000) (1,078,000)
Valuation allowance (191,000) (100,000)
--------- -----------
Net deferred tax liability $ (654,000) $(1,178,000)
========= ===========
The valuation allowance relates to deferred tax assets for which
realization is not assured. The decrease in the valuation allowance is due to
the realization of certain deferred tax assets which were previously
reserved.
F-11
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including Data Applicable to Unaudited Periods)
(6) INCOME TAXES (Continued)
The provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
Provision at federal statutory rate 34.0% 34.0% 34.0%
State income tax, net of federal benefit 5.8 6.3 5.5
Change in valuation allowance (25.0) (6.0) (3.5)
Amortization of redemption cost in excess of
assets acquired 9.0 4.1 2.7
Other, net (2.5) (3.6) --
----- ----- -------
Effective tax rate 21.3% 34.8% 38.7%
===== ===== =======
</TABLE>
As of December 31, 1995, the Company had net operating loss carryforwards
for income tax purposes of approximately $554,000. The net operating loss
carryforwards expire through 2007 and are subject to review and possible
adjustment by the Internal Revenue Service.
The Internal Revenue Code contains provisions that limit the net operating
loss carryforwards available to be used in any given year upon the occurrence
of certain events, including significant changes in ownership interests. The
Company has determined that such a change in ownership, as defined, occurred
on March 31, 1993, and consequently, the net operating losses available are
limited to approximately $429,000 in any given year.
(7) INVESTMENT IN JOINT VENTURE
During 1990, AEP and Prisma International S.A. entered into a general
partnership agreement (MAC/USA Partners) (the Partnership). The Partnership
was formed to produce, market, sell and distribute pneumatic actuators.
Due to the Partnership's dependence on the Company for managerial,
financial (including funding of operations) and technological expertise, this
investment was accounted for under the consolidation method. The remaining
50% was reflected as minority interest in the accompanying consolidated
financial statements. The results of operations for the Partnership for the
period ended December 31, 1993 was income of $130,844, of which $65,422 was
allocated to the minority interest. During 1993, the Partnership terminated,
and the Company settled all accounts of the Partnership.
(8) RELATED PARTY ARRANGEMENTS
(a) Distributorship Agreement and Inventory Arrangements
The Company has a 10-year exclusive distributorship agreement with AYK and
Nichimen (see Note 1(e)). Under the terms of the agreement, the Company is
expected to purchase a total of $140,000,000 of merchandise over the 10-year
period beginning on January 2, 1990. The agreement provides for annual
purchase guidelines but does not assess penalties if either the annual
purchase guidelines or the cumulative total are not met. The Company has made
cumulative purchases of approximately $51,432,000 and $54,045,000 under this
agreement through December 31, 1995 and March 31, 1996, respectively. For
their services, Nichimen is paid by AYK a combined mark-up of approximately
8% of the invoiced price of the Company's purchases from AYK.
The Company purchased approximately $9,168,000, $10,304,000 and $9,971,000
of valves from AYK during the years ended December 31, 1993, 1994 and 1995,
respectively and $1,767,697 and $2,613,265 for the three months ended March
31, 1995 and 1996, respectively. The accompanying consolidated balance sheets
include
F-12
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including Data Applicable to Unaudited Periods)
(8) RELATED PARTY ARRANGEMENTS (Continued)
accounts payable to Nichimen America of approximately $2,753,000, $2,707,000
and $3,340,000 at December 31, 1994 and 1995 and March 31, 1996,
respectively.
To facilitate its purchases from AYK, the Company has from time to time
made arrangements with a bank whereby irrevocable letters of credit (see Note
10(a)) for 180 days are drawn upon shipment. Currently, Nichimen America
allows the Company to purchase on open account and to maintain a payable
balance of up to $6 million, above which letters of credit are required.
During 1995, Nichimen America charged the Company a fee of approximately
$47,000 for this arrangement. At December 31, 1995, there were no letters of
credit issued by the bank that have been drawn under these arrangements.
(b) Related Party Transactions
The Company conducts certain transactions with entities controlled by the
chief executive officer's father, Stanley M. Lewis. Management believes that
all transactions were made at terms no less favorable than could have been
obtained from unrelated parties.
California Office/Warehouse
The Company leased a California facility from a trust of which Stanley M.
Lewis is the sole beneficiary. The lease expired on December 31, 1995 and was
not renewed. The Company has paid $64,775, $54,506 and $46,644 in 1993, 1994
and 1995, respectively, under this arrangement.
Customer
The Company sells various products to a company owned by Stanley M. Lewis.
Sales to this customer were $186,227, $296,752 and $260,513 in 1993, 1994 and
1995, respectively.
Pipe Supplier
The Company purchased pipe from a company that was 50% owned by Stanley M.
Lewis through September 1994 (the date the Father sold his interest). The
Company continues to purchase from this pipe supplier. Total purchases
amounted to $1,172,000 and $855,000 for the year ended December 31, 1993 and
the nine months ended September 30, 1994, respectively.
(9) FOREIGN CURRENCY TRANSACTIONS
The Company charges foreign currency gains or losses to operations in
accordance with SFAS No. 52, Foreign Currency Translation. The foreign
currency gain (loss) recorded in cost of goods sold in the accompanying
consolidated statements of operations for the years ended December 31, 1993,
1994 and 1995 and the three months ended March 31, 1995 and 1996 was
approximately $(48,000), $(47,000), $391,000, $(108,000) and $105,000,
respectively.
In 1993, the Company used foreign exchange forward contracts to minimize
the effects of exchange rates on foreign currency-denominated purchases. In
April 1993, the Company ceased using such contracts, as their exposure to the
effects of changes in foreign exchange rates on payables was reduced by
arranging to purchase products through Nichimen America in U.S. dollars.
During 1995, the arrangement with Nichimen America was changed, and the
Company began to purchase products through Nichimen America in Japanese yen.
As such, the Company began entering into foreign exchange forward and option
contracts to reduce the exposure to changes in foreign currencies related to
the purchase of
F-13
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including Data Applicable to Unaudited Periods)
(9) FOREIGN CURRENCY TRANSACTIONS (Continued)
inventories. Gains and losses on the contracts that are hedges of firm
commitments are deferred and recognized in the accompanying consolidated
statement of operations in the same period as the related transaction.
The Company had no foreign exchange contracts outstanding as described in
SFAS No. 119, Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments, as of December 31, 1993, 1994 or 1995. At
March 31, 1996, the Company had foreign exchange forward contracts, all
having maturities of less than one year, to buy Japanese yen in the amount of
$2,680,820.
(10) DEBT
(a) Demand Revolving Loan Payable to a Bank
The Company has a revolving loan with a bank. At December 31, 1995, the
total amount outstanding under the agreement was $3,377,000. Interest on the
loan is at the prime rate (8.50% at December 31, 1995) plus 1/2%. The
revolving loan is secured by substantially all of the assets of the Company.
The estimated fair value of the revolving loan approximates its carrying
value at December 31, 1995.
The amount available under the revolving loan is limited to the lesser of
$7,000,000 or the sum of 80% of qualified accounts receivable and 50% of
eligible inventory, as defined. This revolving loan also provides for the
issuance of irrevocable letters of credit up to a maximum of $4,000,000, as
defined. Any amounts outstanding under these letters of credit, of which
approximately $50,000 are outstanding at December 31, 1995, reduce the
availability under the revolving loan. The Company is required to maintain
certain financial ratios, including, among others, minimum working capital
and tangible net worth, as defined in the agreement.
(b) MIFA Obligations
In connection with the purchase of the Malden facility, the Company issued
bonds with the Massachusetts Industrial Finance Agency (MIFA) for a total of
$4,150,000. The bonds bear interest at rates that range from 4.2% to 5.1%.
Interest is payable semiannually and is subject to adjustment in 1999, 2004
and 2009. The bonds are payable in annual installments, commencing on March
1, 1995, of $125,000; the installments increase $5,000 per year through 1999.
The bond requires payments of $160,000 (increasing $5,000 to $15,000 each
year) to $320,000 per year from 2000 to 2014.
The bonds are secured by an irrevocable letter of credit issued by a bank,
which expires in March 1999. This letter of credit does not affect the
availability under the Company's revolving loan.
In accordance with SFAS No. 107, Disclosure about Fair Value of Financial
Instruments, the Company estimates the fair value of the bonds based on the
quoted market price for the same or similar issue, or on the current rate
offered to the Company for debt of the same remaining maturity. The carrying
amount and estimated fair value for the bonds as of December 31, 1995 are
$3,963,336 and $4,032,536, respectively.
(11) NOTES RECEIVABLE FROM STOCKHOLDERS/OFFICERS
(a) Chief Executive Officer
On October 1, 1991, the Company loaned $350,000 to the chief executive
officer of the Company. The terms of the loan were amended on March 31, 1993,
and interest began accruing on January 1, 1996 at prime plus 1%. The
outstanding principal is due beginning in April 1996 in equal quarterly
payments, with accrued interest, over a five-year period. The proceeds of the
loan were used for the purchase of Company stock by the chief executive
officer from another stockholder.
F-14
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including Data Applicable to Unaudited Periods)
(11) NOTES RECEIVABLE FROM STOCKHOLDERS/OFFICERS (Continued)
(b) Executive Vice President
On March 1, 1990, the Company sold 92,764 shares of common stock to the
executive vice president of the Company in exchange for a $250,000 promissory
note. On March 31, 1993, the shares were repurchased by the Company, and the
note was canceled in conjunction with the sale of stock (see Note 1(e)).
(12) COMMITMENTS
(a) Operating Leases
The Company leases certain office space and certain equipment under
operating leases through December 1998.
The approximate future minimum lease payments under these leases are as
follows:
1996 $109,000
1997 79,000
1998 12,000
-------
Total minimum lease payments $200,000
=======
Rental expense incurred under operating leases and charged to operations
was approximately $662,000, $316,000 and $165,000 for the years ended
December 31, 1993, 1994 and 1995, respectively, and approximately $43,000 and
$31,000 for the three months ended March 31, 1995 and 1996, respectively.
(b) Capital Leases
The Company leases certain equipment under capital leases. Future minimum
lease payments under these leases as of December 31, 1995 are as follows:
1996 $136,187
1997 127,701
1998 99,315
1999 67,434
2000 52,672
-------
Total minimum lease payments 483,309
Less--Amount representing interest 77,769
-------
Obligations under capital leases 405,540
Less--Current portion of capital lease
obligations 104,205
-------
$301,335
(c) Building Purchase Commitment
In February 1996, the Company entered into an agreement to purchase the
land and building adjacent to its Malden facility for $1,250,000.
F-15
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including Data Applicable to Unaudited Periods)
(13) PROFIT SHARING PLAN
The Asahi America, Inc. Profit Sharing Plan (the Plan) is a combined
401(k) and profit sharing plan. Under the terms of the Plan, the profit
sharing and 401(k) funds are accounted for together.
Employer contributions for the profit sharing portion of the Plan are
discretionary and determined by the Board of Directors. The Company made no
contributions to the Plan in 1993. The Company made contributions to the Plan
of $100,000 in 1994 and 1995.
Under the terms of the 401(k) portion of the Plan, eligible employees may
contribute limited percentages of their salaries to the Plan, and the Company
matches one quarter of each eligible employee's contribution. The Company's
matching contribution is limited to 4% of each eligible employee's
compensation.
(14) SIGNIFICANT CUSTOMER AND EXPORT SALES
During 1993, 1994 and 1995, one customer accounted for 18%, 19% and 26%,
respectively, of net sales. During 1993, 1994 and 1995, export sales
accounted for 14%, 12% and 5%, respectively, of net sales.
(15) STOCKHOLDERS' EQUITY
(a) Preferred Stock
The Board of Directors has the authority to issue up to 1,000,000 shares
of Preferred Stock, $10.00 par value, in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of
shares constituting any series or the designation of such series, without
further vote or action of the stockholders.
(b) Equity Incentive Plan
On March 11, 1996, the Board of Directors and stockholders approved,
effective upon the closing of the initial public offering of the Company's
Common Stock described in this Prospectus, the Equity Incentive Plan. The
aggregate number of shares of Common Stock that may be issued pursuant to
this Plan is 330,000 shares. The Company may grant incentive stock options
and other stock compensation arrangements to eligible employees and
consultants. The exercise price of each incentive stock option may not be
less than 100% (110% for greater than 10% stockholders) of the fair market
value of Common Stock at the date of grant. Nonqualified stock options may be
granted to any employee, officer, director or consultant of the Company. The
terms of each nonqualified stock option is determined by the Board of
Directors. The Company granted options for 330,000 shares to certain
employees effective as of the closing of the Company's initial public
offering at the initial public offering price. All options vest in three
equal annual increments beginning on the first anniversary of the date of
grant.
(c) Independent Directors' Stock Option Plan
On March 11, 1996, the Board of Directors, and stockholders, approved,
effective upon the closing of the initial public offering of the Company's
Common Stock described in this Prospectus, the Independent Directors' Stock
Option Plan. The Plan authorizes the issuance of an option to each Company
director who is neither an employee of the Company nor a holder of, or
affiliated with or related to a holder of, five percent or more of the
Company's Common Stock, to purchase up to 10,000 shares of the Company's
Common Stock on the date of election to the Board of Directors. A total of
20,000 shares of Common Stock is reserved under the Plan, and the Company
granted options to two directors for 10,000 shares each, effective as of the
closing of the Company's initial public offering, at the initial public
offering price.
F-16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Poly Kinetics, Inc.
Sylmar, California
We have audited the accompanying statement of income of Poly Kinetics,
Inc. for the six months ended June 30, 1994. This statement of income is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this statement of income based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of income is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of income. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall statement of
income presentation. We believe that our audit of the statement of income
provides a reasonable basis for our opinion.
In our opinion, the statement of income referred to above presents fairly,
in all material respects, the financial position of Poly Kinetics, Inc. for
the six months ended June 30, 1994, in conformity with generally accepted
accounting principles.
Warburton, Simonyan & Co.
Valencia, California
March 3, 1996
F-17
<PAGE>
POLY KINETICS, INC.
STATEMENT OF INCOME
For the Six Months Ended June 30, 1994
% Of
Sales
-------
Sales $ 264,631 100.0
Cost of Sales (Notes 1 and 2) 208,352 78.7
--------
Gross Profit 56,279 21.3
Selling Expenses 159,604 60.3
Operating Expenses 129
--------
Total Expenses 159,733 60.4
--------
Income (Loss) From Operations (103,454) (39.1)
Gain On Sale Of Assets (Note 3) 440,558 166.5
--------
Income Before Income Taxes 337,104 127.4
Income Taxes (Note 4) 52,938 20.0
--------
Net Income $ 284,166 107.4
========
See accountants' audit report and notes to income statement.
F-18
<PAGE>
POLY KINETICS, INC.
NOTES TO INCOME STATEMENT
For the Six Months Ended June 30, 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Poly Kinetics, Inc. is a wholly owned subsidiary of Poly-Flow Engineering,
Inc. The companies' financial statements were presented in the consolidated
financial statements of Poly-Flow Engineering, Inc. and Subsidiaries.
Inventory
Inventories are valued at the lower of cost or market value as determined
on a first-in first-out basis. The company maintains a perpetual inventory.
The last physical inventory was taken on December 31, 1993.
Property and Equipment
Property and equipment is presented at cost and is being depreciated using
the straight-line and declining balance methods over the estimated useful
lives (3 to 10 years) of the assets.
NOTE 2--INVENTORIES
Inventories as of June 30, 1994 were $192,360
NOTE 3--SALE OF INVENTORY AND FIXED ASSETS
On June 30, 1994, the company entered into a sale of inventory and fixed
assets to Asahi/America, Inc. This statement of income reflects the effects
of the disposition of these items.
NOTE 4--INCOME TAXES AND DEFERRED INCOME TAXES
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. FASB 109 mandates
the liability method for computing deferred income taxes. Under the liability
method, total tax expense is the amount of income taxes expected to be
payable for the current year plus or minus the change from the beginning of
the year in a deferred tax liability or asset established for the expected
future tax consequences resulting from differences in the financial reporting
and tax basis of assets and liabilities. One of the principle differences
from the deferred method used in these financial statements is that changes
in tax rules and laws will be reflected in income from continuing operations
in the period such changes were reflected over time, if at all.
The company adopted FASB 109; however, since the consolidated returns have
large net operating loss carry forwards, FASB 109 did not result in
additional deferred income tax.
The provision for income taxes consists of the following:
Current--Federal $ --
--State $52,938
Poly Kinetics, Inc., has a taxable net operating loss carryforward in the
amount of $30,802. In prior years this subsidiary filed separate income tax
returns. The total net operating loss carryforward is from the separately
filed returns. Therefore, separate return limitation year rules apply and the
carryforward may be used to reduce only the taxable income of Poly Kinetics,
Inc., and will expire in the years 1997 through 2004.
See accountants' audit report.
F-19
<PAGE>
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<PAGE>
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<PAGE>
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<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company or the
Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the shares of Common
Stock offered by this Prospectus, or an offer to sell or a solicitation of an
offer to buy any security by any person in any jurisdiction in which such
offer or solicitation would be unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, imply
that the information in this Prospectus is correct as of any time subsequent
to the date of this Prospectus.
TABLE OF CONTENTS
Page
-------
Prospectus Summary 3
Risk Factors 5
Use of Proceeds 9
Dilution 10
Capitalization 11
Selected Consolidated Financial
Information 12
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14
Business 20
Management 30
Principal and Selling Stockholders 34
Certain Transactions 35
Description of Capital Stock 36
Shares Eligible for Future Sale 38
Underwriting 39
Legal Matters 40
Experts 40
Additional Information 40
Index to Consolidated Financial Statements F-1
Until , 1996, all dealers effecting transactions in the
registered Securities, whether or not participating in this distribution, may
be required to deliver a Prospectus. This is in addition to the obligation of
dealers to deliver a Prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
1,160,000 Shares
[logo]
ASAHI/AMERICA((R))
ASAHI/AMERICA, INC.
Common Stock
PROSPECTUS
Daiwa Securities America Inc.
Fechtor, Detwiler & Co., Inc.
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various costs and expenses payable in
connection with the sale and distribution of the securities being registered,
other than underwriting discounts and commissions. All of the amounts shown
are estimates except the SEC registration fee and the NASD filing fee.
Amount to
Be Paid By
Registrant
-----------
SEC registration fee $ 4,140
NASD fee $ 1,701
Printing and engraving $ 85,000
Legal fees and expenses of the Registrant $100,000
Accounting fees and expenses $115,000
Blue sky fees and expenses $ 15,000
Transfer agent fees $ 15,000
Consulting fees $ 95,000
Miscellaneous $ 39,159
---------
TOTAL $470,000
=========
The Selling Shareholders will not pay expenses in connection with this
offering.
Item 14. Indemnification of Directors and Officers
Reference is made to the Restated Articles of Organization of the
Registrant, filed as Exhibit 3.1.1 hereto, in particular Article 6 thereof,
to the Amended and Restated By-laws of the Registrant filed as Exhibit 3.2.1
hereto, in particular Sections 6.5 and 6.6 thereof, and to Sections 61, 62
and 67 of the Massachusetts Business Corporation Law. Article 6 of the
Registrant's Restated Articles of Organization provides that no director
shall be personally liable to the Registrant or its stockholders for monetary
damages for breach of fiduciary duty as a director notwithstanding any
provision of law imposing such liability. This provision does not eliminate
the liability of a director, to the extent that such liability is imposed by
applicable law, (i) for any breach of the director's duty of loyalty to the
Registrant or its stockholders, (ii) for intentional misconduct or a knowing
violation of law under Sections 61 or 62 of the Massachusetts Business
Corporation Law, or (iii) for any transaction from which the director derived
an improper personal benefit. This provision does not eliminate the liability
of a director for any act or omission occurring prior to the date upon which
this provision became effective. No amendment to or repeal of this provision
shall apply to or have any effect on the liability or alleged liability or
any director for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
Section 6.5 of the Registrant's Amended and Restated By-laws and Section
67 of the Massachusetts Business Corporation Law permit the Registrant to
indemnify an officer or director for expenses and liabilities, including
attorneys' fees and judgments, arising out of any action, suit or proceeding
to which he is a party by reason of the fact that he was a director or
officer of the Registrant, provided he acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
Registrant. No indemnification shall be provided with respect to any matter
settled or compromised, pursuant to a consent decree or otherwise, unless
such settlement or compromise is approved as in the best interests of the
Registrant, after notice that indemnification is involved by (i) a
disinterested majority of the Board of Directors or (ii) the holders of a
majority of the outstanding stock entitled to elect Directors, voting as a
single class, exclusive of any stock owned by any interested Director,
officer or other person. The Registrant may pay expenses incurred in
defending an action or claim in advance of its final
II-1
<PAGE>
disposition if the indemnified person undertakes to repay the amount advanced
should he later be adjudicated not to be entitled to indemnification. Section
6.6 of the Registrant's Amended and Restated By-laws further provides that,
if a claim under Section 6.5 is not paid in full within sixty (60) days after
a written claim therefor has been received by the Registrant, the indemnitee
shall also be entitled to be paid the expense of prosecuting and defending
any suit brought to enforce such claim.
Item 15. Recent Sales of Unregistered Securities
Since March 1993, the Registrant has sold and issued the following
securities:
In March 1993, the Registrant sold an aggregate of 1,540 shares (1,287,400
shares after giving effect to the approximately 836-for-1 stock split to be
effective immediatly prior to the closing of the offering which is the
subject of this registration statement) of its Common Stock to three
accredited investors, as such term is defined under Rule 501(a) of Regulation
D promulgated under the Act, for $4,000,000. No underwriters were involved in
the transaction. The issuance of the securities was deemed to be exempt from
registration under the Act in reliance on Regulation D promulgated
thereunder, as transactions by an issuer not involving any public offering.
The recipients of the securities, relying on an exemption pursuant to
Regulation D represented their intentions to acquire the securities for
investment only an not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates issued the transaction. All such recipients had adequate access,
through their relationships with the Registrant, to information about the
Registrant.
Item 16. Exhibits
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1* Articles of Organization of the Registrant, as amended to date.
3.1.1* Restated Articles of Organization of the Registrant.
3.2* Bylaws of the Registrant, as amended to date.
3.2.1* Bylaws of the Registrant, as amended as of the effective date of the Registration Statement.
4.1.1* Memorandum of Understanding dated as of February 26, 1993 by and among Registrant,
Leslie B. Lewis, Asahi Yukizai Kogyo Co., Ltd., Nichimen Corporation and Nichimen America Inc.
4.1.2* Subscription Agreements dated March 31, 1993, with each of Asahi Yukizai Kogyo Co., Ltd.,
Nichimen Corporation and Nichimen America Inc.
4.2* 1996 Equity Incentive Plan.
4.3* Independent (Non-Employee and Non-Five Percent Stockholder) Directors' Stock Option Plan.
5.1* Opinion of Gadsby & Hannah as to the legality of shares.
9.1* Asahi/America, Inc. Voting Trust Agreement dated January 11, 1993.
10.1* Distribution Agreement dated April 1, 1993, among Asahi Yukizai Kogyo Co., Ltd., Nichimen
Corporation, Nichimen America Inc. and Registrant.
10.2* Employment Agreement (Restated) dated as of November 1, 1995 by and between Registrant and Leslie
B. Lewis.
10.2.1* Life insurance policy covering Leslie B. Lewis.
10.2.2* Employment Agreement dated as of April 22, 1996 by and between Registrant and Kozo Terada.
10.3* Master Equipment Lease No. 9000118 between Registrant (Lessee) and Citizens Leasing Corporation
(Lessor) dated September 23, 1993.
10.3.1* First Amendment to Lease Schedule by and between Citizens Leasing Corporation and Registrant
dated March 11, 1994.
II-2
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------
10.4* Loan and Security Agreement dated the 23rd day of September 1993 among Citizens Trust Company,
Registrant and Asahi Engineered Products, Inc.
10.4.1* First Amendment to Loan and Security Agreement dated as of March 16, 1994 by and among
Registrant, Asahi Engineered Products, Inc. and Citizens Trust Company.
10.4.2* Second Amendment to Loan and Security Agreement dated as of June 20, 1994 by and among
Registrant, Asahi Engineered Products, Inc. and Citizens Trust Company.
10.4.3* Assignment, Third Amendment and Cross Agency Agreement to Loan and Security Agreement dated as of
February 13, 1995 by and among Registrant, Asahi Engineered Products, Inc., Citizens Trust
Company and Citizens Bank of Massachusetts.
10.4.4* Fourth Amendment to Loan and Security Agreement dated as of July 1, 1995 by and among Registrant,
Asahi Engineered Products, Inc. and Citizens Bank of Massachusetts.
10.4.5* Fifth Amendment to Loan and Security Agreement dated as of October 1, 1995 by and among
Registrant, Asahi Engineered Products, Inc. and Citizens Bank of Massachusetts.
10.4.6* Sixth Amendment to Loan and Security Agreement dated as of February 7, 1996 by and among
Registrant, Asahi Engineered Products, Inc. and Citizens Bank of Massachusetts.
10.5* Master Security Agreement between Registrant (Debtor) and Citizens Leasing Corporation (Secured
Party) dated as of December 5, 1994.
10.6* Restated Contract dated as of January 1, 1995 between Registrant and Agru-Alois Gruber GmbH.
10.7* Agreement entered into as of July 26, 1995 by and between Registrant and Watts Industries, Inc.
10.8* Employment Agreement dated as of November 1, 1995 by and between Registrant and Timothy L.
Robinson.
10.9* Consulting Agreement dated January 8, 1995 by and between Registrant and Bloomberg Associates,
Inc.
10.10* Purchase and Sale Agreement dated as of February 2, 1996 by and between Manganaro Realty
Associates and Registrant.
10.11.1* Loan Agreement between Registrant and Massachusetts Industrial Finance Agency dated as of March
1, 1994 pertaining to $4,150,000 Massachusetts Industrial Finance Agency Industrial Revenue
Bonds, Asahi/America Issue, Series 1994.
10.11.2* Bond Purchase Agreement by and among Tucker Anthony Incorporated and Massachusetts Industrial
Finance Agency and the Registrant.
10.11.3* Reimbursement Agreement between the Registrant and Citizens Trust Company dated as of March 1,
1994.
10.12* Purchase and Sale Agreement dated as of March 11, 1996 by and between Asahi/America Co., Inc. and
Creative Filtration Systems, Inc.
21.1* Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Gadsby & Hannah (included in Exhibit 5.1).
23.3* Consent of Jeffrey C. Bloomberg.
23.4* Consent of Samuel J. Gerson.
23.5 Consent of Warburton, Simonyan & Co.
23.6* Consent of Sommers Marketing, Inc.
24.1* Power of Attorney.
</TABLE>
*previously filed
(b) Financial Statement Schedules
The following financial statement schedule for the Registrant is filed
herewith:
Schedule II: Valuation and Qualifying Accounts.
II-3
<PAGE>
All other schedules are omitted because they are not applicable, not
required under the instructions, or all the information required is set forth
in the financial statements or notes thereto.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part
of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the
securities offered herein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth
of Massachusetts, on the 13th day of May, 1996.
ASAHI/AMERICA, INC.
By: /s/ Leslie B. Lewis
-----------------------------------------
Leslie B. Lewis
Principal Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--- --------------------- -------------------------------------- --------------
<S> <C> <C> <C>
/s/ Leslie B. Lewis Principal Executive Officer,
---------------------- President and Director May 13, 1996
Leslie B. Lewis
Nannette Lewis* Director
----------------------
Nannette Lewis May 13, 1996
Tadashi Kitamura* Director
----------------------
Tadashi Kitamura May 13, 1996
Kazuyuki Sato* Director
----------------------
Kazuyuki Sato May 13, 1996
Kazumitsu Yamaguchi* Director
----------------------
Kazumitsu Yamaguchi May 13, 1996
Kozo Terada* Vice President,
---------------------- Treasurer and Principal Financial and
Kozo Terada Accounting Officer May 13, 1996
Timothy L. Robinson* Executive Vice President
---------------------- and Principal Operating Officer
Timothy L. Robinson May 13, 1996
*By: /s/ Leslie B. Lewis
----------------------
Leslie B. Lewis,
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
Report of Independent Public Accountants on Schedule
To Asahi/America, Inc.:
We have audited in accordance with generally accepted auditing standards
the consolidated financial statements of Asahi/America, Inc. and subsidiary
included in this registration statement and have issued our report thereon
dated February 19, 1996. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. Schedule II is
the responsibility of the company's management and is presented for purposes
of complying with the Securities and Exchange Commissions 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
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 19, 1996
(except with respect to the matters
discussed in Notes 1 and 15 of Notes to Consolidated Financial Statements
as to which the date is May 13, 1996).
S-1
<PAGE>
SCHEDULE II
ASAHI/AMERICA, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1993, 1994 and 1995
Allowance for Doubtful Accounts 1993 1994 1995
- ---------------------------------- --------- --------- -----------
Balance, beginning of period $ 131,790 $ 177,851 $ 310,862
Amounts charged to expense 179,217 314,475 38,610
Amounts written off (133,156) (181,464) (104,574)
-------- -------- ---------
Balance, end of period $ 177,851 $ 310,862 $ 244,898
======== ======== =========
Allowance for Inventory Obsolescence 1993 1994 1995
- ---------------------------------- --------- --------- -----------
Balance, beginning of period $ 377,079 $ 377,079 $ 527,079
Amounts charged to expense -- 150,000 --
-------- --------- ---------
Balance, end of period $ 377,079 $ 527,079 $ 527,079
======== ======== =========
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ----------- --------------------------------------------------------------------------------- -------
<S> <C> <C>
1.1* Form of Underwriting Agreement.
3.1* Articles of Organization of the Registrant, as amended to date.
3.1.1* Restated Articles of Organization of the Registrant.
3.2* Bylaws of the Registrant, as amended to date.
3.2.1* Bylaws of the Registrant, as amended as of the effective date of the Registration
Statement.
4.1.1* Memorandum of Understanding dated as of February 26, 1993 by and among
Registrant, Leslie B. Lewis, Asahi Yukizai Kogyo Co., Ltd., Nichimen
Corporation and Nichimen America Inc.
4.1.2* Subscription Agreements dated March 31, 1993, with each of Asahi Yukizai Kogyo
Co., Ltd., Nichimen Corporation and Nichimen America Inc.
4.2* 1996 Equity Incentive Plan.
4.3* Independent (Non-Employee and Non-Five Percent Stockholder) Directors' Stock
Option Plan.
5.1* Opinion of Gadsby & Hannah as to the legality of shares.
9.1* Asahi/America, Inc. Voting Trust Agreement dated January 11, 1993.
10.1* Distribution Agreement dated April 1, 1993 among Asahi Yukizai Kogyo Co., Ltd.,
Nichimen Corporation, Nichimen America Inc. and Registrant.
10.2* Employment Agreement (Restated) dated as of November 1, 1995 by and between
Registrant and Leslie B. Lewis.
10.2.1* Life insurance policy covering Leslie B. Lewis.
10.2.2 Employment Agreement dated as of April 22, 1996 by and between Registrant and
Kozo Terada.
10.3* Master Equipment Lease No. 9000118 between Registrant (Lessee) and Citizens
Leasing Corporation (Lessor) dated September 23, 1993.
10.3.1* First Amendment to Lease Schedule by and between Citizens Leasing Corporation and
Registrant dated March 11, 1994.
10.4* Loan and Security Agreement dated the 23rd day of September 1993 among Citizens
Trust Company, Registrant and Asahi Engineered Products, Inc.
10.4.1* First Amendment to Loan and Security Agreement dated as of March 16, 1994 by and
among Registrant, Asahi Engineered Products, Inc. and Citizens Trust Company.
10.4.2* Second Amendment to Loan and Security Agreement dated as of June 20, 1994 by and
among Registrant, Asahi Engineered Products, Inc. and Citizens Trust Company.
10.4.3* Assignment, Third Amendment and Cross Agency Agreement to Loan and Security
Agreement dated as of February 13, 1995 by and among Registrant, Asahi
Engineered Products, Inc., Citizens Trust Company and Citizens Bank of
Massachusetts.
10.4.4* Fourth Amendment to Loan and Security Agreement dated as of July 1, 1995 by and
among Registrant, Asahi Engineered Products, Inc. and Citizens Bank of
Massachusetts.
10.4.5* Fifth Amendment to Loan and Security Agreement dated as of October 1, 1995 by and
among Registrant, Asahi Engineered Products, Inc. and Citizens Bank of
Massachusetts.
E-1
<PAGE>
EXHIBIT DESCRIPTION PAGE
- ----------- --------------------------------------------------------------------------------- -------
10.4.6* Sixth Amendment to Loan and Security Agreement dated as of February 7, 1996 by
and among Registrant, Asahi Engineered Products, Inc. and Citizens Bank of
Massachusetts.
10.5* Master Security Agreement between Registrant (Debtor) and Citizens Leasing
Corporation (Secured Party) dated as of December 5, 1994.
10.6* Restated Contract dated as of January 1, 1995 between Registrant and Agru-Alois
Gruber GmbH.
10.7* Agreement entered into as of July 26, 1995 by and between Registrant and Watts
Industries, Inc.
10.8* Employment Agreement dated as of November 1, 1995 by and between Registrant and
Timothy L. Robinson.
10.9* Consulting Agreement dated January 8, 1995 by and between Registrant and
Bloomberg Associates, Inc.
10.10* Purchase and Sale Agreement dated as of February 2, 1996 by and between Manganaro
Realty Associates and Registrant.
10.11.1* Loan Agreement between Registrant and Massachusetts Industrial Finance Agency
dated as of March 1, 1994 pertaining to $4,150,000 Massachusetts Industrial
Finance Agency Industrial Revenue Bonds, Asahi/America Issue, Series 1994.
10.11.2* Bond Purchase Agreement by and among Tucker Anthony Incorporated and
Massachusetts Industrial Finance Agency and the Registrant.
10.11.3* Reimbursement Agreement between the Registrant and Citizens Trust Company dated
as of March 1, 1994.
10.12* Purchase and Sale Agreement dated as of March 11, 1996 by and between Asahi/
America, Inc. and Creative Filtration Systems, Inc.
21.1* Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Gadsby & Hannah (included in Exhibit 5.1).
23.3* Consent of Jeffrey C. Bloomberg.
23.4* Consent of Samuel J. Gerson.
23.5 Consent of Warburton, Simonyan & Co.
23.6* Consent of Sommers Marketing, Inc.
24.1* Power of Attorney.
</TABLE>
*previously filed
E-2
Exhibit 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made part of this
registration statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 13, 1996
WARBURTON, SIMONYAN & CO
Certified Public Accountants
27201 Tourney Road, Suite 117, Valencia, CA 91355
Les Warburton, CPA Vache Simonyan, CPA
As independent public accountants we hereby consent to the use of our reports
included or made part of this registration statement.
Warburton, Simonyan & Co
May 13, 1996
