SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------
FORM 10-K
(Mark One)
_X_ Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (Fee Required)
for the fiscal year ended December 31, 1996
or
___ Transition Report Pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934 (No Fee
Required)
Commission File No. 0-28322
Asahi/America, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2621836
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
35 Green Street 02148-0005
Malden, Massachusetts (Zip Code)
(Address of principal executive offices)
(617) 321-5409
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (without par value)
--------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirement for
the past 90 days. Yes X No
--- ---
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Registration S-K is not contained herein and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated in Part III of this Form 10K or any amendments to this
Form 10K._________
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant as of March 5, 1997, was $9,035,550. As of
March 5, 1997, there were issued and outstanding 3,340,000 shares of the
Registrant's Common Stock, without par value.
================================================================================
DOCUMENTS INCORPORATED BY REFERENCE
The information required in Part III, Items 10, 11, 12 and 13, hereof is
incorporated by reference to the specified portions of the Registrant's Proxy
statement, to be filed pursuant to Regulation 14A under the Securities Exchange
Act of 1934 with respect to the 1997 annual meeting of stockholders, which will
be filed with the Commission on or before April 30, 1997; and certain exhibits
to the Registrant's Form S-1 Registration Statement ( File No. 333-2314) are
incorporated by reference in response to Part IV, Item 14.
<PAGE>
Asahi/America, Inc. and Subsidiary
TABLE OF CONTENTS
Securities and Exchange Commission
Item Numbers and Description PART I Page
- ---------------------------- ----
Item 1. Business 2
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 16
PART III
Item 10. Directors and Executive Officers of the Registrant 16
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial Owners
and Management 16
Item 13. Certain Relationships and Related Transactions 16
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 17
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PART I
Item 1. BUSINESS
Introduction
Asahi/America, Inc. ("the Company") 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 1995 market study
prepared by the unaffiliated firm of Sommers Marketing, Inc., 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, official English
translation Asahi Organic Chemicals Industry Co., LTD ("AYK"), a Japanese
company that the Company believes to be one of the largest manufacturers of
thermoplastic valves in the world. 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 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 1996, sales of valve actuators and
controls, custom valves and piping systems manufactured by the Company have
increased by 50% from approximately $7.6 million (30% of total sales) to
approximately $11.4 million (30% of total sales). While recent market conditions
and currency trends have favored the Company's distributed products and have
allowed the Company to be price competitive and further penetrate certain
existing markets, the Company is repositioning selected manufacturing products
in key export and domestic markets and is aggressively pursuing other short and
long term marketing strategies to further resume growth of its manufactured
product line.
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.
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.
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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
several different 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.
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 enable 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."
In February 1996, the Company was 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 estimated United States market in 1996
for industrial valves will approximate $3 billion. It is estimated that
thermoplastic valves represent approximately 3% of the industrial valve market.
Industry sources estimate that, in 1997, the market for metal valves will grow
by less than 1%, while the market for thermoplastic industrial valves is
expected to grow 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 degrees 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
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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 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 1996, annual sales of products manufactured by the Company
increased by approximately $3.8 million, or 50%, while sales of all other
products increased 48% during this same period. While recent market
conditions and currency trends have favored the Company's distributed
products and have allowed the Company to be price competitive and further
penetrate certain existing markets, the Company is repositioning selected
manufacturing products in key export and domestic markets and is
aggressively pursuing other short and long term marketing strategies to
further resume growth of its manufactured product line. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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 1996 sales to
the semiconductor and chemical processing industries accounted for 31% and
20% of total sales, respectively, 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 12%, sales to the waste management industry accounted for 8%,
and sales to pharmaceutical and mining companies and to aquariums accounted
for 12%. 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
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tank regulations, and continued business concern for the protection of the
environment.
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. Currently, management is actively seeking potential
opportunities, including mergers and acquisitions, joint ventures,
licensing, and start-up ventures that would benefit from exposure to the
Company's broad and established distribution network or widen the Company's
existing distribution channels.
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 rents
and sells 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,
--------------------------------------
1994 1995 1996
----- ----- -----
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Distributed products, including valves, pipe
and fittings.................................. $18,332 64.3% $21,212 60.6% $24,579 64.9%
Manufactured products, including actuators and
controls, fabricated valves and piping systems $ 9,585 33.6% $12,414 35.5% $11,374 30.0%
</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 degrees 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 degrees F and 180 degrees F, respectively. PVDF can be used in
applications with temperatures up to 250 degrees 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 $5.50 for a sampling valve to over
$25,000 for a 24 inch PVDF butterfly valve. A typical valve will sell for $50 to
$100. The Company processes approximately 3,000 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
programmable operation and control of valves. The Company's actuators and
controls enable the end user to program or
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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 offers 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 $25,000 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 1996,
revenues from the rental and sale of such equipment totaled approximately $1.9
million.
During the past three years, the Company has invested in additional
manufacturing equipment, plant expansion 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 three 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 19%, 26% and 23% of the
Company's sales in 1994, 1995 and 1996, respectively, and 40 distributors
accounted for 81%, 82% 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 both 1995 and 1996.
The Company supports its distributors with ten Company-employed sales
representatives, one national sales manager, one national sales manager of
specialty products, and one director of Latin American sales. The Company sales
force works jointly with the Company's distributors and independently to develop
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.
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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 1994, 1995 and 1996, the
Company had export sales of approximately $3.3 million, $1.8 million and $1.6
million, respectively, primarily to Latin America. All of the Company's export
sales are denominated in United States dollars.
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
environmentally hazardous & Haas, P.P.G., Clorox, B.F. Goodrich,
chemicals and Kerr McGee
Semiconductor Transfer of deionized water, IBM, Motorola, Texas Instruments,
manufacturing ultra pure chemicals and Micron Technology, Advanced Micro
chemical waste Devices, National Semiconductor,
Samsung Semiconductor, and Matsushita
Landfill Collection of methane gas WMX Technologies, and
and leachate Browning Ferris Industries
Aquariums Automated circulation of salt New Orleans, Monterey Bay, Tampa,
water Albuquerque, Omaha and Long Beach
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
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>
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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 eighth 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, 1996, the
Company had purchased approximately $61.8 million of product from AYK, with the
purchases in the years ended December 31, 1994, 1995 and 1996 totaling
approximately $10.3 million, $10.0 million and $10.4 million respectively. Total
purchases through December 31, 1996, were approximately $21.5 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.
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, 1996, the Company's purchases from Agru totaled approximately $6.7
million. The agreement is terminable in the event of serious breach which is not
cured within three months 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.
8
<PAGE>
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.
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 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.
9
<PAGE>
Patents and Trademarks
The Company exclusively owns six United States patents relating to its
double containment pipe assemblies, seven United States patents relating to
actuators and accessories used in conjunction with plastic valves, as well as
two corresponding Canadian patents and two corresponding Canadian patent
applications, and one United States patent relating to the filter backwashing
system. All of the United States patents have been issued since December 1985,
and extend at least until 2002. In addition, the Company owns 26 United States
trademark registrations and seven 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 six 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.
Employees
As of December 31, 1996, the Company had a work force of 126 people, of
which 21 are executive and administrative personnel, 27 are engaged in sales and
marketing, 11 are engineering staff, and 67 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.
Item 2. PROPERTIES
The Company's executive offices and manufacturing/warehouse facility is
located in a modern facility in Malden, Massachusetts, of approximately 94,000
square feet. The Company purchased a portion of this facility (approximately
56,000 square feet) in March 1994 with the proceeds of an Industrial Revenue
Bond issue. In July, 1996 the Company purchased the facility adjacent to its
original facility for $1.25 million. During 1996, the Company also completed the
construction of a warehouse (approximately 24,000 square feet) connecting its
existing two facilities. The Company moved its executive offices to the new
facility and expanded its manufacturing and warehouse operations into the
remainder of the facility . The Company considers its facility to be in good
operating condition and suitable for the purposes for which it is used.
Item 3. LEGAL PROCEEDINGS
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
10
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock of Asahi/America, Inc. is traded on the Nasdaq National Market
System under the symbol ASAM. The following table sets forth the range of high
and low selling prices for the Common Stock of the Company from May 15, 1996
(the date the Company's Common Stock commenced trading on Nasdaq) for the fiscal
periods indicated, as reported on the Nasdaq National Market System. This
information reflects inter-dealer prices, without retail mark-up, mark-down, or
commission and may not necessarily reflect actual transactions.
Fiscal 1996 High Low
- ---------------------------------------------------------------------------
Second Quarter (from May 15, 1996) 11.125 7.75
Third Quarter 9.625 6.50
Fourth Quarter 8.625 7.00
On March 5, 1997, there were 146 record holders of the Company's Common Stock.
The Company believes the actual number of beneficial owners of the Common Stock
is greater than the stated number of holders of record because a large number of
shares of the Company's Common Stock is held in custodial or nominee accounts
for the benefit of persons other than the record holder.
The Company has never paid a dividend on its Common Stock and currently intends
to retain immediate future earnings to fund the growth of the business. 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.
11
<PAGE>
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below has been derived
from the consolidated financial statements of the Company audited by Arthur
Andersen LLP, independent public accountants, and their report is included
elsewhere herein. The selected consolidated financial data set forth below
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations.
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In thousands, except per share)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales............................. $ 22,670 $ 25,514 $28,518 $ 34,998 $37,894
Cost of goods sold.................... 15,449 17,021 18,608 23,409 24,346
Foreign currency (gains) losses....... 126 48 47 (391) (378)
-------- ------- ------- ------- ------
Gross profit...................... 7,095 8,445 9,863 11,980 13,926
Selling, general and administrative
expenses............................ 6,661 7,201 7,613 8,682 9,751
-------- ------- ------- ------- ------
Income from operations............ 434 1,244 2,250 3,298 4,175
Interest expense, net................. 764 391 536 713 196
-------- ------- ------- ------- ------
Income (loss) before minority
interest and provision (benefit)
for income taxes.................... (330) 853 1,714 2,585 3,979
Minority interest in income of
consolidated joint venture.......... (10) (66) -- -- --
-------- ------- ------- ------- ------
Income (loss) before provision
(benefit) for income taxes.......... (340) 787 1,714 2,585 3,979
Provision for (benefit) from income
taxes............................... (314) 168 596 1,000 1,541
-------- -------- ------- ------- ------
Net income (loss) ................ $ (26) $ 619 $ 1,118 $ 1,585 $ 2,438
======== ======== ======= ======= =======
Net income (loss) per common
and common equivalent share
outstanding....................... $ (.02) $ .30 $ .48 $ .68 $ .82
======== ======== ======= ======== =======
Weighted average number of
common and common equivalent
shares outstanding ................. 1,146 2,048 2,340 2,340 2,988
Balance Sheet Data:
Working capital (deficit).............$ (1,742) $ 2,902 $2,116 $ 3,850 $ 9,976
Total assets.......................... 13,311 13,023 21,308 22,452 28,443
Long-term liabilities................. 691 490 4,583 5,313 4,992
Total liabilities..................... 13,142 8,312 15,479 15,018 12,239
Retained earnings (deficit)........... (2,896) (2,278) (1,160) 426 2,864
Stockholders' equity.................. 169 4,711 5,829 7,434 16,204
</TABLE>
12
<PAGE>
Item 7. 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 under long term
supply agreements. 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 distributes its products through an extensive network of domestic
and foreign distributors which are supported by Company sales, marketing and
engineering personnel. Substantially all of the Company's purchases of valves
are made from its Japanese supplier and are transacted in Japanese yen. As a
result, the Company is exposed to fluctuations in foreign currency exchange
rates. The Company may use hedging procedures including foreign exchange forward
contracts and currency options in managing the fluctuations in foreign currency
exchange rates. 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.
The Company completed its initial public offering on May 15, 1996.
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
sales:
Year Ended December 31,
-----------------------
1994 1995 1996
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 65.4 65.8 63.3
------ ------ ------
Gross Profit 34.6 34.2 36.7
Selling, general and administrative expenses 26.7 24.8 25.7
------ ------ ------
Income from operations 7.9 9.4 11.0
Interest expense, net 1.9 2.0 0.5
------- ------ ------
Income before provision for income taxes 6.0 7.4 10.5
Provision for income taxes 2.1 2.9 4.1
------- ------ ------
Net income 3.9 4.5 6.4
Net Sales
Net sales for the year ended December 31, 1996 increased by $2.9 million or 8.3%
to $37.9 million from $35.0 million in 1995. The increase was attributed to
higher sales volume of distributed product of $3.4 million and increased
equipment revenues of $500,000 which more than offset decreased sales of
manufactured product of $1.0 million. Sales of distributed product benefited
from strong demand in domestic markets coupled with the Company's ability to be
price competitive due to lower product costs associated with the strengthening
of the United States dollar. The lower product costs enabled the Company to
further penetrate certain markets, strengthening market share, while deferring
general price increases in 1996. After a significant increase in manufactured
product sales in 1995, the Company experienced a decrease in such sales during
1996. The decrease was attributable to decreased export sales of manufactured
product coupled with a decrease in major piping projects in 1996 as compared to
1995. While recent market conditions and currency trends have favored the
distributed product sector, the Company is repositioning selected manufactured
products, in key domestic and export markets and is aggressively pursuing other
short and long term marketing strategies to resume growth of its manufactured
product line.
13
<PAGE>
Net sales for 1995 increased 22.7% over 1994 sales of $28.5 million. The
increased sales in 1995 as compared to 1994 were due to strong demand in the
chemical processing industry coupled with growth in sales to new markets
including the semiconductor manufacturing industry. The 1995 sales also
benefited from an increase in major piping projects over 1994 and from two price
increases implemented partially in response to unfavorable movement of the
United States dollar against the Japanese yen and the Austrian schilling.
Export sales were 12%, 5% and 4% of net sales for the years ended December 31,
1994, 1995 and 1996, respectively. Sales to the Company's major customer
represented 19%, 26% and 23% of net sales during the same three year period.
Gross Profit
Gross profit as a percentage of sales (gross margin) for the year ended December
31, 1996 improved 2.5 percentage points to 36.7% from 34.2% in 1995. The
principal factor impacting gross margin was the Company's lower product costs
associated with distributed product as a result of the favorable movement of the
US dollar against the Japanese yen. Reversing a five year trend, the US dollar
strengthened 15.6% on average against the Japanese yen during 1996. The stronger
US dollar favorably impacted cost of goods sold during 1996 due to the Company's
LIFO method of costing inventory. Goods purchased from Japan represented
approximately 47% of all Company purchases during the year and the lower product
costs enabled the Company to increase gross profit without a general increase to
its selling prices. Although gross margin on manufactured product sales remained
strong in 1996, a less favorable sales mix adversely impacted 1996 gross margin
as compared to 1995 as manufactured product comprised a smaller percentage of
total 1996 sales. The 1996 gross profit included foreign currency gains
aggregating $378,000.
Gross margin for 1995 declined 0.4 points to 34.2% from 34.6% in 1994. The lower
1995 gross margin was attributed to an increase in product costs associated with
a decline of the United States dollar versus the Japanese yen during the first
half of the year. In 1995, the dollar declined 7.9% on average against the yen.
Partially offsetting this factor was an improved sales mix associated with
proportionately higher manufactured product sales. Despite a generally weak
dollar during the period, 1995 gross profit included foreign currency gains of
$391,000 as the Company benefited from a rebound of the US dollar against the
yen in the second half of 1995 and between the dates purchases were shipped and
the dates that the Company fixed the amount of its payment obligation through
the purchase of foreign currency contracts. In 1994 and through March of 1995,
the Company was transacting its Japanese purchases in US dollars. Beginning in
April of 1995, the Company began transacting its Japanese purchases in Japanese
yen.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $9.8 million for the year
ended December 31, 1996 as compared to $8.7 million in 1995. Selling, general
and administrative expenses as a percentage of net sales were 25.7% in 1996 as
compared to 24.8% in 1995. The higher expense level was due to non-capitalizable
costs related to the purchase and continued renovation of an adjacent facility
and the construction of a warehouse connecting the Company's two facilities,
which permitted an over 38,000 square foot expansion in office, plant and
warehouse capacity. General and administrative costs associated with
transitioning a privately held company to a publicly traded company and
additional selling costs as a result of increased advertising, marketing and
consulting, also contributed to the increase in 1996 as compared to a year ago.
Selling, general and administrative expenses for the year ended December 31,
1995 were $1.1 million higher than 1994 due to costs to support significantly
higher sales. As a percentage of sales, 1995 selling, general and administrative
expenses decreased 1.9 percentage points from expenses levels of 1994.
Interest Expense and Income Taxes
Interest expense for the year ended December 31, 1996, consisting principally of
interest on its Industrial Revenue Bonds and capital lease obligations, was
$339,000 as compared to $714,000 in 1995 and $558,000 in 1994. The decrease is
due to the Company paying down the entire balance of its bank line of credit
following the initial public offering in May 1996. There have been no additional
bank borrowings since that time. Lower average borrowings and lower interest
rates prior to the initial public offering also contributed to lower expense in
1996 as compared to 1995. Interest expense increased $156,000 in 1995 over 1994
due to an increase of approximately $1 million in average borrowings and higher
average
14
<PAGE>
interest rates under the previous bank line of credit facility. Interest income
for the year ended December 31, 1996 was $144,000, as compared to $1,000 in 1995
and $22,000 in 1994. The increase is due to the investment of the proceeds from
the Company's initial public offering.
The provision for income taxes was $1.5 million for the year ended December 31,
1996, as compared to $1.0 million in 1995 and $596,000 in 1994. The Company's
effective income tax rate was 38.7% in 1996 versus 38.7% in 1995 and 34.8% in
1994.
Liquidity and Capital Resources
Prior to 1996, the Company financed its operations through the sale of equity
securities, bank borrowings under a line of credit, an Industrial Revenue Bond
financing in March 1994 and cash generated from operations. In addition, the
Company has benefited from favorable payment terms under a $6 million open
account arrangement for the purchase of Japanese valve products, which the
majority of its purchases are at 180 day payment terms.
The Company completed its initial public offering on May 15, 1996 through the
sale of one million shares of common stock which generated net proceeds of $6.2
million. A portion of the proceeds, $2.3 million, was used to pay down the
entire balance of the Company's bank line of credit, which expired on August 31,
1996.
In January, 1997, the Company and its bank executed a new loan agreement which
provides for up to $10 million of unsecured borrowing. The loan agreement
consists of two facilities including a $5 million committed unsecured revolving
credit line (the Committed Line) and a $5 million discretionary unsecured
revolving credit line (the Revolving Line). Interest under both facilities is
payable monthly and is based on either LIBOR plus 1.65% or Prime, as elected by
the Company at each borrowing date. The Committed Line includes a 1/4% facility
fee on unused borrowings and requires principal repayment not later than
September 30, 1998. Borrowings under the Demand Line are payable upon demand.
The Demand Line extends through September 30, 1997.
In July 1996, with additional funds made available through the Company's initial
public offering, the Company completed the purchase of the facility adjacent to
its original facility in Malden, Massachusetts at an aggregate purchase price of
$1.25 million. During 1996, the Company also completed the construction of a
warehouse connecting its two facilities. The Company estimates the total funds
required for this project and the related equipment and renovation costs will
approximate $2.9 million, of which, approximately $2.7 million had been expended
as of December 31, 1996.
At December 31, 1996 cash and cash equivalents were $3.0 million.
The Company generated $3.5 million of cash flow from operations during the year
ended December 31, 1996 as compared to $3.4 million for the same period of 1995.
Receivables at December 31, 1996 increased $845,000, 19%, from December 31, 1995
due mainly to increased sales volume and the timing of orders. Inventories were
$8.7 million at December 31, 1996, up $466,000 from 1995, reflecting the
Company's increased inventory investment for newer product lines. Accounts
payable and accrued expenses were $7.0 million at December 31, 1996 as compared
to $6.1 million at December 31, 1995. The increase is primarily due to increased
operating expenses and purchasing requirements.
The Company's industrial revenue bonds funded through the Massachusetts
Industrial Finance Agency (MIFA) are secured by a letter of credit issued by a
bank which is secured by substantially all the assets of the Company. The bonds
consist of six separate series each with differing interest rates and
maturities. Interest rates range from 4.2% to 5.1% and are subject to adjustment
in 1999, 2004 and 2009. The maximum principal payable in any one year is
$320,000, payable in 2014.
The Company believes that its current funds, together with cash generated by
operations will be sufficient to fund the Company's operations, debt service and
capital requirements at least through the next 12 months.
15
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this Report on
page 17.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Information required by Part III (Items 10 through 13) is incorporated by
reference to the Company's definitive proxy statement, for its annual meeting of
stockholders to be held on May 28, 1997, which will be filed with the Securities
and Exchange Commission pursuant to Regulation 14A under the Securities Exchange
Act of 1934, on or before April 30, 1997. If for any reason such a statement is
not filed within such a period, this Report will be appropriately amended.
16
<PAGE>
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) (1) and (2): The response to this portion of Item 14 is submitted as a
separate section of this report on page 19.
(a) (3) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1* Restated Articles of Organization of the Registrant.
3.2* Bylaws of the Registrant, as amended to date.
4.1* 1996 Equity Incentive Plan.
4.2* Independent (Non-Employee and Non-Five Percent Stockholder) Directors' Stock Option Plan.
4.3 Employee Stock Purchase Plan.
4.4.1* 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.
4.4.2* Bond Purchase Agreement by and among Tucker Anthony Incorporated and Massachusetts Industrial Finance Agency and the
Registrant.
4.4.3* Reimbursement Agreement between the Registrant and Citizens Trust Company dated as of March 1, 1994.
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.
10.4.1 Credit Agreement between Registrant and Citizens Bank of Massachusetts dated as of January 23, 1997.
10.4.2 Revolving Credit Note in favor of Citizens Bank of Massachusetts dated as of January 23, 1997.
10.4.3 Discretionary Credit Line Note in favor of Citizens Bank of Massachusetts dated as of January 23, 1997.
10.5* Restated Contract dated as of January 1, 1995 between Registrant and Agru-Alois Gruber GmbH.
10.6* Agreement entered into as of July 26, 1995 by and between Registrant and Watts Industries, Inc.
10.7* Employment Agreement dated as of November 1, 1995 by and between Registrant and Timothy L. Robinson.
10.8* Consulting Agreement dated January 8, 1995 by and between Registrant and Bloomberg Associates, Inc.
10.9* Purchase and Sale Agreement dated as of February 2, 1996 by and between Manganaro Realty Associates and Registrant.
10.10* Purchase and Sale Agreement dated as of March 11, 1996 by and between Asahi/America Co., Inc. and Creative
Filtration Systems, Inc.
11.1 Computation of Weighted Average Number of Common and Common Equivalent Shares Outstanding
21.1* Subsidiaries of the Registrant.
27 Financial Data Schedule
</TABLE>
- ------------------------
* Incorporated by reference to the Registrant's Registration Statement on Form
S-1 as amended (File No. 333-2314)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the last
quarter of the period covered by this report.
17
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ASAHI/AMERICA, INC.
Dated: March 28, 1997 By: /s/ Leslie B. Lewis
-------------------------------------
Leslie B. Lewis
Principal Executive Officer and President
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in their capacities and on the date indicated.
<TABLE>
<S> <C> <C>
/s/ Leslie B. Lewis Principal Executive Officer, March 28, 1997
------------------------------------- President and Director
Leslie B. Lewis
/s/ Nannette S. Lewis Director March 28, 1997
-------------------------------------
Nannette S. Lewis
/s/ Tadashi Kitamura Director March 28, 1997
-------------------------------------
Tadashi Kitamura
/s/ Kazuyuki Sato Director March 28, 1997
-------------------------------------
Kazuyuki Sato
/s/ Kazumitsu Yamaguchi Director March 28, 1997
-------------------------------------
Kazumitsu Yamaguchi
/s/ Kozo Terada Vice President, Treasurer
------------------------------------- and Principal Financial March 28, 1997
Kozo Terada and Accounting Officer
/s/ Timothy L. Robinson Executive Vice President
------------------------------------- and Principal Operating Officer March 28, 1997
Timothy L. Robinson
/s/ Samuel J. Gerson Director March 28, 1997
-------------------------------------
Samuel J. Gerson
/s/ Jeffrey C. Bloomberg Director March 28, 1997
-------------------------------------
Jeffrey C. Bloomberg
</TABLE>
18
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARY
FORM 10-K
ITEMS 8 AND 14 (a) (1) AND (2)
INDEX OF FINANCIAL STATEMENTS AND SCHEDULES
The following financial statements of the registrant and its subsidiary required
to be included in Items 8 and 14 (a) (1) are listed below:
Page
----
Report of Independent Public Accountants F-2
Consolidated balance sheets as of December 31, 1995 and 1996 F-3
For the years ended December 31, 1994, 1995 and 1996:
Consolidated statements of operations F-4
Consolidated statements of stockholders' equity F-5
Consolidated statements of cash flows F-6
Notes to Consolidated financial statements F-7
The following financial statement schedule of the Registrant and its subsidiary
is included in Item 14(a)(2):
Consolidated financial statement schedules for the years ended December 31,
1994, 1995 and 1996:
Not applicable.
19
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 1996 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1994, 1995 AND 1996 F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1994, 1995 AND 1996 F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
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, 1995 and
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. 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, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN, LLP
Boston, Massachusetts
February 21, 1997
F-2
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
ASSETS
1995 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 224,189 $ 3,027,824
Accounts receivable, less reserves of $245,000 in 1995 and $283,000 in 1996 4,446,034 5,291,324
Inventories 8,206,697 8,672,969
Prepaid expenses and other current assets 678,074 230,366
--------------- ---------------
Total current assets 13,554,994 17,222,483
--------------- ---------------
PROPERTY AND EQUIPMENT, NET 7,203,138 9,868,483
--------------- ---------------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $1,163,854 in 1995 and
$1,379,647 in 1996 994,074 778,281
Other, net 699,870 574,041
--------------- ---------------
Total other assets 1,693,944 1,352,322
--------------- ---------------
$ 22,452,076 $ 28,443,288
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Demand note payable to a bank $ 3,377,000 $ -
Current portion of MIFA obligations 130,000 135,000
Current portion of capital lease obligations 104,205 107,860
Accounts payable 5,209,277 5,390,198
Accrued expenses 884,945 1,613,539
--------------- ---------------
Total current liabilities 9,705,427 7,246,597
--------------- ---------------
MIFA OBLIGATIONS, LESS CURRENT PORTION 3,833,336 3,760,000
--------------- ---------------
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION 301,335 206,223
--------------- ---------------
DEFERRED INCOME TAXES 1,178,000 1,026,000
--------------- ---------------
COMMITMENTS (Notes 8 and 13)
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 and 3,340,000 shares at December 31,
1995 and 1996, respectively 7,358,446 13,638,284
Retained earnings 425,532 2,863,684
--------------- ---------------
7,783,978 16,501,968
Less--Note receivable from stockholder/officer (350,000) (297,500)
--------------- ---------------
Total stockholders' equity 7,433,978 16,204,468
--------------- ---------------
$ 22,452,076 $ 28,443,288
============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
F-3
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
NET SALES $ 28,517,662 $ 34,997,567 $ 37,894,238
COST OF GOODS SOLD 18,655,361 23,018,043 23,968,230
--------------- --------------- ---------------
Gross profit 9,862,301 11,979,524 13,926,008
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 7,612,559 8,681,252 9,751,265
--------------- --------------- ---------------
Income from operations 2,249,742 3,298,272 4,174,743
INTEREST INCOME 22,288 1,140 143,606
INTEREST EXPENSE (558,046) (714,346) (339,197)
--------------- --------------- ---------------
Income before provision for income taxes 1,713,984 2,585,066 3,979,152
PROVISION FOR INCOME TAXES 596,000 1,000,000 1,541,000
--------------- --------------- ---------------
Net income $ 1,117,984 $ 1,585,066 $ 2,438,152
=============== =============== ===============
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ .48 $ .68 $ .82
====== ====== ======
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 2,340,000 2,340,000 2,987,932
============= ============= =============
</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
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
Note
Receivable
Common Stock Retained from Total
Number No Earnings Stockholder/ Stockholders'
of Shares Par Value (Deficit) Officer Equity
<S> <C> <C> <C> <C> <C>
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
Initial public offering of common stock,
net of issuance costs of $1,334,129 1,000,000 6,165,871 - - 6,165,871
Proceeds from note receivable from
stockholder/officer - - - 52,500 52,500
Exercise of stockholder's stock repurchase rights - 113,967 - - 113,967
Net income - - 2,438,152 - 2,438,152
------------ ------------- -------------- ----------- -----------
BALANCE, DECEMBER 31, 1996 3,340,000 $ 13,638,284 $ 2,863,684 $ (297,500) $ 16,204,468
============ ============= ============== =========== ============
</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
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,117,984 $ 1,585,066 $ 2,438,152
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 887,483 1,115,964 1,284,827
Compensation expense related to stockholder's stock
repurchase rights - 20,163 -
Provision for deferred (prepaid) income taxes 164,000 524,000 (152,000)
Changes in assets and liabilities-
Accounts receivable (1,333,299) 440,121 (845,290)
Inventories (941,899) (570,274) (466,272)
Prepaid expenses and other current assets 86,517 (372,421) 447,708
Accounts payable 2,199,732 761,631 180,921
Accrued expenses 502,274 (140,014) 614,627
--------------- --------------- --------------
Net cash provided by operating activities 2,682,792 3,364,236 3,502,673
--------------- --------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (4,769,029) (1,058,422) (3,388,476)
Acquisition of certain assets of Poly-Flowlines Company (1,621,348) - -
(Increase) decrease in other assets (493,293) (224,955) 20,927
--------------- --------------- --------------
Net cash used in investing activities (6,883,670) (1,283,377) (3,367,549)
--------------- --------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (payments) on demand note payable to a bank 261,454 (1,897,856) (3,377,000)
Payments on capital lease obligations (6,196) (60,844) (104,524)
Proceeds from issuance of MIFA obligations 4,150,000 - -
Payments on MIFA obligations (104,167) (82,492) (68,336)
Proceeds from initial public offering, net of issuance costs - - 6,165,871
Proceeds from note receivable from stockholder/officer - - 52,500
--------------- --------------- --------------
Net cash provided by (used in) financing activities 4,301,091 (2,041,192) 2,668,511
--------------- --------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 100,213 39,667 2,803,635
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 84,309 184,522 224,189
--------------- --------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 184,522 $ 224,189 $ 3,027,824
=============== =============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $ 536,109 $ 713,207 $ 290,363
=============== =============== ==============
Income taxes $ 111,300 $ 1,032,651 $ 1,106,196
=============== =============== ==============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition of equipment under capital lease obligations $ - $ 434,340 $ 13,063
=============== =============== ==============
Exercise of stockholder's stock repurchase right $ - $ - $ 113,967
=============== =============== ==============
</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
DECEMBER 31, 1996
(1) ORGANIZATION
(a) Historical Background
Asahi/America, Inc. (the Company) was established on August 18, 1977
as a Massachusetts corporation and is involved in the manufacturing
and distribution of thermoplastic valves and piping systems for
environmentally sensitive and industrial applications. These include
chemical processing, semiconductor and pharmaceutical manufacturing,
wastewater treatment and mining. The Company has exclusive
distribution agreements with two international manufacturers.
(b) Acquisition of Poly-Flowlines Company
In July 1994, the Company acquired certain assets of Poly-Flowlines
Company. 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 Company have been
included with those of the Company since July 1, 1994.
(c) Issuance of Stock
On March 31, 1993, the Company sold a total of 1,287,000 shares of
stock to a Japanese valve manufacturer, Asahi Yukizai Kogyo Co., Ltd.,
(official English translation, Asahi Organic Chemicals Industry
Company, Ltd.) (AYK) and Nichimen Corporation, a Japanese trading
company, and Nichimen America Inc., the Japanese trading company's
U.S. affiliate (together, Nichimen).
F-7
<PAGE>
(1) ORGANIZATION (Continued)
(c) Issuance of Stock (Continued)
In connection with the sale of stock, an officer/stockholder had 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 were met, as defined in the stock purchase agreement. The
Company accounted 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 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. The performance
milestones were met as of December 31, 1995, and on March 11, 1996,
the officer/stockholder exercised his right in full and repurchased
140,400 shares from AYK and Nichimen.
(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 and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(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) Cash Equivalents
The company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents. Cash equivalents at
December 31, 1996 consist mainly of treasury note investments.
F-8
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Inventories
The Company accounts for inventories using the lower of last-in,
first-out (LIFO) cost or market value.
The Company currently purchases a significant portion of its inventory
from two suppliers in Japan and Austria (see Note 8(a)). 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.
(e) 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:
Estimated
Asset Classification Useful Life
Machinery and equipment 5-7 Years
Molds and dies 7 Years
Furniture and fixtures 7 Years
Building and improvements 7.5-40 Years
(f) Goodwill
Goodwill was recorded as a result of a change in ownership control in
1989 and the acquisition of Poly-Flowlines Company (see Note 1(b)).
Goodwill is being amortized on a straight-line basis over a 10-year
period, which is management's estimate of its useful life.
(g) Other Assets
Other assets consist primarily of 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 Useful
Asset Classification Life
Debt refinancing costs 2-20 Years
Patents 5-11 Years
The Company assesses the realizability of intangible assets in
accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of. SFAS
No. 121 requires, among other things, that an entity review its
long-lived assets and certain related intangibles for impairment
whenever changes in circumstances indicate that the carrying amount of
an asset may not be fully recoverable. As a result of its review, the
Company does not believe that any impairment currently exists related
to its long-lived assets.
F-9
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(h) Net Income per Common and Common Equivalent Share
Net income per common and common equivalent share for the period ended
December 31, 1996, was computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding
during the period in accordance with the treasury stock method. Net
income per common share for the years ended December 31, 1994 and 1995
has been determined by dividing net income by the weighted average
common shares outstanding during the period. Fully diluted earnings
per common share are not presented, as they are not materially
different from primary earnings per share.
(3) ALLOWANCE FOR DOUBTFUL ACCOUNTS
A summary for the doubtful accounts activity is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Balance, beginning of year $ 177,851 $ 310,862 $ 244,893
Amounts charged to expense 314,475 38,610 67,382
Amounts written off (181,464) (104,579) (29,208)
------------ ------------- -------------
Balance, end of year $ 310,862 $ 244,893 $ 283,067
============ ============ ============
</TABLE>
(4) INVENTORIES
Inventories at December 31, 1995 and 1996 consist of the following:
1995 1996
Raw materials $ 742,526 $ 606,091
Finished goods 7,946,370 8,103,834
LIFO reserve (482,199) (36,956)
-------------- --------------
$ 8,206,697 $ 8,672,969
============== ==============
Had the first-in, first-out (FIFO) method of inventory costing been used by
the Company, inventories at December 31, 1995 and 1996 would have been
$8,688,896 and $8,709,925, respectively.
F-10
<PAGE>
(5) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and consist of the following at
December 31, 1995 and 1996:
1995 1996
Machinery and equipment $ 4,224,017 $ 5,214,979
Molds and dies 962,000 926,199
Furniture and fixtures 299,032 451,997
Building and improvements 3,640,706 5,339,662
Land 780,237 1,220,615
--------------- -------------
9,905,992 13,153,452
Less--Accumulated depreciation
and amortization 2,702,854 3,284,969
--------------- -------------
$ 7,203,138 $ 9,868,483
============== =============
(6) ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 1995 and 1996:
1995 1996
Accrued payroll/payroll-related $ 609,222 $ 821,348
Other accruals 275,723 792,191
-------------- --------------
$ 884,945 $ 1,613,539
============= ==============
(7) 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 (benefit) 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, 1994, 1995 and 1996:
1994 1995 1996
Current-
Federal $ 308,000 $ 364,000 $ 1,436,000
State 124,000 112,000 257,000
-------------- -------------- --------------
432,000 476,000 1,693,000
-------------- -------------- --------------
Deferred-
Federal 127,000 495,000 (111,000)
State 37,000 29,000 (41,000)
-------------- -------------- --------------
164,000 524,000 (152,000)
-------------- -------------- --------------
$ 596,000 $ 1,000,000 $ 1,541,000
============== ============== ==============
F-11
<PAGE>
(7) INCOME TAXES (Continued)
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:
1995 1996
Nondeductible reserves $ 497,000 $ 406,000
Net operating loss carryforwards 223,000 50,000
Depreciation (10,000) (143,000)
LIFO reserve (1,734,000) (1,295,000)
Other temporary differences (54,000) 56,000
------------- -------------
(1,078,000) (926,000)
Valuation allowance (100,000) (100,000)
-------------- --------------
Net deferred tax liability $ (1,178,000) $ (1,026,000)
============= ==============
The Company's policy is to provide for a valuation allowance on deferred
tax assets for which realization is more likely than not ensured.
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Provision at federal statutory rate 34.0% 34.0% 34.0%
State income tax, net of federal benefit 6.3 5.5 4.2
Change in valuation allowance (6.0) (3.5) -
Amortization of goodwill 4.1 2.7 1.8
Other, net (3.6) - (1.3)
------ ------ -----
Effective tax rate 34.8% 38.7% 38.7%
====== ====== ======
</TABLE>
As of December 31, 1996, the Company had net operating loss carryforwards
for income tax purposes of approximately $125,000. 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 utilization of
net operating losses available are limited to approximately $429,000 in any
given year.
F-12
<PAGE>
(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 2(d)). Under the terms of the agreement, the
Company is expected to purchase a total of $140,000,000 of merchandise
over a 10-year period, which began January 2, 1990. The agreement
provides for annual purchase guidelines but does not assess penalties
if either the annual purchase guidelines or other cumulative totals
are not met. The Company has made cumulative purchases of
approximately $61,783,000 under this agreement through December 31,
1996. For their services, Nichimen is paid by AYK a combined markup of
approximately 8% of the invoiced price of the Company's purchase from
AYK.
The Company purchased approximately $10,304,000, $9,971,000 and
$10,351,000 of valves from AYK during the years ended December 31,
1994, 1995 and 1996, respectively. The accompanying consolidated
balance sheets include accounts payable to Nichimen America of
approximately $2,707,000 and $3,329,000 at December 31, 1995 and 1996,
respectively.
To facilitate purchases from AYK, the Company has from time to time
made arrangements with a bank whereby irrevocable letters of credit
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 and 1996, Nichimen America charged the Company a
fee of approximately $47,000 and $10,000, respectively, for this
arrangement. At December 31, 1995 and 1996, 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 (the Father). Management believes
that all transactions were made at terms no less favorable than could
have been obtained from nonrelated parties.
California Office/Warehouse
The Company leased a California facility from a trust of which
the Father is the sole beneficiary. The lease expired on December
31, 1995 and was not renewed.
Customer
The Company sells various products to a company owned by the
Father. Sales to this customer were $296,752, $260,513 and
$306,751 in 1994, 1995 and 1996, respectively.
Pipe Supplier
The Company purchased pipe from a company that was 50% owned by
the Father through September 1994 (the date the Father sold his
interest). Total purchases for the nine months ended September
30, 1994, amounted to $855,000. The Company continues to purchase
from this pipe supplier.
F-13
<PAGE>
(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,
1994, 1995 and 1996 was approximately $(47,000), $391,000 and $378,000,
respectively.
During 1994, the Company purchased products through Nichimen America
denominated in U.S. dollars. During 1995, the arrangement with Nichimen
America was changed, and the Company began to purchase products through
Nichimen America denominated in Japanese yen. Concurrently, 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
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, 1995. At December 31,
1996, the Company had foreign exchange forward contracts, all having
maturities of less than one year, to buy Japanese yen in the amount equal
to $697,824. The deferred gain related to these contracts was $45,852 as of
December 31, 1996.
(10) DEBT
(a) Demand Revolving Loan Payable to a Bank
The Company had a revolving loan with a bank, which expired on August
31, 1996.
(b) MIFA Obligations
In connection with the purchase of its 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 bonds require
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 credit lines (Note 10(c)). As of December 31,
1996, the Company had $3,895,000 outstanding related to the MIFA
obligations.
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 for the bonds approximates the
estimated fair value for the bonds as of December 31, 1996.
F-14
<PAGE>
(10) DEBT (Continued)
(c) Revolving Credit Lines
In January 1997, the Company and its bank executed a loan agreement
that provides for a $5,000,000 committed unsecured revolving credit
line and a $5,000,000 discretionary unsecured revolving credit line.
Interest on the credit lines is based on the prime rate or LIBOR plus
1.65%, as elected by the Company at each borrowing date. The Company
is required to maintain certain financial ratios, including, among
others, minimum working capital and tangible net worth, as defined in
the agreements.
(11) NOTE RECEIVABLE FROM STOCKHOLDER/OFFICER
On October 1, 1991, the Company loaned $350,000 to a stockholder/officer of
the Company. The terms of the loan were amended on March 31, 1993, and
interest began accruing on April 1, 1996 at prime rate (8.25% as of
December 31, 1996) plus 1%. The outstanding principal is due in equal
quarterly payments, which commenced in April 1996, with accrued interest
over a five-year period. The proceeds of the loan were used for the
purchase of Company common stock by the officer from another stockholder.
At December 31, 1996, there is $297,500 outstanding under this note.
(12) STOCKHOLDERS' EQUITY
(a) Initial Public Offering
In May 1996, the Company sold 1,334,000 shares of common stock to the
public, at an offering price of $7.50 per share (including 174,000
shares sold pursuant to an overallotment option exercised by the
underwriters), of which 1,000,000 shares were sold by the Company and
334,000 shares were sold by selling stockholders. Net proceeds to the
Company were $6,165,871, after deducting offering expenses of
$1,334,129.
(b) Stock Split
In March 1996, the Board of Directors approved an 836-to-1 stock split
of the Company's common stock. All share and per share amounts have
been retroactively restated as a result of this stock split.
(c) Preferred Stock
The Board of Directors has 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.
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(12) STOCKHOLDERS' EQUITY (Continued)
(d) Equity Incentive Plan
On March 11, 1996, the Board of Directors and stockholders approved
the Asahi/America Equity Incentive Plan (the Plan). The aggregate
number of shares of common stock that may be issued pursuant to the
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
are determined by the Board of Directors. All options vest in three
equal annual increments beginning on the first anniversary of the date
of grant.
(e) Independent Directors' Stock Option Plan
On March 11, 1996, the Board of Directors and stockholders approved
the Asahi/America Independent Directors' Stock Option Plan (the
Directors' Plan). The Directors' 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 Directors' Plan.
The following schedules summarize the activity under the Company's
stock option plans for the year ended December 31, 1996:
Equity Incentive Plan
Weighted
Average
Exercise
Shares Price
Granted, Fiscal 1996 339,500 $ 7.56
Canceled (9,500) 7.50
------------- -----------
Outstanding, December 31, 1996 330,000 $ 7.50 -7.56
============= ==============
Independent Directors' Stock
Option Plan
Weighted
Average
Exercise
Shares Price
Granted, Fiscal 1996 20,000 $ 7.50
--------- -------
Outstanding, December 31, 1996 20,000 $ 7.50
========= =======
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<PAGE>
(12) STOCKHOLDERS' EQUITY (Continued)
(e) Independent Directors' Stock Option Plan (Continued)
There were no stock options exercisable under either stock option plan
as of December 31, 1996.
There were no stock options available for future grants under either
stock option plan as of December 31, 1996.
(f) Employee Stock Purchase Plan
In July 1996, the Company established the Asahi/America, Inc. Employee
Stock Purchase Plan (the Purchase Plan), which allows substantially
all employees to acquire shares of the common stock of the Company.
The Purchase Plan authorizes the issuance of up to a total of 150,000
shares of common stock to participating employees.
The price at which shares may be purchased will be at 85% of the fair
market value per share of the common stock on either the annual
offering commencement date or the annual offering termination date.
Purchases under the Purchase Plan are subject to certain limitations,
as defined. During fiscal 1996, there were no shares issued under the
Purchase Plan as the annual offering termination date had not yet
occurred.
(g) Stock-Based Compensation Plans
In October 1995, SFAS No. 123, Accounting for Stock-Based
Compensation, was issued, which is effective for fiscal years
beginning after December 15, 1995. SFAS No. 123 established a
fair-value based method of accounting for stock-based compensation
plans. The Company has adopted the disclosure-only alternative under
SFAS No. 123 for stock options granted to employees and directors,
which requires disclosure of the pro forma effects on earnings and
earnings per share as if SFAS No. 123 had been adopted, as well as
certain other information. The Company accounts for stock-based
compensation in accordance with Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, as permitted by SFAS
No. 123.
The Company had no stock option grants prior to 1996, accordingly, the
Company has only computed the pro forma disclosures required under
SFAS No. 123 for all stock options granted in 1996 and under the
Purchase Plan using the Black-Scholes option pricing model.
The assumptions used for the year ended December 31, 1996 are as
follows:
1996
Risk-free interest rates 6.48%-6.69%
Expected dividend yield 0%
Expected lives 5 years
Expected volatility 25%
Weighted average remaining contractual
life of options outstanding 9.33 years
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<PAGE>
(12) STOCKHOLDERS' EQUITY (Continued)
(g) Stock-Based Compensation Plans (Continued)
The pro forma effect of applying SFAS No. 123 would be as follows:
1996
Net income as reported $ 2,438,152
===============
Pro forma net income $ 2,226,948
===============
Net income per share as reported $ .82
===============
Pro forma net income per share $ .77
===============
(h) New Accounting Standard
In March 1997, the Financial Accounting Standards Board issued SFAS
No. 128, Earnings Per Share. SFAS No. 128 establishes standards for
computing and presenting earnings per share and applies to entities
with publicly held common stock or potential common stock. This
statement is effective for fiscal years ending after December 15, 1997
and early adoption is not permitted. When adopted, the statement will
require restatement of prior years' earnings per share. The Company
will adopt this statement for its fiscal year ending December 31,
1997. In addition, the Company believes that the adoption of SFAS No.
128 will not have a material effect on its financial statements.
(13) COMMITMENTS
(a) Lease Commitments
The Company leases certain office space and certain equipment under
operating leases through May 2001. The approximate future minimum
lease payments under these leases are as follows:
Year Amount
1997 $ 303,000
1998 251,000
1999 206,000
2000 135,000
2001 19,000
------------
Total minimum lease payments $ 914,000
============
(b) Capital Leases
Rental expense incurred under these leases and charged to operations
was approximately $316,000, $165,000 and $204,000 for the years ended
December 31, 1994, 1995 and 1996, respectively.
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<PAGE>
(13) COMMITMENTS (Continued)
(b) Capital Leases (Continued)
The Company leases certain equipment under capital leases. Future
minimum lease payments under these leases as of December 31, 1996 are
as follows:
Year Amount
1997 $ 131,510
1998 103,124
1999 71,262
2000 56,178
-------------
Total minimum lease payments 362,074
Less--Amount representing interest 47,991
Capital lease obligations 314,083
Less--Current portion of capital lease obligations 107,860
-------------
$ 206,223
(c) Self-Insurance
The Company is self-insured for a portion of its employee medical
claims. The Company's maximum self-insured exposure is $35,000
annually for individual employee claims, up to a maximum
aggregate exposure limit of $385,000 annually for all employee
claims.
(14) OTHER EMPLOYEE BENEFITS
(a) 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 contributions to the Plan of $100,000 in 1994, 1995
and 1996.
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
based upon a maximum of 4% of each eligible employee's
compensation. The Company's matching contributions were
approximately $25,000, $27,000 and $31,000 for the years ended
December 31, 1994, 1995 and 1996, respectively.
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<PAGE>
(14) OTHER EMPLOYEE BENEFITS (Continued)
(b) Postretirement and Postemployment Benefits
The Company has no obligations for postretirement or
postemployment benefits.
(15) SIGNIFICANT CUSTOMER AND EXPORT SALES
During 1994, 1995 and 1996, one customer accounted for 19%, 26% and 23%,
respectively, of net sales. During 1994, 1995 and 1996, export sales
accounted for 12%, 5% and 4%, respectively, of net sales.
F-20
ASAHI/AMERICA, INC.
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I -- PURPOSE
1.01. Purpose
The Asahi/America, Inc. Employee Stock Purchase Plan is intended to
provide the employees of Asahi/America Inc. and its subsidiary corporations
(hereinafter referred to, unless the context otherwise requires, as the
"Company") the opportunity to acquire a proprietary interest in the Company
through the purchase of shares of the Common Stock of the Company. It is the
intention of the Company that the Plan qualify as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code of 1986, as amended (the
"Code"). The provisions of the Plan shall be construed so as to extend and limit
participation in a manner consistent with the requirements of Section 423 of the
Code.
ARTICLE II -- DEFINITIONS
2.01. "Base Pay" means regular straight-time earnings, excluding payments for
overtime, shift premium, bonuses and other special payments, commissions and
other incentive payments.
2.02. "Committee" means the individuals described in Article XI.
2.03. "Common Stock" or "stock" means the Common Stock, no par value, of the
Company.
2.04. "Employee" means any person who is customarily employed on a full-time or
part-time basis by the Company and is regularly scheduled to work more than 20
hours per week and more than five months per calendar year.
2.05. "Subsidiary Corporation" means any present or future corporation which (i)
would be a "subsidiary corporation" of Asahi/America, Inc. as that term is
defined in Section 424 of the Code and (ii) is designated as a participant in
the Plan by the Committee.
ARTICLE III -- ELIGIBILITY AND PARTICIPATION
3.01. Initial Eligibility.
Except as otherwise provided in this Plan, each and every employee of
the Company shall be eligible to participate in offerings under the Plan which
commence on or after the respective employee's commencement date of employment.
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3.02. Leave of Absence.
For purposes of participation in the Plan, an employee on leave of
absence shall be deemed to be an employee for the first 90 days of such leave of
absence and such employee's employment shall be deemed to terminate at the close
of business on the 90th day of such leave of absence unless such employee shall
have returned to regular full-time or part-time employment (as the case may be)
prior to the close of business on such 90th day. Termination of any employee's
leave of absence, other than termination of such leave of absence by return to
full time or part time employment, shall terminate an employee's employment for
all purposes of the Plan and shall terminate such employee's participation in
the Plan and right to exercise any option.
3.03. Restrictions on Participation.
Notwithstanding any provisions of the Plan to the contrary, no employee
shall be granted an option to participate in the Plan:
(a) if, immediately after the grant, such employee would own stock
and/or hold outstanding options to purchase stock possessing 5% or more
of the total combined voting power or value of all classes of stock of
the Company (for purposes of this paragraph, the rules of Section
424(d) of the Code shall apply in determining stock ownership of any
employee); or
(b) which permits his rights to purchase stock under all employee stock
purchase plans of the Company to accrue at a rate which exceeds $25,000
in fair market value of the stock (determined at the time such option
is granted) for each calendar year in which such option is outstanding.
3.04. Commencement of Participation.
An eligible employee may become a participant by completing an
authorization for a payroll deduction on the form provided by the Company and
delivering it to the Treasurer of the Company on or before the date set therefor
by the Committee, which date shall be prior to the Offering Commencement Date
for the Offering (as such terms are defined below). Payroll deductions for a
participant shall commence on the applicable Offering Commencement Date when his
authorization for a payroll deduction becomes effective and shall end on the
Offering Termination Date of the Offering to which such authorization is
applicable, unless sooner terminated by the participant as provided in Article
VIII.
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<PAGE>
ARTICLE IV -- OFFERINGS
4.01. Annual Offerings.
The Plan will be implemented by an initial offering (the "Initial
Offering") and eight subsequent semi-annual offerings (the "Semi-Annual
Offerings" and each a "Semi-Annual Offering") of the Company's Common Stock. The
Initial Offering shall commence on July 15, 1996 (the "Plan Commencement Date"),
and shall terminate on June 30, 1997. The subsequent Semi-Annual Offerings shall
commence on the first day of July and on the first day of the following January,
and shall terminate on the 31st day of December and 30th day of June,
respectively, with the first Semi-Annual Offering commencing on July 1, 1997,
and the last Semi-Annual Offering commencing on January 1, 2001. The maximum
number of shares to be issued in the Initial and subsequent Semi-Annual
Offerings shall be:
[bullet] Initial Offering from the Plan Commencement Date to June 30, 1997:
30,000 shares.
[bullet] Semi-Annual Offering from July 1, 1997 to December 31, 1997:
15,000 shares plus unissued shares from the prior Offerings,
whether offered or not.
[bullet] Semi-Annual Offering from January 1, 1998 to June 30, 1998: 15,000
shares plus unissued shares from the prior Offerings, whether
offered or not.
[bullet] Semi-Annual Offering from July 1, 1998 to December 31, 1998:
15,000 shares plus unissued shares from the prior Offerings,
whether offered or not.
[bullet] Semi-Annual Offering from January 1, 1999 to June 30, 1999: 15,000
shares plus unissued shares from the prior Offerings, whether
offered or not.
[bullet] Semi-Annual Offering from July 1, 1999 to December 31, 1999:
15,000 shares plus unissued shares from the prior Offerings,
whether offered or not.
[bullet] Semi-Annual Offering from January 1, 2000 to June 30, 2000: 15,000
shares plus unissued shares from the prior Offerings, whether
offered or not.
[bullet] Semi-Annual Offering from July 1, 2000 to December 31, 2000:
15,000 shares plus unissued shares from the prior Offerings,
whether offered or not.
[bullet] Semi-Annual Offering from January 1, 2001 to June 30, 2001: 15,000
shares plus unissued shares from the prior Offerings, whether
offered or not.
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<PAGE>
As used in the Plan, "Offering Commencement Date" means the Plan Commencement
Date, January 1 or July 1, as the case may be, on which the particular Offering
begins and "Offering Termination Date" means the June 30 or December 31, as the
case may be, on which the particular Offering terminates.
ARTICLE V -- PAYROLL DEDUCTIONS
5.01. Amount of Deduction.
At the time a participant files his authorization for payroll
deduction, he shall elect to have deductions made from his pay on each payday
during the time he is a participant in an Offering at the rate of 1, 2, 3, 4, 5,
6, 7, 8, 9 or 10% of his base pay in effect at the Offering Commencement Date of
such Offering, but in no event less than $10.00 per pay period. In the case of
an eligible part-time hourly employee, such employee's base pay during an
Offering shall be determined by multiplying such employee's hourly rate of pay
in effect on the Offering Commencement Date by the number of regularly scheduled
hours of work for such employee during such Offering.
5.02. Participant's Account.
All payroll deductions made for a participant shall be credited to his
account under the Plan. A participant may not make any separate cash payment
into such account except when on leave of absence and then only as provided in
Section 5.04.
5.03. Changes in Payroll Deductions.
A participant may discontinue his participation in the Plan as provided
in Article VIII, but no other change can be made during an Offering and,
specifically, a participant may not alter the amount of his payroll deductions
for that Offering.
5.04. Leave of Absence.
If a participant goes on a leave of absence, such participant shall
have the right to elect: (a) to withdraw the balance in his or her account
pursuant to Section 7.02, (b) to discontinue contributions to the Plan but
remain a participant in the Plan, or (c) remain a participant in the Plan during
such leave of absence, authorizing deductions to be made from payments by the
Company to the participant during such leave of absence and undertaking to make
cash payments to the Plan at the end of each payroll period to the extent that
amounts payable by the Company to such participant are insufficient to meet such
participant's authorized Plan deductions.
ARTICLE VI -- GRANTING OF OPTION
6.01. Number of Option Shares.
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<PAGE>
On the Commencement Date of each Offering, a participating employee
shall be deemed to have been granted an option to purchase a maximum number of
shares of the stock of the Company equal to an amount determined as follows: an
amount equal to (i) that percentage of the employee's base pay which he has
elected to have withheld (but not in any case in excess of 10%) multiplied by
(ii) the employee's base pay during the period of the Offering plus (iii)
imputed interest (calculated as provided in Section 9.01) on that amount (iv)
divided by 85% of the market value of the stock of the Company on the applicable
Offering Commencement Date. The market value of the Company's stock shall be
determined as provided in paragraphs (a) and (b) of Section 6.02 below. An
employee's base pay during the period of an Offering shall be determined by
multiplying, in the case of the Initial Offering, his normal weekly rate of pay
(as in effect on the last day prior to the Commencement Date of the particular
Offering) by 50 or the hourly rate by 2,000 or, in the case of a Semi-Annual
Offering, by 26 or 1040, as the case may be, provided that, in the case of an
eligible part-time hourly employee, the employee's base pay during the period of
an Offering shall be determined by multiplying such employee's hourly rate of
pay in effect on the Offering Commencement Date by the number of regularly
scheduled hours of work for such employee during such Offering.
6.02. Option Price.
The option price of stock purchased with payroll deductions made during
an Offering for a participant therein shall be the lower of:
(a) 85% of the closing price of the stock on the Offering Commencement
Date or the nearest prior business day on which trading occurred on the
Nasdaq National Market; or
(b) 85% of the closing price of the stock on the Offering Termination
Date or the nearest prior business day on which trading occurred on the
Nasdaq National Market. If the Common Stock of the Company is not
admitted to trading on any of the aforesaid dates for which closing
prices of the stock are to be determined, then reference shall be made
to the fair market value of the stock on that date, as determined on
such basis as shall be established or specified for the purpose by the
Committee.
ARTICLE VII -- EXERCISE OF OPTION
7.01. Automatic Exercise.
Unless a participant gives written notice to the Company as hereinafter
provided, his option for the purchase of stock with payroll deductions made
during any Offering will be deemed to have been exercised automatically on the
Offering Termination Date applicable to such Offering, for the purchase of the
number of full shares of stock which the accumulated payroll deductions in his
account at that time plus accrued interest will purchase at the applicable
option price (but not in excess of the number of shares for
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<PAGE>
which options have been granted to the employee pursuant to Section 6.01), and
any excess in his account at that time will be returned to him.
7.02. Withdrawal of Account.
By written notice to the Treasurer of the Company, at any time prior to
the Offering Termination Date applicable to any Offering, a participant may
elect to withdraw all the accumulated payroll deductions plus accrued interest
in his account at such time.
7.03. Fractional Shares.
Fractional shares will not be issued under the Plan and any balance in
his account which would have been used to purchase fractional shares will be
returned to any employee promptly following the termination of an Offering.
7.04. Transferability of Option.
During a participant's lifetime, options held by the participant shall
be exercisable only by the participant.
7.05. Delivery of Stock.
As promptly as practicable after the Offering Termination Date of each
Offering, the Company will deliver to each participant, as appropriate, the
stock purchased upon exercise of his option.
ARTICLE VIII -- WITHDRAWAL
8.01. In General.
As indicated in Section 7.02, a participant may withdraw payroll
deductions plus accrued interest credited to his account under the Plan at any
time by giving written notice to the Treasurer of the Company prior to the
Offering Termination Date applicable to any Offering. All of the participant's
payroll deductions credited to his account plus accrued interest will be paid to
him promptly after receipt of his notice of withdrawal, and no further payroll
deductions will be made from his pay during such Offering. The Company may, at
its option, treat any attempt to borrow by an employee on the security of his
accumulated payroll deductions as an election, under Section 7.02, to withdraw
such deductions.
8.02. Effect on Subsequent Participation.
A participant's withdrawal from any Offering will not have any effect
upon his eligibility to participate in any succeeding Offering or in any similar
plan which may hereafter be adopted by the Company.
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<PAGE>
8.03. Termination of Employment.
Upon termination of the participant's employment for any reason,
including retirement (but excluding death while in the employ of the Company or
continuation of a leave of absence for a period beyond 90 days), the payroll
deductions plus accrued interest credited to his account will be returned to
him, or, in the case of his death subsequent to the termination of his
employment, to the person or persons entitled thereto under Section 12.01.
8.04. Termination of Employment Due to Death.
Upon termination of the participant's employment because of his death,
his beneficiary (as defined in Section 12.01) shall have the right to elect, by
written notice given to the Treasurer of the Company prior to the earlier of the
Offering Termination Date or the expiration of a period of sixty (60) days
commencing with the date of the death of the participant, either:
(a) to withdraw all of the payroll deductions plus accrued interest
credited to the participant's account under the Plan, or
(b) to exercise the participant's option for the purchase of stock on
the Offering Termination Date next following the date of the
participant's death for the purchase of the number of full shares
of stock which the accumulated payroll deductions plus accrued
interest in the participant's account at the date of the
participant's death will purchase at the applicable option price,
and any excess in such account will be returned to said
beneficiary.
In the event that no such written notice of election shall be duly received by
the office of the Treasurer of the Company, the beneficiary shall automatically
be deemed to have elected, pursuant to paragraph (b), to exercise the
participant's option.
8.05. Leave of Absence.
A participant on leave of absence shall, subject to the election made
by such participant pursuant to Section 5.04, continue to be a participant in
the Plan so long as such participant is on continuous leave of absence. A
participant who has been on leave of absence for more than 90 days and who
therefore is not an employee for the purpose of the Plan shall not be entitled
to participate in any Offering commencing after the 90th day of such leave of
absence. Notwithstanding any other provisions of the Plan, unless a participant
on leave of absence returns to regular full time or part time employment with
the Company at the earlier of: (a) the termination of such leave of absence or
(b) three months from the 90th day of such leave of absence, such participant's
participation in the Plan shall terminate on whichever of such dates first
occurs.
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<PAGE>
ARTICLE IX -- INTEREST
9.01. Payment of Interest.
Interest will accrue on all amounts paid into the Plan or credited to
the account of any participant employee, and shall be paid on any and all money
which is distributed to an employee or his beneficiary pursuant to the
provisions of Sections 7.02, 8.01, 8.03, 8.04 and 10.01. Such distributions
shall bear simple interest during the period from the date of withholding to the
date of return at the regular passbook savings account rates per annum in effect
at the First National Bank of Boston, Boston, Massachusetts, during the
applicable Offering period or, if such rates are not published or otherwise
available for such purpose, at the regular passbook savings account rates per
annum in effect during such period at another major commercial bank in Boston,
Massachusetts, selected by the Committee. Where the amount returned represents
an excess amount in an employee's account after such account has been applied to
the purchase of stock, the employee's withholding account shall be deemed to
have been applied first toward purchase of stock under the Plan, so that
interest shall be paid on the last withholdings during the period which results
in the excess amount.
ARTICLE X -- STOCK
10.01. Maximum Shares.
The maximum number of shares of the Company's Common Stock which shall
be issued under the Plan, subject to adjustment upon changes in capitalization
of the Company as provided in Section 12.04, shall be 30,000 shares in the
Initial Offering and 15,000 shares in each Semi-Annual Offering (plus in each
Offering all unissued shares from prior Offerings, whether offered or not), not
to exceed 150,000 shares for all Offerings. If the total number of shares for
which options are exercised on any Offering Termination Date in accordance with
Article VI exceeds the maximum number of shares for the applicable Offering, the
Company shall make a pro rata allocation of the shares available for delivery
and distribution in as nearly a uniform manner as shall be practicable and as it
shall determine to be equitable, and the balance of payroll deductions plus
accrued interest credited to the account of each participant under the Plan
shall be returned to him as promptly as possible.
10.02. Participant's Interest in Option Stock.
The participant will have no interest in stock covered by his option
until such option has been exercised.
10.03. Registration of Stock.
Stock to be delivered to a participant under the Plan will be
registered in the name of the participant, or, if the participant so directs by
written notice to the Treasurer of the
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<PAGE>
Company prior to the Offering Termination Date applicable thereto, in the names
of the participant and one such other person as may be designate by the
participant, as joint tenants with rights of survivorship or as tenants by the
entirety, to the extent permitted by applicable law.
10.04. Restrictions on Exercise.
The Board of Directors may, in its discretion, require as conditions to
the exercise of any option that the shares of Common Stock reserved for issuance
upon the exercise of the option shall have been duly listed, upon official
notice of issuance, on the Nasdaq National Stock Market or another stock
exchange, and that either:
(a) a Registration Statement under the Securities Act of 933, as
amended, with respect to said shares shall be effective, or
(b) the participant shall have represented at the time of purchase, in
form and substance satisfactory to the Company, that it is his
intention to purchase the shares for investment and not for resale
or distribution.
ARTICLE XI -- ADMINISTRATION
11.01. Appointment of Committee.
The Board of Directors shall appoint a committee (the "Committee") to
administer the Plan, which shall consist of no fewer than three members of the
Board of Directors. No member of the Committee shall be eligible to purchase
stock under the Plan. In the absence of the appointment of a separate committee
to administer the Plan, the Plan shall be administered by the Compensation
Committee of the Company's Board of Directors.
11.02. Authority of Committee.
Subject to the express provisions of the Plan, the Committee shall have
plenary authority in its discretion to interpret and construe any and all
provisions of the Plan, to adopt rules and regulations for administering the
Plan, and to make all other determinations deemed necessary or advisable for
administering the Plan. The Committee's determination on the foregoing matters
shall be conclusive.
11.03. Rules Governing the Administration of the Committee.
The Board of Directors may from time to time appoint members of the
Committee in substitution for or in addition to members previously appointed and
may fill vacancies, however caused, in the Committee. The Committee may select
one of its members as its Chairman and shall hold its meetings at such times and
places as it shall deem advisable and may hold telephonic meetings. A majority
of the Committee's members hall constitute a quorum. All determinations of the
Committee shall be made by a majority of
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<PAGE>
its members. The Committee may correct any defect or omission or reconcile any
inconsistency in the Plan, in the manner and to the extent it shall deem
desirable. Any decision or determination reduced to writing and signed by a
majority of the members of the Committee shall be as fully effective as if it
had been made by a majority vote at a meeting duly called and held. The
Committee may appoint a secretary and shall make such rules and regulations for
the conduct of its business as it shall deem advisable.
ARTICLE XII -- MISCELLANEOUS
12.01. Designation of Beneficiary.
A participant may file a written designation of a beneficiary who is to
receive any stock and/or cash under the Plan. Such designation of beneficiary
may be changed by the participant at any time by written notice to the Treasurer
of the Company. Upon the death of a participant and upon receipt by the Company
of proof of identity and existence at the participant's death of a beneficiary
validly designated by him under the Plan, the Company shall deliver such stock
and/or cash to such beneficiary. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such participant's death, the Company shall deliver such stock
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such stock and/or cash
to the spouse or to any one or more dependents of the participant as the Company
may designate. No beneficiary shall, prior to the death of the participant by
whom he has been designated, acquire any interest in the stock or cash credited
to the participant under the Plan.
12.02. Transferability.
Neither payroll deductions credited to a participant's account nor any
rights with regard to the exercise of an option or to receive stock under the
Plan may be assigned, transferred, pledged, or otherwise disposed of in any way
by the participant other than by will or the laws of descent and distribution.
Any such attempted assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds in accordance with Section 7.02.
12.03. Use of Funds.
All payroll deductions received or held by the Company under this Plan
may be used by the Company for any corporate purpose and the Company shall not
be obligated to segregate such payroll deductions.
12.04. Adjustment Upon Changes in Capitalization.
(a) If, while any options are outstanding under the Plan, the
outstanding shares of Common Stock of the Company have increased, decreased,
changed into, or been
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exchanged for a different number or kind of shares or securities of the Company
through reorganization, merger, recapitalization, reclassification, stock split,
reverse stock split or similar transaction, appropriate and proportionate
adjustments may be made by the Committee in the number and/or kind of shares
which are subject to purchase under outstanding options and to the option
exercise price or prices applicable to such outstanding options. In addition, in
any such event, the number and/or kind of shares which may be offered in the
Offerings described in Article IV hereof shall also be proportionately adjusted.
No adjustments shall be made for stock dividends. For the purposes of this
Section, any distribution of shares to shareholders in an amount aggregating 20%
or more of the outstanding shares shall be deemed a stock split and any
distributions of shares aggregating less than 20% of the outstanding shares
shall be deemed a stock dividend.
(b) Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of substantially all of the property or stock of the Company to
another corporation, the holder of each option then outstanding under the Plan
will thereafter be entitled to receive at the next Offering Termination Date
upon the exercise of such option for each share as to which such option shall be
exercised, as nearly as reasonably may be determined, the cash, securities
and/or property which a holder of one share of the Common stock was entitled to
receive upon and at the time of such transaction. The Board of Directors shall
take such steps in connection with such transactions as the Board shall deem
necessary to assure that the provisions of this Section 12.04 shall thereafter
be applicable, as nearly as reasonably may be determined, in relation to the
said cash, securities and/or property as to which such holder of such option
might thereafter be entitled to receive.
12.05. Amendment and Termination.
The Board of Directors shall have complete power and authority to
terminate or amend the Plan; provided, however, that the Board of Directors
shall not, without the approval of the stockholders of the Corporation, (i)
increase the maximum number of shares which may be issued under the Plan (except
pursuant to Section 12.04); (ii) amend the requirements as to the class of
employees eligible to purchase stock under the Plan or permit the members of the
Committee to purchase stock under the Plan. No termination, modification, or
amendment of the Plan may, without the consent of an employee then having an
option under the Plan to purchase stock, adversely affect the rights of such
employee under such option.
12.06. Effective Date.
The Plan shall become effective as of July 15, 1996, subject to
approval by the holders of the majority of the Common Stock present and
represented at a special or annual meeting of the stockholders held on or before
July 15, 1997. If the Plan is not so approved, the Plan shall not become
effective.
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12.07. No Employment Rights.
The Plan does not, directly or indirectly, create any right for the
benefit of any employee or class of employees to purchase any shares under the
Plan, or create in any employee or class of employees any right with respect to
continuation of employment by the Company, and it shall not be deemed to
interfere in any way with the Company's right to terminate, or otherwise modify,
an employee's employment at any time.
12.08. Effect of Plan.
The provisions of the Plan shall, in accordance with its terms, be
binding upon, and inure to the benefit of, all successors of each employee
participating in the Plan, including, without limitation, such employee's estate
and the executors, administrators or trustees thereof, heirs and legatees, and
any receiver, trustee in bankruptcy or representative of creditors of such
employee.
12.09. Governing Law.
The law of The Commonwealth of Massachusetts will govern all matters
relating to this Plan except to the extent it is superseded by the laws of the
United States.
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Exhibit 10.4.1
CREDIT AGREEMENT
This CREDIT AGREEMENT is made as of January 23, 1997, by and among
CITIZENS BANK OF MASSACHUSETTS, a Massachusetts banking corporation with its
principal office at 55 Summer Street, Boston, Massachusetts (the "Lender");
ASAHI/AMERICA, INC., a Massachusetts business corporation ("AAI") and ASAHI
ENGINEERED PRODUCTS, INC., a Massachusetts business corporation ("AEPI") (AAI
and AEPI are sometimes hereinafter referred to collectively as the "Borrowers"
and individually as a "Borrower").
In consideration of any loans or other financial accommodations made
or to be made hereunder, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties jointly
and severally agree as follows:
Section 1. Certain Definitions. The following terms shall have
the meanings set forth in this S1 or elsewhere in this Agreement.
"Acquisition" has the meaning given to it in Section 6.11.
"Affiliate" means singly and collectively, any Person (including
without limitation a Subsidiary) which, directly or indirectly, is in control
of, is controlled by, or is under common control with, a Borrower, and the legal
representative, successor or assignee of any such Person. For purposes of this
definition, a Person shall be deemed to be "controlled by" another Person if
such other Person possesses, directly or indirectly, power either to (i) vote
10% or more of the securities having ordinary voting power for the election of
directors of the Person controlled, or (ii) direct or cause the direction of the
management and policies of the Person controlled, whether such power arises by
contract or otherwise.
Agreement. This Credit Agreement, including the Exhibits
and Schedules hereto, as in effect at the time of reference
thereto.
Audit Fee means a fee of $300.00 per person per day for each
examination performed by the Lender as provided in Section 6.5 hereof, plus all
out-of-pocket costs incurred by the Lender in connection therewith.
Bond Reimbursement Agreement means that certain Reimbursement
Agreement dated as of March 1, 1994 between the Borrower and Citizens Trust
Company, an affiliate of Lender ("Citizens") with respect to the reimbursement
obligations of the Borrower in
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respect of a letter of credit dated March 16, 1994 issued by Citizens for the
account of the AAI relating to the Bonds, including any amendments to,
restatements of or successor agreement to said agreement.
Bonds means those certain Massachusetts Industrial Finance Agency
Industrial Revenue Bonds Asahi/America Issue, Series 1994, including any bonds
issued in renewal or refunding thereof.
Business Day. Any day on which Lender's head office in Boston,
Massachusetts is open for the transaction of commercial banking business, and in
the case of any LIBOR Loan, any day that the Lender or its participant in the
Loan conducts eurodollar market activities.
Capitalized Lease Obligations means all lease obligations which have
been or should be, in accordance with GAAP, capitalized on the books of the
lessee.
Cash Equivalent Investments means any Investment in (i) direct
obligations of the United States or any agency, authority or instrumentality
thereof, or obligations guaranteed by the United States or any agency, authority
or instrumentality thereof, whether or not supported by the full faith and
credit of, a right to borrow from or the ability to be purchased by the United
States; (ii) commercial paper rated in the highest grade by a nationally
recognized statistical rating agency or which, if not rated, is issued or
guaranteed by any issuer with outstanding long-term debt rated A or better by
any nationally recognized statistical rating agency; (iii) demand and time
deposits with, and certificates of deposit and bankers acceptances issued by,
any office of the Lender or any of its Affiliates, or any other bank or trust
company which is organized under the laws of the United States or any state
thereof and has capital, surplus and undivided profits aggregating at least
$500,000,000; (iv) any short-term note which has a rating of MIG-2 or better by
Moody's Investors Service Inc. or a comparable rating from any other nationally
recognized statistical rating agency; (v) any municipal bond or other
governmental obligation (including without limitation any industrial revenue
bond or project note) which is rated A or better by any nationally recognized
statistical rating agency; (vi) any other obligation of any issuer, the
outstanding long-term debt of which is rated A or better by any nationally
recognized statistical rating agency; or (vii) any repurchase agreement with any
financial institution described in clause (iii) above, relating to any of the
foregoing instruments and fully collateralized by such instruments. Each Cash
Equivalent Investment shall have a maturity of less than one year at the time of
purchase; provided that the maturity of any repurchase
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agreement shall be deemed to be the repurchase date and not the maturity of the
subject security and that the maturity of any variable or floating rate note
subject to prepayment at the option of the holder shall be the period remaining
(including any notice period remaining) before the holder is entitled to
prepayment.
Cash Flow means, on a consolidated basis for a particular period,
EBIT for such period, plus all depreciation, amortization and other non-cash
charges taken by AAI and/or its Subsidiaries in accordance with GAAP and
deducted in computing its Net Income for such period, minus any capital
expenditures made during such period, but only to the extent such capital
expenditures were not financed by the incurrence of long-term indebtedness, as
defined in accordance with GAAP, and minus any taxes paid in cash by AAI and its
Subsidiaries during such period.
Closing Date. The date on which the first Loan is made
hereunder.
Consolidated Current Assets means as to each Borrower all cash, Cash
Equivalent Investments, trade accounts receivable, inventory and marketable
securities of such Borrower and its Subsidiaries which would, in accordance with
GAAP on a consolidated basis, be classified as current assets of corporations
conducting a business the same as or similar to that of such Borrower and/or its
Subsidiaries, excluding any intangible assets (as intangible assets are defined
under the definition of Consolidated Total Tangible Assets below).
Consolidated Current Liabilities means as to each Borrower all
liabilities of such Borrower and its Subsidiaries which would, in accordance
with GAAP on a consolidated basis, be classified as current liabilities of
corporations conducting a business the same as or similar to that of such
Borrower and/or its Subsidiaries, including, without limitation, all lease
rental payments under Capitalized Lease Obligations and fixed prepayments of,
and sinking fund payments and reserves with respect to, Indebtedness, in each
case required to be made within one year from the date of determination.
Consolidated Total Tangible Assets means as to each Borrower all
assets of such Borrower and its Subsidiaries which would, in accordance with
GAAP on a consolidated basis, be classified as assets of a corporation
conducting a business the same as or similar to that of such Borrower and any of
its Subsidiaries, such total assets to be determined in accordance with GAAP
consistent with those applied in the preparation of the audited financial
statements referred to in Section 6.6, excluding however, from
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the determination of total assets (i) all assets which would be classified as
intangible assets under GAAP, including without limitation goodwill (whether
representing the excess of cost over book value of assets acquired or
otherwise), patents, trademarks, trade names, copyrights, franchises, the
benefit of a covenant not to compete and deferred charges (including, without
limitation, unamortized debt discount and expense, organization costs, and
research and development costs), (ii) treasury stock and interests of less than
51% of any other corporation or business entity, (iii) cash set apart and held
in a sinking or other analogous fund established for the purpose of redemption
or other retirement of capital stock, (iv) to the extent not already deducted
from total assets, reserves for depreciation, depletion, obsolescence and/or
amortization of properties and all other reserves or appropriations of retained
earnings which, in accordance with GAAP, should be established in connection
with the business conducted by the Person whose tangible net worth is being
determined, (v) any upward revaluation or other write-up in book value of assets
subsequent to the date of the audited financial statements referred to in
Section 6.6 and (vi) loans and advances to shareholders, directors, officers or
employees of a Borrower or any of its Subsidiaries.
Consolidated Total Liabilities means as to each Borrower all
liabilities of such Borrower and its Subsidiaries which would, in accordance
with GAAP on a consolidated basis, be classified as liabilities of a corporation
conducting a business the same as or similar to that of such Borrower and any of
its Subsidiaries, including, without limitation, all lease rental payments under
Capitalized Lease Obligations and fixed prepayments of, and sinking fund payment
and reserves with respect to, Indebtedness.
Default means an event or condition which with the giving of notice
or lapse of time or both would become an Event of Default.
EBIT means, for any period, Net Income (loss) during such fiscal
period, plus the amount, if any, deducted in the calculation thereof with
respect to (i) interest expensed by AAI and its Subsidiaries during such period,
and (ii) any taxes expensed by AAI and its Subsidiaries during such period, all
determined in accordance with GAAP.
Event of Default. Has the meaning given to it in Section 7 hereof.
GAAP Has the meaning given to it in Section 4.4 hereof.
Hazardous Material means any substance or material defined or
designated as a hazardous or toxic waste, hazardous or toxic material, hazardous
or toxic substance, or other similar term, by
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any federal, state or local environmental statute, regulation or ordinance.
Indebtedness means, for any Person, (i) all indebtedness or other
obligations of said Person for borrowed money or for the deferred purchase price
of property or services, (ii) all indebtedness or other obligations of any other
Person ("Other Person") for borrowed money or for the deferred purchase price of
property or services, the payment or collection of which said Person has
guaranteed (except by reason of endorsement of negotiable instruments for
collection in the ordinary course of business) or in respect of which said
Person is liable, contingently or otherwise, including, without limitation,
liable by way of agreement to purchase or lease, to provide funds for payment,
to supply funds to purchase, sell or lease property or services primarily to
assure a creditor of such Other Person against loss or otherwise to invest in or
make a loan to the Other Person, or otherwise to assure a creditor of such Other
Person against loss, (iii) all indebtedness or other obligations of any Person
for borrowed money or for the deferred purchase price of property or services
secured by (or for which the holder of such indebtedness has an existing right,
contingent or otherwise, to be secured by) any lien upon or in any property
owned by said Person, whether or not said Person has assumed or become liable
for the payment of such indebtedness or obligations, (iv) Capitalized Lease
Obligations of said Person and (v) all other liabilities or obligations of said
Person which would, in accordance with GAAP, be classified as liabilities of
such a Person. Leases characterized under GAAP as operating leases shall not be
considered Indebtedness.
Interest Period shall mean, with respect to any LIBOR Loans made or
continued by Lender hereunder, a period (in increments of not less than 30
days), as the Borrowers may as to specific Loans from time to time elect, from
30 to 365 consecutive days, as applicable, during the term of this Agreement, as
specified from time to time by Lender; provided, however, that (i) if any
Interest Period pertaining to a LIBOR Loan would otherwise end on a day which is
not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless such Business Day falls in the next calendar
month, in which case such Interest Period shall end on the immediately preceding
Business Day; (ii) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall, subject to
clause (iii) below, end on the last Business Day of the relevant calendar month;
(iii) any Interest Period that would otherwise end after the Termination Date
shall end on the Termination Date; and (iv) clause (iii) above notwithstanding,
no Interest Period shall have a duration
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of less than one month, and if any Interest Period applicable to a LIBOR Loan
would be for a shorter period, such Interest Period shall not be available
hereunder.
LIBOR shall mean, with respect to a Loan as to which LIBOR shall
serve as a reference rate hereunder, the rate equal to the rate at which Lender
is offered U.S. Dollar deposits at or about 10:00 A.M., New York City time, two
Business Days prior to the beginning of the applicable Interest Period in the
interbank eurodollar market where the eurodollar and foreign currency and
exchange operations in respect of its LIBOR Loans are then being conducted for
delivery on the first day of such Interest Period for the approximate number of
days comprised therein (as elected by the Borrower) and in an amount comparable
to the amount of its LIBOR Loan to be outstanding during such Interest Period,
taking into account any applicable reserve requirements in effect on such day
(including, without limitation, basic, supplemental, marginal and emergency
reserves under any regulations of the Board of Governors of the Federal Reserve
System or other governmental authority having jurisdiction with respect thereto)
dealing with reserve requirements prescribed for eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of such Board of
Governors) maintained by a member bank of such System.
Loan(s). Any advance(s) by the Lender to or for the account of either
or both Borrowers, as contemplated by this Agreement. Loans may, at the request
of the Borrowers and the discretion of the Lender, take the form of letters of
credit (other than the letter of credit issued in support of the Bonds) and/or
acceptances issued or arranged by the Lender, and the face amount of any such
letter of credit and/or acceptance (including any interest accrued thereon), and
the unreimbursed amount of any draw under such a letter of credit, shall
constitute a Loan of like amount hereunder.
Loan Documents. Collectively, this Agreement, each of the Notes and
any other instruments or documents delivered or to be delivered pursuant to this
Agreement, as well as the Bond Reimbursement Agreement and any "Other Documents"
(as defined in the Bond Reimbursement Agreement, and any amendment thereto,
restatement thereof or successor agreement thereto.
Maximum Debt to Tangible Net Worth means, during each of the periods
set forth below, a ratio of (i) the Borrowers' Consolidated Total Liabilities to
(ii) the Borrowers' Tangible Net Worth of less than or equal to:
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Period Ratio
------ -----
Date hereof through
September 30, 1997 1.0*
thereafter 0.9**
* 1.7 post-Acquisition; ** 1.5 post-Acquisition.
Minimum Debt Service Coverage means, during each of the periods set
forth below, a ratio of (i) the Borrowers' consolidated Cash Flow to (ii)
interest charges on its Indebtedness greater than or equal to:
Period Ratio
------ -----
Date hereof through
September 30, 1997 3.0*
thereafter 4.0**
* 2.5 post-Acquisition; ** 3.0 post-Acquisition.
Minimum Tangible Net Worth means, during each of the periods set
forth below, Tangible Net Worth in an amount not less the amount set forth below
opposite each such period:
Period Amount
------ ------
Date hereof through
September 30, 1997 $13,000,000*
thereafter the amount required
as of the end of the
preceding fiscal
quarter, plus 50% of
Net Income for the
immediately preced-
ing fiscal quarter**
* $12,000,000 post-Acquisition; ** $12,500,000, plus 50% of Net Income for the
immediately preceding fiscal quarter, post-Acquisition.
Minimum Working Capital means, during each of the periods set forth
below, Working Capital in an amount not less than the amount set forth below
opposite each such period:
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Period Amount
------ ------
Date hereof through
September 30, 1997 $8,000,000*
thereafter $9,000,000**
* $3,000,000 post-Acquisition previously consummated; ** $3,500,-
000 post-Acquisition.
Net Income means the consolidated net, after-tax income (loss) of AAI
and its Subsidiaries determined in accordance with GAAP.
Notes. Collectively, the Revolving Credit Note and the Discretionary
Line Note, as such terms are defined in Section 2, and any other term promissory
notes from time to time outstanding as contemplated by Sections 2.1(b) or 2.2(b)
hereof.
Obligations. Obligations shall mean all amounts at any time owed to
the Lender in respect of this Agreement, the Notes or any other Loan Document
executed in connection herewith.
Person. Any individual, corporation, association, partnership, trust,
limited liability company, unincorporated association, business or other legal
entity, and any government or any governmental agency or political subdivision
thereof.
Premises has the meaning given to it in Section 4.15 hereof.
Prime Rate means the fluctuating rate of interest per annum
designated by the Lender from time to time as being its "Prime Rate" or "Base
Rate" of interest, it being understood that such rate is a reference rate only
and not necessarily the lowest rate of interest charged by the Lender on
commercial loans.
Subsidiary means any corporation or other legal entity, if any, of
which more than 50% of the outstanding interests having ordinary voting power to
elect a majority of the board of directors or other managers of such entity
(irrespective of whether or not at the time capital stock or other equity
interests of any other class or classes of such corporation or other entity
shall or might have voting power upon the occurrence of any contingency) is at
the time directly or indirectly owned by a Borrower or by a Borrower and/or one
or more Subsidiaries or the management of which corporation or other entity is
under control of a Borrower and/or any other Subsidiary, directly or indirectly
through one or more Persons and any other Person which, under GAAP, should at
any time for financial reporting purposes be consolidated with a Borrower and/or
any other Subsidiary.
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Tangible Net Worth means the excess, if any, of the Consolidated
Total Tangible Assets of the Borrowers over the Consolidated Total Liabilities
of the Borrowers.
Termination Date. The date upon which the Lender's obligation to make
Loans in accordance with the provisions of this Agreement ends, including by
reason of an Event of Default or, if applicable, a discretionary decision by the
Lender for Loans advanced under Section 2.2 hereof.
"Unused Line Fee" means a fee in an amount equal to one quarter of
one percent (0.25%) per annum of the difference between (i) $5,000,000, and (ii)
the average daily outstanding principal balance of all Loans made under Section
2.1 hereof, payable on the last Business Day of each March, June, September and
December during the period the Lender has any obligation to make such Loans.
Working Capital means the Borrowers' Consolidated Current Assets
minus the Borrowers' Consolidated Current Liabilities.
Any terms not specifically defined herein which are defined in the
Uniform Commercial Code as in effect in the Commonwealth of Massachusetts shall
have the same meanings herein as therein. Each reference herein to a particular
person (including, without limitation, the Lender) shall include a reference to
such person's successors and permitted assigns. The words "herein", "hereof",
"hereunder" and words of like import shall refer to this Agreement as a whole
and not to any particular section or subdivision of this Agreement.
Section 2. THE LOANS.
Section 2.1. Committed Revolving Credit Line; Limitations; Purposes.
(a) Revolving Credit Loans; Commitment to Lend.
Subject to the terms and conditions set forth herein, the Borrowers (or either
of them) may borrow (including the continuation of any then outstanding LIBOR
Loan after the expiration of the Interest Period applicable to it), repay and
reborrow from time to time between the Closing Date and September 29, 1998 or
any earlier Termination Date, upon notice to the Lender given in such manner as
Lender may from time to time prescribe, such amounts as requested by the
Borrower(s) for the purpose of providing funding for their regular operations,
as well as for acquisitions of other enterprises in accordance with the
provisions of Section 6.11 hereof; provided, however, that the maximum aggregate
principal amount of all loans made under this Section 2.1(a) outstanding at any
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time shall not exceed $5,000,000, and any such excess shall immediately be
repaid by the Borrowers and until repaid shall be treated for purposes of this
Agreement as a Loan made in accordance with the provisions of this Agreement.
Each request for a Loan hereunder shall constitute a joint and several
representation by the Borrowers that all applicable conditions to such advance
have been satisfied on the date of such request. The obligation of the Lender to
make loans hereunder shall terminate on the Termination Date, and all loans then
outstanding shall become immediately due and payable without notice or other
action by the Lender, except that Borrowers shall have 120 days after the
Termination Date to repay any Obligations then outstanding provided that during
such period there shall be no Event of Default.
(b) Promissory Note. The indebtedness resulting from Loans
made pursuant to Section 2.1(a) hereof shall be an absolute, unconditional and
joint and several obligation of the Borrowers, and such indebtedness shall be
evidenced by a Revolving Credit Note executed and delivered by the Borrowers to
the Lender on the Closing Date in substantially the form of Exhibit 2.1(b)
hereto (the "Revolving Credit Note"), which Revolving Credit Note shall set
forth the interest and payment terms applicable to the indebtedness represented
thereby.
(c) Periodic Review. Lender shall review its revolving
credit commitment under this Section 2.1 periodically, and may in its absolute
discretion at any time elect to terminate such commitment, effective on or after
the earlier of (i) an Event of Default, or (ii) September 30, 1998.
(d) Unused Line Fee. The Borrowers shall pay an Unused Line
Fee in respect of the revolving line of credit established pursuant to this
Section 2.1.
Section 2.2. Discretionary Revolving Credit Line; Limitations;
Purposes.
(a) Revolving Credit Loans; Commitment to Lend. In addition
to and separate from the revolving credit line established pursuant to Section
2.1(a) hereto, and subject to the terms and conditions set forth herein and the
absolute discretion of the Lender, the Borrowers (or either of them) may borrow
(including the continuation of any then outstanding LIBOR Loan after the
expiration of the Interest Period applicable to it), repay and reborrow from
time to time between the Closing Date and September 29, 1997 or any earlier
Termination Date, upon notice to the Lender given in such manner as Lender may
from time to time prescribe, such amounts as requested by the Borrower(s) for
the
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sole purpose of providing funding for its regular operations, and any other
Acquisitions as herein defined; provided, however, that the maximum aggregate
principal amount of all loans made under this Section 2.2(a) outstanding shall
not at any time exceed $5,000,000, and any such excess shall immediately be
repaid by the Borrowers and until repaid shall be treated for purposes of this
Agreement as a Loan made in accordance with the provisions of this Agreement.
Each request for a Loan hereunder shall constitute a joint and several
representation by the Borrowers that all applicable conditions to such advance
have been satisfied on the date of such request. Borrowers' right to request
Loans hereunder shall terminate on the Termination Date, and all loans made
under this Section 2.2 then outstanding shall become immediately due and payable
without notice or other action by the Lender, except that Borrowers shall have
120 days after the Termination Date to repay any Obligations then outstanding
provided that during such period there shall be no Event of Default. The making
of any Loans under this Section 2.2 shall be entirely within the absolute
discretion of the Lender.
(b) Promissory Note. The indebtedness resulting from Loans
under Section 2.2(a) hereof shall be an absolute, unconditional and joint and
several obligation of the Borrowers, and such indebtedness shall be evidenced by
a Discretionary Credit Line Note executed and delivered by the Borrowers to the
Lender on the Closing Date in substantially the form of Exhibit 2.2(b) hereto
(the "Discretionary Credit Line Note"), which Discretionary Credit Line Note
shall set forth the interest and payment terms applicable to the indebtedness
represented thereby.
(c) Periodic Review. Lender shall review its discretionary
revolving credit facility under this Section 2.2 periodically, and may at any
time in its absolute discretion decline to make a Loan requested under this
Section 2.2 and/or terminate the revolving credit line established under said
Section 2.2.
Section 2.3. Interest Rate and Related Matters. (a) The rate of
interest applicable to each Loan shall be, as AAI may elect by written notice to
Lender from time to time at least two (2) Business Days prior to the making of
such Loan, either (i) the Prime Rate, or (ii) LIBOR plus 165 basis points
(1.65%), each such rate to fluctuate as and when the relevant reference rate
changes, except that the LIBOR rate shall be fixed for the relevant Interest
Period. In the absence of a timely election by AAI as provided above, whether as
to an initial borrowing or the continuation of a LIBOR Loan after the expiration
of the Interest Period applicable to it, the interest rate applicable to any
such Loan shall be the Prime Rate. Once the interest rate applicable to a Loan
is so elected by the Borrowers, it may not be changed
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except with the written consent of the Lender, which may be withheld for any
reason.
(b) The Borrowers shall have the right at any time to prepay in whole
or in part, without premium or penalty, any Loan as to which interest then is
based upon the Prime Rate rather than LIBOR.
(c) Where interest on a Loan is at the time of any prepayment based
upon LIBOR, the Borrowers shall provide Lender with not fewer than two Business
Days prior written notice of such prepayment and at the time of such prepayment,
and as a condition thereto, also pay to the Lender in the case of a LIBOR Loan
which is paid in whole or part on a day which is not the last day of the then
current Interest Period with respect thereto, an amount equal to any actual or
estimated loss or expense incurred by the Lender by reason of such prepayment
(if estimated loss, such estimated amount to be reconciled with the actual loss
as soon as possible thereafter, with evidence of any adjustment to the
previously estimated loss to be submitted to Borrowers), assuming that the
Lender had match funded such LIBOR Loan with eurodollar deposits, including any
transaction fees incurred by the Lender in reinvesting the amount prepaid.
(d) The Borrowers further hereby jointly and severally agree to
indemnify the Lender and to hold it harmless from any loss or expense which the
Lender may sustain or incur as a consequence of (i) default by a Borrower in
making a borrowing of or continuation of LIBOR Loans after such Borrower has
given a notice requesting the same in accordance with the provisions of this
Agreement, or (ii) default by a Borrower in making any prepayment of any LIBOR
Loan after such Borrower has given a notice thereof in accordance with the
provisions of this Agreement.
(e) If the Borrowers for any reason make any payment of principal of
a LIBOR Loan on any day other than the last day of an applicable Interest
Period, or fail to borrow or continue a LIBOR Loan after having giving notice to
Lender of their intention to do so, the Lender may estimate its losses and
expenses related thereto based upon, in the case of expenses, its experience in
comparable situations and, in the case of losses, the effective interest rate
per annum at which any readily marketable bond or other obligation of the United
States, selected at Lender's sole discretion, maturing on or near the last day
of the then applicable Interest Period of such LIBOR Loan and in approximately
the same amount as such LIBOR Loan or prepaid amount, as the case may be, can be
purchased by the Lender on the day of such prepayment of principal or failure to
borrow or continue
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such LIBOR Loan (if such losses and/or expenses are so estimated, such estimated
amount(s) shall be reconciled with the actual losses and/or expenses as soon as
possible thereafter, with evidence of any adjustment to the previously estimated
loss to be submitted to Borrowers).
(f) In the event the Lender shall have determined in good faith
(which determination shall be final and conclusive) that: (i) adequate and fair
means do not exist to ascertain LIBOR as of the date any LIBOR Loan is to be
made or continued hereunder, or (ii) the making or continuation of a LIBOR Loan
has been made impracticable or unlawful for any reason, or (iii) that LIBOR no
longer represents the effective cost to the Lender for U.S. dollar deposits in
the interbank market for deposits in which it regularly participates, THEN and
in any such event the Lender shall so notify the Borrowers. Until the Lender
notifies the Borrowers that the circumstances giving rise to such notice no
longer apply, the obligation of the Lender to allow selection by the Borrowers
of LIBOR Loans shall be suspended. If at the time the Lender so notifies the
Borrowers, a Borrower has previously given the Lender a notice of request for
the making or continuation of a LIBOR Loan but such LIBOR Loans have not yet
been made or continued, such notice shall be deemed void and the Borrowers shall
be deemed to have requested such Loan with interest determined with reference to
the Prime Rate. Upon such date as shall be specified in such notice (which shall
not be earlier than the date such notice is given) the Borrowers shall forthwith
prepay all outstanding LIBOR Loans, together with interest thereon, and may
borrow a Loan of comparable amount with interest determined by reference to the
Prime Rate.
Section 2.4. Increased Costs. If any law, executive order or
regulation, or any governmental directive (whether or not having the force of
law), or any interpretation of any of the foregoing by any court or
administrative or governmental authority charged with the administration
thereof, or any change therein, shall either (i) impose, modify or deem
applicable any reserve, special deposit or similar requirements against any of
the Loans (including any letters of credit or acceptances issued or arranged by
the Lender for the benefit of the Borrowers); or (ii) impose on the Lender any
tax or other condition or requirements relating to any of the Loans; and the
result of any such event shall be to increase the cost to the Lender of
providing any Loans hereunder, then, upon demand by the Lender and delivery to
the Borrowers of a certificate of an officer of the Lender explaining in
reasonable detail such law, executive order, regulation, directive, or the
interpretation thereof, its impact on the Lender and the basis for determining
such increased costs and their allocation, the Borrowers shall immediately pay
to the Lender such amounts as
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shall be sufficient to compensate the Lender for such increased cost, including
any interest accrued thereon, from the date of demand through the date of
payment, at the rate applicable to the Loans in question; provided, however,
that the foregoing provisions shall not apply to any law with respect to (a)
taxes imposed upon or measured by the net income of the Lender, or (b) taxes
which would have been imposed even if there had been no provision for LIBOR
Loans, letters of credit and/or acceptances in this Agreement. The determination
of Lender of the amount of such costs, if made in good faith and in the absence
of manifest error, shall be conclusive; and provided, further, that any
increased cost of providing or maintaining LIBOR Loans related to any reserve or
similar requirements shall be reimbursable hereunder from and after the date
such increased cost first was incurred by Lender, even if demand for
reimbursement thereof shall be made thereafter.
Section 2.5. Interest Limitation. Notwithstanding any other term of
this Agreement or any other Loan Document, the maximum amount of interest which
may be charged to or collected from any Person liable hereunder or under any
Note, shall be absolutely limited to, and shall in no event exceed, the maximum
amount of interest which could lawfully be charged or collected under applicable
law (the "Maximum Rate"), so that the total of all amounts constituting interest
under applicable law, howsoever computed, shall never exceed as to any Person
liable therefor the Maximum Rate, and any term of this Agreement or any other
Loan Document which could be construed as providing for interest in excess of
such lawful maximum shall be and hereby is made expressly subject to and
modified by the provisions of this paragraph. If, in any month, the effective
interest rate on any amounts owing in respect of any Loan, absent the Maximum
Rate limitation contained herein, would have exceeded the Maximum Rate, and if
in the future months, such effective interest rate would otherwise be less than
the Maximum Rate, then the effective interest rate for such month shall be
increased to the Maximum Rate until such time as the total amount of interest
paid equals the amount of interest which would have been paid if the same had
not been limited by the Maximum Rate.
Section 2.6. Joint and Several Responsibility to Repay Loans. The
obligations of the Borrowers in respect of Loans to either of them shall be
joint and several, without regard to the application of the proceeds of any
Loan, the Borrowers specifically acknowledging that their business relationship
is such that Loans to either of them will benefit the other and that each shall
be an agent for the other in requesting Loans hereunder.
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Section 2.7. Requests for Loans. The Lender is authorized to receive
and act upon telephone, telecopy and written Loan requests from either Borrower
in accordance with the Lender's applicable procedures as in effect from time to
time, and shall not be liable to the Borrowers on account of any defect therein,
if Lender acts in good faith and without actual knowledge that the person making
such request is unauthorized to do so.
Section 3. SECURITY. NOT USED.
Section 4. REPRESENTATIONS AND WARRANTIES. The Borrowers jointly
and severally hereby represent and warrant to the Lender as
follows:
Section 4.1. Corporate Existence. Each Borrower is a business
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Massachusetts, (ii) has adequate corporate power and
authority and full legal right to own or to hold under lease its properties and
to carry on the business in which it is presently engaged and will be engaged
upon the Closing Date, and (iii) is qualified as a foreign corporation in each
jurisdiction wherein such qualification is necessary.
Section 4.2. Due Authority, etc. The execution and delivery by each
Borrower of each of the Loan Documents to which it is or is to become a party
and the performance by it of all of its agreements and obligations thereunder
are within its legal power and have been duly authorized by all necessary action
on its part, and do not and will not (i) contravene any provision of law or its
charter, by-laws or other organizational documents (each as from time to time in
effect), (ii) conflict with, or result in a breach of any term, condition or
provision of, or constitute a default under or result in the creation of any
mortgage, lien, pledge, charge, security interest or other encumbrance upon any
of the property of the Borrower under, any agreement, mortgage or other
instrument to which the Borrower is or may become a party or by which it or any
of its property is or may become bound or affected, or (iii) violate any law,
regulation or judicial or administrative order.
Section 4.3. Binding Effect of Documents, etc. Each Borrower has duly
executed and delivered each of the Loan Documents to which it is a party and
each such Loan Document is in full force and effect and constitutes the legal,
valid and binding obligation of each Borrower, as the case may be, enforceable
against it in accordance with its terms, subject to bankruptcy, insolvency or
other laws affecting generally the enforcement of creditors' rights and general
principles of equity.
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Section 4.4 Financial Statements; No Adverse Change. The Borrowers
have heretofore furnished to Lender those financial statements described in
Schedule 4.4 hereto, all of which present fairly the financial condition,
assets, liabilities and income of the subject thereof as of the dates thereof
and for the periods then ended and have been prepared in accordance with
generally accepted accounting principles consistently applied ("GAAP"). There
has not been any material adverse change in the financial condition, assets,
liabilities or income of either Borrower from the date of the most recent
balance sheet applicable to it to the Closing Date.
Section 4.5. Litigation. There is not pending or, to the best
knowledge of either Borrower, threatened, any action, suit, or proceeding before
any court, governmental or regulatory authority, agency, commission, or board of
arbitration against either Borrower, which by itself or taken together with
other such litigation, has a reasonable possibility of materially and adversely
affecting the financial condition, assets or operations of either Borrower, nor
is any basis for any such proceeding or matter known to exist.
Section 4.6. Ownership of Assets; Location of Offices. Each Borrower
is the owner of its properties free and clear of all liens except as may be
specifically set forth in Schedule 4.6A hereto; and each Borrower will defend
its properties against all claims and demands of all persons at any time
claiming an interest therein. The address of the chief executive office and
chief place of business of each Borrower is as set forth in the first paragraph
of this Agreement, and neither Borrower has any other place of business except
as set forth in Schedule 4.6B hereof.
Section 4.7. Tax Matters. Each Borrower has filed all federal, state
and local tax returns and other reports it is required to file and has paid or
made adequate provision for payment of all such taxes, assessments and other
governmental charges.
Section 4.8. No Margin Stock Credit. Neither Borrower is engaged in
the business of extending credit for the purpose of purchasing or carrying
"margin stock" within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System (12 CFR Part 221), nor does either Borrower own or
have any present intention of acquiring any such margin stock or a "margin
security" within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System (12 CFR, Part 207). None of the proceeds of the Loans
will be used directly or indirectly by either Borrower for the purpose of
purchasing or carrying, or for the purpose of reducing or retiring any
Indebtedness which was originally incurred to purchase or carry, any such margin
securi-
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ty or margin stock or for any other purpose which might constitute a transaction
contemplated by said Regulation G or Regulation U, or cause this Agreement to
violate any other regulation of the Board of Governors of the Federal Reserve
System or the Securities and Exchange Act of 1934, as amended, or any rules or
regulations promulgated under either said statute.
Section 4.9. No Investment Company. Neither Borrower is an
"investment company" or a company "controlled" by an "investment company" as
such terms are defined in the Investment Company Act of 1940, as amended.
Section 4.10. Solvency. After giving effect to the Borrowings to be
made under this Agreement, each Borrower (a) will be able to pay its debts as
they become due, (b) will have funds and capital sufficient to carry on its
business and all businesses in which it is about to engage, and (c) will own
property having a value both at fair valuation and at fair saleable value in the
ordinary course of such Borrower's business, greater than the amount required to
pay its Indebtedness, including for this purpose unliquidated and disputed
claims. Neither Borrower will be rendered insolvent (as such term is defined in
11 U.S.C. Section 01-(31)) by the execution and delivery of this Agreement or
the consummation of any transactions contemplated herein.
Section 4.11. Approvals; Licenses. Any approvals required from all
Persons, including without limitation all governmental authorities, with respect
to the execution and performance of the Loan Documents by the Borrowers have
been obtained. Each Borrower has all permits, governmental licenses,
registrations and approvals, required in carrying out their respective
businesses as presently conducted and as required by law or the rules and
regulations of any federal, foreign, state, county or local association,
corporation or governmental agency, body, instrumentality or commission having
jurisdiction over such Borrower, including but not limited to the United States
Environmental Protection Agency, the United States Department of Labor, the
United States Occupational Safety and Health Administration, the United States
Equal Employment Opportunity Commission and analogous and related state and
foreign agencies. There is no violation or failure of compliance or allegation
of such violation or failure of compliance on the part of either Borrower with
any of the foregoing permits, licenses, registrations, approvals, rules or
regulations and there is no action, proceeding or investigation pending or to
the knowledge of either Borrower threatened nor has any Borrower received any
notice of such which might result in the termination or suspension of any such
permit, license, registration or approval.
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Section 4.12. Ownership Interests. INTENTIONALLY OMITTED.
Section 4.13. Subsidiaries. AEPI is the only Subsidiary of AAI
and, except as noted on Schedule 4.13, no Borrower except AAI has
any Subsidiaries as of the date hereof.
Section 4.14. Environmental Matters. Neither Borrower nor, to the
best knowledge of each Borrower after due inquiry, any other
Person:
(a) has ever caused, permitted, or suffered to exist
any Hazardous Material to be spilled, placed, held, located or disposed of on,
under, or about, nor are any now existing on, under, or about, any premises
owned, leased or otherwise operated by a Borrower ("Premises"), or into the
atmosphere, any body of water, any wetlands, or on any other real property
adjacent to the Premises, other than as disclosed on Schedule 4.14A hereto, or
in respect of Hazardous Material used or disposed of in compliance with law;
(b) has any knowledge after due inquiry that any
Premises or any other real property adjacent to the Premises or has ever been
used (whether by a Borrower or, to the best knowledge of each Borrower after due
inquiry, by any other Person) as a treatment, storage (except for its own
material in the ordinary course of business) or disposal (whether permanent or
temporary) site for any Hazardous Material; and
(c) except as previously disclosed in writing to Lender
and as described in Schedule 4.14A hereto, has any knowledge after due inquiry
of any notice of violation, lien or other notice issued by any governmental
agency with respect to the environmental condition of the Premises, or any other
real property adjacent to the Premises.
Section 4.15. No Adverse Effect on Bond Reimbursement Agreement. The
consummation of the transactions contemplated by this Agreement will not limit,
conflict with or otherwise impair the rights and obligations of Citizens or the
Borrowers in respect of the Bond Reimbursement Agreement.
Section 4.16. Other Representations. Each of the representations and
warranties made by either Borrower in any of the Loan Documents was true and
correct in all material respects when made and continues to be true and correct
in all material respects on the Closing Date, except to the extent that any of
such representations and warranties expressly relate to an earlier date only.
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Section 4.17. Disclosure. No information furnished by or on behalf of
either Borrower in any Loan Document or in any other document, certificate,
statement or letter furnished to the Lender in connection with any of the
transactions contemplated by any of the Loan Documents, including information
contained in any tax returns or financial statements, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained therein not misleading in light of the
circumstances in which they are made. There is no fact known to either Borrower
(other than general economic and political conditions affecting business
generally) which materially and adversely affects, or which is reasonably likely
in the future materially and adversely to affect, the financial position,
business, operations, prospects or affairs of either Borrower.
Section 5. Conditions to Lending. The obligations of the Lender to
make any Loan on or after the Closing Date shall be subject to the satisfaction
at such time of each of the following conditions precedent:
Section 5.1. Representations and Warranties. Each of the
representations and warranties made by or on behalf of the Borrowers to the
Lender in this Agreement or the other Loan Documents, except to the extent that
they expressly relate to an earlier date only, shall then be true and correct in
all material respects.
Section 5.2. Legality of Transactions. It shall not then be unlawful
for the Lender or either Borrower to perform any of its respective agreements or
obligations under any of the Loan Documents.
Section 5.3. No Defaults. No Default or Event of Default shall then
exist.
Section 5.4 Proceedings and Documents. All corporate, governmental
and other proceedings in connection with the transactions contemplated by the
Loan Documents, and all instruments and documents incidental thereto, shall be
in form and substance satisfactory to the Lender and the Lender shall have
theretofore received all such executed originals or certified or other copies of
all such instruments and documents as the Lender shall have reasonably
requested.
Section 5.5 Legal Opinion. As a condition precedent to the first Loan
hereunder, the Lender shall have received a written opinion, addressed to the
Lender, dated the Closing Date, from counsel to
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the Borrowers in form and substance satisfactory to the Lender and its counsel.
Section 6. Covenants of the Borrowers. The Borrowers hereby covenant,
jointly and severally, that, so long as any Loan is outstanding or the Lender
has any obligation to make any Loan hereunder, unless the Lender otherwise
agrees in writing:
Section 6.1. Legal Existence, etc. Each Borrower will (a) maintain
its legal existence and good standing under the laws of its jurisdiction of
organization, and (b) maintain its qualification to do business in each state in
which the failure to do so would have a material adverse effect on the
condition, financial or otherwise, of a Borrower.
Section 6.2. Use of Loan Proceeds. Each Borrower shall use the
proceeds of all Loans made to it only as permitted by Section 2.
Section 6.3. Conduct of Business. Each Borrower will continue to
engage primarily in the business engaged in by it on the date hereof.
Section 6.4. Access; Audit. Each Borrower will permit the Lender, by
its representatives and agents, to inspect any of its properties, including,
without limitation, books and records, computer files and tapes and financial
records, to audit, examine and make copies of its books of account and other
records and to discuss its affairs, finances and accounts with, and to be
advised as to the same by, its officers and other responsible employees and
professional advisers at such reasonable times and intervals as the Lender may
designate. Without limiting the generality of the foregoing, the Lender shall
have the right at any time to conduct an internal audit of the Borrowers upon
not less than ten (10) days advance notice to AAI's senior management; the
Borrowers shall pay all Audit Fees (not in excess of $1,200 per calendar year,
excluding Audit Fees incurred (a) during a Default or Event of Default, or (b)
in respect of the first such audit conducted after an Acquisition by AAI or any
of its Affiliates, the Audit Fees for which post-Acquisition audit shall not
exceed $1,200).
Section 6.5. Negative Pledge; etc. Neither Borrower shall at any time
mortgage, pledge, grant or permit to exist any lien or other charge or
encumbrance upon, any of its assets, now owned or hereafter acquired, except:
(a) for taxes, assessments or governmental charges or levies on property if the
same shall not at the time be delinquent or thereafter can be paid without
penalty or interest, or (if foreclosure, distraint, sale or other similar
proceedings shall not have been commenced) are being contested in good faith and
by appropriate proceedings diligently conducted
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and for which proper reserve or other provision has been made in accordance with
GAAP; (b) imposed by law, such as carriers', warehousemen's and mechanics'
liens, bankers' set-off rights and other similar liens arising in the ordinary
course of business for sums not yet due or being contested in good faith and by
appropriate proceedings diligently conducted and for which proper reserve or
other provision has been made in accordance with GAAP; (c) arising in the
ordinary course of business out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or other social
security or retirement benefits, or similar legislation; (d) arising from or
upon any judgment or award (which, together with any others then outstanding and
unpaid, exceeds $100,000), provided that such judgment or award is being
contested in good faith by proper appeal proceedings and only so long as
execution thereon shall be stayed; (e) existing on the date hereof and set forth
on Schedule 4.6A hereto; (f) now or hereafter granted to the Lender as
collateral for the Loans and/or Borrowers' other obligations arising in
connection with or under this Agreement or any other Loan Document; (g) that
constitute deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of a Borrower's business; (h) that constitute easements, rights
of way, restrictions and other similar encumbrances incurred in the ordinary
course of business which, in the aggregate, are not substantial in amount, and
which do not in any case materially detract from the value of the property
subject thereto or interfere with the ordinary conduct of business by AAI or any
Subsidiary; and/or (i) incurred as purchase money mortgages or other liens or
retained security titles of a conditional vendor in the ordinary course of AAI's
or any Subsidiary's business on property acquired or held by AAI and/or any such
Subsidiary to secure the purchase price of such property; provided that the
liens or other charges or encumbrances permitted by this clause (i) shall at all
times be confined solely to the item of property so purchased and shall secure
an obligation which does not exceed eighty percent (80%) of the lower of the
fair market value or the actual cost of the item of property so purchased and
that any such obligations shall not otherwise be prohibited by the terms of this
Agreement.
Section 6.6. Financial Information. The Borrowers shall provide to the
Lender (a) within 10 days after the filing thereof, their federal income tax
returns, including those most recently filed before the date hereof, as well as
any quarterly, annual and special reports filed on SEC Forms 10-Q, 10-K and 8-K
(or any successor forms), and any exhibits thereto; (b) within 120 days after
the end of their fiscal year, an income statement, balance sheet and any other
related consolidated financial statements of
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the Borrowers, prepared in accordance with GAAP and audited and certified
without qualification by the Borrowers' outside auditors (being Arthur Andersen
LLP or such other firm as the Lender may hereafter approve); (c) within 30 days
after the end of each month, internally prepared consolidated financial
statements of the Borrowers similar to those required by clause (b) above,
except that they will have been internally prepared without outside review
(together with accounts receivable and accounts payable agings for and as of the
end of such month, and from the beginning of the then current fiscal year to the
end of such month), certified to by the chief financial officer of AAI as being
in compliance with GAAP, subject only to normal year-end adjustments and except
that such internally prepared statements need not contain footnotes; (d)
promptly upon receipt thereof, copies of all management letters and other
material reports which are submitted to a Borrower by its independent auditors,
if any; (e) within 15 days after their distribution, copies of reports to and
any other communications with their shareholders; (f) within forty-five (45)
days after the end of each calendar quarter hereafter, a certificate of the
chief financial officer of AAI which shall contain a statement to the effect
that no Event of Default or Default has occurred, without having been waived in
writing, or if there shall have been an Event of Default not previously waived
in writing pursuant to the provisions hereof, or a Default, such officer's
certificate shall disclose the nature thereof and all steps then being taken to
remedy it. In each such officer's certificate relating to a fiscal quarter of
AAI the officer of AAI shall also calculate, set forth and certify to the
accuracy of the amounts required to be calculated in the financial covenants of
Borrowers contained in this Agreement; (g) on or before the 90th day after the
end of each fiscal year ending on or after December 31, 1996, an updated
proposed budget together with cash flow statement, prepared on a monthly basis,
and updated financial projections (together, the "Budget") for the then current
fiscal year, setting forth in detail reasonably satisfactory to the Lender the
projected results of operations of AAI and its Subsidiaries, including without
limitation, projected revenues and expenses, capital expenditures, stating
underlying assumptions and certified by an authorized officer of AAI as being
fair and reasonable in the light of AAI's and its Subsidiaries' business
condition and prospects; and (h) promptly upon request and in form satisfactory
to the Lender, all such other information as the Lender may reasonably request
from time to time.
Section 6.7. Maintenance of Banking Relationship; Cash Management.
Each Borrower will maintain all of its deposit, checking and other bank accounts
with the Lender, excluding only those accounts which are used (a) solely for the
purchase and sale of
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foreign currency, (b) solely to buy and sell eurodollar deposits, or (c) solely
for payroll purposes.
Section 6.8. Financial Covenants. The Borrowers will maintain, as of
the end of each quarter-annual fiscal period, the Maximum Debt to Tangible Net
Worth ratio, the Minimum Debt Service Coverage ratio, Minimum Tangible Net Worth
and Minimum Working Capital.
Section 6.9. Senior Management. At least two of the following three
persons shall remain in the office set forth after his name (or a substantively
comparable position): Leslie B. Lewis, President, Chairman and CEO; Kozo Terada,
Vice President, Treasurer and CFO; and Timothy Robinson, Executive Vice
President and COO; provided, however, that no Default or Event of Default shall
arise by breach of this Section 6.9 if (a) replacement personnel satisfactory to
Lender are retained within 180 days after the departure of his predecessor, and
(b) at all times prior to the retention of such permanent successor, the duties
of the departed officer shall be performed by interim personnel in a manner
reasonably satisfactory to Lender.
Section 6.10. Other Covenants. The Borrowers shall continue to comply
with all affirmative and negative covenants contained in those documents
described in Schedule 6.10 hereto, even after the Indebtedness evidenced and/or
governed by such documents no longer is outstanding, except to the extent that
any such other covenant is inconsistent with any of the provisions of this
Agreement or any other Loan Document.
Section 6.11. Acquisitions. Neither Borrower nor any Subsidiary shall
acquire, whether by purchase of capital stock, assets or otherwise, any other
Person or business, except for such an acquisition (an "Acquisition") which
satisfies each of the following conditions: (a) the business acquired is in the
same or compatible industry as that of the purchaser or any subsidiary thereof;
and (b) prior to executing any legally binding agreement to undertake such
acquisition (if intended to be financed in whole or part by Lender), the
purchaser submits to the Lender (i) historical financial statements for the
Person or business to be acquired for at least the two most recent complete
fiscal years, plus any year-to-date interim statements, together with (ii)
projected, pro forma financial statements for the Person or business to be
acquired, as combined with the Borrowers, for at least two complete fiscal years
following the anticipated acquisition date, showing compliance with all
financial covenants contained in this Agreement and applicable to the Borrowers
following an Acquisition. Lender shall respond to any written request for
approval of an Acquisition hereunder within ten (10) business days after receipt
of all information necessary to
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consider such request, and failure of Lender to respond within such ten (10)-day
period shall constitute Lender's consent to such Acquisition under this Section
6.11. This S6.11 shall not apply to acquisitions not financed by Lender
hereunder.
Section 6.12. Other Negative Covenants. Neither Borrower nor any
Subsidiary shall:
(a) Sell or otherwise transfer any of its assets to any entity,
including Subsidiaries or Affiliates of AAI, other than for equivalent value and
in the ordinary course of its business.
(b) Engage in any transaction or enter into any agreement with any
Affiliate, or in the case of Affiliates or Subsidiaries, with AAI or another
Affiliate or Subsidiary, on other than an arm's length basis.
(c) Change its fiscal year from a year ending on December 31 provided
that the Lender's consent to a fiscal year change shall not be unreasonably
withheld so long as the parties are able to agree to an appropriate adjustment
to the financial covenants contained in this Agreement.
(d) Own any Subsidiary unless the Lender shall have given its prior
written consent thereto and such Subsidiary shall have become a party hereto as
a joint and several obligor with AAI pursuant to a written assumption agreement
and amendment hereto in form and substance satisfactory to Lender.
(e) Dissolve, liquidate, wind up, merge or consolidate with, or
acquire all or a substantial portion of the assets of (whether in one
transaction or a series of transactions), another Person, other than in the
ordinary course of its business or as permitted by Section 6.11 hereof.
(f) Become involved, or permit any tenant or other occupant of the
Premises to become involved, in any operations at the Premises generating,
storing, disposing, or handling Hazardous Material or any other activity that
could lead to the imposition on a Borrower, the Lender or the Premises, of any
material liability or lien under any environmental laws.
Section 6.13. Other Affirmative Covenants. Each Borrowers shall:
(a) Maintain casualty insurance coverage (including flood insurance),
on its physical assets and other insurance against other risks, including public
liability and product liability insurance in such amounts and of such types as
may be reasonably requested by the Lender, and in any event, as are ordinarily
24
<PAGE>
carried by similar businesses. In the event of acquisition of additional assets
or of incurrence of additional risk of any nature, the Borrowers shall cause
such insurance coverage to be increased or amended in such manner and to such
extent as prudent business judgment would dictate. In the case of all policies
insuring property in which the Lender may from time to time have a security
interest or other lien of any kind whatsoever, all such insurance policies shall
provide that the loss payable thereunder shall be payable to Borrowers and the
Lender, as their respective interests may appear, with the Lender to be named as
an additional insured on any liability policy. A list of all said policies or
certificates thereof, including all endorsements thereof and those required
hereunder, shall be deposited with the Lender, and such policies shall contain
provisions that no such insurance may be cancelled or decreased without at least
twenty (20) days prior written notice to the Lender. At the Lender's request,
copies of all such policies shall be delivered to the Lender. If Borrowers shall
at any time or times hereafter fail to obtain and maintain any of the policies
of insurance required herein, or fail to pay any premium in whole or in part
relating to any such policies, the Lender may, but shall not be obligated to,
obtain and/or cause to be maintained insurance coverage with respect to the
assets of Borrowers, including, at Lender's option, the coverage provided by all
or any of the policies of Borrowers and pay all or any part of the premium
thereunder, without waiving any Event of Default by Borrowers, and any sums so
disbursed by the Lender shall be additional Obligations of Borrowers to Lender
payable on demand. Following an Event of Default, the Lender shall have the
right to settle and compromise any and all claims under any of the policies
required to be maintained by Borrowers hereunder, to demand, receive and receipt
for all monies payable thereunder, and to execute in the name of Borrowers,
Lender or both any proof of loss, notice or other instruments in connection with
such policies or any loss thereunder, and each of the Borrowers hereby
constitutes the Lender its attorney-in-fact for purposes of enforcing Lender's
rights under this Section 6.13(a).
(b) Promptly notify Lender of any Default or Event of Default, and
promptly notify Lender of any changes in the financial condition of AAI and its
Subsidiaries which, individually or cumulatively, may result in a material
adverse change to AAI and/or its Subsidiaries.
(c) If Borrowers shall now or hereafter maintain an employee benefit
plan subject to the Employee Retirement Income Security Act of 1974, as amended
(hereinafter "ERISA"), it shall promptly: (i) notify Lender of the filing of a
notice with the Pension Benefit Guaranty Corporation ("PBGC") pursuant to ERISA
25
<PAGE>
that the plan is to be terminated; and (ii) notify Lender of receipt of notice
of or institution of any proceedings by the PBGC under ERISA concerning any such
plan.
(d) Notify Lender at least thirty (30) days prior to: (i) any change
in the address of the chief executive office and/or chief place of business of a
Borrower; (ii) any change in the location of any records pertaining to the
accounts receivable of Borrowers; (iii) any change in the address where any
inventory (including returns of inventory) with a cost in excess of $100,000
is or may be stored, and (iv) notify Lender within ten (10) days after the
granting to a Borrower or any Subsidiary of any patent, trademark, copyright or
other intellectual property right. Schedule 6.13 discloses the (i) existing
chief executive office and chief place of business for each Borrower, (ii)
existing location of the records pertaining to the accounts receivable of each
Borrower, (iii) existing locations of all inventory (including returns of
inventory), and (iv) presently owned patents, trademarks, copyrights or other
intellectual property rights.
(e) Keep complete and accurate books and records with respect to the
business of AAI and its Subsidiaries and all its properties, consistent with
good business practice.
(f) Pay or deposit promptly when due all taxes, assessments and
governmental charges upon and relating to its ownership or use of any of its
assets or its income, or the operation of its business or otherwise, for which a
Borrower is or may be liable and submit to Lender proof satisfactory to Lender
that such payments and/or deposits have been made.
(g) Timely pay each Unused Line Fee.
(h) Timely pay each Audit Fee.
(i) From time to time hereafter, execute and deliver or cause to be
executed and delivered, such additional instruments, certificates and documents,
and take all such actions, as Lender shall reasonably request for the purpose of
implementing or effectuating the provisions of the Loan Documents, and upon the
exercise by Lender of any power, right, privilege or remedy pursuant to the Loan
Documents which requires any consent, approval, registration, qualification or
authorization of any governmental authority or instrumentality, exercise and
deliver all applications, certifications, instruments and other documents and
papers that Lender may be so required to obtain.
26
<PAGE>
(j) Comply strictly and in all respects with the requirements of all
federal, state, and local laws and regulations, including without limitation
those pertaining to employee compensation and safety, environmental matters and
product safety.
(k) Notify the Lender promptly in the event of any spill, hazardous
waste pollution or contamination affecting any Premises for which the Borrowers
could have liability in a material amount; forward to the Lender promptly any
notices relating to such matters received from any governmental agency; and pay
promptly when due any material fine or assessment against the Premises for which
the Borrowers have liability in a material amount unless the Borrowers are
contesting the same by appropriate legal action for which appropriate reserves
are maintained.
(l) Immediately contain and remove any Hazardous Material in excess
of maximum amounts permitted by applicable law found on any Premises for which
the Borrowers could have liability in a material amount, in compliance with
applicable laws and at Borrowers' expense, subject however, to the right of the
Lender, at the Lender's option but at Borrowers' expense, to have an
environmental engineer or other representative review the work being done.
(m) Promptly upon the request of the Lender, based upon the Lender's
reasonable belief that a hazardous waste or other environmental problem exists
with respect to Premises for which the Borrowers could have liability in a
material amount, provide the Lender with an environmental site assessment report
or an update of any existing report, all in scope, form and content and
performed by such company as may be reasonably satisfactory to the Lender, to
the extent that the Borrowers are permitted to do so under the lease under which
they are occupying the applicable Premises.
(n) Indemnify, defend, and hold the Lender harmless from and against
any claim, cost, damage (including without limitation consequential damages),
expense (including without limitation attorneys' fees and expenses), loss,
liability, or judgment now or hereafter arising as a result of any claim for
environmental cleanup costs, any resulting damage to the environment and any
other environmental claims against Borrowers, the Lender, or any Premises (other
than claims, costs or damages directly resulting from actions of Lender or its
agents in managing the Premises). The provisions of this Section 6.13(n) shall
continue in effect and shall survive (among other events) any termination of
this Agreement, foreclosure, a deed in lieu transaction, and payment and
satisfaction of the Notes and other obligations of Borrowers hereunder.
27
<PAGE>
(o) Maintain keyman insurance on the life of Leslie B. Lewis with an
insurer reasonably satisfactory to Lender and with a death benefit equal to not
less than $5,000,000, including any policies already maintained by either or
both of the Borrowers for the benefit of the Lender pursuant to prior credit
arrangements.
Section 7. Events of Default; Acceleration. If any of the follow-
ing events (each an "Event of Default") shall occur and be continuing:
(a) if a Borrower shall fail to pay any principal of or
interest on any Loan when the same is due, or fail to pay any other
sums due hereunder or under any other Loan Document, within 10 days
after the same shall have become due and payable, whether on demand,
at the stated date of maturity or any accelerated date of maturity or
at any other date fixed for payment;
(b) if a Borrower shall fail to comply with any of its
other covenants contained herein or in any other Loan Document or
outstanding letters of credit (or applications or reimbursement
agreements related thereto) and not remedy such failure within 30
days after notice thereof from the Lender;
(c) if any representation or warranty made by a Borrower in
this Agreement or in any other Loan Document or information contained
in any other document or instrument delivered pursuant to or in
connection with this Agreement shall prove to have been false in any
material respect upon the date when, or when deemed, made;
(d) if a Borrower or a Subsidiary thereof shall be involved
in financial difficulties as evidenced:
(i) by its commencement of a voluntary case under
Title 11 of the United States Code as from time to time in
effect, or by its authorizing, by appropriate proceedings
of its board of directors or other governing body, the
commencement of such a voluntary case;
(ii) by the entry of an order for relief against
it in any involuntary case commenced under said Title 11
which remains undischarged or unstayed for more than thirty
(30) days;
(iii) by its seeking relief as a debtor under any
applicable law, other than said Title 11, of any juris-
28
<PAGE>
diction relating to the liquidation or reorganization of
debtors or to the modification or alteration of the rights
of creditors, or by its consenting to or acquiescing in
such relief;
(iv) by entry of an order by a court of competent
jurisdiction (A) finding it to be bankrupt or insolvent or
(B) ordering or approving its liquidation, reorganization
or any modification or alteration of the rights of its
creditors which remains undischarged or unstayed for more
than thirty (30) days;
(v) by the entry of an order by a court of
competent jurisdiction levying or executing upon, assuming
custody of, or appointing a receiver or other custodian
for, all or a substantial part of its property;
(vi) by its making an assignment for the benefit
of, or entering into a composition with, its creditors, or
appointing or consenting to the appointment of a receiver
or other custodian for all or a substantial part of its
property;
(e) if there shall remain in force, undischarged,
unsatisfied, unstayed and unbonded, for more than thirty (30) days,
any final judgment against a Borrower or a Subsidiary from which no
further appeal may be taken and which, with any other outstanding
final judgments, undischarged, unsatisfied, unstayed and unbonded,
against one or more such Person(s) exceeds $100,000 in aggregate
amount;
(f) if a Borrower is dissolved;
(g) If AAI or any Subsidiary shall default (after giving
effect to any applicable grace period) in the due and punctual
payment of the principal of or interest on any Indebtedness exceeding
in the aggregate $100,000 (other than the Obligations), or if any
default shall have occurred and be continuing after any applicable
grace period under any mortgage, note or other agreement evidencing,
securing or providing for the creation of such Indebtedness which
results in the acceleration of such Indebtedness or which permits, or
with the giving of notice would permit, any holder or holders of any
such Indebtedness to accelerate the stated maturity thereof;
(h) Loss, theft, damage or destruction of any material
portion of the property of a Borrower for which there is no
insurance coverage;
29
<PAGE>
(i) If there shall be an attachment of any deposits or
other property of AAI and/or any Subsidiary in the possession of
Lender or an attachment of any other property of AAI and/or any
Subsidiary which shall not be discharged within thirty (30) days of
the date of such attachment;
(j) If a Borrower is enjoined, restrained or in any way
prevented by court order from conducting all or any material part of
its business affairs; or
(k) If there shall be a default or event of default in
respect of the Bond Reimbursement Agreement or, as defined therein,
any Related Document;
THEN, the Lender may by notice in writing to the Borrowers terminate its
commitments under this Agreement and upon such termination shall have no further
obligation to make Loans to the Borrowers, and may declare all amounts owing
with respect to this Agreement and the Notes to be, and they shall thereupon
forthwith mature and become, immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived by the Borrowers. No remedy herein conferred upon the Lender or the
holder of any of the Notes is intended to be exclusive of any other remedy and
each and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder, in the other Loan Documents or now or hereafter
existing at law or in equity or by statute or any other provision of law.
Section 8. Setoff. Regardless of the adequacy of any collateral for
the Loans, any deposits or other sums credited by or due from the Lender to a
Borrower may be applied to or set off against the payment of the indebtedness
evidenced by any of the Notes at any time after the occurrence of any Default or
Event of Default. The Lender will give written notice to the Borrowers promptly
after any exercise of its rights under this Section 8.
Section 9. Expenses. Whether or not the transactions contemplated
hereby shall be consummated, the Borrowers will pay the reasonable fees,
expenses and disbursements of the Lender's counsel incurred in connection with
the preparation and (after any Default or Event of Default hereunder or under
any other Loan Document) the administration and enforcement of this Agreement
and other Loan Documents, and in connection with any litigation, proceeding or
dispute whether arising hereunder or otherwise, in any way related to the
Lender's relationship with the Borrowers under this Agreement or with respect to
the transactions contemplated hereby, except for any of the foregoing which
result from the
30
<PAGE>
gross negligence or willful misconduct of the Lender. In any investigation,
proceeding or litigation, or the preparation therefor, the Lender shall be
entitled to select its own counsel and, in addition to the foregoing indemnity,
the Borrowers agree jointly and severally to pay promptly the reasonable fees
and expenses of such counsel, on a progress basis if so requested. The covenants
of this Section 9 shall survive payment or satisfaction of all amounts owing
with respect to the Notes and the other Loan Documents.
Section 10. Survival of Covenants, Etc. All covenants, agreements,
representations and warranties made herein or in any other Loan Document shall
be deemed to have been relied upon by the Lender, notwithstanding any
investigation heretofore or hereafter made by it, and shall survive the making
by the Lender of any Loans as herein contemplated, and shall continue in full
force and effect so long as any amount remains due under this Agreement or any
Note or the Lender has any obligation to make any further Loans.
Section 11. Parties in Interest. All the terms of this Agreement and
the other Loan Documents shall be binding upon and inure to the benefit of and
be enforceable by the respective successors and assigns of the parties hereto
and thereto; provided that neither Borrower shall assign or transfer any of its
rights hereunder or under any other Loan Document without the prior written
consent of the Lender. The Borrowers agree that the Lender may disclose
information obtained by the Lender pursuant to this Agreement or other Loan
Documents where required or requested by governmental or regulatory authorities
or in connection with the sale of any interests in the Loans. If at any time or
times by assignment, participation or otherwise Lender transfers, grants
participation in or assigns any or all of the Obligations, collateral (if any)
or the rights of Lender under this Agreement with respect to the Obligations or
collateral participated in or transferred, the assignee or transferee shall
become vested with said powers and rights whether or not they are specifically
referred to in the transfer or assignment. If and to the extent Lender retains
any Obligations or collateral after giving effect to any assignment or transfer,
Lender shall continue to have the rights and powers herein set forth with
respect thereto. In the event Lender shall grant a participation in any or all
of the Obligations or collateral, Lender shall continue to have all of the
rights and powers herein set forth with respect thereto.
Section 12. Notices, Etc. Except as otherwise expressly provided in
this Agreement, all notices and other communications made or required to be
given pursuant to this Agreement or the other Loan
31
<PAGE>
Documents shall be in writing and shall be delivered in hand, mailed by United
States registered or certified first-class mail, postage prepaid, return receipt
requested, or sent by telegraph or telex and confirmed by mail, addressed as
follows:
(a) if to the Borrowers addressed to them at:
Asahi/America, Inc., 19 Green Street, Malden, MA 02148, Attn:
Treasurer, or at such other address for notice as either Borrower
shall last have furnished in writing to the Person giving the notice,
with a copy to Burton Winnick, Esq., Gadsby & Hannah LLP, 125 Summer
Street, Boston, MA 02110; or
(b) if to the Lender, Robert Bender, Vice President,
Citizens Bank of Massachusetts, 55 Summer Street, Boston, MA 02110,
or such other address for notice as the Lender shall last have
furnished in writing to the Person giving the notice, with a copy to
Gary M. Markoff, Esq., Sherin and Lodgen LLP, 100 Summer Street,
Boston, MA 02110.
Any such notice or demand shall be deemed to have been duly given or
made and to have become effective (a) if delivered by hand to an officer of the
party to which it is directed, at the time of the receipt thereof by such
officer, or (b) if sent by registered or certified first-class mail, postage
prepaid, or by a nationally recognized overnight express delivery service upon
the date of first attempted delivery, as shown on the return receipt therefor or
the returned item itself
Section 13. Miscellaneous. Except as otherwise provided therein or
required by the laws of any jurisdiction in which any collateral is located, the
Loan Documents shall each be deemed to be contracts under seal and shall for all
purposes be construed in accordance with and governed by the internal laws of
the Commonwealth of Massachusetts, without reference to principles of conflicts
of law of any jurisdiction. The captions in this Agreement are for convenience
of reference only and shall not define or limit the provisions hereof. This
Agreement, together with the other Loan Documents, expresses the entire
understanding of the parties with respect to the transactions contemplated
hereby and supersedes any prior or contemporaneous agreement or discussions;
provided, however, that nothing herein supersedes or modifies any provision of
the Bond Reimbursement Agreement or, as therein defined, any Related Document,
and the provisions of all such documents (as from time to time expressly amended
and in effect) shall continue to apply to the Borrowers in accordance with their
terms. Except as otherwise expressly provided in this Agreement, any consent or
approval required or permitted by this Agreement to be given by the Lender may
be given, and any term of
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<PAGE>
this Agreement or of any other Loan Document may be amended, and the performance
or observance by the Borrowers of any terms of this Agreement or such other Loan
Document or the continuance of any Event of Default may be waived (either
generally or in a particular instance and either retroactively or prospectively)
with, but only with, the written consent of the Lender. No waiver shall extend
to or affect any obligation not expressly waived or impair any right consequent
thereon. No course of dealing or delay or omission on the part of the Lender in
exercising any right shall operate as a waiver prejudicial thereto. No notice to
or demand upon the Borrowers shall entitle the Borrowers to other or further
notice or demand in similar or other circumstances. All obligations of the
Borrowers under this Agreement and in respect of the Notes, the Loans and the
other Loan Documents shall be joint and several.
Section 14. Waiver of Jury Trial; Place of Suit. EACH BORROWER HEREBY
WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CLAIM EVER BROUGHT BY IT
AGAINST THE LENDER (INCLUDING ITS OFFICERS, DIRECTORS, EMPLOYEES OR COUNSEL)
RELATED IN ANY WAY TO THIS AGREEMENT, THE LOANS, THE NOTES OR ANY OTHER LOAN
DOCUMENTS. NO PARTY WILL SEEK TO CONSOLIDATE ANY ACTION IN WHICH A JURY TRIAL
HAS BEEN WAIVED, WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS
NOT BEEN WAIVED. THE PROVISIONS OF THIS SECTION 4 HAVE BEEN FULLY DISCUSSED BY
THE PARTIES HERETO AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NO
PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE
PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. ANY
COURT PROCEEDINGS RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS SHALL
BE BROUGHT EXCLUSIVELY IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS (OR
THE FEDERAL COURTS LOCATED THEREIN) AND EACH BORROWER HEREBY AGREES THAT ANY
LEGAL PROCESS ISSUING FROM ANY SUCH COURT SENT TO IT BY MAIL IN ACCORDANCE WITH
S12 SHALL BE SUFFICIENT TO SUBJECT IT TO THE PERSONAL JURISDICTION OF SUCH
COURT.
Section 15. Severability. In the event any provision of this
Agreement or any Loan Document shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other term or provision hereof, and such
agreement shall be interpreted and construed as if such provision, to the extent
the same shall have been invalid, illegal or unenforceable, had never been
contained herein. The parties hereto agree that they will negotiate in good
faith to replace any provision so held invalid, illegal or unenforceable with a
valid provision which is as similar as possible in substance to the invalid,
illegal or unenforceable provision.
33
<PAGE>
WITNESS: ASAHI/AMERICA, INC.
/s/ John E. Lawrence By: /s/ Leslie B. Lewis
__________________________ ___________________________
John E. Lawrence
Title: President
________________________
ASAHI ENGINEERED PRODUCTS, INC.
/s/ John E. Lawrence By: /s/ Leslie B. Lewis
_________________________ _______________________________
John E. Lawrence
Title: President
_______________________
CITIZENS BANK OF MASSACHUSETTS
By /s/ Robert Bender
____________________________
Robert Bender, Vice President
34
<PAGE>
List of Schedules & Exhibits
Exhibit # Description
--------- -----------
2.1(b) Form of Revolving Credit Note
2.2(b) Form of Discretionary Credit
Line Note
Schedule # Description
---------- -----------
4.4 List of Financial Statements
Provided to Lender
4.6A List of Encumbrances on Borr-
owers' Assets
4.6B List of Borrower Office/Assets
Locations
4.13 List of Subsidiaries
4.15A Environmental Matters
6.10 Other Documents Containing
Covenants Incorporated by
Reference into this Agreement
6.13 (i) existing chief executive office and chief place
of business for each Borrower, (ii) existing
location of the records pertaining to the accounts
receivable of each Borrower, (iii) existing
locations of all inventory (including returns of
inventory), and (iv) presently owned patents,
trademarks, copyrights or other intellectual
property rights.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
35
<PAGE>
Exhibit 2.1 (b)
REVOLVING CREDIT NOTE
$5,000,000.00 January 23, 1997
Boston, Massachusetts
FOR VALUE RECEIVED, the undersigned ASAHI/AMERICA, INC., a
Massachusetts business corporation ("AAI"), and ASAHI ENGINEERED PRODUCTS, INC.,
a Massachusetts business corporation ("AEPI") (AAI and AEPI are hereinafter
referred to collectively as the "Borrowers"), hereby absolutely, unconditionally
and jointly and severally promise to pay to the order of CITIZENS BANK OF
MASSACHUSETTS, a Massachusetts bank, at its principal office at 55 Summer
Street, Boston, Massachusetts 02110 (hereinafter, including any subsequent
holder hereof, the "Lender"):
(a) the principal amount of FIVE MILLION DOLLARS ($5,0-
00,000.00) or, if less or more, the aggregate unpaid principal amount
of revolving credit loans advanced by the Lender from time to time
pursuant to Section 2.1 of that certain Credit Agreement dated as of
the date hereof (the "Credit Agreement"), among the Borrowers and the
Lender; and
(b) any then unpaid interest on the principal balance
hereof from time to time outstanding from the date hereof through and
including the date on which such principal amount is paid in full.
Except as otherwise provided below, revolving credit loans
outstanding from time to time shall bear interest from the date such Loans are
made until repaid in full at the rate provided in Section 2.3 of the Credit
Agreement. Interest shall be computed on the basis of a 360-day year for the
number of days actually elapsed.
Interest on the indebtedness evidenced by this Note shall be payable
monthly in arrears on the 1st day of the succeeding month, commencing February
1, 1997, with a final payment at the maturity of this Note. The principal amount
of the indebtedness evidenced by this Note shall be due and payable upon the
earlier of (i) September 30, 1998, (ii) the Termination Date or (iii) the
occurrence of an Event of Default, whereupon the entire unpaid principal amount
of this Note and all of the unpaid interest
36
<PAGE>
accrued thereon may be declared and thereby become immediately due and payable.
Lender may charge any Borrower's accounts with Lender for all payments of
interest, principal and fees due in respect of this Note, and Lender shall
within two (2) business days thereafter provide the Borrowers with a statement
of such charges. Whenever a payment hereunder becomes due on a day which is not
a Business Day, the due date for such payment shall be extended to the next
succeeding Business Day, and interest shall accrue during such extension.
Overdue principal and (to the extent permitted by applicable law)
interest on the indebtedness evidenced by this Note, and all other overdue
amounts payable hereunder, shall, upon notice to the Borrowers from the Lender,
bear interest at a rate per annum equal to four hundred (400) basis points above
the rate of interest otherwise payable hereunder, compounded daily and payable
on DEMAND, to accrue from the date of such notice until payment thereof.
Payments (other than of principal) made more than ten (10) days after their due
date shall be subject to a 5% late payment penalty.
This Note evidences borrowings under, and has been issued by the
Borrowers in accordance with the terms of, the Credit Agreement. The Lender and
any holder hereof is entitled to the benefits of the Credit Agreement and may
enforce the agreements of the Borrowers contained therein (and in any other Loan
Document), and any holder may exercise the respective remedies provided for
therein or otherwise available in respect thereof, all in accordance with the
respective terms thereof. All initially capitalized terms used but not otherwise
defined in this Note shall have the same meanings herein as in the Credit
Agreement.
The Borrowers shall have the right to prepay the whole or any part of
the principal of this Note, upon the terms and subject to the conditions set
forth in Section 2.3 of the Credit Agreement.
The Borrower and every endorser and guarantor of this Note or the
obligation represented hereby waive presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note, assent to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral and to the addition or release
of any other party or person primarily or secondarily liable in respect of this
Note.
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<PAGE>
The indebtedness evidenced by this Note is commercial in nature and
shall not be used for personal, family, household or agricultural purposes.
This Note shall be deemed to take effect as a sealed instrument under
the internal laws of the Commonwealth of Massachusetts (excluding the conflict
of law rules thereof) and for all purposes shall be construed in accordance with
such laws.
IN WITNESS WHEREOF, ASAHI/AMERICA, INC. and ASAHI ENGINEERED
PRODUCTS, INC. has each executed and delivered this Note by its
duly authorized officer as of the day and year first above
written.
WITNESS: ASAHI/AMERICA, INC.
__________________________ By:
___________________________
Title: President
________________________
ASAHI ENGINEERED PRODUCTS, INC.
__________________________ By:
___________________________
Title: President
________________________
38
<PAGE>
Exhibit 2.2 (b)
DISCRETIONARY CREDIT LINE NOTE
$5,000,000.00 January 23, 1997
Boston, Massachusetts
FOR VALUE RECEIVED, the undersigned ASAHI/AMERICA, INC., a
Massachusetts business corporation ("AAI"), and ASAHI ENGINEERED PRODUCTS, INC.,
a Massachusetts business corporation ("AEPI") (AAI and AEPI are hereinafter
referred to collectively as the "Borrowers"), hereby absolutely, unconditionally
and jointly and severally promise to pay to the order of CITIZENS BANK OF
MASSACHUSETTS, a Massachusetts bank, at its principal office at 55 Summer
Street, Boston, Massachusetts 02110 (hereinafter, including any subsequent
holder hereof, the "Lender"):
(a) the principal amount of FIVE MILLION DOLLARS
($5,000,000.00) or, if less or more, the aggregate unpaid principal
amount of revolving credit loans advanced by the Lender from time to
time pursuant to Section 2.2 of that certain Credit Agreement dated
as of the date hereof (the "Credit Agreement"), among the Borrowers
and the Lender; and
(b) any then unpaid interest on the principal balance
hereof from time to time outstanding from the date hereof through and
including the date on which such principal amount is paid in full.
Except as otherwise provided below, revolving credit loans
outstanding from time to time shall bear interest from the date such Loans are
made until repaid in full at the rate provided in Section 2.3 of the Credit
Agreement. Interest shall be computed on the basis of a 360-day year for the
number of days actually elapsed.
Interest on the indebtedness evidenced by this Note shall be payable
monthly in arrears on the 1st day of the succeeding month, commencing February
1, 1997, with a final payment at the maturity of this Note. The principal amount
of the indebtedness evidenced by this Note shall be due and payable upon the
earlier of (i) DEMAND by Lender, (ii) September 30, 1997, (iii) the Termination
Date or (iv) the occurrence of an Event of Default, whereupon the entire unpaid
principal amount of this Note and all of the unpaid interest accrued thereon may
be declared and thereby become immediately due and payable. Lender may charge
any Borrower's accounts with Lender for all payments of interest,
39
<PAGE>
principal and fees due in respect of this Note, and Lender shall within two (2)
business days thereafter provide the Borrowers with a statement of such charges.
Whenever a payment hereunder becomes due on a day which is not a Business Day,
the due date for such payment shall be extended to the next succeeding Business
Day, and interest shall accrue during such extension.
Overdue principal and (to the extent permitted by applicable law)
interest on the indebtedness evidenced by this Note, and all other overdue
amounts payable hereunder, shall, upon notice to the Borrowers from the Lender,
bear interest at a rate per annum equal to four hundred (400) basis points above
the rate of interest otherwise payable hereunder, compounded daily and payable
on DEMAND, to accrue from the date of such notice until payment thereof.
Payments (other than of principal) made more than ten (10) days after their due
date, shall be subject to a 5% late payment penalty, AND except when payment
becomes due solely by reason of DEMAND by Lender in the absence of an Event of
Default and prior to September 30, 1997.
This Note evidences borrowings under, and has been issued by the
Borrowers in accordance with the terms of, the Credit Agreement. The Lender and
any holder hereof is entitled to the benefits of the Credit Agreement and may
enforce the agreements of the Borrowers contained therein (and in any other Loan
Document), and any holder may exercise the respective remedies provided for
thereby or otherwise available in respect thereof, all in accordance with the
respective terms thereof. All initially capitalized terms used but not otherwise
defined in this Note shall have the same meanings herein as in the Credit
Agreement.
The Borrowers shall have the right to prepay the whole or any part of
the principal of this Note, upon the terms and subject to the conditions set
forth in Section 2.3 of the Credit Agreement.
The Borrower and every endorser and guarantor of this Note or the
obligation represented hereby waive presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note, assent to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral and to the addition or release
of any other party or person primarily or secondarily liable in respect of this
Note.
40
<PAGE>
The indebtedness evidenced by this Note is commercial in nature and
shall not be used for personal, family, household or agricultural purposes.
This Note shall be deemed to take effect as a sealed instrument under
the internal laws of the Commonwealth of Massachusetts (excluding the conflict
of law rules thereof) and for all purposes shall be construed in accordance with
such laws.
IN WITNESS WHEREOF, ASAHI/AMERICA, INC. and ASAHI ENGINEERED
PRODUCTS, INC. has each executed and delivered this Note by its duly authorized
officer as of the day and year first above written.
WITNESS: ASAHI/AMERICA, INC.
__________________________ By:
___________________________
Title:
________________________
ASAHI ENGINEERED PRODUCTS, INC.
__________________________ By:
___________________________
Title:
________________________
41
REVOLVING CREDIT NOTE
$5,000,000.00 January 23, 1997
Boston, Massachusetts
FOR VALUE RECEIVED, the undersigned ASAHI/AMERICA, INC., a
Massachusetts business corporation ("AAI"), and ASAHI ENGINEERED PRODUCTS, INC.,
a Massachusetts business corporation ("AEPI") (AAI and AEPI are hereinafter
referred to collectively as the "Borrowers"), hereby absolutely, unconditionally
and jointly and severally promise to pay to the order of CITIZENS BANK OF
MASSACHUSETTS, a Massachusetts bank, at its principal office at 55 Summer
Street, Boston, Massachusetts 02110 (hereinafter, including any subsequent
holder hereof, the "Lender"):
(a) the principal amount of FIVE MILLION DOLLARS
($5,000,000.00) or, if less or more, the aggregate unpaid principal
amount of revolving credit loans advanced by the Lender from time to
time pursuant to Section 2.1 of that certain Credit Agreement dated
as of the date hereof (the "Credit Agreement"), among the Borrowers
and the Lender; and
(b) any then unpaid interest on the principal balance
hereof from time to time outstanding from the date hereof through and
including the date on which such principal amount is paid in full.
Except as otherwise provided below, revolving credit loans
outstanding from time to time shall bear interest from the date such Loans are
made until repaid in full at the rate provided in Section 2.3 of the Credit
Agreement. Interest shall be computed on the basis of a 360-day year for the
number of days actually elapsed.
Interest on the indebtedness evidenced by this Note shall be payable
monthly in arrears on the 1st day of the succeeding month, commencing February
1, 1997, with a final payment at the maturity of this Note. The principal amount
of the indebtedness evidenced by this Note shall be due and payable upon the
earlier of (i) September 30, 1998, (ii) the Termination Date or (iii) the
occurrence of an Event of Default, whereupon the entire unpaid principal amount
of this Note and all of the unpaid interest accrued thereon may be declared and
thereby become immediately due and payable. Lender may charge any Borrower's
accounts with Lender for all payments of interest, principal and fees due in
respect of this Note, and Lender shall within two (2) business days thereafter
provide the Borrowers with a statement of such
1
<PAGE>
charges. Whenever a payment hereunder becomes due on a day which is not a
Business Day, the due date for such payment shall be extended to the next
succeeding Business Day, and interest shall accrue during such extension.
Overdue principal and (to the extent permitted by applicable law)
interest on the indebtedness evidenced by this Note, and all other overdue
amounts payable hereunder, shall, upon notice to the Borrowers from the Lender,
bear interest at a rate per annum equal to four hundred (400) basis points above
the rate of interest otherwise payable hereunder, compounded daily and payable
on DEMAND, to accrue from the date of such notice until payment thereof.
Payments (other than of principal) made more than ten (10) days after their due
date shall be subject to a 5% late payment penalty.
This Note evidences borrowings under, and has been issued by the
Borrowers in accordance with the terms of, the Credit Agreement. The Lender and
any holder hereof is entitled to the benefits of the Credit Agreement and may
enforce the agreements of the Borrowers contained therein (and in any other Loan
Document), and any holder may exercise the respective remedies provided for
therein or otherwise available in respect thereof, all in accordance with the
respective terms thereof. All initially capitalized terms used but not otherwise
defined in this Note shall have the same meanings herein as in the Credit
Agreement.
The Borrowers shall have the right to prepay the whole or any part of
the principal of this Note, upon the terms and subject to the conditions set
forth in Section 2.3 of the Credit Agreement.
The Borrower and every endorser and guarantor of this Note or the
obligation represented hereby waive presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note, assent to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral and to the addition or release
of any other party or person primarily or secondarily liable in respect of this
Note.
The indebtedness evidenced by this Note is commercial in nature and
shall not be used for personal, family, household or agricultural purposes.
This Note shall be deemed to take effect as a sealed instrument under
the internal laws of the Commonwealth of
2
<PAGE>
Massachusetts (excluding the conflict of law rules thereof) and for all purposes
shall be construed in accordance with such laws.
IN WITNESS WHEREOF, ASAHI/AMERICA, INC. and ASAHI ENGINEERED
PRODUCTS, INC. has each executed and delivered this Note by its duly authorized
officer as of the day and year first above written.
WITNESS: ASAHI/AMERICA, INC.
/s/ John E. Lawrence By: /s/ Leslie B. Lewis
__________________________ ___________________________
John E. Lawrence
Title: President
________________________
ASAHI ENGINEERED PRODUCTS, INC.
By: /s/ Leslie B. Lewis
/s/ John E. Lawrence
__________________________ ___________________________
John E. Lawrence
Title: President
________________________
3
DISCRETIONARY CREDIT LINE NOTE
$5,000,000.00 January 23, 1997
Boston, Massachusetts
FOR VALUE RECEIVED, the undersigned ASAHI/AMERICA, INC., a
Massachusetts business corporation ("AAI"), and ASAHI ENGINEERED PRODUCTS, INC.,
a Massachusetts business corporation ("AEPI") (AAI and AEPI are hereinafter
referred to collectively as the "Borrowers"), hereby absolutely, unconditionally
and jointly and severally promise to pay to the order of CITIZENS BANK OF
MASSACHUSETTS, a Massachusetts bank, at its principal office at 55 Summer
Street, Boston, Massachusetts 02110 (hereinafter, including any subsequent
holder hereof, the "Lender"):
(a) the principal amount of FIVE MILLION DOLLARS
($5,000,000.00) or, if less or more, the aggregate unpaid principal
amount of revolving credit loans advanced by the Lender from time to
time pursuant to Section 2.2 of that certain Credit Agreement dated
as of the date hereof (the "Credit Agreement"), among the Borrowers
and the Lender; and
(b) any then unpaid interest on the principal balance
hereof from time to time outstanding from the date hereof through and
including the date on which such principal amount is paid in full.
Except as otherwise provided below, revolving credit loans
outstanding from time to time shall bear interest from the date such Loans are
made until repaid in full at the rate provided in Section 2.3 of the Credit
Agreement. Interest shall be computed on the basis of a 360-day year for the
number of days actually elapsed.
Interest on the indebtedness evidenced by this Note shall be payable
monthly in arrears on the 1st day of the succeeding month, commencing February
1, 1997, with a final payment at the maturity of this Note. The principal amount
of the indebtedness evidenced by this Note shall be due and payable upon the
earlier of (i) DEMAND by Lender, (ii) September 30, 1997, (iii) the Termination
Date or (iv) the occurrence of an Event of Default, whereupon the entire unpaid
principal amount of this Note and all of the unpaid interest accrued thereon may
be declared and thereby become immediately due and payable. Lender may charge
any Borrower's accounts with Lender for all payments of interest, principal and
fees due in respect of this Note, and Lender shall within two (2) business days
thereafter provide the Borrowers
1
<PAGE>
with a statement of such charges. Whenever a payment hereunder becomes due on a
day which is not a Business Day, the due date for such payment shall be extended
to the next succeeding Business Day, and interest shall accrue during such
extension.
Overdue principal and (to the extent permitted by applicable law)
interest on the indebtedness evidenced by this Note, and all other overdue
amounts payable hereunder, shall, upon notice to the Borrowers from the Lender,
bear interest at a rate per annum equal to four hundred (400) basis points above
the rate of interest otherwise payable hereunder, compounded daily and payable
on DEMAND, to accrue from the date of such notice until payment thereof.
Payments (other than of principal) made more than ten (10) days after their due
date, shall be subject to a 5% late payment penalty, AND except when payment
becomes due solely by reason of DEMAND by Lender in the absence of an Event of
Default and prior to September 30, 1997.
This Note evidences borrowings under, and has been issued by the
Borrowers in accordance with the terms of, the Credit Agreement. The Lender and
any holder hereof is entitled to the benefits of the Credit Agreement and may
enforce the agreements of the Borrowers contained therein (and in any other Loan
Document), and any holder may exercise the respective remedies provided for
thereby or otherwise available in respect thereof, all in accordance with the
respective terms thereof. All initially capitalized terms used but not otherwise
defined in this Note shall have the same meanings herein as in the Credit
Agreement.
The Borrowers shall have the right to prepay the whole or any part of
the principal of this Note, upon the terms and subject to the conditions set
forth in Section 2.3 of the Credit Agreement.
The Borrower and every endorser and guarantor of this Note or the
obligation represented hereby waive presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note, assent to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral and to the addition or release
of any other party or person primarily or secondarily liable in respect of this
Note.
The indebtedness evidenced by this Note is commercial in nature and
shall not be used for personal, family, household or agricultural purposes.
2
<PAGE>
This Note shall be deemed to take effect as a sealed instrument under
the internal laws of the Commonwealth of Massachusetts (excluding the conflict
of law rules thereof) and for all purposes shall be construed in accordance with
such laws.
IN WITNESS WHEREOF, ASAHI/AMERICA, INC. and ASAHI ENGINEERED
PRODUCTS, INC. has each executed and delivered this Note by its
duly authorized officer as of the day and year first above
written.
WITNESS: ASAHI/AMERICA, INC.
/s/ John E. Lawrence By: /s/ Leslie B. Lewis
__________________________ ___________________________
John E. Lawrence
Title: President
________________________
ASAHI ENGINEERED PRODUCTS, INC.
/s/ John E. Lawrence By: /s/ Leslie B. Lewis
__________________________ ___________________________
John E. Lawrence
Title: President
________________________
3
[Detailed Description of this Exhibit 11.1: Statement re: Computation of
Weighted Average Number of Common and Common Equivalent Shares Outstanding]
EXHIBIT 11.1
Asahi/America, Inc.
Statement of Computation of Weighted Average Number of Common
and Common Equivalent Shares Outstanding
For the years ended December 31,
1994 1995 1996
---- ---- ----
Weighted average common shares outstanding 2,340,000 2,340,000 2,972,877
Common and common equivalent shares - - 15,055
--------- --------- ---------
Weighted average number of common and
common equivalent shares outstanding 2,340,000 2,340,000 2,987,932
========= ========= =========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000906873
<NAME> ASAHI/AMERICA, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 3,028
<SECURITIES> 0
<RECEIVABLES> 5,291
<ALLOWANCES> 283
<INVENTORY> 8,673
<CURRENT-ASSETS> 17,222
<PP&E> 13,153
<DEPRECIATION> 3,285
<TOTAL-ASSETS> 28,443
<CURRENT-LIABILITIES> 7,247
<BONDS> 3,760
0
0
<COMMON> 13,638
<OTHER-SE> 2,566
<TOTAL-LIABILITY-AND-EQUITY> 28,443
<SALES> 37,894
<TOTAL-REVENUES> 37,894
<CGS> 23,968
<TOTAL-COSTS> 23,968
<OTHER-EXPENSES> 9,747
<LOSS-PROVISION> 4
<INTEREST-EXPENSE> 196
<INCOME-PRETAX> 3,979
<INCOME-TAX> 1,541
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,438
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.82
</TABLE>
