<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1997
                                       or
[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT

For the Transition period from                   to
                               -----------------    --------------------

                         COMMISSION FILE NUMBER 0-20328

                                   AMTROL INC
                                   ----------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

         RHODE ISLAND                        05-0246955
         ------------                        ----------
         (STATE OR OTHER JURISDICTION OF     (I.R.S. EMPLOYER
         INCORPORATION OR ORGANIZATION)      IDENTIFICATION NO.)

   1400 DIVISION ROAD, WEST WARWICK, RI         02893
   ------------------------------------         -----
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)     (ZIP CODE)

       Registrant's telephone number, including area code: (401) 884-6300
        Securities registered pursuant to Section 12(b) of the Act: NONE.
        Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X    No    .
                                       ---    ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
           ---

As of March 7, 1998, the aggregate market value of the Registrant's voting stock
held by non-affiliates was none.

As of March 26, 1998, 100 shares of Common Stock $0.01 par value, of the
Registrant were outstanding.

Documents Incorporated by Reference:  NONE

The Exhibit Index for this document appears on page 59 hereof.
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                                     PART I
--------------------------------------------------------------------------------

ITEM 1. BUSINESS

  OVERVIEW

      AMTROL Inc ("AMTROL" or the "Company"), is a leading designer,
      manufacturer and marketer of flow and control products used in the water
      systems markets and selected sectors of the HVAC market. The Company's
      principal products include well water accumulators, hot water expansion
      controls, water treatment products, indirect-fired water heaters,
      returnable and non-returnable pressure-rated cylinders used primarily to
      store, transport and dispense refrigerant gases, and returnable cylinders
      used to dispense heating and cooking gases. Many of these products are
      based on a technology originated and developed by the Company, which uses
      a pre-pressurized vessel with an internal diaphragm to handle fluids under
      pressure.

      The Company believes that its leading market positions in its key product
      categories are attributable to the strength of AMTROL's brand names and
      product breadth, quality and innovation, as well as its marketing,
      distribution and manufacturing expertise. In addition, AMTROL's principal
      markets are highly replacement-oriented, with 60% to 70% of the Company's
      core business coming from replacement sales. These factors, combined with
      the Company's large installed base of products, have enabled AMTROL to
      demonstrate sales and earnings stability even during periods of weak
      domestic economic activity.

      AMTROL's brand names are among the most widely known in its markets. For
      example, the Company's key hot water expansion control product, the
      Extrol, is so widely recognized that customers frequently refer to any hot
      water expansion control as an "Extrol." Other well-known brand names of
      the Company include Well-X-Trol, Therm-X-Trol, Hot Water Maker and
      CHAMPION. The Company also believes that it is the recognized technology
      leader in virtually all of its core product lines. In many of the
      Company's major product lines, AMTROL's products are considered the
      industry standard, a key marketing advantage, because of their recognized
      quality and reliability.

      The Company's strong reputation and brand recognition ensure that nearly
      every significant wholesaler carries at least one AMTROL product. This
      facilitates new product introduction, effectively "pulling" the Company's
      new products through its distribution system. AMTROL also offers a broad
      range of products, including over 100 models of well water accumulators.
      This broad product offering allows AMTROL's customers to consolidate their
      suppliers and to purchase and manage inventory more efficiently. These
      factors have established the Company's products as a preferred brand and
      allow the Company to realize premium pricing on most of its branded
      products. During its 50-year history, the Company has built a strong
      franchise with wholesalers and OEMs, resulting in a broad distribution
      network serving more than 5,000 customers throughout North America. In
      addition, the Company continues to focus its efforts to better serve the
      DIY market, a rapidly growing channel of distribution, primarily through
      private label


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      arrangements with Lowe's Companies, Menards, Cotter & Company (True Value)
      and Ace Hardware.

      In June 1997, the Company acquired Petroleo Mecanica Alfa ("Alfa"),
      located in Guimaraes, Portugal. Alfa is Europe's largest manufacturer of
      reusable steel gas cylinders and supplies Europe, the Middle East and
      Africa, as well as the Far East, with containers for storing cooking,
      heating and refrigerant gases. Alfa provides the Company with a low-cost
      international manufacturing base for all of AMTROL's products and will be
      an important source of supply for the Company's international customers.
      With the acquisition of Alfa, approximately 22.3% of the Company's net
      sales in 1997 were derived from international markets, compared to 12.6%
      in 1996.

      On August 28, 1996, AMTROL entered into a merger agreement (the "Merger
      Agreement") with AMTROL Holdings, Inc. ("Holdings") and its wholly-owned
      subsidiary, AMTROL Acquisition, Inc. ("Acquisition"), providing for the
      merger of AMTROL with Acquisition, with AMTROL continuing as the surviving
      corporation (the "Surviving Corporation"). The Merger Agreement was
      approved at a special meeting of shareholders of AMTROL held on November
      12, 1996, and Acquisition was merged with and into AMTROL on November 13,
      1996 (the "Merger"). Each share of common stock of Acquisition was
      converted into and exchanged into one share of common stock of the
      Surviving Corporation, with the result that AMTROL became a wholly-owned
      subsidiary of Holdings, a Delaware corporation controlled by The Cypress
      Group L.L.C. ("Cypress").

      The Company was incorporated in Rhode Island in 1973, and is the successor
      to all of the assets and liabilities of a predecessor Rhode island
      corporation which was incorporated in 1946. The Company's principal
      executive offices are located at 1400 Division Road, West Warwick, Rhode
      Island 02893 (telephone number: (401) 884-6300).

BUSINESS STRATEGY

      Upon the Merger, Mr. John P. (Jack) Cashman became the Chairman, Chief
      Executive Officer and President of the Company and worked closely with key
      members of AMTROL's management to develop a new strategic plan.

      During 1997, the Company has been executing the new strategic plan, which
      was designed to reduce costs and capitalize on AMTROL's position as a
      technological and market leader. The new strategic plan consists of the
      following key elements: (i) reduce operating expenses, (ii) enhance sales
      and profitability of core product offerings, and (iii) grow
      internationally and introduce new products.

      REDUCE OPERATING EXPENSES

      In 1996 and 1997, the Company initiated a series of actions designed to
      immediately reduce operating expenses and to establish new managerial and
      organizational accountability. Actions already implemented or in the
      process of being implemented are expected to generate significant cost
      savings. The cost savings estimates described herein are forward-looking
      statements based on management budgets. Realization of these


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      savings depends upon the effectiveness and timing of the planned actions
      and there can be no assurance that such cost savings can be achieved.

      Reduce Corporate Overhead Expenses. In connection with the Merger, the
      Company restructured its general and administrative staff and consolidated
      its three autonomous strategic business units to eliminate redundant and
      unnecessary functions, resulting in significant cost savings. These
      actions generated permanent annual cost savings aggregating approximately
      $4.0 million, including non-personnel expense reductions commencing in
      1997. As a result of the headcount reductions undertaken in 1996 and 1997,
      the number of persons employed at corporate headquarters as of December
      31, 1997 has decreased by approximately 15% since January 1, 1996.
      One-time costs related to these measures totaled approximately $2.5
      million, which was anticipated and accounted for as part of purchase
      accounting associated with the Merger.

      Continue To Rationalize Manufacturing Facilities. The Company continued
      its rationalization of its manufacturing facilities in 1997 with the sale
      of its pump and accessory businesses and the closure of two of its
      manufacturing plants. The Company sold its Peru, Indiana facility and
      related pump business in May 1997, relocated production of certain
      products to other facilities and outsourced the production of other
      products. Costs associated with this action approximated $500,000. Also in
      May 1997, the Company sold its accessories business, American Granby Inc.,
      which had little strategic overlap with AMTROL's core water systems and
      HVAC product lines, in order to focus on its core products. The Company
      closed its Singapore production facility in September 1997. The decision
      to close Singapore was assisted by the acquisition of Alfa, a low-cost
      international manufacturing facility, which will absorb the non-returnable
      chemical container production from the Singapore facility. In December
      1997, the Company closed its production facility in Nashville, Tennessee
      and relocated most of the Nashville production to the Company's West
      Warwick, R.I. facility. Much of the production in Nashville represented
      redundant capacity which, due to significant improvements in manufacturing
      efficiency and productivity, the West Warwick plant will be able to absorb
      with insignificant incremental costs. The Company recorded a $2.5 million
      pre-tax charge in connection with the Singapore closure and a $3.0 million
      pre-tax charge in connection with the Nashville closure.

      Reduce Manufacturing Costs. The Company intends to continue to reduce
      labor costs through automating certain labor-intensive manufacturing
      processes and redesigning existing product lines. For example, the Company
      in 1997 automated its small vessel manufacturing line in its West Warwick,
      Rhode Island facility. The Company has identified and intends to implement
      several other manufacturing improvement projects which are expected to
      yield additional annual savings by the end of 1998.

      ENHANCE SALES AND PROFITABILITY OF CORE PRODUCT OFFERINGS

      The Company continues to look at initiatives to reinvigorate sales growth
      and increase profitability of its core product offerings. To accomplish
      this, the Company seeks agreements with major pump and boiler OEMs to
      incorporate AMTROL products into complete systems solutions and modifies
      current products to enhance appearance,


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      facilitate installation or meet the requirements of specific domestic and
      international markets. The Company continually educates its customers
      about the benefits of AMTROL products. These actions help to maintain
      demand for AMTROL's core products and allow AMTROL to continue to realize
      premium pricing and a favorable product mix, especially in international
      markets.

      EXPAND INTERNATIONALLY AND INTRODUCE NEW PRODUCTS

      By establishing an international presence through strategic alliances and
      acquisitions, management believes the Company's strong brand names, broad
      product offerings and core water systems expertise will allow it to
      capitalize on growing global demand for enhanced water pressure control
      and improved water quality and refrigerant systems. The 1997 acquisition
      of Alfa increased the Company's international presence significantly:
      international net sales were 22.3% of total net sales in 1997, compared to
      12.6% in 1996. Alfa presents the Company with a low-cost platform from
      which it can expand distribution of its wide variety of products in
      Europe, the Middle East/Africa and the Far East. The Company will continue
      to selectively pursue OEM alliances and strategic acquisitions, such as
      the acquisition of Alfa. The Company believes that establishing local
      manufacturing and distribution facilities in international markets is
      critical to the Company's ability to build strong customer relationships,
      understand local product preferences and be price competitive while
      maintaining appropriate profit margins. In addition, strategic
      acquisitions, both domestic and international, provide the Company with an
      effective means of identifying and introducing new products and
      technologies in markets where it already has a strong presence. The
      Company will focus its international expansion on the target markets of
      Western Europe, Latin America, and to a lesser extent, the regions of Asia
      Pacific and Eastern Europe.

      EUROPE. In Europe, the large hydronic heating market (believed by the
      Company to be ten times the size of the U.S. market) and the general lack
      of adequate water pressure in municipal systems represent excellent
      opportunities for the Company in light of its core products expertise. The
      Company's brand names are already well recognized in Europe. The Company
      plans to apply its technical expertise to the special needs of the
      European market and to build on Alfa's product and distribution presence
      in the market for returnable pressure rated cylinders for heating and
      cooking gases. The Company plans to accelerate European growth through
      selective acquisitions, strategic joint ventures and distribution
      agreements.

      LATIN AMERICA. The Company intends to establish local sales, distribution
      and service capability in this region, which will enable the Company to
      better service its existing customers and provide a base for new business.

      ASIA/PACIFIC. Although the recent economic instability in this region
      decreased demand for the Company's products in 1997, and the Company's
      1998 plans do not anticipate a significant rebound, the Company continues
      to maintain and invest in its sales and distribution presence in the
      region, and is prepared to pursue its opportunities in the Asia Pacific
      region when economic conditions improve.


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PRODUCTS AND MARKETS

      The Extrol, the first product to utilize the technology developed by
      AMTROL for handling fluid under pressure in hydronic heating systems,
      redefined the standards for controlling the expansion of water in these
      systems. Older systems consisted simply of a vessel containing air,
      resulting in excessive pressure, less efficiency and excessive corrosion.
      AMTROL developed a technology which uses a flexible diaphragm inside a
      pre-pressurized vessel to maintain the separation of air and water in the
      vessel, and has applied this technology in both HVAC products and water
      systems products.

      HVAC PRODUCTS

      AMTROL's net sales to selected sectors of the HVAC market, which include
      net sales of products such as expansion accumulators, water heaters and
      pressure-rated cylinders for heating and refrigerant gases, accounted for
      approximately $91.8 million (or 52.0%) of the Company's total net sales in
      1997. AMTROL's residential HVAC products include expansion vessels for
      heated water, potable water heaters and other accessories used in
      residential HVAC systems. AMTROL's commercial HVAC products are
      substantially identical in function to those used in residential
      applications, with the most significant difference being variations
      required by design codes to meet the higher operating pressures of larger
      systems. AMTROL's pressure-rated cylinders for refrigerant gases are used
      in the storage, transport and dispensing of gases used in air conditioning
      and refrigeration systems. In addition, with the acquisition of Alfa, the
      Company's products include returnable pressure-rated cylinders for storing
      gas used in residential and commercial heating and cooking applications.

      EXTROLS. Extrol expansion accumulators, the first AMTROL product line to
      incorporate the Company's diaphragm technology for handling fluid under
      pressure, are used in conjunction with hydronic heating systems, which
      provide heat by circulating hot water through baseboard piping and
      radiators. The Extrol product eliminates the corrosive effects of oxygen
      in the heating system and eliminates problems related to hot water
      expansion by allowing the volume of water to increase as the temperature
      of the water increases within a closed system, preventing operating
      problems resulting from excessive or deficient water pressure in the
      system.

      THERM-X-TROLS. Therm-X-Trols accumulate expanded hot water escaping from
      potable water heaters that has been prevented from flowing back into the
      public water supply by backflow prevention devices. In response to the
      Clean Water Act of 1984 certain jurisdictions established local codes to
      require owners of commercial and residential buildings to install backflow
      prevention devices in order to prevent the contamination of the public
      water supply. Local codes adopted by organizations that set standards for
      approximately 90% of the United States also require a separate device to
      handle the expanded water prevented from flowing back into the public
      water supply. The principal alternatives are relief valves, which permit
      water to drain inside the building, and thermal expansion accumulators,
      such as the Therm-X-Trol, which capture the water. Therm-X-Trol satisfies
      these code requirements, as well as the codes of cities that specifically
      require a thermal expansion accumulator. Additionally, the two largest
      domestic water


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      heater manufacturers will void their warranties if thermal expansion
      accumulators are not used in conjunction with their products where
      backflow prevention devices are installed.

      INDIRECT-FIRED WATER HEATERS. In response to market demands for energy
      conservation, AMTROL has developed a line of indirect-fired residential
      and commercial water heaters, which it manufactures and distributes under
      the brand name Hot Water Maker. Used in conjunction with a new or existing
      boiler installed to heat living and work areas, these water heaters offer
      an alternative to conventional gas and electric potable water heaters and
      tankless coils by generating hot water through the use of heat exchangers
      and circulators which circulate heated water from the boiler through a
      coil in the core of the water heater's reservoir. Hot Water Makers are
      sold for use in both commercial and residential applications. In addition
      to selling products under its own brand name, AMTROL is presently pursuing
      an OEM partnership strategy in this business whereby the Company supplies
      hydronic products manufacturers with private branded indirect-fired water
      heaters.

      PRESSURE-RATED CYLINDERS. The Company's Alfa subsidiary, located in
      Portugal, produces and distributes reusable liquid propane gas ("LPG") and
      reusable refrigerant cylinders. It is the largest producer of reusable
      steel gas cylinders in Europe. Reusable LPG cylinders are typically
      purchased by major gas companies or their distributors who fill the
      cylinders for customers who use the gas for heating and cooking in
      residential and commercial applications. AMTROL is one of two of the
      world's most significant manufacturers of non-returnable pressure-rated
      cylinders used in the storage, transport and dispensing of refrigerant
      gases for air conditioning and refrigeration systems. These gases include
      chlorofluorocarbons ("CFC's") and hydrochlorofluorocarbons ("HCFC's"), as
      well as newly developed alternative refrigerants designed to mimic the
      desirable characteristics of CFC's and HCFC's. The Montreal Protocol on
      Substances that deplete the Ozone Layer (to which 140 countries are
      signatories) required the phase out of CFC production by the end of 1995
      and established an HCFC consumption limit beginning January 1, 1996, with
      a complete phase out of HCFC's by 2030. The United States has accelerated
      the HCFC phase out, requiring the phase out of certain HCFC's by 2003,
      others by 2020 and the remainder by 2030. During the past three years,
      these regulatory phase outs and consumption limits on CFC's and HCFC's
      have created disruptions in the market and have resulted in uneven and
      less predictable demand for the Company's pressure-rated cylinders. These
      conditions may continue during the transition to new alternative
      refrigerant gases until the aftermarket service demand for the new
      alternative refrigerant gases grows to previous CFC levels. However, the
      Company believes that the increasing use of refrigeration and air
      conditioning in developing nations will generate increased international
      sales of refrigerant gas cylinders.

      WATER SYSTEMS PRODUCTS

      AMTROL's net sales of its water systems products accounted for
      approximately $84.6 million (or 48.0%) of the Company's total net sales in
      1997. These products consist primarily of water accumulators for
      residential and commercial well water systems and systems and components
      for residential water softening and purification.


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      WELL WATER SYSTEMS. AMTROL produces and sells well water accumulators for
      both residential and commercial applications under the brand names
      Well-X-Trol and CHAMPION, as well as under several private label programs.
      Virtually all of the water accumulators sold by the Company incorporate an
      internally mounted rubber diaphragm that seals an air charge and allows
      pressure to increase as water fills the plastic lined vessel. This design
      serves to control pressure while maintaining the separation of air and
      water in the vessel, thereby eliminating water logging (absorption of air
      into water) as well as reducing wear on switches, pump motors and other
      system components caused by unnecessary on/off cycling. A typical well
      water system consists of a submersible or jet pump located in the well
      that is attached to an AMTROL pre-pressurized vessel.

      The pre-pressurized vessel is connected to the plumbing system in order to
      provide water on demand at a constant pressure. As the water level and
      pressure in the vessel lowers, the diaphragm flexes, which in turn causes
      the pump to cycle on until a sufficient level of water pressure is
      achieved in the system.

      WATER TREATMENT/FILTRATION PRODUCTS. AMTROL offers a range of products to
      meet increasing global demand for improved water quality and water
      pressure. AMTROL manufactures and markets water softeners, reverse osmosis
      accumulators and other related systems that may be utilized to purify or
      treat residential municipal-supplied and well water. The Company also
      manufactures and markets products that address the need to boost water
      pressure in many domestic and international locations where the available
      pressure is not adequate.

DISTRIBUTION AND MARKETING

      AMTROL's principal channel of distribution is plumbing, heating and pump
      specialty wholesalers. The Company maintains its presence in the United
      States and Canadian wholesale markets through a network of approximately
      40 independent firms that represent multiple manufacturers, arranging
      sales on a commission basis, as well as approximately 20 salaried direct
      sales professionals. To service its customers with greater efficiency, the
      Company has streamlined its representative network and, through
      consolidation of multiple lines of business, has brought a broader range
      of products to its wholesalers. The Company also provides certain of its
      products to the rapidly growing DIY market segment through a separate
      sales force and marketing division. AMTROL has private label arrangements
      with Lowe's Companies, Menards, Cotter & Company (True Value) and Ace
      Hardware.

      At its Education Center, which is an integral part of the Company's
      marketing organization, and at Company-sponsored seminars throughout the
      United States and selected international locations, AMTROL provides
      education and training to wholesalers, contractors and engineers,
      independent sales representatives and their employees to assist them in
      understanding the technical aspects of their respective customers'
      requirements and AMTROL's product lines. By educating customers about the
      benefits of AMTROL's products, the Company's products are effectively
      "pulled" through its distribution system.

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      Non-returnable refrigerant pressure-rated cylinders are also sold to major
      chemical companies, which produce and package refrigerant gases, and to
      independent contractors that purchase bulk refrigerants and fill the
      cylinders. Alfa's major customers for reusable LPG cylinders are the major
      European gas companies or their distributors.

      Except for one customer to whom sales were approximately 6%, no single
      customer represented more than 5% of the Company's net sales in 1997.

INTERNATIONAL SALES

      Sales in geographic regions outside of the United States and Canada,
      primarily Western Europe, Asia and Mexico, accounted for 13.2%, 12.6% and
      22.3% of the Company's total net sales in fiscal years 1995, 1996 and 1997
      respectively. The majority of these sales were refrigerant gas
      pressure-rated cylinders sold into Europe in 1997 and the sales of its
      newly acquired Alfa subsidiary.

      Over the last three years, AMTROL has opened international sales offices
      in Hong Kong and Singapore. In May 1997, the Company opened a sales office
      in Europe. In addition to these initiatives, AMTROL is building
      distribution networks in the Asia/Pacific region and Latin America/Mexico.
      To further penetrate European markets, AMTROL is selectively pursuing
      acquisitions and distribution, OEM and manufacturing alliances which
      complement its recent acquisition of Alfa.

      Previous management at the Company commenced manufacturing activities at
      leased facilities in Singapore in 1996 in order to expand its
      international presence. However, the acquisition of Alfa in 1997 made the
      Singapore facility unnecessary, particularly in light of the higher than
      anticipated cost structure, lack of an adequate local steel supply and an
      increasingly unstable economic environment. Accordingly, the Company
      closed its Singapore facility and ceased production in September 1997. A
      continued focus on international expansion is a key part of the Company's
      growth strategy. See "--New Management and Business Strategy--Expand
      Internationally."

MANUFACTURING, RAW MATERIALS AND SUPPLIERS

      The Company manufactures water systems and HVAC products using components
      produced in its own facilities, as well as those of outside suppliers. To
      assure quality in its product lines and to enable the Company to respond
      quickly to changing market demands, AMTROL manufactures most critical
      components in its own facilities. The Company has a "Continuous
      Improvement Program" for quality control directed at producing higher
      yields, lower controllable costs per unit, higher order fill rates, better
      on-time delivery and decreased warranty claims. AMTROL believes it has
      developed substantial manufacturing expertise related to its technology
      and its expertise in high quality, low cost manufacturing. This expertise,
      combined with its extensive knowledge of the manufacturing tolerances
      required to handle fluids under pressure, provides a competitive
      advantage. Principal manufacturing processes include thin-wall steel deep
      drawing, welding and rubber injection molding.


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      The Company's engineering and development efforts are focused on improving
      the performance, quality and manufacturing cost of its products. In
      addition, the Company pursues opportunities to develop new products and
      processes, and adapt existing products for new applications.

      In September 1997, the Company ceased production operations in Singapore
      and transferred production equipment to its newly acquired production
      facility in Portugal. The unanticipated high cost structure in Singapore
      and the flexibility provided by the Alfa acquisition were the prime
      factors leading to this decision. In addition, as a result of productivity
      gains achieved at its West Warwick, Rhode Island production facility and
      as part of the Company's strategic initiative to reduce manufacturing
      costs and optimize the utilization of its worldwide manufacturing
      capacity, the Company decided in December 1997 to close its Nashville,
      Tennessee production facility and relocate production to the Rhode Island
      facility.

      Previously, due to significant productivity gains achieved at its
      principal manufacturing facilities, the Company decided to close two
      production facilities which were no longer necessary. The Company's Plano,
      Texas plant ceased operations in September 1995 and the Rogers, Arkansas
      plant ceased operations in April 1996. Production requirements were
      transferred to other manufacturing facilities.

      In addition to its ongoing facilities rationalization program, AMTROL has
      implemented a significant capital improvement program with the intention
      of further reducing manufacturing costs. During 1997, the Company spent
      $8.5 million on capital expenditures. Most significantly, the Company has
      spent approximately $2.4 million over the past two years to automate the
      small diameter vessel production line in West Warwick, Rhode Island, and
      approximately $2.0 million in conjunction with the acquisition of Alfa for
      productivity improvement and capacity expansion.

      AMTROL's three principal manufacturing facilities hold ISO 9001
      Certification, the most complete certification in the ISO 9000 Series from
      the International Organization for Standardization ("ISO"). ISO
      certification requires periodic audits of AMTROL's systems for product
      design, development, production, installation and servicing, and has
      become the international standard of quality required for manufacturers
      serving the European Economic Community, Southeast Asia, the Middle East
      and Latin America.

      Raw material suppliers generally offer commodities used by the Company,
      such as steel, synthetic rubber and plastic resins, to all manufacturers
      on substantially similar terms. Significant increases in raw material
      prices can adversely impact margins if the Company is unable to pass on
      such increases to its customers. In 1995, the Company experienced
      increased raw material costs, particularly steel and corrugated paper,
      which it was unable to offset and, as a result, its gross margin was
      adversely impacted. During 1996, the Company experienced reductions in raw
      material prices offsetting many of the increases experienced in the prior
      year. Manufacturers of component parts also generally offer their products
      to others on substantially similar terms. Although certain components are
      only available from a limited number of manufacturers, the Company
      anticipates that it will be able to purchase all of the components it
      requires without disruption. The Company believes that its relationships
      with its suppliers are good.


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SEASONALITY; BACKLOG

      Although AMTROL's sales are related to general economic activity and sales
      of certain of its products are seasonal, its overall business is not
      seasonal to any significant extent. Due to the generally short lead time
      in orders, the Company historically has not carried any material backlog.

PATENTS, TRADEMARKS AND LICENSES

      While the Company owns a number of patents that are important to its
      business, the Company believes that its position in its markets depends
      primarily on factors such as manufacturing expertise, technological
      leadership, superior service and quality and strong brand name
      recognition, rather than on patent protection. The Company believes that
      foreign and domestic competitors have been unable to match the quality of
      AMTROL's branded products. The Company licenses certain of its technology
      to manufacturers in the Asia/Pacific region.

      The Company also has a number of registered and unregistered trademarks
      for its products. The Company believes the following registered
      trademarks, which appear on its products and are widely recognized in its
      markets, are material to its business: the AMTROL(R) name, Well-X-Trol(R),
      Therm-X-Trol(R), Extrol(R), Hot Water Maker(R) and CHAMPION(R).

COMPETITION

      Although the Company experiences substantial competition from a limited
      number of competitors in each of its markets, the Company believes that it
      is a market leader in its core products. The principal means of
      competition in the water systems products and HVAC markets are technology,
      quality, service and price. AMTROL brand name products generally compete
      on the basis of technology, quality, service and product line breadth and
      generally do not compete on the basis of price. No single company competes
      with AMTROL over a significant number of its product lines. As the Company
      expands into international markets, it may experience competition from
      local companies.

EMPLOYEES

      As of December 31, 1997, the Company had approximately 1,650 employees,
      none of whom were represented by collective bargaining units. AMTROL
      considers relations with its employees to be good.

ENVIRONMENTAL MATTERS

      Some of the Company's operations generate waste materials that may give
      rise to liability under environmental laws. Some risk of environmental and
      other damage is inherent in these operations, and certain of the Company's
      operations have been named a party in government enforcement and private
      actions associated with hazardous waste sites (including several sites
      under the federal Comprehensive Environmental Response, Compensation and
      Liability Act, known as "Superfund") and, in several matters, have been
      identified as being potentially responsible for a share of cleanup costs
      associated


                                       11
<PAGE>   12

      with such sites. Based upon the Company's experience in such matters, the
      amount of hazardous waste shipped to such sites attributable to the
      Company and the status of settlement proceedings, the Company estimates
      that its share of the aggregate cleanup costs for all of these sites will
      not be material. In addition, the Company is in the process of remediating
      contaminants discovered at its Plano, Texas facility, but does not
      anticipate that the costs associated with such remediation will be
      material. There can be no assurance that such liability arising from, for
      example, contamination at facilities the Company (or an entity or business
      the Company has acquired or disposed of) currently owns or operates or
      formerly owned or operated, or locations at which wastes or contaminants
      generated by the Company (or an entity or business the Company has
      acquired or disposed of) have been disposed of, will not arise or be
      asserted against the Company or entities for which the Company may be
      responsible in a manner that could materially and adversely affect the
      Company.

      The Company monitors and reviews its procedures and policies for
      compliance with environmental laws. Based upon the Company's experience to
      date, the Company operates in substantial compliance with environmental
      laws, and the cost of compliance with existing regulations is not expected
      to have a material adverse effect on the Company's results of operations,
      financial condition or competitive position. However, future events, such
      as changes in existing laws and regulations or enforcement policies, may
      give rise to additional compliance costs which could have a material
      adverse effect on the Company's results of operations, financial condition
      or competitive position.


                                       12
<PAGE>   13

ITEM 2.     PROPERTIES

      The following table sets forth information regarding the Company's
      principal properties each of which is owned by the Company unless
      otherwise indicated:

<TABLE>
<CAPTION>
LOCATION                       SQUARE FOOTAGE              PRINCIPAL USE
--------                       --------------              -------------
                                (approximate)
<S>                                <C>               <C>
West Warwick, RI                     270,000         Corporate Headquarters, Manufacturing
                                                          All AMTROL Product Lines, Education Center
Guimaraes, Portugal                  196,000         Manufacturing Pressure-rated Cylinders
North Kingstown, RI(a)               126,000         Distribution Center for all AMTROL Products
North Kingstown, RI(a)                80,000         Warehouse for Raw Materials And Finished Goods
Paducah, KY                           46,300         Manufacturing Pressure-rated Cylinders
Mansfield, OH(a)                      45,000         Distribution Center for Do-It-Yourself Market
Baltimore, MD                         37,000         Manufacturing Metal Stampings
Ashland, OH(a)                        37,000         Manufacturing Water Treatment/Filtration Products
Kitchener, Ontario(a)                 18,400         Distribution
Singapore(a)                             600         Sales Office for Southeastern Asia
Hong Kong(a)                             600         Sales Office for Northern Asia
Antwerp, Belgium(b)                       --         Distribution
Nashville, TN                        121,600         Held for Sale
Plano, TX                             40,000         Held for Sale
                                   ---------
        TOTAL                      1,018,500
</TABLE>

(a)   Leased facilities

(b)   The distribution center in Antwerp operates under a lease for space on an
      as-needed basis.

            AMTROL believes that its properties and equipment are generally well
            maintained, in good operating condition and adequate for its present
            needs. The Company regularly evaluates its manufacturing
            requirements and believes that it has sufficient capacity to meet
            its current and anticipated needs. The inability to renew any
            short-term real property lease would not have a material adverse
            effect on AMTROL's results of operations.

ITEM 3.     LEGAL PROCEEDINGS

            From time to time, the Company is named as a defendant in legal
            actions arising in the normal course of business. The Company is not
            a party to any pending legal proceeding the resolution of which
            management believes will have a material adverse effect on the
            Company's results of operations or financial condition or to any
            pending legal proceedings other than ordinary, routine litigation
            incidental to its business. See "Item 1, Business--Environmental
            Matters."

ITEM 4.     SUBMISSION OF MATTERS TO SECURITY HOLDERS

            Not applicable.


                                       13
<PAGE>   14

                                     PART II
--------------------------------------------------------------------------------

ITEM  5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
            STOCKHOLDER MATTERS

            All of the Common Stock of the Company is owned by Holdings; thus,
            no trading market exists for such stock. Similarly, all of the
            common stock of Holdings is held by affiliates of Cypress and
            certain officers of the Company, and no trading market exists for
            such stock. See Item 12, "Security Ownership of Certain Beneficial
            Owners and Management".


                                       14
<PAGE>   15

ITEM 6.     SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below for and as of each of
the years and periods in the five-calendar-year period ended December 31, 1997
have been derived from the Consolidated Financial Statements of the Company,
including the related notes thereto, which have been audited by Arthur Andersen
LLP, independent public accountants. The selected consolidated balance sheet
data for November 12, 1996 have been derived from unaudited consolidated
financial statements of the Company which, in the opinion of management, include
all adjustments (consisting only of normal recurring items) necessary for a fair
and consistent presentation of such data. The information set forth below should
be read in conjunction with "Management's Discussion and Analysis of Results of
Operations and Financial Condition and with the Consolidated Financial
Statements of the Company, including the related notes thereto, appearing
elsewhere in this Annual Report.

<TABLE>
<CAPTION>
                                                              Predecessor Company                          Successor Company
                                           --------------------------------------------------        ------------------------------
                                                                                       PERIOD
                                                                                        ENDED        PERIOD ENDED     YEAR ENDED
                                                     YEAR ENDED DECEMBER 31,         NOVEMBER 12,    DECEMBER 31,    DECEMBER 31,
                                               1993           1994          1995         1996            1996            1997
                                               ----           ----          ----         ----            ----            ----

                                                             (In Thousands, except ratio data)
<S>                                        <C>              <C>           <C>          <C>           <C>              <C>
Statement of Operations Data:
   Net sales                               $ 164,295        $ 173,472     $ 172,454    $ 152,193     $  18,628        $ 176,432
   Cost of goods sold                        116,180          123,184       124,303      110,582        15,108(c)       131,180
                                           ---------        ---------     ---------    ---------     ---------        ---------
       Gross profit                           48,115           50,288        48,151       41,611         3,520           45,252
   Selling, general and
     administrative expenses                  29,099           30,402        29,943       25,796         3,508           25,723
   Amortization of goodwill                       --               --            --           --           313            3,995
   Plant closing charges                          --               --         3,825           --            --            5,500
   Capitalized in-process
     research and development                     --               --            --           --         1,000               --
                                           ---------        ---------     ---------    ---------     ---------        ---------
       Income (loss) from
         operations                           19,016           19,886        14,383       15,815        (1,301)          10,034
   Interest income (expense),
     net                                        (805)              (7)           60           53        (2,224)         (18,256)
   License and distributorship
     fees                                        254              254           258          181            25              245
   Other income (expense), net                  (141)            (179)           65         (175)          (99)             299
                                           ---------        ---------     ---------    ---------     ---------        ---------
       Income (loss) before
         provision for income
         taxes and extraordinary
         item                                 18,324           19,954        14,766       15,874        (3,599)          (7,678)
   Provision (benefit) for
     income taxes                              7,149            7,683         5,681        6,152        (1,310)             (30)
                                           ---------        ---------     ---------    ---------     ---------        ---------
       Income (loss) before
         extraordinary item                   11,175           12,271         9,085        9,722        (2,289)          (7,648)
   Extraordinary item                           (911)(a)           --            --           --            --               --
                                           ---------        ---------     ---------    ---------     ---------        ---------
         Net income (loss)                 $  10,264        $  12,271     $   9,085    $   9,722     $  (2,289)       $  (7,648)
                                           =========        =========     =========    =========     =========        =========
Other Data:
   Depreciation and amortization           $   4,520        $   4,330     $   4,673    $   4,586     $     598        $  11,541
   Capital expenditures                        7,382            4,902         5,492        9,260         1,662            8,489
   EBITDA(b)                                  23,790           24,470        23,139       20,582          (678)          26,886
Balance Sheet Data (at period end):
   Working capital                         $  28,454        $  37,293     $  43,303    $  41,778     $  35,047        $  24,376
   Total assets                               82,612           91,634        93,909       96,280       254,883          293,000
   Long-term debt, less current
     installments                              3,333            2,381            --           --       159,175          184,164
   Shareholders' equity                       53,017           64,174        70,206       75,783        67,037           59,104
</TABLE>

(a)   Reflects an extraordinary loss of $1.5 million ($.9 million net of tax
      benefits) in 1993 from the early extinguishment of debt.

(b)   EBITDA represents income (loss) from operations before plant closing
      charges, plus depreciation and amortization and license and
      distributorship fees and other income related to operations. EBITDA is
      presented because it is a widely accepted indicator of a company's ability
      to incur and service indebtedness. EBITDA (subject to certain adjustments)
      will be used to determine compliance with certain covenants in the
      Indenture. EBITDA, however, should not be considered as an alternative to
      net income, as a measure of the Company's operating results, or as an
      alternative to cash flow as a measure of liquidity.

(c)   Reflects a $1.0 million charge related to the upward revision of the
      Company's Workers' Compensation reserve estimate.


                                       15
<PAGE>   16

ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
            FINANCIAL CONDITION

      The discussion in this section should be read in conjunction with the
      Consolidated Financial Statements of the Company included elsewhere
      herein.

      This Annual Report includes "forward-looking statements" within the
      meaning of the securities laws. All statements other than statements of
      historical facts included in this Annual Report regarding the Company's
      financial position and cost cutting and strategic plans are
      forward-looking statements. Although the Company believes that the
      expectations reflected in such forward-looking statements are reasonable,
      it can give no assurance that such expectations will prove to have been
      correct. Important factors that could cause actual results to differ
      materially from such expectations include, but are not limited to, the
      Company's ability to successfully implement its new business strategy and
      to achieve the estimated cost savings, the availability and cost of raw
      materials, changes in government regulation or enforcement policies,
      particularly related to refrigerant gases, development of competing
      technologies, acceptance of the Company's existing and planned new
      products in international markets, competition in the Company's markets,
      the rate of growth of developing economies and demand for the Company's
      products, and general economic, financial and business conditions, both
      domestically and internationally.

SIGNIFICANT DEVELOPMENTS

      Following the acquisition of the Company by affiliates of Cypress in 1996,
      management began the execution of a new strategic plan to immediately
      reduce costs and capitalize on AMTROL's position as a technological and
      market leader. Consistent with this strategy, in 1997 the Company sold its
      American Granby accessory business and its Peru, Indiana production
      facility and the related pump business. In addition, the Company closed
      manufacturing facilities in Singapore and Nashville, Tennessee. Management
      believes that the sale of the less profitable accessories and pump
      businesses will allow management to focus greater resources on its core
      water systems and HVAC businesses, and that consolidation of manufacturing
      activities previously conducted at the Singapore and Nashville plants into
      other AMTROL facilities will promote operational efficiencies and lower
      the Company's overall cost structure.

      In 1997, AMTROL completed the acquisition of Petroleo Mecanica ALFA, S.A.
      ("Alfa") based in Guimaraes, Portugal. Alfa is Europe's largest
      manufacturer of reusable steel gas cylinders used to store cooking,
      heating and refrigerant gases. The Company expects to integrate its
      international water and HVAC systems business with Alfa's manufacturing
      and distribution operations. The acquisition of Alfa provides the Company
      with a significant low cost manufacturing base for AMTROL products for
      distribution in Europe and the Far East.


                                       16
<PAGE>   17

OVERVIEW

      AMTROL's principal markets are highly replacement-oriented with 60% to 70%
      of the Company's core business coming from replacement sales. The
      installed base of AMTROL's products in these core markets, combined with
      their stable nature, provide the Company with a consistent and predictable
      base business. Although generally stable, sales are affected by weather,
      as well as general economic activity. The Company monitors well water pump
      sales, existing home sales and boiler shipments in order to gauge activity
      in its markets. Although sales of certain of AMTROL's product lines are
      seasonal in nature, its overall business is not seasonal to any
      significant extent, as seasonal variations of individual product lines
      tend to offset each other.

      NET SALES. Net sales of the Company's HVAC products accounted for
      approximately 52.0% of the Company's total net sales in 1997, with the
      balance represented by sales of water systems products. While the
      percentage of water systems net sales to total net sales has been fairly
      constant, the acquisition of Alfa which supplies the HVAC market and the
      disposition of American Granby which supplied the water systems market
      caused a decrease in the percentage of the Company's business represented
      by water systems sales in 1997. Water systems sales would have accounted
      for approximately 51.0% of total 1997 sales without Alfa and American
      Granby, which is comparable to recent prior years.

      AMTROL's well water accumulators, marketed under the brand names
      Well-X-Trol and CHAMPION, account for approximately two-thirds of the
      Company's total water systems net sales and generally carry higher gross
      profit margins than other product sales. These pre-pressurized vessels are
      distributed through a network of pump specialty and plumbing and heating
      wholesalers and the DIY retail network. The market is continuing to
      experience a modest shift in the channels of distribution from wholesalers
      to DIY retailers, which generally generate slightly lower gross margins.
      Sales of water system accumulators are generally correlated to shipments
      of well water pumps. The Company's HVAC products include indirect-fired
      water heaters and water expansion accumulators for hydronic heating
      systems, non-returnable pressure-rated cylinders for refrigerant gas and
      returnable cylinders for cooking, heating and refrigeration gases. AMTROL
      believes it has opportunities to increase its sales in Europe, currently
      the world's largest hydronic heating market, through a combination of new
      products and strategic acquisitions. In particular, the acquisition of
      Alfa, based in Guimaraes, Portugal, provides the Company with a low cost
      manufacturing base conveniently situated for distribution of AMTROL's
      products in Europe, the Middle East and Africa. The Company believes that
      Therm-X-Trol product sales combined with planned new product introductions
      will provide growth opportunities in the plumbing and heating component of
      the HVAC product group.

      The market for refrigerant gas pressure-rated cylinders is seasonal in
      nature, with roughly 60% of annual sales coming in the first six months of
      the year as producers build inventory in preparation for air conditioner
      use in the summer season. An unseasonal hot spring and early summer
      favorably impact unit volume demand.


                                       17
<PAGE>   18

      COST OF GOODS SOLD. The principal elements comprising the Company's cost
      of goods sold are raw materials, labor and manufacturing overhead. The
      major raw materials used by the Company in its production process are
      steel, corrugated paper, plastic resins and synthetic rubber. Significant
      increases in raw material prices can adversely impact margins if the
      Company is unable to pass on such increases to its customers. The Company
      has an infrastructure of capital equipment, buildings and related support
      costs and, accordingly, decreases in volume can have a significant adverse
      effect on margins. Cost of goods sold can also be significantly affected
      by changes in product mix.

      The Company has significantly reduced its manufacturing cost base in
      recent years by closing less efficient plants or plants with redundant,
      excess capacity. Production at the closed facilities has been transferred
      to other existing production plants with the anticipated effect of
      lowering the Company's total cost structure and increasing the absorption
      of fixed manufacturing overhead through higher production volume at the
      remaining plants. The Company closed plants in Singapore and Nashville,
      Tennessee in 1997. Production of water systems products at the Nashville
      facility has been transferred to the Company's West Warwick, Rhode Island
      facility, and production of disposable gas containers at the Singapore
      facility has been transferred to the Company's new Alfa facility in
      Portugal. In the past, the Company has experienced certain inefficiencies
      and additional costs as it assimilates the transferred production into
      other facilities, and such costs have often delayed the realization of
      expected savings associated with the transfer. The Company expects it will
      have similar experiences in the first half of 1998, particularly in
      relation to the relocation of Nashville production.

      The Company made significant capital investments in 1997 to enhance
      production capabilities, eliminate production bottlenecks and improve
      production yield. Although these investments caused certain production
      inefficiencies in 1997 due to disruption of the manufacturing process
      during installation, the Company expects a significant improvement in
      efficiencies in 1998 and beyond as a result of these investments.
      Historically, the Company's labor rate increases have been cost of living
      adjustments generally in line with inflation. However, the Company is
      transitioning to a pay-for-performance merit system based on skills,
      which may cause future labor cost increases to no longer track inflation.

      SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. An important element of the
      new strategic plan developed in connection with the acquisition of the
      Company by affiliates of Cypress was a program to immediately reduce
      operating expenses and to establish new managerial and organizational
      accountability. Personnel reductions in 1996 and early 1997, in connection
      with the program, reduced by approximately 15% total personnel at the
      Company's corporate headquarters compared to the end of 1995. Other
      actions taken in 1996 and 1997 included consolidating the Company's three
      autonomous strategic business units to eliminate redundant and unnecessary
      functions. The cost reduction program generated approximately $4.0 million
      of annualized savings in 1997. At the same time, new initiatives
      undertaken by the Company in 1997 included increased investment in
      engineering and development as well increased spending in marketing to
      support the Company's planned expansion in international markets.


                                       18
<PAGE>   19

      As a result of the Merger, the Company's amortization and
      interest expense have increased significantly in 1997.

RESULTS OF OPERATIONS

      The following table sets forth, for the periods indicated, the percentage
      relationship to net sales of certain items included in the Company's
      statement of operations:

<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                                                      -------------------------
                                                       1995     1996      1997
                                                       ----     ----      ----
      <S>                                             <C>      <C>       <C>
      Net Sales                                       100.0%   100.0%    100.0%
      Cost of goods sold                               72.1%    73.6%     74.4%
                                                      -----    -----     -----
           Gross profit                                27.9%    26.4%     25.6%
      Selling, general and administrative expenses     17.4%    17.8%     14.6%
      Plant closing charges                             2.2%     0.0%      3.1%
      Amortization of goodwill                          0.0%     0.1%      2.3%
                                                      -----    -----     -----
           Income from operations                       8.3%     8.5%      5.6%
      Interest income (expense), net                     .1%    (1.3%)   (10.3%)
      Other income, net                                  .2%     0.0%      0.4%
                                                      -----    -----     -----
           Income before provision for income taxes     8.6%     7.2%     (4.3%)
      Provision (benefit) for income taxes              3.3%     2.8%      0.0%
                                                      -----    -----     -----
           Net Income (Loss)                            5.3%     4.4%     (4.3%)
                                                      =====    =====     =====
</TABLE>

      Results for 1997 were impacted by: (i) the acquisition of Alfa on June 30,
      1997 as sales and income from this subsidiary were included in 1997
      beginning on July 1, but were not included in the comparable period in
      1996; (ii) the divestiture of the American Granby accessory business and
      the Peru, Indiana pump business in May 1997 as 1997 did not include sales
      and income from these businesses subsequent to May which were included in
      the comparable period in 1996; (iii) the closing of the Company's
      Singapore production facility in the third quarter and the Company's
      Nashville, Tennessee production facility in the fourth quarter which,
      combined, resulted in a pre-tax charge of $5.5 million to operating
      expenses; and (iv) higher amortization and interest expense as a result of
      the Merger.

      The composition of net sales, adjusted to exclude American Granby sales in
      all years, for the Company's HVAC and water systems products for the
      periods indicated is listed below:

<TABLE>
<CAPTION>
                                         1995              1996             1997
                                         ----              ----             ----
      <S>                          <C>       <C>     <C>       <C>     <C>       <C>
      HVAC                         $ 76.1     49.8%  $ 74.5     49.3%  $ 91.8     54.4%
      Water Systems                  76.8     50.2%    76.7     50.7%    77.0     45.6%
                                   ------   ------   ------   ------   ------   ------
                   Net Sales       $152.9    100.0%  $151.2    100.0%  $168.8    100.0%
                                   ======   ======   ======   ======   ======   ======
</TABLE>

      The amounts and percentage relationships in the above tables for 1996
      combine the results of the predecessor for the period ended November 12,
      1996 and the results of the successor for the period ended December 31,
      1996. The increase in the percentage of sales represented by HVAC products
      in 1997 is due to the inclusion of Alfa sales.


                                       19
<PAGE>   20

      COMPARABILITY OF FINANCIAL STATEMENTS. The consolidated financial
      statements of the Company for the periods prior to November 13, 1996 have
      been prepared on the historical cost basis. The Merger was accounted for
      as a purchase transaction. Operating results subsequent to the Merger are
      comparable to prior periods, with the exception of cost of sales (due to a
      $ 1.0 million charge in 1996 related to the reserve estimate), and
      purchase accounting related changes due to amortization of intangible
      assets and capitalized in-process research and development. The net impact
      of changes in amortization on 1997 operating income compared to 1996 was
      approximately $3.7 million.

FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1996.

      NET SALES. Net sales in 1997 increased $5.6 million or 3.3% to $176.4
      million from $170.8 million in 1996. This increase was primarily due to
      $17.8 million of sales attributable to Alfa, partially offset by the
      absence of American Granby's sales for eight months in 1997. Excluding the
      impact of the sale of American Granby, net comparable sales attributable
      to the Company's water systems products were virtually flat in 1997 at
      $77.0 million as increased sales of water well accumulators were offset by
      decreased sales of water treatment products. Net sales of HVAC products,
      with Alfa included in 1997, increased $17.3 million compared to 1996.
      Without Alfa, HVAC sales would have decreased by $.5 million in 1997.
      Container product sales for the year increased approximately $1.2 million,
      resulting from higher volumes, while net sales of other HVAC products
      decreased $1.7 million. The decrease was partly caused by an unusually
      high level of hot water maker product returns experienced in 1997
      resulting from a manufacturing process problem which has since been
      corrected. These incremental product returns are gradually diminishing,
      and the Company expects product returns will approximate normal,
      historical levels by the end of 1998. In addition, the sale of the
      Company's Peru, Indiana production facility and the related pump business
      in May 1997 resulted in the discontinuation of a number of products,
      further contributing to the decline HVAC net sales.

      GROSS PROFIT. Gross profit increased $0.1 million or 0.3% in 1997 to $45.2
      million from $45.1 million in 1996. As a percentage of sales, gross profit
      in 1997 decreased to 25.6% from 26.4% in 1996. The inclusion of the
      operating results of Alfa deflated the gross margin percentage in 1997 as
      the margins on reusable steel gas cylinders produced at this facility are
      lower than many other AMTROL products. Excluding Alfa and American Granby,
      gross profit in 1997 decreased $1.3 million (or 3.2%) to $41.2 million
      from $42.5 million in 1996, and as a percentage of sales decreased to
      27.3% from 28.1% in 1996. The lower margin percentage this year was the
      result of: (i) unusually high product returns associated with a
      manufacturing process problem (as discussed above); (ii) unanticipated
      higher costs associated with the Singapore production facility through the
      end of August (when the facility was closed); and (iii) inefficiencies
      associated with the disruption of the manufacturing process during
      installation of certain major upgrades to manufacturing equipment and
      processes in 1997. The Company believes that it has successfully
      maintained market position and sales volume in the refrigerant container
      business, despite increased competition as well as the movement of
      refrigerant container


                                       20
<PAGE>   21

      customers towards long-term single source contracts. However, competitive
      pricing actions have adversely affected margins in this market, conditions
      which the Company expects will continue for the foreseeable future.

      SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
      administrative expenses decreased $4.6 million (or 15.1%) in 1997 to $25.7
      million from $30.3 million in 1996. As a percentage of net sales, selling,
      general and administrative expenses decreased in 1997 to 14.6% as compared
      to 17.7% in 1996. The decrease would have been even greater, $5.7 million
      (or 18.9%) if the results of Alfa were excluded. The decrease in selling,
      general and administrative expenses was primarily due to reductions in
      corporate overhead and restructuring of the Company's general and
      administrative staff, in connection with implementing the Company's new
      business strategy. In addition, expenses in 1996 included a one-time
      purchase accounting charge related to capitalized in-process research and
      development of $1.0 million.

      PLANT CLOSING CHARGES. In 1997, the Company recorded a $5.5 million
      pre-tax charge to operating expenses for severance and other costs
      associated with the closures of its plants in Nashville, Tennessee and
      Singapore.

      INCOME FROM OPERATIONS. For the reasons set forth above, income from
      operations decreased $4.5 million in 1997 to $10.0 million (after plant
      closing charges of $5.5 million) from $14.5 million in 1996. The inclusion
      of Alfa in the results for 1997 increased operating income by $1.9
      million. Excluding the effects of goodwill amortization, plant closing
      charges and the acquisition of Alfa on 1997 results, and the effect of the
      write-off of capitalized in-process research and development and goodwill
      on 1996 results, operating income in 1997 would have increased $1.8
      million (or 11.4%) to $17.6 million from $15.8 million in 1996.

      EARNINGS BEFORE INTEREST EXPENSE, DEPRECIATION AND AMORTIZATION (EBITDA)
      EBITDA in 1997 was $26.9 million compared to $19.9 million in 1996, an
      increase of $7.0 million. EBITDA represents income (loss) from operations
      before plant closing charges, plus depreciation and amortization, license
      and distributorship fees, and other income related to operations. EBITDA
      is presented because it is a widely accepted indicator of a company's
      ability to incur and service indebtedness. EBITDA (subject to certain
      adjustments) will be used to determine compliance with certain covenants
      in the Indenture governing the Company's Senior Subordinated Notes. (See
      "Liquidity and Capital Resources"). EBITDA, however, should not be
      considered as an alternative to net income, as a measure of the Company's
      operating results or as an alternative to cash flow as a measure of
      liquidity.

      INTEREST INCOME (EXPENSE), NET. Net interest expense increased $16.1
      million in 1997 from 1996 due to borrowing costs related to the financing
      of the Merger.

      INCOME TAXES. Income tax expense decreased $4.9 million in 1997 as
      compared to 1996.

      NET INCOME (LOSS). The net loss in 1997 of $7.6 million compares to net
      income in 1996 of $7.4 million, an absolute change of $15.1 million.


                                       21
<PAGE>   22

FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1995.

      NET SALES. Net sales decreased $1.7 million (or .1%) in 1996 to $170.8
      million from $172.5 million in 1995. This decrease was primarily
      attributable to weak domestic demand for refrigerant pressure-rated
      cylinders partially offset by increased sales of residential plumbing and
      heating products due to stronger demand in the new and replacement
      hydronic heating market. Net sales attributable to the Company's water
      systems products were virtually flat in 1996 at $96.3 million as increased
      sales of water well accumulators were offset by decreased sales of water
      treatment products. Net sales attributable to the Company's HVAC products
      decreased $1.6 million (or 2.1%) to $74.5 million in 1996, primarily due
      to a decrease in sales of refrigerant pressure-rated cylinders resulting
      from a pre-buy of domestic non-returnable cylinders in 1995, offset by
      increased sales of the Company's core HVAC products. The decline in
      domestic sales of non-returnable pressure-rated cylinders also reflects
      the continued transition from CFCs to new alternative refrigerant gases
      which is expected to continue until the after-market service demand for
      new refrigerant gases grows to previous CFC levels.

      GROSS PROFIT. Gross profit decreased $3.1 million (or 6.4%) to $45.1
      million from $48.2 million in 1995. As a percentage of sales, gross profit
      decreased to 26.4% from 27.9% in 1995. A purchase accounting related
      charge to cost of sales of $1.0 million for worker compensation reserves
      was the most significant cause of the decline. In addition, inefficiencies
      associated with assimilating production requirements of the two
      manufacturing facilities closed during the prior fifteen months, and the
      cost of production interruptions associated with inclement weather
      contributed to the decline.

      SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
      administrative expenses increased $.4 million (or 1.3%) in 1996 to $30.3
      million from $29.9 million in 1995. As a percentage of net sales, selling,
      general and administrative expenses increased in 1996 to 17.7% as compared
      to 17.4% in 1995. This increase was due to a purchase accounting charge
      related to capitalized in-process research and development of $1.9
      million, offset in part by reduced administrative expenses associated with
      the Chairman's office. Excluding capitalized in-process research and
      development, selling, general and administrative expenses decreased $.6
      million (or 2.1%) in 1996 to $29.3 million from $29.9 million.

      INCOME FROM OPERATIONS. For the reasons set forth above, income from
      operations increased $.1 million in 1996 to $14.5 million from $14.4
      million (after plant closing charges of $3.8 million) in 1995. Excluding
      the effects of goodwill amortization and capitalized in-process research
      and development in 1996 and the plant closing charges in 1995, income from
      operations decreased $2.4 million in 1996 to $15.8 million from $18.2
      million in 1995. This decrease was primarily due to the lower gross profit
      percentage.

      EARNINGS BEFORE INTEREST EXPENSE, DEPRECIATION AND AMORTIZATION (EBITDA).
      EBITDA in 1996 was $19.9 million compared to $23.1 million in 1995, a
      decrease of $3.2 million.


                                       22
<PAGE>   23

      INTEREST INCOME (EXPENSE), NET. Net interest expense increased $2.2
      million in 1996 from 1995 due to borrowing costs related to the financing
      of the Merger.

      INCOME TAXES. Income tax expenses decreased $.8 million in 1996 as
      compared to 1995.

      NET INCOME. Net income decreased $1.7 million (or 18.7%) in 1996 to $7.4
      million from $9.1 million (including plant closing charges (net of tax
      benefit) of $1.9 million) in 1995.

LIQUIDITY AND CAPITAL RESOURCES

      The Company's cash flows from operating activities were approximately
      $11.9 million, $14.7 million and $3.7 million for the years ended December
      31, 1995, 1996 and 1997, respectively.

      The Company's cash balance decreased $5.8 million at December 31, 1997 to
      $0.5 million from $6.3 million in 1996. The lower cash balance in 1997 is
      consistent with the Company's cash management policy which anticipates
      maintaining only enough cash to meet current operating needs. Although the
      Company has available up to $30 million from its revolving credit facility
      to meet short term working capital needs, it uses its excess cash to keep
      borrowing under the revolver to a minimum. Proceeds from the sale of the
      Company's American Granby accessories business and Peru, Indiana pump
      business approximated $6.0 million and were used to fund a portion of the
      cost to acquire Alfa.

      Working capital at December 31, 1997 was $24.4 million and the ratio of
      current assets to current liabilities was 1.6 to 1.0. This compares with
      working capital of $35.0 million in 1996 and a current ratio of 2.47 to
      1.0. The decrease in working capital was primarily the result of the lower
      cash balance in 1997, representative of the Company's cash management
      policy, as well as an increase in notes payable to banks of $4.4 million
      assumed by the Company in connection with the Alfa acquisition. Accounts
      receivable were higher due to the inclusion of the new Alfa subsidiary in
      1997. Inventory and accounts payable were also higher in 1997 as a result
      of the inclusion of Alfa, as well as to increased production in the last
      two months in anticipation of the closure of the Nashville plant. Higher
      levels of inventory were necessary to assure the availability of adequate
      supplies to meet customer demand during the relocation of Nashville
      production to West Warwick. The Company expects inventory to return to
      historical levels in 1998.

      Capital expenditures were $5.5 million, $10.9 million and $8.5 million in
      the years ended December 31, 1995, 1996 and 1997, respectively. These
      expenditures related primarily to ongoing maintenance and upgrading of the
      Company's manufacturing technology. Significant expenditures in 1997
      included approximately $2.0 million at the new Alfa facility intended to
      exploit opportunities for improving productivity at that location and
      approximately $2.0 million related to improving the productivity of the
      Company's small tank production line. Capital expenditures in 1996
      included $2.0 million related to the establishment of the Company's
      Singapore facility. Total capital expenditures are expected to be
      approximately $10.0 million in 1998 and $8.0 million in 1999. The


                                       23
<PAGE>   24

      Company is currently in the process of implementing a new Enterprise
      Resource Planning System ("ERP"). The ERP Project, which uses database
      architecture and applications provided by Oracle Information Systems, will
      provide the Company with a wide-range of operational and administrative
      efficiencies and will assure that the Company's core information systems
      are Year 2000 compliant (See "Year 2000 Compliance").

      Upon consummation of the Merger on November 13, 1996, the Company became
      party to the Bank Credit Facility. The Bank Credit Facility was amended in
      June and December 1997, primarily to permit the acquisition of Alfa,
      convert borrowings under the Company's revolving credit facility in
      connection with the acquisition to additional Tranche B Term Loans and to
      permit the closure of the Nashville, Tennessee production facility. The
      Bank Credit Facility, as amended, (the "Facility") consists of $65.0
      million of senior term loans (the "Term Loans") and a $30.0 million
      revolving credit facility (the "Revolving Credit Facility"). A portion
      ($20.0 million) of the Term Loans (the "Tranche A Term Loans") will mature
      five and one-half years after the effective date of the Merger, with
      quarterly amortization payments during the term of such loans. The
      remainder ($45.0 million) of the Term Loans (the "Tranche B Term Loans")
      will mature seven and one-half years after the effective date of the
      Merger, with nominal quarterly amortization prior to the maturity of the
      Tranche A Term Loans and with the remaining amounts amortizing on a
      quarterly basis thereafter. The Revolving Credit Facility includes a
      sublimit providing for up to $20.0 million of availability on a revolving
      credit basis to finance permitted acquisitions. The commitments under the
      Revolving Credit Facility and the acquisition sublimit will each reduce by
      $5.0 million in the fourth year and $10.0 million in the fifth year after
      the effective date of the Merger. The Revolving Credit Facility will
      mature five and one-half years after the effective date of the Merger. The
      Bank Credit Facility is secured by substantially all assets of the Company
      and its domestic subsidiaries.

      In connection with the Merger, AMTROL issued $115.0 million of Senior
      Subordinated Notes due 2006 (the "Notes") issued under an Indenture dated
      as of November 13, 1996. The Notes are unsecured obligations of AMTROL.
      The Notes bear interest at a rate of 10.625% per annum and are payable
      semi-annually on each June 30 and December 31 commencing on June 30, 1997.
      The Notes are redeemable at the option of AMTROL on or after December 31,
      2001. From and after December 31, 2001, the Notes will be subject to
      redemption at the option of AMTROL, in whole or in part, at various
      redemption prices, declining from 105.313% of the principal amount to par
      on and after December 31, 2003. In addition, on or prior to December 31,
      1999, the Company may use the net cash proceeds of one or more public
      equity offerings to redeem up to 35% of the aggregate principal amount of
      the Notes originally issued at a redemption price of 110.625% of the
      principal amount thereof plus accrued interest to the date of redemption.
      Upon a "Change of Control" (as defined in the Indenture), each Note holder
      has the right to require the Company to repurchase such holder's Notes at
      a purchase price of 101% of the principal amount plus accrued interest.
      The Indenture contains certain affirmative and negative covenants and
      restrictions. As of December 31, 1997, AMTROL is in compliance with the
      various covenants of the Indenture.


                                       24
<PAGE>   25

      The Company intends to fund its future working capital, capital
      expenditures and debt service requirements through cash flows generated
      from operations and borrowings under the Revolving Credit Facility
      (described above). Management believes that cash generated from
      operations, together with borrowings available under the Revolving Credit
      Facility, will be sufficient to meet the Company's working capital and
      capital expenditure needs in the foreseeable future. The Company may
      consider other options available to it in connection with funding future
      working capital and capital expenditure needs, including the issuance of
      additional debt and equity securities.

INFLATION

      The Company believes that inflation does not have a material effect on its
      results of operations or financial condition. To insulate against
      fluctuating prices, the Company has negotiated annual contracts with
      suppliers of certain key raw materials (primarily steel) for a significant
      percentage of its expected usage through 1998. However, in 1995, the
      Company experienced increased raw material costs, particularly steel and
      corrugated paper. During 1996, the Company experienced reductions in raw
      material prices, offsetting many of the increases experienced in the prior
      year.

RECENT ACCOUNTING PRONOUNCEMENTS

      Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per
      Share" establishes standards for computing and presenting earnings per
      share (EPS). This standard simplifies and supersedes the existing EPS
      computation and presentation rules and is effective for years ending after
      December 31, 1997. This new accounting pronouncement will have no impact
      on the Company as it does not report earnings per share.

      SFAS No. 130 "Reporting Comprehensive Income" establishes standards for
      reporting and display of comprehensive income and its components in a full
      set of general purpose financial statements. The objective of the
      statement is to report a measure of all changes in equity of an enterprise
      that result from transactions and other economic events of the period
      other than transactions with owners ("comprehensive income"). SFAS No.
      131, "Disclosures About Segments of an Enterprise and Related Information"
      introduces a new accounting model (the "management approach") for
      identifying and reporting on business segments. This approach replaces the
      notion of industry and geographic segments in earlier standards and
      requires a finer partitioning of geographic disclosures. Both statements
      130 and 131 are effective for years beginning after December 15, 1997. As
      these new accounting standards require additional disclosures only, they
      will have no impact on the Company's financial condition, results of
      operations or cash flows, nor will the implementation of these standards
      in the Company's financial statements require the Company to incur
      material costs.


                                       25
<PAGE>   26

YEAR 2000 COMPLIANCE

      The Year 2000 Issue is the result of computer programs being written using
      two digits rather than four to define the applicable year. Any of the
      Company's computer programs that have time-sensitive software may
      recognize a date using "00" as the Year 1900 rather than the Year 2000.
      This could result in a system failure or miscalculations causing
      disruptions of operations, including, among other things, a temporary
      inability to process transactions, send invoices, or engage in similar
      normal business activities.

      The Company is in the process of implementing a new Enterprise Resource
      Planning System (ERP) which, in addition to providing the Company with a
      wide-range of operational and administrative efficiencies, will assure
      that virtually all of the Company's core business systems are Year 2000
      compliant. The Company anticipates the completion of significant portions
      of this project before the end of 1998. The estimated cost of this project
      is $5.0 million through 1999. Costs incurred in 1997 were not significant.

      The Company will begin to initiate formal communications with all of its
      significant suppliers and large customers in 1998 to determine the extent
      to which the Company's interface systems are vulnerable to those third
      parties' failure to remediate their own Year 2000 Issues. While there can
      be no guarantee that the systems of other companies on which the Company's
      system rely will be timely converted and would not have an adverse effect
      on the Company's systems, the Company does not believe that its operations
      are materially vulnerable to the failure of any vendor or customer to
      properly address the Year 2000 Issue. The Company has determined it has no
      exposure to contingencies related to the Year 2000 issue for the products
      it has sold.

      The costs of and the date on which the Company believes it will complete
      the ERP Project are based on management's best estimates. However, there
      can be no guarantee that these estimates will be achieved and actual
      results could differ materially from those anticipated.

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

            The index to financial statements is included on page 36 of this
report.

ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
            ACCOUNTING AND FINANCIAL DISCLOSURE

            None.


                                       26
<PAGE>   27

                                   PART III
--------------------------------------------------------------------------------

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth certain information regarding each of the
directors and executive officers of the Company:

               NAME              AGE                  POSITION
               ----              ---                  --------


         John P. Cashman         57        Chairman of the Board, Chief
                                           Executive Officer and President

         Samuel L. Daniels       49        Executive Vice President and
                                           Director

         Clifford A. Peterson    62        Senior Vice President-Operations &
                                           Technology and Director


         Edward J. Cooney        50        Senior Vice President, Chief
                                           Financial Officer, Treasurer and
                                           Secretary

         Donald W. Reilly        39        Vice President - Finance

         David P. Spalding       43        Director

         James A. Stern          47        Director

         Anthony D. Tutrone      33        Director

John P. ("Jack") Cashman became Chairman of the Board, Chief Executive Officer
and President upon the Merger. Mr. Cashman has over 30 years of general
industrial management experience in the filtration, minerals, building products
and pharmaceutical industries. From 1989 until March 1996, Mr. Cashman served as
Chairman and Co-Chief Executive Officer of R. P. Scherer Corporation ("R P.
Scherer"). Mr. Cashman joined R. P. Scherer concurrent with that company's
leveraged buyout in 1989. Prior to R. P. Scherer, Mr. Cashman had an extensive
career at Johns-Manville Corporation as the President of Manville International,
President of Manville Canada Inc. and Senior Vice President of Manville
Corporation, as well as numerous other positions in general management,
marketing and operations.

Samuel L. Daniels, Executive Vice President, has been with the Company since
1987 and became a director upon the Merger. From 1993 to 1996, Mr. Daniels
served as Vice President-Water Systems. From 1991 to 1993, he served as General
Manager of all AMTROL subsidiaries, and from 1989 to 1991, he was General
Manager of the Company's Clayton Mark subsidiary He originally joined the
Company in 1987 as Vice President of Marketing for Clayton Mark Inc. Prior to
joining the Company, he was Vice President of Mueller Pump.


                                       27
<PAGE>   28

Clifford A. Peterson, Senior Vice President-Operations & Technology, joined the
Company in July 1995 as Vice President of Technology and became a director upon
the Merger. Mr. Peterson served as Executive Vice President and Chief Operating
Officer from February to September 1996. From 1989 to 1994, he was Vice
President-General Manager of the Production Mail Division of Pitney Bowes Inc.
Prior to that, he served as Vice President-Operations of the Dictaphone
Corporation.

Edward J. Cooney, Senior Vice President, Chief Financial Officer and Treasurer,
joined the Company in 1978, serving as Chief Financial Officer since 1991, as
Senior Vice President-Operations from 1988 to 1991, as Vice President from 1985
to 1988 and as Treasurer since 1982. Prior to joining the Company, Mr. Cooney
was associated for nine years with Arthur Andersen LLP, independent public
accountants.

Donald W. Reilly, Vice President-Finance, joined the Company in October 1997.
From May 1992 to October 1997, he was Director of Finance and Corporate
Controller of the A. T. Cross Company; and from 1981 to 1992, Mr. Reilly was
associated with Ernst and Young LLP, independent public accountants.

David P. Spalding became a director of the Company upon the Merger. Mr. Spalding
has been Vice Chairman of Cypress since its formation in April 1994. Prior to
joining Cypress, he was Managing Director in the Merchant Banking Group of
Lehman Brothers Inc. from February 1991. Previously, he held the position of
Senior Vice President of Lehman Brothers Inc. from September 1988 to February
1991. From April 1987 to September 1988, he was Senior Vice President of General
Electric Capital Corporation Corporate Finance Group, Inc. Prior to 1987 he was
a Vice President of The First National Bank of Chicago. Mr. Spalding is also a
director of Lear Corporation, William Scotsman, Inc., and Frank's Nursery &
Craft, Inc.

James A. Stern became a director of the Company upon the Merger. Mr. Stern has
been Chairman of Cypress since its formation in April 1994. Prior to joining
Cypress, Mr. Stern spent his entire career with Lehman Brothers Inc., most
recently as head of the Merchant Banking Group. He also, at various times,
served as head of Lehman's High Yield and Primary Capital Markets Groups, and
was co-head of Investment Banking. In addition, Mr. Stern was a member of the
firm's Operating Committee. Mr. Stern is a director of Noel Group, Inc., Lear
Corporation, Cinemark USA, Inc., R.P. Scherer, Genesis ElderCare Corp. and
Frank's Nursery & Craft, Inc.

Anthony D. Tutrone became a director of the Company upon the Merger. Mr. Tutrone
has been a Principal of Cypress since its formation in April 1994. Prior to
joining Cypress, he was a member of the Merchant Banking Group of Lehman
Brothers, Inc. from 1986 to 1994, except from 1990 to 1992 when he attended
Harvard Business School.


                                       28
<PAGE>   29

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934.

Prior to the Merger, AMTROL Common Stock was registered pursuant to Section 12
of the Securities Exchange Act of 1934 as amended (the "Exchange Act"). Section
16(a) of the Exchange Act requires the Company's officers, directors and persons
who beneficially own more than ten percent of a registered class of the
Company's equity securities to file reports of securities ownership and changes
in such ownership with the Securities and Exchange Commission.

On November 13, 1996, pursuant to Rule 12h-3 under the Exchange Act, AMTROL
filed with the Securities and Exchange Commission a certification on Form 15,
suspending its obligations under Section 15(d) to file reports required by
Section 13(a) of the Exchange Act with respect to AMTROL Common Stock, and
terminating the registration of AMTROL Common Stock under Section 12(g) of the
Exchange Act. Accordingly, officers, directors and greater than ten-percent
beneficial owners are no longer required to file reports under Section 16(a) of
the Exchange Act.


                                       29
<PAGE>   30

ITEM 11.    EXECUTIVE COMPENSATION

      The following table summarizes the compensation paid or accrued by the
      Company to its Chief Executive Officer and each of its executive officers
      (in addition to its Chief Executive Officer) who earned more than $100,000
      in salary and bonus in 1997 in each case for services rendered in all
      capacities to the Company during 1997.

<TABLE>
<CAPTION>
                            SUMMARY COMPENSATION TABLE
                            --------------------------

                                                           LONG TERM
                                          ANNUAL           ---------
                                          ------          COMPENSATION
                                     COMPENSATION(a)      ------------
                                     ---------------         AWARDS
                                                             ------
   NAME AND PRINCIPAL                                      SECURITIES
   ------------------                                      UNDERLYING       ALL OTHER
        POSITION              YEAR   SALARY      BONUS   OPTIONS/SARS(c)  COMPENSATION(d)
        --------              ----   ------      -----   ---------------  ---------------

<S>                           <C>    <C>         <C>           <C>           <C>
John P. Cashman               1997   $440,000    $49,720       44,796        $17,000
Chairman, President and       1996         --         --           --             --
CEO(e)                        1995         --         --           --             --

Samuel L. Daniels(b)          1997    240,000     27,120        6,838          7,486
Executive Vice President      1996    149,192     39,600       20,000          8,395
                              1995    129,000     27,500       10,000          6,285
Clifford A. Peterson(b)
Clifford A. Peterson(b)       1997    200,000     22,600        6,838         12,766
Senior Vice President-        1996    159,521     44,010       15,000          8,682
Operations & Technology       1995    115,731     31,500       10,000            718

Edward J. Cooney(b)           1997    180,000     20,340        6,838          8,862
Senior Vice President-        1996    169,329     44,010       12,000          8,795
Chief Financial Officer       1995    162,500     34,200       10,000          8,792
</TABLE>

(a)   Any perquisite or other personal benefits received from the Company by any
      of the named executives were substantially less than the reporting
      thresholds established by the Securities and Exchange Commission (the
      lesser of $50,000 or 10% of the individual's cash compensation).

(b)   Includes portion of salary deferred under the Company's 401(k) Plan.

(c)   Numbers for 1997 represent options to purchase common stock of Holdings,
      the parent corporation of AMTROL. Numbers for 1995 and 1996 represent
      options to purchase common stock of AMTROL, which, in connection with the
      Merger, were either canceled in exchange for cash equal to the spread
      between the option exercise price and $28.25 per share (the per share
      Merger consideration) or exchanged for options exercisable for Holdings'
      common stock based on a conversion ratio of .2825 per share of Holdings'
      common stock for each share of AMTROL common stock.


                                       30
<PAGE>   31

(d)   Amounts paid in 1997 include the Company's contributions under the
      Company's 401(k) Plan in the amount of $17,000, $6,616, $9,256 and $7,304
      for Messrs. Cashman, Daniels, Peterson and Cooney, respectively, and
      premiums paid by the Company with respect to term life insurance purchased
      for such executive officers and not made available generally to salaried
      employees in the amount of $870, $3,510 and $1,558 for Messrs. Daniels,
      Peterson and Cooney , respectively.

(e)   Mr. Cashman joined the Company on November 13, 1996, upon consummation of
      the Merger, but received no compensation until 1997.

OPTION PLANS

      The following table sets forth, for the named executive officers,
      information regarding stock options granted during 1997 pursuant to the
      Holdings 1997 Incentive Stock Plan, which was approved on December 16,
      1997.

<TABLE>
<CAPTION>
                                    OPTION/SAR GRANTS IN LAST FISCAL YEAR
                                    -------------------------------------
                                              % OF TOTAL
                               NUMBER OF       OPTIONS/
                              SECURITIES     SARS GRANTED
                              UNDERLYING     TO EMPLOYEES    EXERCISE OR
                             OPTIONS/SARS     IN FISCAL      BASE PRICE     EXPIRATION        GRANT DATA
NAME                          GRANTED(A)         YEAR          ($/SH)          DATE        PRESENT VALUE (c)
----                          ----------         ----          ------          ----        -----------------

<S>                           <C>                <C>            <C>        <C>                  <C>
John P. Cashman               44,796(a)          68.5%          $100       12/16/2007           $21.55
Samuel L. Daniels              6,838(b)          10.5%          $100       12/16/2007           $21.55
Clifford A. Peterson           6,838(b)          10.5%          $100       12/16/2007           $21.55
Edward J. Cooney               6,838(b)          10.5%          $100       12/16/2007           $21.55
</TABLE>

(a)   These are non-qualified options which are immediately exercisable. Shares
      purchased under the options are subject to repurchase by Holdings at the
      exercise price upon certain circumstances. Options for 22,398 shares are
      released from restrictions based upon continued employment, with 7,454
      shares released immediately and 14,944 shares released in 32 equal monthly
      installments though August 2000. Options for 22,398 shares are released
      from restrictions based upon relative achievement of management's business
      plan for fiscal years 1997 through 2001. One-half of such
      performance-based options are released from restriction based upon annual
      performance and one-half based upon cumulative performance. Restrictions
      lapse upon a public offering or sale of Holdings, AMTROL or substantially
      all of the assets of AMTROL (a "Triggering Event").

(b)   One-half (3,419 shares) of these options are incentive stock options which
      vest 1,000 shares on date of grant, 218 shares in January 1998 and the
      balance in 31 equal monthly installments of 71 shares through August 2000.
      One-half (3,419 shares) of these options are non qualified stock options
      which are immediately exercisable, provided that purchased shares are
      subject to repurchase by Holdings at the exercise price until such shares
      vest based upon relative achievement of management's business plan for
      fiscal years 1997 through 2001. One-half of such performance based options
      vest based upon annual performance and one-half based upon cumulative
      performance. Options vest and restrictions lapse upon a Triggering Event.


                                       31
<PAGE>   32

(c)   Computed using the Black-Scholes option valuation model. The following
      assumptions have been used in the calculation: volatility, 0; expected
      option life, 3 years; risk-free interest, 5.0%. The Black-Scholes option
      pricing model was designed to value readily tradeable stock options with
      relatively short lives. The options granted are not tradeable. However,
      management believes that the assumptions used and the model applied to
      value the awards yield a reasonable estimate of the fair value of the
      option grants under the circumstances.

The following table sets forth certain information regarding stock options
exercised during 1997 and currently outstanding options held by the named
executive officers as of December 31, 1997. No options were exercised by the
named executives during 1997.

<TABLE>
<CAPTION>
                 AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION/SAR VALUES
                 ----------------------------------------------------------------------------------
                                                                            NUMBER OF
                                                                            SECURITIES
                                                                            UNDERLYING
                                                                           UNEXERCISED
                                    NUMBER OF                             OPTION/SARS AT
                                    SECURITIES                           FISCAL YEAR END
                                    UNDERLYING                               1997 (a)         VALUE OF UNEXERCISED
                                   OPTIONS/SARS                            EXERCISABLE/           IN-THE-MONEY
NAME                                EXERCISED       VALUE REALIZED($)     UNEXERCISABLE         OPTIONS/SAR($)(b)
----                                ---------       -----------------     -------------         -----------------

<S>                                     <C>                 <C>            <C>                      <C>
John P. Cashman                         0                   0              44,796/0                       0/0
Samuel L. Daniels                       0                   0               9,081/2,419             200,036/0
Clifford A. Peterson                    0                   0              11,481/2,419             316,250/0
Edward J. Cooney                        0                   0               7,258/2,419             100,003/0
</TABLE>

(a)   Immediately prior to the Merger, Messrs. Daniels, Peterson, and Cooney
      exchanged options exercisable for AMTROL Common Stock for options
      exercisable for Holdings Common Stock ("Amended Options") based on a
      conversion ratio of .2825 share of Holdings Common Stock for each share of
      AMTROL Common Stock subject to the option. Includes 4,662, 7,062 and 2,839
      shares of Holdings Common Stock subject to Amended Options received by
      Messrs. Daniels, Peterson and Cooney, respectively, in the exchange. All
      Amended Options are fully exercisable.

(b)   Based on the market value of $100 per share (determined by the Holdings
      Board of Directors to be the purchase price of Holdings common stock
      issued in connection with the Merger) less the exercise price of the
      options.


                                       32
<PAGE>   33

SUPPLEMENTAL RETIREMENT PLANS

      The Company maintains two Supplemental Retirement Plans: Supplemental
      Retirement Plan I which covers a former officer and director and
      Supplemental Retirement Plan II which covers Mr. Cooney and two former
      officers. Under Supplemental Retirement Plan I, the former officer is
      entitled to receive an annual benefit of $150,000 per year for 15 years
      following his retirement. In January 1997, he began to receive the annual
      benefit in equal quarterly installments. Mr. Cooney is entitled to receive
      an annual benefit of $50,000 per year for a period of 15 years upon
      retirement on or after age 62. The retirement benefit is forfeited in its
      entirety if he terminates employment or dies prior to age 62. In the event
      a participant in either Supplemental Retirement Plan dies after
      retirement, his beneficiary will receive any remaining benefits which such
      participant was entitled to receive at the time of his death.

EMPLOYMENT AGREEMENTS AND OTHER TRANSACTIONS

      The Company, either directly or through its subsidiaries, has entered into
      employment agreements (each referred to individually as an "Agreement" and
      collectively as the "Agreements"), with Messrs. Cashman, Daniels, Peterson
      and Cooney to secure their continued employment with the Company. The
      Agreements provide for annual base salaries of $440,000 for Mr. Cashman,
      $240,000 for Mr. Daniels, $200,000 for Mr. Peterson and $180,000 for Mr.
      Cooney, subject to adjustments annually commencing in January 1998. In
      addition, the executives are entitled to participate in incentive
      compensation plans and all employee benefit arrangements generally
      appropriate to such executive's responsibilities. In the event the
      executive's employment is terminated without cause by the Company or with
      Good Reason by the executive, such executive is entitled to; (i) a monthly
      amount, for 24 months after termination, equal to one-twelfth of the
      executive's annual average salary for the prior 24 months (the
      "Termination Benefit"); (ii) the pro rata portion of any bonus or
      incentive compensation otherwise payable for the fiscal period in which
      such termination occurs; and (iii) maintenance for 24 months of all life,
      disability, medical and health insurance benefits to which the executive
      was entitled immediately prior to termination. In the case of Mr. Cashman,
      the Agreement provides that in the event of his death, his estate is
      entitled to receive an amount equal to the monthly Termination Benefit for
      24 months, reduced by any amounts payable under any insurance or other
      plan providing a death benefit which is maintained by the Company. The
      Agreements also prohibit the executive, for a period of two years after
      the termination of his employment, from directly or indirectly, advising,
      assisting or being connected with any enterprise which competes with the
      Company.

      In addition, under separate Management Stockholder's Agreements between
      Holdings and Messrs. Cashman, Daniels, Peterson, and Cooney, if prior to a
      public offering of the common stock of Holdings, the executive dies or
      becomes disabled while employed by the Company or following normal
      retirement or the executive's employment is terminated without Cause by
      the Company or with Good Reason by the executive (as such terms are
      defined in the agreements), the executive has the right to require
      Holdings to purchase all or any portion of Holdings common stock then held
      by the executive at the repurchase price specified in the agreement and to
      pay the executive the amount by


                                       33
<PAGE>   34

      which the repurchase price exceeds the exercise price of any options then
      held by the executive. If there exists and is continuing an event of
      default on the part of the Company under any loan guarantee or other
      agreement under which the Company has borrowed money or such repurchase
      would result in an event of default, the Company shall not be obligated to
      repurchase any of the common stock. The repurchase price is $100 if the
      repurchase occurs prior to November 13, 1999, and the market price of the
      Holdings common stock thereafter. If an executive's employment is
      terminated for Cause by the Company or without Good Reason by the
      executive, Holdings has the right to purchase all, but not less than all,
      Holdings common stock then held by the executive at a price equal to the
      lesser of $100 or the market price of the Holdings common stock, provided
      that if the executive's employment is terminated by the executive without
      Good Reason following a public offering, the repurchase price is the
      market price of the Holdings common stock. If Holdings exercises its
      repurchase right it must also pay the executive an amount equal to the
      excess of the repurchase price over the exercise price of any options held
      by the executive in cancellation of such options. Good Reason includes
      certain significant changes in the nature of the executive's employment
      including certain reductions in compensation and changes in
      responsibilities and powers.


                                       34
<PAGE>   35

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT

      The Company is a direct, wholly owned subsidiary of Holdings. The
      following table sets forth information with respect to the beneficial
      ownership of Holdings common stock by (i) each person known to the Company
      to beneficially own more than 5% of Holdings' outstanding common stock,
      (ii) each of the Company's directors and certain executive officers and
      (iii) all directors and executive officers of the Company as a group.
      Unless otherwise indicated below, the persons and entities named in the
      table have sole voting and investment power with respect to all shares
      beneficially owned.

<TABLE>
<CAPTION>
                                                             NUMBER OF SHARES OF
                                                             -------------------
      NAME AND ADDRESS OF BENEFICIAL OWNER                  HOLDINGS COMMON STOCK       PERCENTAGE
      ------------------------------------                  ---------------------       ----------

      <S>                                                          <C>                     <C>
      Cypress Merchant Banking Partners L.P. (a)                   637,957                 93.0%
      c/o The Cypress Group L.L.C.
      65 East 55th Street, 19th Floor
      New York, NY  10022

      Cypress Offshore Partners L.P. (a)                            33,043                  4.8%
      c/o The Cypress Group L.L.C.
      65 East 55th Street, 19th Floor
      New York, NY  10022

      John P. Cashman(c)                                            59,796                  8.2%
      Samuel L. Daniels(b)(c)                                        9,583                  1.4%
      Clifford A. Peterson(b)(c)                                    11,983                  1.7%
      Edward J. Cooney(b)(c)                                         7,760                  1.1%
      David P. Spalding(a)                                            --                     --
      James A. Stern(a)                                               --                     --
      All directors and executive officers as a group               89,122                 11.5%
      (consisting of 7 persons)
</TABLE>

(a)   Cypress Merchant Banking Partners L.P. and Cypress Offshore Partners L.P.
      are affiliates of The Cypress Group L.L.C. Messrs. Spalding and Stern are
      executives of The Cypress Group L.L.C. and may be deemed to share
      beneficial ownership of the shares shown as beneficially owned by such
      Cypress entities. Each of such individuals disclaims beneficial ownership
      of such shares. SEE, Item 10, "Directors and Executive Officers of the
      Registrant."

(b)   Immediately prior to the Merger, each of these individuals exchanged
      options exercisable for AMTROL Common Stock for options exercisable for
      Holdings common stock. Includes 4,662, 7,062 and 2,839 shares of common
      stock issuable upon exercise of such options by Messrs. Daniels, Peterson
      and Cooney, respectively. See, Item 11, "Executive Compensation".

(c)   Includes 44,796, 4,921, 4,921, and 4,921 shares of Common Stock issuable
      upon exercise of options granted to Messrs. Cashman, Daniels, Peterson and
      Cooney, respectively, which will become exercisable within 60 days. See
      Item 11, "Executive Compensation".

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

            None


                                       35
<PAGE>   36

                                     PART IV
--------------------------------------------------------------------------------

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULE & REPORT ON FORM 8-K

<TABLE>
<CAPTION>
<S>                                                                                              <C>
(a)(1) FINANCIAL STATEMENTS

       The following financial statements are included in a separate
       section of this Report commencing on the page numbers specified
       below:
                                                                                                 PAGE
                                                                                                 ----

       Reports of Independent Public Accountants                                                 38

       Consolidated Balance Sheets as of December 31, 1997 and 1996 (Successor)                  40

       Consolidated Statements of Operations for the Fiscal Year Ended
       December 31, 1997 and the Period Ended December 31, 1996
       (Successor); and the Period Ended November 12, 1996 and the Fiscal
       Year Ended December 31, 1995 (Predecessor)                                                41

       Consolidated Statements of Shareholders' Equity for the Fiscal Year
       Ended December 31, 1997 and the Period Ended December 31, 1996
       (Successor); and the Period Ended November 12, 1996 and Fiscal Year
       Ended December 31, 1995 (Predecessor)                                                     42

       Consolidated Statements of Cash Flows for the Fiscal Year ended
       December 31, 1997 and the Period Ended December 31, 1996
       (Successor); and the Period Ended November 12,1996 and Fiscal Year
       Ended December 31, 1995 (Predecessor)                                                     43

       Notes to Consolidated Financial Statements                                                44

(a)(2) FINANCIAL STATEMENT SCHEDULE

       Schedule II - Valuation and Qualifying Accounts and Reserves for the
       Fiscal Year Ended December 31, 1997 and the Period Ended December
       31, 1996 (Successor); and the period Ended November 12, 1996 and
       Fiscal Year Ended December 31, 1995 (Predecessor).                                        57
</TABLE>

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.


                                       36
<PAGE>   37

(a)(3) EXHIBITS

       See List of Exhibits

(b)    REPORT FILED ON FORM 8-K

       On January 6, 1998, the Company filed a Form 8-K reporting the
       completion of the acquisition of Petroleo Mecanica Alfa, SA on
       December 22, 1997 and the amendment of its existing Bank Credit
       agreement.


                                       37
<PAGE>   38

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To AMTROL Inc.:

We have audited the accompanying consolidated balance sheets of AMTROL Inc. (the
Successor), (a Rhode Island corporation and wholly-owned subsidiary of AMTROL
Holdings Inc.), and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the year ended December 31, 1997 and for the period from November 13,
1996 to December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AMTROL Inc. and subsidiaries as
of December 31, 1997 and 1996, and the results of their operations and their
cash flows for the year ended December 31, 1997 and the period from November 13,
1996 to December 31, 1996 in conformity with generally accepted accounting
principles.

Our audit was made for the purpose of forming an opinion on the basic
consolidated financials statements taken as a whole. The financial statement
schedule listed in item 14(a)(2) is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects, the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.

Boston, Massachusetts
March 13, 1998


                                       38
<PAGE>   39

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To AMTROL Inc.:

We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of AMTROL Inc. (the Predecessor) (a Rhode
Island corporation), and subsidiaries for the year ended December 31, 1995 and
period ended November 12, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of AMTROL Inc. and subsidiaries' operations
and their cash flows for the year ended December 31, 1995, and period ended
November 12, 1996, in conformity with generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic
consolidated financials statements taken as a whole. The financial statement
schedule listed in item 14(a)(2) is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements, in our opinion, fairly states in all material
respects, the financial data required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.

Boston, Massachusetts
March 6, 1997


                                       39
<PAGE>   40

                          AMTROL INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
                                     ASSETS

<TABLE>
<CAPTION>
                                                                DECEMBER 31
                                                            1996          1997
                                                            ----          ----

<S>                                                       <C>          <C>
Current Assets:
  Cash and cash equivalents                               $  6,383     $    544
  Accounts receivable, less allowance for
   doubtful accounts of $1,055
   and $1,088 in 1996 and 1997,
   respectively                                             21,861       30,180
  Inventories                                               24,783       31,285
  Income tax refund receivable                               2,000          323
  Prepaid income taxes                                       1,734        2,495
  Prepaid expenses and other                                   691        1,089
  Assets held for sale                                       1,500        1,533
                                                          --------     --------

      Total current assets                                  58,952       67,449
                                                          --------     --------

Property, Plant and Equipment, at cost
  Land                                                       4,153        3,669
  Buildings and improvements                                 8,081        6,432
  Machinery and equipment                                   20,048       39,891
  Furniture and fixtures                                       907          888
  Construction-in-progress and other                         4,277        1,804
                                                          --------     --------
                                                            37,466       52,684
  Less-accumulated depreciation and
    amortization                                               577        6,997
                                                          --------     --------
                                                            36,889       45,687
                                                          --------     --------
Other Assets:
  Goodwill                                                 147,756      169,784
  Debt financing costs                                       8,387        7,762
  Cash surrender value of officers' life
    insurance                                                1,614          523
  Deferred income taxes                                         --          419
  Other                                                      1,285        1,376
                                                          --------     --------
                                                           159,042      179,864
                                                          --------     --------

                                                          $254,883     $293,000
                                                          ========     ========

<CAPTION>
                      LIABILITIES AND SHAREHOLDERS' EQUITY

<S>                                                      <C>          <C>
Current Liabilities:
  Current installments of long-term debt                 $     825    $   3,498
  Notes payable to banks                                        --        4,397
  Accounts payable                                           5,794       15,718
  Accrued expenses                                          14,472       15,779
  Accrued interest                                           2,232          608
  Accrued income taxes                                         582        3,073
                                                         ---------    ---------
      Total current liabilities                             23,905       43,073
                                                         ---------    ---------
Other Noncurrent Liabilities                                 4,544        6,659
                                                         ---------    ---------
Deferred Income Taxes                                          222           --
                                                         ---------    ---------
Long-Term Debt, less current installments                  159,175      184,164
                                                         ---------    ---------
Commitments and Contingencies                                   --           --

Shareholders' Equity:
  Common stock $.01 par value-
   Authorized-1,000 shares;
   Issued-100 shares                                            --           --
  Additional paid-in capital                                69,326       69,326
  Retained earnings                                         (2,289)      (9,937)
  Cumulative translation adjustment                             --         (285)
                                                         ---------    ---------

      Total shareholder's equity                            67,037       59,104
                                                         ---------    ---------
                                                         $ 254,883    $ 293,000
                                                         =========    =========
</TABLE>

                 The accompanying notes are an integral part of
                    these consolidated financial statements.


                                       40
<PAGE>   41

                          AMTROL INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                   PREDECESSOR COMPANY               SUCCESSOR COMPANY
                                           --------------------------------------------------------------------
                                              YEAR ENDED       PERIOD ENDED     PERIOD ENDED       YEAR ENDED
                                              DECEMBER 31,     NOVEMBER 12,     DECEMBER 31,       DECEMBER 31,
                                                  1995             1996             1996              1997
                                                  ----             ----             ----              ----

<S>                                           <C>              <C>              <C>                <C>
Net Sales                                     $ 172,454        $ 152,193        $  18,628          $ 176,432

Cost of Goods Sold                              124,303          110,582           15,108            131,180
                                              ---------        ---------        ---------          ---------

         Gross profit                            48,151           41,611            3,520             45,252

Operating Expenses:
   Selling                                       15,171           14,236            1,997             13,175
   General and administrative                    14,772           11,560            1,511             12,548
   Plant closing charges                          3,825               --               --              5,500
   Amortization of Goodwill                          --               --              313              3,995
   Capitalized in-process research
     and development                                 --               --            1,000                 --
                                              ---------        ---------        ---------          ---------
   Income (loss) from operations                 14,383           15,815           (1,301)            10,034

Other Income (Expense):
   Interest expense                                (195)            (151)          (2,263)           (18,684)
   Interest income                                  255              204               39                428
   License and distributorship fees                 258              181               25                245
   Other, net                                        65             (175)             (99)               299
                                              ---------        ---------        ---------          ---------

         Income (loss) before provision
         for income taxes                        14,766           15,874           (3,599)            (7,678)

Provision (Benefit) for Income Taxes              5,681            6,152           (1,310)               (30)
                                              ---------        ---------        ---------          ---------

Net Income (Loss)                             $   9,085        $   9,722        $  (2,289)         $  (7,648)
                                              =========        =========        =========          =========
</TABLE>

                 The accompanying notes are an integral part of
                    these consolidated financial statements.


                                       41
<PAGE>   42

                          AMTROL INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                                      TREASURY STOCK
                                                                                               ----------------------------
                                                         ADDITIONAL    CUMULATIVE
                                            COMMON        PAID-IN      TRANSLATION    RETAINED      NUMBER OF
                                             STOCK        CAPITAL       ADJUSTMENT    EARNINGS        SHARES        COST
                                             -----        -------       ----------    --------        ------        ----

<S>                                         <C>           <C>           <C>            <C>               <C>      <C>
PREDECESSOR COMPANY
Balance, December 31, 1994                  $     76      $ 28,377            --       $ 36,728           67      $  1,007
   Net income                                     --            --            --          9,085           --            --
   Dividend                                       --            --            --         (1,500)          --            --
   Exercise of stock options                      --           598            --             --           --            --
   Repurchase of common stock                     --            --            --             --          146         2,259
   Tax effect of disqualifying
     dispositions on stock options                --           108            --             --           --            --
                                            --------      --------      --------       --------     --------      --------

Balance, December 31, 1995                  $     76      $ 29,083            --       $ 44,313          213      $  3,266
   Net income                                     --            --            --          9,722           --            --
   Dividend                                       --            --            --         (6,694)          --            --
   Exercise of stock options                      --           191            --             --           --            --
   Repurchase of common stock                     --            --            --             --            1            15
                                            --------      --------      --------       --------     --------      --------

Balance, November 12, 1996                  $     76      $ 29,274            --       $ 47,341          214      $  3,281
                                            ========      ========      ========       ========     ========      ========

SUCCESSOR COMPANY
   Net loss                                       --            --            --       $ (2,289)          --            --
   Issuance of common stock in
     connection with Merger, net                  --      $ 69,326            --             --           --            --
                                            --------      --------      --------       --------     --------      --------

Balance, December 31, 1996                  $     --      $ 69,326            --       $ (2,289)          --      $     --
                                            ========      ========      ========       ========     ========      ========

   Net loss                                       --            --            --       $ (7,648)          --            --
   Cumulative Translation adjustment              --            --      $   (285)            --           --            --
                                            --------      --------      --------       --------     --------      --------

Balance, December 31, 1997                  $     --      $ 69,326      $   (285)      $ (9,937)          --      $     --
                                            ========      ========      ========       ========     ========      ========
</TABLE>

                 The accompanying notes are an integral part of
                    these consolidated financial statements.


                                       42
<PAGE>   43

                          AMTROL INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                     PREDECESSOR COMPANY             SUCCESSOR COMPANY
                                                                     -------------------             -----------------
                                                                 YEAR ENDED     PERIOD ENDED    PERIOD ENDED    YEAR ENDED
                                                                 DECEMBER 31,    NOVEMBER 12,    DECEMBER 31,  DECEMBER 31,
                                                                    1995            1996            1996            1997
                                                                 ---------       ---------       ---------       ---------
<S>                                                              <C>             <C>             <C>             <C>
Cash Flows Provided by Operating Activities:
   Net income (loss)                                             $   9,085       $   9,722       $  (2,289)      $  (7,648)
                                                                 ---------       ---------       ---------       ---------
   Adjustments to reconcile net income (loss) to net cash
     provided by operating activities-
     Depreciation and amortization                                   4,673           4,586             598          11,541
     Writedown of assets held for sale to realizable value             980              --              --              --
     Provision for losses on accounts receivable                        93             172              91             370
     Loss (gain) on sale of fixed assets                                83              92            (106)              2
     Capitalized in-process research and development                    --              --           1,000              --
     Changes in assets and liabilities-
     (Increase) decrease in assets-
         Accounts receivable, net                                     (532)         (1,215)          3,199          (2,376)
         Income tax refund receivable                                   --              --          (2,000)          2,581
         Inventory                                                    (498)         (3,573)          2,633          (1,474)
         Prepaid income taxes                                         (685)          1,090             (31)           (761)
         Prepaid expenses and other current assets                    (284)            577             736            (331)
         Other assets                                                 (602)           (520)            331            (838)
     Increase (decrease) in liabilities-
         Accounts payable                                              369           2,443          (3,175)          4,547
         Accrued expenses and current liabilities                      123          (1,990)          3,085          (1,152)
         Other noncurrent liabilities                                 (965)           (283)            (65)            (71)
         Deferred income taxes                                          48            (389)             --            (641)
                                                                 ---------       ---------       ---------       ---------
                                                                     2,803             990           6,296          11,397
                                                                 ---------       ---------       ---------       ---------
           Net cash provided by operating activities                11,888          10,712           4,007           3,749
                                                                 ---------       ---------       ---------       ---------
Cash Flows From Investing Activities:
   Acquisition of Alfa                                                  --              --              --         (25,500)
   Cash paid for Merger                                                 --              --        (218,200)             --
   Proceeds from sale of property, plant and equipment                  30           1,991               9             681
   Capital expenditures                                             (5,492)         (9,260)         (1,662)         (8,489)
                                                                 ---------       ---------       ---------       ---------
           Net cash used in investing activities                    (5,462)         (7,269)       (219,853)        (33,308)
                                                                 ---------       ---------       ---------       ---------
Cash Flows from Financing Activities:
   Cash dividends                                                   (1,500)         (6,694)             --
   Repayment of long-term debt                                      (4,948)         (3,500)             --          (5,367)
   Issuance of long-term debt                                        1,615           3,500              --          29,150
   Proceeds from sale of notes                                          --              --         115,000              --
   Proceeds from term loan                                              --              --          45,000              --
   Payment of transaction financing costs                               --              --         (13,100)             --
   Issuance of common stock in connection with Merger                   --              --          69,326              --
   Issuance of common stock - exercise of stock options                598             191              --              --
   Repurchase of treasury stock                                     (2,259)            (15)             --              --
   Tax effect of disqualifying dispositions of incentive
     stock options                                                     108              --              --              --
                                                                 ---------       ---------       ---------       ---------
           Net cash (used in) provided by financing
             activities                                             (6,386)         (6,518)        216,226          23,783
                                                                 ---------       ---------       ---------       ---------
Net Increase (Decrease) in Cash and Cash Equivalents                    40          (3,075)            380          (5,776)
Effect of exchange rate changes on cash and cash
   equivalents                                                          --              --              --             (63)

Cash and Cash Equivalents, beginning of period                       9,038           9,078           6,003           6,383
                                                                 ---------       ---------       ---------       ---------
Cash and Cash Equivalents, end of period                         $   9,078       $   6,003       $   6,383       $     544
                                                                 =========       =========       =========       =========
</TABLE>

                 The accompanying notes are an integral part of
                    these consolidated financial statements.


                                       43
<PAGE>   44

(1)   BASIS OF PRESENTATION

      For periods prior to November 13, 1996, the accompanying financial
      statements represent the consolidated results and financial position of
      AMTROL Inc. and Subsidiaries (the Predecessor). On November 13, 1996, the
      Predecessor merged with AMTROL Acquisition, Inc., a wholly-owned
      subsidiary of AMTROL Holdings, Inc., a Delaware corporation organized by
      The Cypress Group L.L.C. as more fully described in Note 3 (the Merger).
      Financial statements for periods subsequent to November 12, 1996 represent
      the consolidated financial statements of AMTROL Inc. and Subsidiaries (the
      Successor) after giving effect to the Merger. References to the Company
      refer to the Predecessor prior to the Merger and the Successor
      post-Merger.

 (2)  ORGANIZATION AND OPERATIONS

      The Company designs, manufactures and markets products used principally in
      flow control, storage, heating and other treatment of fluids in the water
      systems market and selected sectors of the heating, ventilating and air
      conditioning ("HVAC") market. The Company offers a broad product line of
      quality fluid handling products and services marketed under widely
      recognized brand names.

(3)   MERGER AND FINANCING

      AMTROL Acquisition Inc. ("Acquisition") and AMTROL Holdings, Inc.
      ("Holdings") were formed by The Cypress Group L.L.C. ("Cypress") in 1996
      to effect the acquisition of all of the outstanding common stock of the
      Predecessor through the Merger of Acquisition with and into the Successor.
      Upon consummation of the Merger on November 13, 1996, all of the
      outstanding common stock of Acquisition was converted into common stock of
      the Successor and the Successor became a wholly-owned subsidiary of
      Holdings. The Successor, as the surviving entity, continues to be named
      AMTROL Inc. Holdings has no other material assets, liabilities or
      operations other than those that result from its ownership of the common
      stock of the Successor.

      The Merger was accounted for as a purchase transaction effective as of
      November 13, 1996, in accordance with Accounting Principles Board Opinion
      No. 16, Business Combinations, and EITF Issue No. 88-16, Basis in
      Leveraged Buyout Transactions and, accordingly, the consolidated financial
      statements for the periods subsequent to November 12, 1996 reflect the
      purchase price, including transaction costs, allocated to tangible and
      intangible assets acquired and liabilities assumed, based on their
      estimated fair values as of November 12, 1996. The excess of the purchase
      price over the fair value of net assets acquired has been allocated to
      goodwill.


                                       44
<PAGE>   45

(4)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      PRINCIPLES OF CONSOLIDATION

      The accompanying consolidated financial statements include the accounts of
      AMTROL Inc. and its wholly owned subsidiaries (the "Company"). All
      material intercompany balances and transactions have been eliminated in
      consolidation.

      USE OF ESTIMATES

      The preparation of financial statements in conformity with generally
      accepted accounting principles requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities and
      disclosure of contingent assets and liabilities at the date of the
      financial statements and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those
      estimates.

      FISCAL YEAR

      The Company uses a calendar fiscal year and four quarterly interim periods
      ending on Saturday of the thirteenth week of the quarter.

      CASH AND CASH EQUIVALENTS

      Cash and cash equivalents include cash on hand and short-term investments
      that are readily convertible into cash with an original maturity to the
      Company of three months or less.

      DEPRECIABLE PROPERTY AND EQUIPMENT

      The Company provides for depreciation by charges to income (computed on
      the straight-line method) in amounts estimated to amortize the cost of
      properties over their estimated useful lives which generally fall within
      the following ranges:

<TABLE>
            <S>                                 <C>
            Building and improvements           10-40 years
            Machinery and equipment             3-12 years
            Furniture and fixtures              5-20 years
            Other                               3-10 years
</TABLE>

      Leasehold improvements are amortized over the life of the lease or the
      estimated useful life of the improvement, whichever is shorter.

      Interest costs, during the construction period, on borrowings used to
      finance construction of buildings and related property are included in the
      cost of the constructed property.


                                       45
<PAGE>   46

(4)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      INVENTORIES

      The Company's inventories are stated at the lower of cost or market
      including material, labor and manufacturing overhead (see Note 8.)

      GOODWILL

      The excess of purchase price over the fair value of net assets acquired is
      allocated to goodwill and is included in other assets. Goodwill is being
      amortized over 40 years. The Company accounts for long-lived and
      intangible assets in accordance with Statement of Financial Accounting
      Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived
      Assets and for Long-Lived Assets to be Disposed Of. The Company
      continually reviews its intangible assets for events or changes in
      circumstances which might indicate the carrying amount of the assets may
      not be recoverable. The Company assesses the recoverability of the assets
      by determining whether the amortization of such intangibles over their
      remaining lives can be recovered through projected undiscounted future
      cash flows. The amount of impairment, if any, is measured based on
      projected discounted future cash flows using a discount rate reflecting
      the Company's average cost of funds. At December 31, 1997, no such
      impairment of assets was indicated.

      FAIR VALUE OF FINANCIAL INSTRUMENTS

      In accordance with the requirements of SFAS No. 107, Disclosures About
      Fair Value of Financial Instruments, the Company has determined the
      estimated fair value of its financial instruments using appropriate market
      information and valuation methodologies. Considerable judgment is required
      to develop the estimates of fair value; thus, the estimates are not
      necessarily indicative of the amounts that could be realized in a current
      market exchange. The Company's financial instruments consist of cash,
      accounts receivable, accounts payable, senior subordinated notes and bank
      debt. The carrying value of these assets and liabilities is a reasonable
      estimate of their fair market value at December 31, 1997.

      ENGINEERING AND DEVELOPMENT EXPENSES

      All costs for engineering and development, which amounted to approximately
      $.9 million, $.8 million, $.1 million and $1.0 million for fiscal 1995,
      the periods ended November 12 and December 31, 1996, and fiscal 1997,
      respectively, are charged to general and administrative expense as
      incurred.


                                       46
<PAGE>   47

(4)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      INTEREST RATE SWAP AGREEMENTS

      The Company uses interest rate swap agreements to manage interest rate
      cost and the risks associated with changing interest rates. The
      differential to be paid or received is accrued as interest rates change
      and is recognized in interest expense over the life of the contact. The
      counter-party to the interest rate swap agreements is a major financial
      institution. Credit loss from counter-party non-performance is not
      anticipated.

      DEFERRED FINANCING COSTS

      Deferred financing costs are stated at cost as a component of other assets
      and amortized over the life of the related debt using the effective
      interest method. Amortization of deferred financing costs is included in
      interest expense.

      ACCRUED EXPENSES

      Certain customers are allowed a rebate if agreed upon sales targets are
      achieved for a given year. At December 31, 1996 and 1997, the Company has
      accrued $3.6 million and $3.3 million, respectively, for such volume
      allowances. These amounts are included in accrued expenses in the
      accompanying consolidated balance sheets.

      INTERNATIONAL SALES

      In fiscal 1995, the periods ended November 12 and December 31, 1996, and
      in fiscal 1997, net sales to customers in various geographic areas outside
      the United States and Canada, primarily Mexico, Western Europe and Asia,
      amounted to $22.6 million, $19.7 million, $1.9 million and $39.4 million,
      respectively.

      FOREIGN CURRENCY TRANSLATION

      The accounts of Alfa (see note 5) have been translated into United States
      Dollars. Assets and liabilities have been translated at the year-end rate
      of exchange, stockholder's equity at historical rates and income statement
      accounts at the average exchange rates prevailing during the year. The
      cumulative effect of the resulting translation is reflected as a separate
      component of stockholder's equity.

      NEW ACCOUNTING PRONOUNCEMENTS

      SFAS No. 130 "Reporting Comprehensive Income" establishes standards for
      reporting and display of comprehensive income and its components in a full
      set of general purpose financial statements. The objective of the
      statement is to report a measure of all changes in equity of an enterprise
      that result from transactions and other economic events of the period
      other than transactions with owners ("comprehensive income"). SFAS No.
      131, "Disclosures About Segments of an Enterprise and Related Information"
      introduces a new accounting model (the "management approach") for
      identifying and reporting on


                                       47
<PAGE>   48

      business segments. This approach replaces the notion of industry and
      geographic segments in earlier standards and requires a finer partitioning
      of geographic disclosures. Both SFAS 130 and SFAS 131 are effective for
      years beginning after December 15, 1997. As these new accounting standards
      require additional disclosures only, they will have no impact on the
      Company's financial condition, results of operations or cash flows, nor
      will the implementation of these standards in the Company's financial
      statements require the Company to incur material costs.

      STOCK OPTIONS

      The Company accounts for employee stock options in accordance with SFAS
      No. 123, "Accounting for Stock Based Compensation" (SFAS No. 123). As
      permitted under SFAS No. 123, the Company applies Accounting Principles
      Board Opinion No. 25, "Accounting for Stock Issued to Employees" to
      account for its stock option plans.

      RECLASSIFICATION

      Certain prior year balances have been reclassified to conform with the
      current year presentation.

(5)   ACQUISITION

      On June 30, 1997, the Company entered into a Promissory Agreement and a
      Complementary Document to the Promissory Agreement (collectively, the
      "Purchase Agreements") to acquire all the outstanding capital shares of
      Petroleo Mecanica Alfa, S.A., a corporation organized under the laws of
      Portugal ("Alfa"), for $25.5 million (United States Dollars) plus assumed
      debt of $8.7 million. The Company assumed immediate management control of
      Alfa and, accordingly, the operating results and financial position of
      Alfa are included in the Company's consolidated results of operations and
      consolidated balance sheets from July 1, 1997. The Company paid $20
      million of the purchase price on June 30, 1997 from borrowings available
      under its revolving credit facility and paid the remaining $5.5 million
      upon final closure of the transaction in December 1997. The Company's 1997
      income from operations includes $1.9 million relating to the operations of
      Alfa subsequent to July 1, 1997. The following represents pro forma net
      sales and net income as though the acquisition of Alfa ocurred as of
      January 1, 1997: Net sales $192,068, net loss $8,600.


                                       48
<PAGE>   49

(6)   SALE OF ASSETS

      In May 1997, the Company sold all of the assets, subject to substantially
      all liabilities, of its American Granby Inc. subsidiary. Accordingly, the
      results of American Granby included in the accompanying consolidated
      statements of operations are as follows:

<TABLE>
<CAPTION>
                                    PREDECESSOR COMPANY                  SUCCESSOR COMPANY
                                    -------------------                  -----------------
                                YEAR ENDED      PERIOD ENDED        PERIOD ENDED        YEAR ENDED
                               DECEMBER 31,     NOVEMBER 12,        DECEMBER 31,       DECEMBER 31,
                                  1995              1996                1996              1997
                                  ----              ----                ----              ----
<S>                              <C>              <C>                 <C>              <C>
Sales                            $19,539          $17,980             $ 1,592          $ 7,576
Operating  income                $   302          $   130             $     1          $    23
</TABLE>

      Also in May 1997, the Company sold its Peru, Indiana production facility
      and the related pump business. AMTROL transferred certain production
      activities performed in Peru to the Company's West Warwick, Rhode Island
      facility. The Company believes that the operational efficiencies gained
      through production consolidation will offset lost contribution from the
      pump business.

      The Company utilized the net proceeds of the sales of approximately $6.0
      million to fund seasonal working capital demands as well as the
      acquisition of Alfa (see Note 5).

(7)   PLANT CLOSINGS

      In September 1997, the Company ceased operations at its Singapore
      production facility. The Company relocated its production of
      non-returnable chemical containers to other facilities, including its
      newly acquired Alfa facility in Guimaraes, Portugal. In December 1997, the
      Company ceased operations at its Nashville, Tennessee production facility.
      The Nashville facility manufactured water systems and pressure rated
      cylinders. Many of the product lines manufactured in the Nashville
      facility are also manufactured in the Company's West Warwick, Rhode Island
      facility which will absorb most of the Nashville production.

      The Company's 1997 results include a pre-tax charge to operating expenses
      of $5.5 million in connection with the closures of the Singapore and
      Nashville facilities, including approximately $1.5 million of severance
      costs (of which $.3 million was paid at December 31, 1997). Included in
      current assets as "Assets Held for Sale" is approximately $1.2 million
      representing the net market value of land and buildings used in the
      Nashville operation.


                                       49
<PAGE>   50

(8)   INVENTORIES

      Inventories were as follows at December 31 (in thousands):

<TABLE>
<CAPTION>
                                                1996           1997
                                                ----           ----

         <S>                                  <C>            <C>
         Raw materials and work in process    $ 9,429        $13,670
         Finished goods                        15,354         17,615
                                              -------        -------

                                              $24,783        $31,285
                                              =======        =======
</TABLE>

      Inventories valued under the last-in, first-out (LIFO) cost method
      comprised approximately 60.5% of the 1996 totals and 68.2% of the 1997
      totals. The value of inventories under the LIFO method is substantially
      the same as if the first-in, first-out (FIFO) cost method of inventory
      accounting had been used.

(9)   LONG-TERM DEBT AND NOTES PAYABLE TO BANKS

      Long-term debt consisted of the following at December 31 (in thousands):

<TABLE>
<CAPTION>
                                                            1996          1997
                                                            ----          ----
         <S>                                              <C>          <C>
         Revolving credit facility                        $     --     $  4,000
         Tranche A Term Loan                                20,000       19,425
         Tranche B Term Loan                                25,000       44,698
         Senior subordinated notes, due 2006, 10.625%      115,000      115,000
         Other                                                  --        4,539
                                                          --------     --------
                                                           160,000      187,662
         Less-Current portion of long-term debt                825        3,498
                                                          --------     --------
                  Total                                   $159,175     $184,164
                                                          ========     ========
</TABLE>

      REVOLVING CREDIT AND TERM LOANS

      The Company entered into a Bank Credit Agreement in November 1996, amended
      in June and December 1997 (the Agreement), that provides for secured
      borrowings from a syndicate of lenders. The Agreement, as amended,
      consists of: (i) a five and one-half year revolving credit facility
      providing for up to $30 million in revolving loans, $5.0 million of which
      may be used for letters of credit (the Revolving Credit Facility); and
      (ii) a term loan facility providing for $65.0 million in term loans,
      consisting of a five and one-half year Tranche A Term Loan of $20.0
      million and a seven and one half year Tranche B Term Loan for $45.0
      million (collectively, the Term Loans).

      The Revolving Credit Facility includes a $20.0 million sublimit which is
      available to finance permitted acquisitions. The highest amount
      outstanding during 1997 was $20.0 million which was used in connection
      with the acquisition of Alfa, as discussed in Note 5. This amount was
      repaid in December 1997 concurrent with an amendment to the Agreement
      whereby borrowings under the Tranche B facility were increased by $20
      million. At December 31, 1997, borrowings of $4.0 million were outstanding
      on the Revolving Credit Facility.


                                       50
<PAGE>   51

      The loans under the Agreement bear interest, at the Company's option, at
      either (A) a "base rate" equal to the higher of (i) the federal funds rate
      plus .5% or (ii) the bank's prime lending rate plus (x) in the case of
      Tranche A Term Loans and loans under the Revolving Credit Facility, an
      applicable spread ranging from .75% to 1.50% (determined based on the
      Company's leverage ratio) or (y) in the case of Tranche B Term Loans,
      2.00%; or (B) a `Eurodollar rate" plus (x) in the case of Tranche A Term
      Loans and loans under the Revolving Credit Facility, an applicable spread
      ranging from 1.75% to 2.50% (determined based on the Company's leverage
      ratio), or (y) in the case of Tranche B Term Loans, 3.00%. Swingline Loans
      may only be "base rate" loans.

      Tranche A Term Loans amortize on a quarterly basis over the term of the
      loans. The Tranche B Term Loans have nominal quarterly amortization prior
      to the maturity of the Tranche A Term Loans, and will amortize remaining
      amounts on a quarterly basis thereafter. The commitments under the
      Revolving Credit Facility and the acquisition sublimit will each reduce by
      $5.0 million in the fourth year and $10.0 million in the fifth year after
      the date of the Merger. The Revolving Credit Facility will mature five and
      one-half years after the date of the Merger. In addition, the Agreement
      provides for mandatory prepayments, subject to certain exceptions, of the
      Term Loans with the net proceeds of certain asset sales, with the net
      proceeds of certain debt and equity issuances and from a portion of the
      Company's excess cash flow.

      The Revolving Credit Facility also requires the Company to pay a
      commitment fee on the average daily aggregate unutilized portion of the
      Revolving Credit Facility at a rate of .50% per annum, payable quarterly
      in arrears, as well as a commission on trade and standby letters of credit
      of 1.25% per annum of the amount to be drawn under the Agreement. Amounts
      outstanding under the Revolving Credit Facility are due on May 12, 2002.

      The Agreement contains a number of covenants that, among other things,
      restrict the ability of the Company and its subsidiaries to dispose of
      assets, incur additional indebtedness, incur guaranty obligations, repay
      other indebtedness or amend other debt instruments, pay dividends, create
      liens on assets, enter into leases, make investments, make acquisitions,
      engage in mergers or consolidations, make capital expenditures, engage in
      certain transactions with subsidiaries and affiliates and otherwise
      restrict corporate activities. In addition, the Agreement requires
      compliance with certain financial covenants, including requiring the
      Company to maintain a minimum level of earnings before income taxes,
      depreciation and amortization (i.e., "EBITDA"), a minimum ratio of EBITDA
      to interest expense and a maximum ratio of Indebtedness to EBITDA, in each
      case tested at the end of each fiscal quarter of the Company.

      The Company's obligations under the Agreement are guaranteed by Holdings
      and each direct and indirect domestic subsidiary of the Company. The
      Company's obligations under the Agreement are secured by substantially all
      assets of the Company and its subsidiaries.


                                       51
<PAGE>   52

      The Company has entered into interest rate swap agreements which have
      effectively converted $13.0 million of floating rate borrowings to fixed
      borrowings for a three-year period. The agreements are contracts to
      periodically exchange floating interest rate payments for fixed rate
      payments over the life of the agreements and are used to manage the
      Company's interest rate exposure.

      SENIOR SUBORDINATED NOTES

      In connection with the Merger, the Company issued $115.0 million of Senior
      Subordinated Notes due in 2006 (the "Notes"). The Notes are unsecured
      obligations of the Company. The Notes bear interest at a rate of 10.625%
      per annum and are payable semi-annually on each June 30 and December 31
      commencing on June 30, 1997.

      The Notes are redeemable at the option of the Company on or after December
      31, 2001. The Notes will be subject to redemption at the option of the
      Company, in whole or in part, at various redemption prices, declining from
      105.313% of the principal amount to par on and after December 31, 2003. In
      addition, on or prior to December 31, 1999, the Company may use the net
      cash proceeds of one or more equity offerings to redeem up to 35% of the
      aggregate principal amount of the Notes originally issued at a redemption
      price of 110.625% of the principal amount thereof plus accrued interest to
      the date of redemption. Upon a change of control, each Note holder has the
      right to require the Company to repurchase such holder's Notes at a
      purchase price of 110% of the principle amount plus accrued interest.

      The Note Indenture contains certain affirmative and negative covenants and
      restrictions.

      As of December 31, 1997, the Company was in compliance with the various
      covenants of the Note Indenture and the credit agreement.

      OTHER LONG-TERM DEBT

      Other long-term debt represents borrowings assumed by the Company in
      connection with the 1997 acquisition of Alfa. They are comprised of the
      equivalent of approximately $4.5 million of loans payable to the
      Industrial Development Fund of Portugal as well as several local
      Portuguese banks. The loans amortize in roughly equal installments through
      2000 and accrue interest at LIBOR plus a premium ranging from 1.25% to
      1.5%, adjusted quarterly or semi-annually. The loans are secured by
      substantially all property and equipment owned by Alfa. Alfa also has
      available revolving credit facilities with local banks providing for
      short-term working capital loans of up to the equivalent of approximately
      $6.5 million. Borrowings under these agreements accrue interest at LIBOR
      plus a premium ranging from .375% to 1.375%. The highest amount
      outstanding under these facilities in 1997 was approximately $5.4 million,
      and the balance outstanding at December 31 was $4.4 million. Cash paid for
      interest amounted to $0.1 million, $0.1 million , $0 and $20.3 million for
      fiscal 1995, the periods ended November 12, 1996 and December 31, 1996,
      and fiscal 1997, respectively.


                                       52
<PAGE>   53

(10)  INCOME TAXES

      The components of the provision for income taxes are as follows (in
      thousands):

<TABLE>
<CAPTION>
                               PREDECESSOR COMPANY            SUCCESSOR COMPANY
                         -----------------------------    ----------------------------
                          YEAR ENDED      PERIOD ENDED    PERIOD ENDED    YEAR ENDED
                          DECEMBER 31,    NOVEMBER 12,    DECEMBER 31,    DECEMBER 31,
                             1995            1996            1996            1997
                             ----            ----            ----            ----
<S>                        <C>              <C>            <C>             <C>
Current:
  Federal                  $ 5,798          $ 5,233        $(1,376)        $    --
  State                        586              258            (23)             --
  Foreign                       --               --             --             714
                           -------          -------        -------         -------
                             6,384            5,491         (1,399)            714
Deferred:
  Federal                     (591)             622             82            (625)
  State                       (112)              39              7            (119)
                           -------          -------        -------         -------
                              (703)             661             89            (744)
                           -------          -------        -------         -------
                           $ 5,681          $ 6,152        $(1,310)        $   (30)
                           =======          =======        =======         =======
</TABLE>

      The deferred income tax provision resulted primarily from temporary
      differences due to the use of accelerated depreciation for income tax
      purposes and straight-line depreciation for financial statement purposes,
      temporary differences related to deferred compensation and the reversal of
      temporary differences related to safe-harbor lease transactions that had
      previously transferred tax benefits to the Company.

      The difference between a provision computed using the respective statutory
      U.S. federal income tax rate and the provision for income taxes in the
      accompanying consolidated financial statements is primarily the result of
      state taxes, net of federal benefit, non-deductible goodwill amortization
      and foreign losses for which no benefit is available.

      Significant items giving rise to deferred tax assets and deferred tax
      liabilities at December 31, 1996 and 1997 are as follows (in thousands) :

<TABLE>
<CAPTION>
                                                         1996          1997
                                                         ----          ----
             <S>                                       <C>            <C>
             Prepaid Income Taxes:
                Warranty reserves - current            $  145         $  239
                Allowance for doubtful accounts           351            354
                Plant closing reserve                      --            744
                Accrued vacation                          278            187
                UNICAP adjustment                         253            365
                Other                                     707            606
                                                       ------         ------
                                                       $1,734         $2,495
                                                       ======         ======
</TABLE>


                                       53
<PAGE>   54

<TABLE>
<CAPTION>
                                                                   1996         1997
                                                                   ----         ----

         <S>                                                     <C>          <C>
         Deferred Income Taxes:
           Net operating loss carry forward                      $    --      $(1,617)
           Accelerated depreciation                                1,265        2,553
           Safe harbor leases                                        492          163
           Warranty reserves-long-term                              (781)        (780)
           Deferred compensation and restricted stock plan          (724)        (676)
           Other                                                     (30)         (62)
                                                                 -------      -------
                                                                 $   222      $  (419)
                                                                 =======      =======
</TABLE>

      Cash paid (received) for income taxes amounted to $7.1 million and $4.3
      million for fiscal 1995 and the period ended November 12, 1997,
      respectively, and $0 for the period ended December 31, 1996 and fiscal
      1997, respectively.

(11)  PENSION AND PROFIT SHARING PLANS

      The Company has a defined contribution 401(k) plan covering substantially
      all of its U.S. employees. Under the Plan, eligible employees are
      permitted to contribute up to 10% of gross pay, not to exceed the maximum
      allowed under the Internal Revenue Code. The Company matches each employee
      contribution up to 6% of gross pay at a rate of $.25 per $1 of employee
      contribution. The Company also contributes 3% of each employee's gross pay
      up to the Social Security taxable wage base and 4% of amounts in excess of
      that level up to approximately $.2 million of wages. Company contributions
      to the 401(k) plan totaled approximately $1.1 million in 1995, $.9 million
      and $.1 million for the periods ending November 12 and December 31, 1996,
      respectively, and $1.1 million in 1997.

(12)  LEASE COMMITMENTS

      The Company leases certain plant facilities and equipment. Total rental
      expenses charged to operations approximated $.8 million in fiscal 1995,
      $1.0 million and $.2 million for the periods ended November 12 and
      December 31, 1996, and $1.5 million in fiscal 1997, respectively. Minimum
      rental commitments under all non-cancelable operating leases are as
      follows (in thousands):

<TABLE>
           <S>               <C>
           1998              $  1,063
           1999                   600
           2000                   582
           2001                   573
           2002                   553
                             --------
                             $  3,371
                             ========
</TABLE>

      Certain of the leases provide for renewal options.


                                       54
<PAGE>   55

 (13) COMMITMENTS AND CONTINGENCIES

      At December 31, 1997, the Revolving Credit Facility contains a sublimit to
      support the issuance of letters of credit in the amount of $5.0 million
      with approximately $.2 million outstanding.

      The Company is involved in various legal proceedings which, in the opinion
      of management, will not result in a material adverse effect on its
      financial condition or results of operations.

      The Company has received three "Notice Letters" from the Environmental
      Protection Agency ("EPA") stating that it is one of several potential
      responsible parties pursuant to the Comprehensive Environmental Response,
      Compensation and Liability Act, and that it will be required to share in
      the cost of cleaning up the sites identified by the EPA. The Company's
      degree of responsibility, if any, is not presently determinable in all
      cases; however, management is of the opinion that these will not have a
      material adverse effect on the accompanying consolidated financial
      statements.

(14)  STOCK PLANS

      On December 16, 1997, the board of directors of the Company's parent,
      Amtrol Holdings, Inc., approved the Holdings 1997 Incentive Stock Plan and
      immediately granted to certain key employees options to purchase 65,310
      shares of the common stock of Holdings for $100 per share, the fair value
      of the options at the date of the grant. The options include 32,655
      non-qualified options which are exercisable immediately provided that
      purchased shares are subject to repurchase by Holdings at the exercise
      price until such shares vest based on relative achievement of management's
      business plan for fiscal years 1997 through 2001. An additional 22,398
      non-qualified options are also immediately exercisable but are subject to
      repurchase by Holdings, in monthly diminishing amounts, if the holder
      terminates employment before August 2000. The remaining 10,257 options are
      incentive stock options of which 3,000 vest immediately, 654 are released
      from restrictions in January 1998 and the remainder are released from
      restrictions ratably through August 2000.

      The Company applies APB opinion No. 25 to account for its stock option
      plans. Accordingly, pursuant to the terms of the 1997 Holdings Incentive
      Stock Plan, no compensation cost related to the issuance of stock options
      has been recognized in the Company's financial statements. However, if the
      Company had determined compensation cost for options issued in 1997 under
      the provisions of SFAS No. 123, the Company's net loss in 1997 would have
      increased by approximately $0.6 million. The fair value of the options
      granted in 1997 were estimated using the Black-Scholes option pricing
      model. The following key assumptions were used to value the options
      granted in 1997: volatility, 0; weighted average risk free rate, 5.00%;
      average expected life, 3 years. The weighted average fair value per share
      of the stock options granted in 1997 amounted to $13.62. It should be
      noted that the option pricing model used was designed to value readily
      tradeable stock options with relatively short lives. The options granted
      are not tradeable. However, management believes that the assumptions used
      and the model applied to value


                                       55
<PAGE>   56

      the awards yield a reasonable estimate of the fair value of the options
      grants under the circumstances.

      In connection with the Merger, certain holders of options to purchase
      shares of the common stock of the predecessor exchanged such options for
      Amended Options to purchase an aggregate of 17,041 shares of Holdings
      common stock with weighted average exercise price of $57.38 per share. All
      such options are immediately exercisable. No options from any source were
      exercised in 1997.


                                       56
<PAGE>   57

ITEM 14(A)(2)  SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND
               RESERVES
                                 (In thousands)

<TABLE>
<CAPTION>
                                              BALANCE AT                                                     BALANCE
                                              BEGINNING                                                     AT END OF
         CONSOLIDATED                         OF PERIOD      PROVISION      RECOVERIES      WRITE-OFFS        PERIOD
         ------------                         ---------      ---------      ----------      ----------        ------

<S>                                              <C>            <C>             <C>             <C>             <C>
PREDECESSOR

Year Ended December 31, 1995
   Allowance for doubtful accounts               1,094           93              2              (199)             990

Period Ended November 12, 1996
   Allowance for doubtful accounts                 990          172             21              (108)           1,075

SUCCESSOR

Period Ended December 31, 1996
   Allowance for doubtful accounts               1,075           91              4              (115)           1,055

Year Ended December 31, 1997                     1,055          370              3              (340)*          1,088
</TABLE>

*Includes $135 related to the disposition of the Company's American Granby
subsidiary in May 1997.


                                       57
<PAGE>   58

                                  SIGNATURES

Pursuant to the requirements of Section 13 or 5(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in West Warwick, Rhode
Island, on the 25th day of March 1998.

                                          AMTROL Inc.

                                          By:   s/s Edward J. Cooney
                                              ------------------------------
                                                   Edward J. Cooney
                                                Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1934, this registration
statement has been signed by the following persons in the capacities and on the
date indicated.

<TABLE>
<CAPTION>
       SIGNATURE                                    TITLE                                         DATE
       ---------                                    -----                                         ----


<S>                                         <C>                                              <C>
   s/s  John P. Cashman                     Chairman of the Board, President                 March 25, 1998
----------------------------------------    and Chief Executive Officer (principal
       John P. Cashman                      executive officer) and Director


   s/s  Samuel L. Daniels                   Executive Vice President and Director            March 25, 1998
----------------------------------------
       Samuel L. Daniels


   s/s  Clifford A. Peterson                Senior Vice President and Director               March 25, 1998
----------------------------------------
       Clifford A. Peterson


   s/s  Edward J. Cooney                    Senior Vice President, Chief Financial           March 25, 1998
----------------------------------------    Officer and Treasurer (principal
       Edward J. Cooney                     financial officer)


   s/s Donald W. Reilly                     Vice President  Finance (principal               March 25, 1998
----------------------------------------    accounting officer)

       Donald W. Reilly


   s/s  David P. Spalding                   Director                                         March 25, 1998
----------------------------------------
       David P. Spalding


   s/s  James A. Stern                      Director                                         March 25, 1998
----------------------------------------
       James A. Stern


   s/s  Anthony D. Tutrone                  Director                                         March 25, 1998
----------------------------------------
       Anthony D. Tutrone
</TABLE>


                                       58
<PAGE>   59

                                  EXHIBIT INDEX

EXHIBIT #                     DOCUMENT DESCRIPTION
---------                     --------------------

3.1     Restated Articles of Incorporation of AMTROL Inc. (incorporated by
        reference from the Company's Registration Statement on Form S-4,
        Registration No. 333-18075, declared effective by the Securities and
        Exchange Commission on January 2, 1997).

3.2     Bylaws of AMTROL Inc. (incorporated by reference from the Company's
        Registration Statement on Form S-4, Registration No. 333-18075, declared
        effective by the Securities and Exchange Commission on January 2, 1997).

4.1     Indenture, dated as of November 1, 1996 between AMTROL Acquisition, Inc.
        and The Bank of New York (incorporated by reference from the Company's
        Registration Statement on Form S-4, Registration No. 333-18075, declared
        effective by the Securities and Exchange Commission on January 2, 1997).

4.2     Form of 10-5/8% Senior Subordinated Notes due 2006 (included in Exhibit
        4.1) (incorporated by reference from the Company's Registration
        Statement on Form S-4, Registration No. 333-18075, declared effective by
        the Securities and Exchange Commission on January 2, 1997).

4.3     First Supplemental Indenture, dated as of November 13, 1996, between
        AMTROL Inc. and The Bank of New York (incorporated by reference from the
        Company's Registration Statement on Form S-4, Registration No.
        333-18075, declared effective by the Securities and Exchange Commission
        on January 2, 1997).

10.1    Credit Agreement, dated as of November 13, 1996, among AMTROL
        Acquisition, Inc. and AMTROL Holdings, Inc., various lending
        institutions party thereto, Morgan Stanley Senior Funding, Inc. as
        documentation agent, and Bankers Trust Company, as administrative agent
        (incorporated by reference from the Company's Registration Statement on
        Form S-4, Registration No. 333-18075, declared effective by the
        Securities and Exchange Commission on January 2, 1997).

10.1.1  First Amendment to Credit Agreement, dated as of June 24, 1997
        (incorporated by reference to the Company's Quarterly Report on Form
        10-Q for the quarter ended July 5, 1997).

10.1.2  Second Amendment to Credit Agreement, dated as of December 12, 1997
        (incorporated by reference to Exhibit 7(c) in the Company's Current
        Report on Form 8-K dated December 22, 1997).

10.2    AMTROL Inc. Pension Plan and Trust (incorporated by reference from the
        Company's Registration Statement on Form S-1, Registration No. 33-48413,
        declared effective by the Commission on March 18, 1993).*

10.3    Amendments to AMTROL Inc. Pension Plan and Trust (incorporated by
        reference from the Company's Registration Statement on Form S-1,
        Registration No. 33-48413, declared effective by the Securities and
        Exchange Commission on March 18, 1993).*

10.4    AMTROL Inc. Executive Cash Bonus Plan (incorporated by reference from
        the Company's Annual Report on Form 10-K for the fiscal year ended
        December 31, 1994).*

10.5    AMTROL Inc. Supplemental Retirement Plan II (incorporated by reference
        from the Company's Registration Statement on Form S-1, Registration No.
        33-48413, declared effective by the Commission on March 18, 1993).*


                                       59
<PAGE>   60

10.6    First Amendment to AMTROL Inc. Supplemental Retirement Plan II
        (incorporated by reference from the Company's Annual Report on Form 10-K
        for the fiscal year ended December 31, 1995).*

10.7    Employment Agreement dated January 19, 1997 by and between AMTROL Inc.
        and Samuel L. Daniels. (incorporated by reference to the Company's
        Annual Report on Form 10-K for the period ended December 31, 1996).*

10.8    Employment Agreement dated January 19, 1997 by and between AMTROL Inc.
        and Clifford A. Peterson. (incorporated by reference to the Company's
        Annual Report on Form 10-K for the period ended December 31, 1996).*

10.9    Employment Agreement dated January 19, 1997 by and between AMTROL Inc.
        and Edward J. Cooney. (incorporated by reference to the Company's Annual
        Report on Form 10-K for the period ended December 31, 1996).*

10.10   Employment Agreement dated as of April 22, 1997 by and between John P.
        Cashman and AMTROL Management International Inc.*

10.11   AMTROL Holdings Inc. 1997 Incentive Stock Plan dated December 16, 1997.*

21      Subsidiaries of AMTROL Inc.

27      Financial Data Schedule


                                       60