<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X Quarterly report pursuant to section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the quarterly period ended September 30, 1999
OR
___ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to __________
Commission file number: 0-28322
ASAHI/AMERICA, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2621836
(State or other Jurisdiction of (I.R.S. Employer identification No.)
Incorporation or Organization)
35 GREEN STREET, MALDEN, MASSACHUSETTS 02148-0005
(Address of principal executive offices) (Zip Code)
(781) 321-5409
(registrant's telephone number, including area code)
Indicate by check 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 twelve months (or 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 __
The registrant had 3,434,717 shares of common stock outstanding at
October 31, 1999.
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 - Condensed Consolidated Financial Statements
Consolidated Balance Sheets- December 31, 1998 and
September 30, 1999 2
Consolidated Statements of Operations - Three and
Nine Months ended September 30, 1998 and 1999 3
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1998 and 1999 4
Notes to Consolidated Financial Statements 5
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 16
PART II OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
1
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,057 $ 18
Restricted Cash 2,855 --
Accounts receivable, less reserves of $257 at December 31, 1998
and $366 at September 30, 1999 6,155 5,960
Inventories 11,373 10,953
Prepaid expenses and other current assets 1,264 1,349
------- -------
Total current assets 22,704 18,280
PROPERTY AND EQUIPMENT, NET 20,200 27,063
OTHER ASSETS
Goodwill, net of accumulated amortization of $1,968 at
December 31, 1998 and $2,179 at September 30, 1999 2,156 1,957
Other, net 3,164 3,717
------- -------
Total other assets 5,320 5,674
------- -------
$48,224 $51,017
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Demand note payable to bank $ 4,640 $ 3,902
Current portion of MIFA obligations 150 160
Current portion of GECPF obligations 1,252 1,252
Current portion of NAI obligations -- 553
Current portion of capital lease obligations 331 358
Accounts payable 5,826 6,700
Accrued expenses 1,679 1,768
Deferred revenue -- 68
Deferred income taxes 517 517
------- -------
Total current liabilities 14,395 15,278
------- -------
MIFA OBLIGATIONS, LESS CURRENT PORTION 3,465 3,305
------- -------
GECPF OBLIGATIONS, LESS CURRENT PORTION 10,328 9,446
------- -------
NAI OBLIGATIONS, LESS CURRENT PORTION -- 2,210
------- -------
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION 522 427
------- -------
DEFERRED REVENUE, LESS CURRENT PORTION -- 276
------- -------
DEFERRED INCOME TAXES 754 754
------- -------
COMMITMENTS -- --
STOCKHOLDERS' EQUITY
Common Stock 13,721 13,901
Additional paid-in capital 579 579
Retained Earnings 4,617 4,946
------- -------
18,917 19,426
------- -------
Less-Note receivable from stockholder/officer 157 105
------- -------
Total stockholders' equity 18,760 19,321
------- -------
$48,224 $51,107
======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- --------------------------------
1998 1999 1998 1999
------------ ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 10,604 $ 11,208 $ 27,773 $ 32,269
Cost of sales 6,994 7,358 18,147 20,710
----------- ----------- ----------- -----------
Gross Profit 3,611 3,850 9,626 11,559
Selling, general and administrative expenses 3,329 3,599 9,005 10,351
Research and development expenses 96 91 244 229
Litigation settlement -- -- -- (400)
----------- ----------- ----------- -----------
Income from operations 186 160 377 1,379
Other income 225 -- 225 --
----------- ----------- ----------- -----------
Interest expense, net (153) (302) (326) (850)
----------- ----------- ----------- -----------
Income (loss) before provision for income taxes
tat taxes 258 (142) 276 529
Provision (benefit) for income taxes 113 (68) 125 200
----------- ----------- ----------- -----------
Net income (loss) before cumulative effect of
change in accounting principle $ 145 $ (74) $ 151 $ 329
=========== =========== =========== ===========
Cumulative effect of a change in
accounting principle, net of income taxes
of $59 $ -- $ -- $ (88) $ --
=========== =========== =========== ===========
Net Income (Loss) $ 145 $ (74) $ 63 $ 329
=========== =========== =========== ===========
Basic earnings (loss) per share before cumulative
effect of change in accounting principle $ 0.04 $ (0.02) $ 0.04 $ 0.10
=========== =========== =========== ===========
Diluted earnings (loss) per share before
cumulative effect of a change in accounting
Principle $ 0.04 $ (0.02) $ 0.04 $ 0.10
=========== =========== =========== ===========
Basic and diluted earnings (loss) per share
effect of cumulative effect of a change in
accounting principle, net of income taxes of $59 $ 0.00 $ 0.00 $ (0.02) $ 0.00
=========== =========== =========== ===========
Basic earnings (loss) per share $ 0.04 $ (0.02) $ 0.02 $ 0.10
=========== =========== =========== ===========
Diluted earnings (loss) per share $ 0.04 $ (0.02) $ 0.02 $ 0.10
=========== =========== =========== ===========
Weighted average number of
shares outstanding 3,382,228 3,432,217 3,374,189 3,414,072
=========== =========== =========== ===========
Weighted average number of shares
outstanding, assuming dilution 3,382,228 3,432,217 3,374,745 3,414,072
=========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1998 1999
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 63 $ 329
Cumulative effect of change in accounting principle, net of income
Taxes of $59 88 --
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 1,188 2,014
Changes in assets and liabilities
Accounts receivable (2,135) 194
Inventories (1,877) 421
Prepaid expenses and other current assets (4) (85)
Accounts payable 1,602 874
Accrued expenses 456 89
Deferred revenue -- 344
------- -------
Net cash (used in) provided by operating activities (619) 4,180
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (1,615) (2,590)
Increase in others assets (629) (778)
------- -------
Net cash used in investing activities (2,244) (3,368)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) under demand note payable to bank 2,005 (738)
Payments on MIFA obligations (145) (150)
Payments on GECPF obligations (391) (939)
Payments on capital lease obligations (222) (257)
Payments of note receivable from stockholder/officer 52 53
Proceeds from exercise of stock options/stock issued under ESPP 118 180
Proceeds from reimbursement of amounts financed under GECPF 311 --
Proceeds from sales-leaseback financing 267 --
------- -------
Net cash provided by (used in) financing activities 1,995 (1,851)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (868) (1,039)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 916 1,057
======= =======
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 48 $ 18
======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURES: Cash paid during the year for:
Interest $ 485 $ 576
======= =======
Income taxes $ 205 $ 753
======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of assets under capital lease obligations $ 411 $ 753
======= =======
Acquisition of equipment under NAI debt financing $ -- $ 2,762
======= =======
Acquisition of equipment under GECPF bond financing $ 5,378 $ 2,912
======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRESENTATION OF INTERIM INFORMATION
The unaudited interim financial statements included herein have been prepared by
the Asahi/America, Inc. and Subsidiaries (the Company) pursuant to the rules and
regulations of the Securities and Exchange Commission and include, in the
opinion of management, all adjustments which the Company considers necessary for
a fair presentation of such information. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. These statements should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto which are contained in the Company's Form 10-K for the year ended
December 31, 1998.
Interim results are not necessarily indicative of the results for a full year.
2. FINANCIAL STATEMENTS
The condensed consolidated financial statements include the accounts of the
Asahi/America, Inc. (AAI) and its wholly-owned subsidiaries, Asahi Engineered
Products, Inc.(AEP) and Quail Piping Products, Inc. (Quail). All significant
intercompany balances and transactions have been eliminated.
3. CASH EQUIVALENTS
Cash equivalents, if any are short-term, highly liquid investments with original
maturities of less than three months and consist primarily of treasury bills.
4. INVENTORIES
AAI accounts for inventories using the lower of last-in, first-out (LIFO) cost
or market value. Quail accounts for inventories using the lower of first-in,
first-out (FIFO) cost or market value. The components of inventory are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------- -------
<S> <C> <C>
Raw materials $ 909 $ 836
Finished goods 10,055 10,036
LIFO surplus 409 81
------- -------
Total $11,373 $10,953
======= =======
</TABLE>
5. EARNINGS PER SHARE
In accordance with the Statement of Financial Accounting Standards (SFAS) No.
128, EARNINGS PER SHARE, basic net income per share and basic pro forma net
income per share were computed by dividing net income or pro forma net income by
the weighted average number of common shares outstanding during the period.
Diluted net income per share and diluted pro forma net income per share were
computed by dividing net income or pro forma net income by diluted weighted
average number of common and common equivalent shares outstanding during the
period. The weighted average number of common equivalent shares outstanding has
been determined in accordance with the treasury-stock method. Common stock
equivalents consist of common stock issuable on the exercise of outstanding
options.
5
<PAGE>
Basic and diluted earnings (loss) per share were calculated as follows (in
thousands, except share and per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic-
Net income (loss) $ 145 $ (74) $ 63 $ 329
========== =========== ========== ==========
Weighted average common shares
outstanding 3,382,228 3,432,217 3,374,189 3,414,072
Diluted-
Effect of dilutive securities -- -- -- --
Stock options -- -- 556 --
---------- ----------- ---------- ----------
Weighted average common shares
outstanding, assuming dilution 3,382,228 3,432,217 3,374,745 3,414,072
---------- ----------- ---------- ----------
Basic earnings (loss) per share $ 0.04 $ (0.02) $ 0.02 $ 0.10
========== =========== ========== ==========
Diluted earnings (loss) per share $ 0.04 $ (0.02) $ 0.02 $ 0.10
========== =========== ========== ==========
</TABLE>
As of September 30, 1998 and 1999, 329,966 and 389,961 options, respectively,
were outstanding but not included in the diluted weighted average common share
calculation as the effect would have been antidilutive.
6. ACCOUNTING FOR START-UP COSTS
In May 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-5, REPORTING ON THE COSTS OF START-UP ACTIVITIES.
SOP 98-5, which is effective for fiscal years beginning after December 15, 1998
but provides for early adoption, requires that the costs of start-up activities,
including organization costs, be expensed as incurred. Initial adoption of SOP
98-5 should be reported as a cumulative effect of a change in accounting
principle. During the quarter ended December 31, 1998 the Company adopted the
provisions of SOP 98-5. In accordance with the provisions of SFAS No. 16, PRIOR
PERIOD ADJUSTMENTS, prior year interim periods have been restated, adopting the
provisions of SOP 98-5 as of January 1, 1998, so as to include the portion of
the item that is directly related to the Company's business in the determination
of net income in the first interim period of that year. As such, the Company
restated 1998 first quarter results to record a net charge to income of $88,000
(net of income taxes of $59,000) for previously capitalized start-up costs,
reflected as a cumulative effect of a change in accounting principle.
Subsequently recorded amortization expense on these start-up costs has been
reversed and subsequent additions to start-up costs have been expensed in the
quarter incurred.
7. REVOLVING CREDIT LINE
In June 1998, the Company and its bank executed a new loan agreement for an
$11,000,000 secured, committed revolving line of credit (the Committed Line).
The Committed Line is secured by substantially all assets of AAI and extends
through January 31, 2000. Interest on this credit line is based on the prime
rate or LIBOR plus 1.55% to 2.30%. There is an unused fee
6
<PAGE>
ranging from .15% to .25%. The Company is required to maintain certain financial
ratios, including, among others, minimum working capital, debt service and
tangible net worth. The credit line is for working capital and merger and
acquisition purposes.
In 1999, the Committed Line was retroactively amended as of December 31,
1998. The amended agreement provided that the maximum amount of borrowings,
including issued letters of credit, which may at any time be outstanding, be
the lesser of $10 million or the sum of 80% of qualified accounts receivable
and 50% of eligible inventory, as defined. The interest on additional
borrowings is at the prime rate plus 1/2%. The Company is required to
maintain certain financial ratios, including, among others, minimum working
capital, debt service and tangible net worth, as defined in the amended
agreement. As of September 30, 1999, the Company was non-compliant with a
financial ratio and has obtained a waiver from its bank, such waiver subject
to the completion of the transactions outlined in Footnote 13. As of
September 30, 1999, there was $3,902,301 outstanding under the line of credit.
8. CONCENTRATION OF CREDIT RISK
Sales to the Company's two major domestic customers during the three month
period ended September 30, 1999 were approximately 24% and 23% of total sales,
as compared to 25% for the Company's one major customer for the same period of
1998. Sales to the Company's two major domestic customers during the nine month
period ended September 30, 1999 were approximately 27% and 17% of total sales,
as compared to 26% for the Company's one major customer for the same period of
1998. Export sales as a percent of total sales during the third quarter were
approximately 4% and 4% in 1999 and 1998, respectively.
9. BUSINESS SEGMENTS
SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS No. 131 also establishes standards for related disclosures
about products and services and geographic areas. Operating segments are
identified as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief operating
decision maker, or decision making group, in making decisions on how to allocate
resources and assess performance. The Company views its operations and manages
its business as two segments, AAI and Quail, as being strategic business units
that offer different products. The Company evaluates the performance of its
operating segments based on revenues from external customers, net income before
provision from income taxes, total assets and other balance sheet information.
Summarized financial information concerning the Company's reportable segments is
as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AAI QUAIL ELIMINATING CONSOLIDATED
<S> <C> <C> <C> <C>
Revenues from external customers $ 23,660 $ 8,609 $ -- $32,269
Net income (loss) before provision for income taxes (553) 1,082 -- 529
Net Income (Loss) (321) 650 -- 329
Accounts receivable, net 3,537 2,423 -- 5,960
Inventory, net 9,031 1,922 -- 10,953
Property & Equipment, net 9,187 17,876 -- 27,063
Total assets 33,530 22,507 (5,020) 51,017
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AAI QUAIL ELIMINATING CONSOLIDATED
<S> <C> <C> <C> <C>
Revenues from external customers $ 26,807 $ 966 $ -- $27,773
Net income (loss) before provision for income taxes 726 (450) -- 276
Net Income (loss) 381 (318) -- 63
Accounts receivable, net 5,609 739 -- 6,348
Inventories 10,595 618 -- 11,213
Property & Equipment, net 9,682 8,584 -- 18,266
Total assets 35,025 15,325 (3,318) 47,032
</TABLE>
10. NEW ACCOUNTING STANDARDS
In June, 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows derivative gains and losses to offset
related results on the hedged item in the income statement, and requires that a
company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.
In June 1999, the FASB issued SFAS No. 137, DEFERRAL OF THE EFFECTIVE DATE OF
SFAS NO. 133, delaying the effective date of SFAS No. 133 from June 15, 1999 to
June 15, 2000. The Company believes that the adoption of Statement 133 will not
have a material effect on its financial statements.
11. LITIGATION SETTLEMENT
In July 1997, the United States Patent and Trademark Office reconfirmed the
validity of a patent owned by the Company. In August 1997, the Company
instituted a patent infringement suit in the United States District Court in New
York against a competitor. In the fourth quarter of 1997 and first quarter of
1998, the Company incurred approximately $400,000 and $132,000, respectively, in
legal expenses related to this patent issue. These costs were included in
selling, general, and administrative expense. In February 1999, the Court ruled
in favor of the Company as it upheld the validity of the Company's patent. The
Court referred the case to a Magistrate Judge for an inquest hearing, scheduled
for March 5, 1999 and directed a determination as to damages to be completed
within three months of the hearing. On March 8, 1999, the Company and its
competitor reached an amicable settlement of this case. This settlement included
monetary consideration of $500,000 paid by the competitor to the Company, as
well as the granting by the Company to the competitor of a nonexclusive
eight-year license for this patent at $75,000 per year, discounted to $400,000
and paid to the Company in March 1999. Included in the accompanying statement of
operations is $400,000 related to monetary consideration paid to the Company
with the balance of $100,000 related to additional legal fees, included in
accrued expenses at that time. Included in deferred revenue in the accompanying
balance sheet is the license portion of the settlement, to be recognized over
the related term.
12. NAI OBLIGATIONS
In connection with the purchase of the manufacturing equipment for Quail's
Canton, Massachusetts operations and additional equipment for the Arizona
operations, Nichimen America Inc. (NAI) has financed the purchase through the
issuance of $2,762,500 of term notes payable (the Massachusetts Borrowings). The
Massachusetts Borrowings bear interest at the
8
<PAGE>
prime rate (8.25% at September 30, 1999) commencing September 1, 1999 and are
payable monthly. Principal payments on the Massachusetts Borrowings are payable
over 60 months at $46,042 per month commencing October 29, 1999. The notes are
secured by the financed assets. NAI, together with its parent company, is a
stockholder of the Company and holds two seats on the Company's Board of
Directors.
13. SUBSEQUENT EVENT.
On August 9, 1999, the Company entered into a Merger Agreement (the "Merger
Agreement") with Midnight Acquisition Holdings, Inc. ("Holdings"), a
wholly-owned subsidiary of Asahi Organic Chemicals Industry Co., Ltd. ("AOC"),
the Company's principal supplier of valves. The merger consideration to be paid
for all of the outstanding shares of the Company's common stock is $8.25 per
share plus an estimated $1.25 to $1.35 per share representing the per share
proceeds of the disposition of Quail Piping Products, Inc. ("Quail"), a
wholly-owned subsidiary of the Company, net of taxes and certain expenses to a
management based buyout group. Leslie B. Lewis will remain with the Company as
President and Chief Executive Officer. The Merger Agreement was amended on
October 19, 1999 entitling Mr. Lewis to defer up to $5.0 million of the Merger
Consideration by the delivering to him by AOC of a promissory note due and
payable on January 3, 2000. On October 20, 1999, the Merger Agreement was
further amended to allow for the deduction of 50% of prepayment penalties, up to
a maximum of $160,000, associated with the prepayment of the GECPF industrial
revenue bonds, from the net Quail proceeds to be paid to the stockholders. This
bond prepayment is required so as to allow the management based buyout group to
accept substitute financing commitments. On October 27, 1999 Proxy Statements
relative to the merger were mailed to Company stockholders.
The merger is conditioned upon Company stockholder approval and the disposition
of Quail. The Merger Agreement also requires that (i) the Company have no debt
at the time of the closing, with certain exceptions, (ii) all Quail-related
obligations of the Company be terminated pursuant to an agreement in the form
attached to the Merger Agreement and (iii) all shares held directly and
indirectly by Nichimen Corporation have been purchased by AOC or its
subsidiaries. The Company has also executed a Stock Purchase Agreement for the
disposition of Quail with Quail Acquisition Corporation, which is majority owned
by the management buyout group. The Stock Purchase Agreement is contingent upon
the receipt of financing and Quail Acquisition Corporation has secured
commitments for the required sources of financing. There can be no assurances
that financing for the disposition will be obtained or that the disposition and
merger will be consummated.
As an inducement to Holdings to enter into the Merger Agreement, Leslie B.
Lewis, who beneficially owns 27.2% of the of the shares of the Company, entered
into a Stockholder Agreement, dated as of August 9, 1999 (the "Stockholder
Agreement"), pursuant to which Mr. Lewis has granted a proxy to vote such shares
in favor of the merger. The Stockholder Agreement terminates upon the earlier to
occur of (i) the closing date of the merger, (ii) March 31, 2000 or (iii) the
date the Merger Agreement is terminated if it is terminated by mutual consent of
the parties or resulting from a governmental or court order or decree.
The foregoing descriptions of the Merger Agreement, the Stock Purchase Agreement
and the Stockholder Agreement contained herein are qualified in their entirety
by reference to the definitive Proxy dated October 27, 1999, the following
documents which are exhibits to the Company's Form 8-K filed August 10, 1999:
(a) the Merger Agreement attached as Exhibit 2, including Exhibit C -
Stockholder Agreement thereto, and incorporated herein by reference, (b) the
Stock Purchase Agreement attached as Exhibit 10.1 and incorporated herein by
reference, (c) the Employment Agreement for Leslie B. Lewis attached as Exhibit
10.2 and incorporated herein by reference and Amendment No. 1 to Merger
Agreement dated October 21, 1999, filed with the Company's definitive Proxy
Statement on Schedule 14A on October 27, 1999.
9
<PAGE>
ASAHI/AMERICA, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company is a manufacturer and distributor of thermoplastic valves, piping
systems, flow meter devices, filtration equipment and components manufactured by
the Company and others for use in a variety of environmentally sensitive and
industrial applications including semiconductor manufacturing, chemical
processing, waste and water treatment processing and pharmaceutical
manufacturing, as well as for use in mining, aquarium and other industries.
Manufactured products include valve actuators and controls, specialized valve
assemblies, double containment piping systems, thermoplastic flow meter devices
and filtration equipment. Distributed products consist principally of
thermoplastic valves, pipe and fittings which are purchased from two major
foreign suppliers under long term supply agreements. The Company also realizes
revenue for the rental and sale to contractors and end user customers of
specialized welding equipment that is used in connection with the installation
of the Company's piping systems.
The Company distributes its products through an extensive network of domestic
and foreign distributors and sales representatives which are supported by
Company sales, marketing and engineering personnel. Substantially all of the
Company's purchases of valves are made from its Japanese supplier and are
transacted in Japanese yen. As a result, the Company is exposed to fluctuations
in foreign currency exchange rates. The Company may use hedging procedures
including foreign exchange forward contracts and currency options in managing
the fluctuations in foreign currency exchange rates. The Company also purchases
pipe and fittings from an Austrian supplier. Purchases from the Company's
Austrian supplier are denominated in United States dollars.
In July, 1997, the Company established a wholly owned subsidiary, Quail Piping
Products, Inc. ("Quail") to manufacture and market corrugated polyethylene
piping systems for use in water, sewer and drain applications and polyethylene
duct pipe for fiber optic cable for use by the telecommunications industry.
Quail's first manufacturing facility is located in Magnolia, Arkansas. In June
1998, the Company and Quail closed on the purchase of a second manufacturing
facility in Kingman, Arizona, which commenced production in October, 1998.
Limited production of corrugated pipe in the Arkansas facility commenced in the
Spring of 1998, with full production by November, 1998, while full production of
fiber optic cable duct in the Arizona facility commenced in October 1998.
Production of corrugated pipe began in June of 1999 at the Arizona facility. In
May, 1999 Quail leased a manufacturing facility in Canton, Massachusetts for the
manufacture of polyethylene duct pipe. Production began in August 1999. These
new product lines increase the manufacturing component of the Company's
business, further diversify the Company's product offerings and distribution
base and positions the Company to penetrate new markets providing additional
opportunity to increase sales of the Company's distributed products.
10
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the Company's net
sales as well as certain income and expense items, expressed as a percentage of
sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ -----------------------------
1998 1999 1998 1999
------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
NET SALES 100.0% 100.0% 100.0% 100.0%
COST OF SALES 66.0% 65.6% 65.3% 64.2%
GROSS PROFIT 34.0% 34.4% 34.7% 35.8%
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 31.4% 32.1% 32.4% 32.1%
RESEARCH AND DEVELOPMENT EXPENSES 0.9% 0.8% 0.9% 0.7%
LITIGATION SETTLEMENT 0.0% 0.0% 0.0% (1.2%)
INCOME FROM OPERATIONS 1.7% 1.5% 1.4% 4.2%
OTHER INCOME (2.1%) 0.0% (0.8%) 0.0%
INTEREST EXPENSE, NET 1.4% 2.7% 1.2% 2.6%
INCOME BEFORE PROVISION FOR INCOME TAXES 2.4% (1.2%) 1.0% 1.6%
PROVISION FOR INCOME TAXES 1.0% (0.6%) 0.5% 0.6%
NET INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 1.4% (0.6%) 0.5% 1.0%
NET INCOME 1.4% (0.6%) 0.2% 1.0%
</TABLE>
NET SALES
Net sales were $11.2 million and $32.3 million for the three and nine months
ended September 30, 1999, respectively, as compared to $10.6 million and $27.8
million for the comparative periods of 1998. The quarterly and year to date
increases were due to sales of fiber optic cable duct pipe and corrugated
polyethylene pipe manufactured by the Company's wholly owned subsidiary, Quail
Piping Products, Inc, which is in its first full year of production. Sales of
the AAI's core products decreased by approximately 27% and 12% in the three and
nine month periods ended September 30, 1999 as compared to the corresponding
period of 1998 due to a decrease in both project and daily business as a result
of the sustained slowness in AAI's core markets.
Export sales for the three and nine months ended September 30, 1999 were
$462,000 and $1.3 million, respectively, as compared to $409,000 and $1.6
million for the corresponding periods of 1998. For the three and nine months
ended September 30, 1999, one customer accounted for approximately 24% and 26%
respectively, of sales, while another customer accounted for approximately 23%
and 17% respectively, of sales. For the three and nine months ended September
30, 1998, one customer accounted for approximately 27% and 26%, respectively, of
total sales.
GROSS PROFIT
Gross profit as a percentage of sales was 34.4% and 35.8% during the three and
nine months ended September 30, 1999, respectively as compared to 34.0% and
34.7% for the same period of
11
<PAGE>
1998. The quarterly and year to date increases were a result of increased
manufactured product sales with Quail and due to the fact that Quail's sales of
duct pipe are on a tolling basis, as much of the required material is supplied
by the end customer. This increase was offset by a decrease in AAI's overall
gross profit which was due to continued aggressive pricing to maintain existing
sales volume. Further, gross profit in the 1999 periods has been impacted by a
price increase implemented by the Company's Japanese supplier on its purchase of
valves and a significantly lower value of the U.S. dollar as compared to the
Japanese yen as compared to the year ago period. These items have decreased
gross profit as a percentage of sales due to their related effects on cost of
goods sold as a result of the Company's LIFO method of costing inventory and
from foreign currency exchange losses on inventory payments.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three and nine months ended
September 30, 1999 were $3.6 million and $10.4 million as compared to $3.3
million and $9.0 million for the comparable periods of 1998. The increase in
overall expenses for the three and nine month periods of 1999 was primarily due
to the selling and administrative support for Quail's sales and operations,
particularly, shipping, commission and selling and administrative expenses.
Selling, general and administrative expenses as a percentage of sales for the
three and nine month periods of 1999 were 32.1% and 32.1% as compared to 31.4%
and 32.4% for the comparable 1998 periods.
In connection with the Company's acquisition of the flow meter division of
Universal Flow Monitors, Inc., the Company established a dedicated Research and
Development department. This department is focusing its efforts on finalizing
the development of a full range of sizes for the ultrasonic flow meter and on
the development of other AAI products. Total R&D expenses for the three and nine
months ended September 30, 1999 were $91,000 and $229,000 as compared to $96,000
and $244,000 for the comparable periods of 1998.
In February 1999, the Court ruled in favor of the Company with respect to its
previously filed patent infringement lawsuit, as it upheld the validity of the
Company's patent. In March, 1999, the Company and its competitor reached an
amicable settlement of this case. This settlement included monetary
consideration from the competitor to the Company, as well as the granting by the
Company of a nonexclusive license for this patent to the competitor, totaling
$900,000, which was paid to the Company in March 1999. Included in the statement
of operations is $400,000 related to the recovery of past damages. Further, the
Company has recorded deferred revenue related to the royalty agreement reached
as part of the settlement.
INTEREST EXPENSE AND INCOME TAXES
Interest expense, net increased $149,000 and $524,000 for the three and nine
months ended September 30, 1999 as compared to the corresponding period of 1998.
The overall increase was due to interest expense incurred on additional capital
lease obligations and Industrial Revenue Bond debt to support Quail's expansion
and to increased operational borrowings on the Company's line of credit.
The provision for income taxes decreased by $181,000 and increased by $75,000 in
the three and nine months periods of 1999 as compared to the same periods of
1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations through cash generated from operations,
the sale of equity securities, borrowings under lines of credit and Industrial
Revenue Bond financings. In
12
<PAGE>
addition, the Company has benefited from favorable payment terms under a $8
million open account arrangement, for the purchase of Japanese valve products,
as to which the majority of its purchases are at payment terms of 180 days after
the bills of lading dates.
In June 1998, the Company and its bank amended its then existing line of
credit agreement and executed a loan agreement for an $11,000,000 secured,
committed revolving line of credit. This line of credit is secured by
substantially all assets of AAI and extends through January 31, 2000.
Interest on this credit line is based on the prime rate or LIBOR plus 1.55%
to 2.30%. There is an unused fee ranging from .15% to .25%, based on the
performance levels of certain financial ratios. The Company is required to
maintain certain financial ratios, including, among others, debt service,
minimum working capital and tangible net worth. The credit line is for
working capital and merger and acquisition purposes. In 1999, this loan
agreement was retroactively amended. The amended agreement provides for the
maximum amount of borrowings, including issued letters of credit, which may
at any time be outstanding, be the lesser of $10 million or the sum of 80% of
qualified accounts receivable and 50% of eligible inventory, as defined. The
interest on new borrowings is at the prime rate plus 1/2%. The Company is
required to maintain certain financial ratios, including, among others,
minimum working capital, debt service and tangible net worth, as defined in
the amended agreement. As of September 30, 1999, the Company was
non-compliant with a financial ratio and has obtained a waiver from its bank,
such waiver subject to the completion of the transactions outlined in Notes
to Consolidated Financial Statements, Footnote 13. As of September 30, 1999,
there was $3.9 million outstanding under the line of credit.
In July, 1997, the Company established a wholly-owned subsidiary, Quail Piping
Products, Inc. to manufacture and market corrugated polyethylene piping systems
for use in water, sewer and drainage applications and polyethylene fiber optic
duct pipe for use in the telecommunications industry. Quail's first
manufacturing facility, for which limited production commenced in the Spring,
1998, is located in Magnolia, Arkansas. The facility and manufacturing equipment
are being financed by Arkansas Industrial Revenue Bonds (the "Arkansas Bonds")
totaling $4.3 million. Payments on the bonds began in January 1998, with equal
monthly principal payments and extend until December 2007. The bonds bear
interest at 5.89%. In June 1998, for the purchase price of $1,139,844, the
Company and Quail purchased a second manufacturing facility in Kingman, Arizona,
commencing production of fiber optic cable duct in October, 1998 and corrugated
polyethylene piping in April,1999. Total project costs for the Arkansas facility
and equipment, which are estimated to be $8 million, are being financed through
the County of Mohave Industrial Development Bonds (the "Arizona Bonds") which
were finalized in August 1998. These bonds, which total $8 million, bear
interest at 5.65% and are payable in equal monthly installment over 10 years,
beginning in September, 1998. In accordance with both the Arkansas Bonds and the
Arizona Bonds, the Company is required to maintain certain financial ratios,
including, among others, minimum working capital, debt service and tangible net
worth, as defined. In May, 1999 Quail leased a manufacturing facility in Canton,
Massachusetts for the manufacture of polyethylene duct pipe.
Total equipment costs for this facility are approximately $2.1 million.
In connection with the purchase of the manufacturing equipment for Quail's
Canton, Massachusetts operations and additional equipment for the Arizona
operations, Nichimen America Inc. (NAI) has financed the purchase through the
issuance of $2,762,500 of term notes payable (the Massachusetts Borrowings). The
Massachusetts Borrowings bear interest at the prime rate (8.25% at September 30,
1999) commencing September 1, 1999 and are payable monthly. Principal payments
on the Massachusetts Borrowings are payable over 60 months at $46,042 per month
commencing October 29, 1999. The notes are secured by the financed assets. NAI
is a stockholder of the Company and holds two seats on the Company's Board of
Directors.
At September 30, 1999 cash and cash equivalents were $18,000.
13
<PAGE>
The Company generated $4.2 million of cash flow from operations during the nine
months ended September 30, 1999 as compared to $619,000 of cash flow used in
operations for the comparable 1998 period. The increase is due to the higher net
income level in the 1999 period as compared to the 1998 period coupled with high
depreciation and amortization expenses and lower overall working capital
requirements in 1999 as compared to 1998. Inventory at September 30, 1999,
decreased $421,000 from December 31, 1998, primarily due to a lower level of
purchases to support AAI's sales. Accounts receivable at September 30, 1999
decreased $194,00 from December 31, 1998 as a result of the timing of fourth
quarter 1998 sales and strong collections in the first quarter of 1999. From
December 31, 1997 to September 30, 1998, inventory increased $1.9 million as a
result of the timing of inventory receipts, additional on-hand inventory as a
result of Quail's initial manufacturing processes commencing and lower than
expected 1998 sales levels. From December 31, 1997 to September 30, 1998,
accounts receivable increased by $2.1 million due to the timing of sales and due
to strong collection efforts in the 1997 fourth quarter. Further, the Company
has deferred revenue of $344,000, initially recorded in the 1999 first quarter,
related to the royalty agreement reached as part of the patent infringement
lawsuit settlement. The royalty license fee was paid in full in March 1999.
The Company's industrial revenue bonds funded through the Massachusetts
Industrial Finance Agency (MIFA) are secured by a letter of credit issued by a
bank which is cross-collateralized and cross-defaulted with the Company's line
of credit, as amended. The bonds consist of six separate series each with
differing interest rates and maturities. Interest rates range from 4.2% to 4.3%
and are subject to adjustment in 2004 and 2009. The maximum principal payable in
any one year is $320,000 payable in 2014. The bonds are secured by an
irrevocable letter of credit issued by a bank, which expires in March 2004. This
letter of credit is secured by substantially all assets of AAI and does not
affect the availability under AAI's revolving credit line. As of September 30,
1999, the Company had $3,465,000 outstanding related to the MIFA obligations.
The Company believes that its current funds together with its line of credit
facility and cash generated from operations will be sufficient to fund the
Company's operations, debt service and capital requirements at least through the
next 12 months.
MATERIAL UNCERTAINTIES
YEAR 2000 COMPLIANCE. The Year 2000 (Y2K) issue exists because many computer
systems and applications currently use two-digit date fields to designate a
year. As the century date change occurs, many date sensitive systems will
recognize the year 2000 as 1900, or not at all. This inability to recognize or
properly treat Y2K may cause systems to process critical financial and
operational information incorrectly. The Company utilizes software and related
technologies throughout its business that could be affected by the date change
in Y2K. The Company has established an internal task force which has developed a
testing and compliance program to ascertain whether and to what extent there may
be a need to update its computer systems to become Y2K compliant. Additionally,
the Company is in the process of communicating with key third party vendors and
customers to ascertain their ability to become compliant. To manage its Y2K
program, the Company has divided its efforts into four program areas:
1)Information Technology (computer hardware, software, and other data exchange
sources); 2)Physical Plant (manufacturing equipment and facilities); 3)Products
(including product development); and 4)Extended Enterprise (suppliers and
customers). For each of these program areas, the Company is using a four-step
approach: 1)Ownership (creating awareness, assigning tasks); 2)Inventory
(listing items to be assessed for Y2K readiness); 3)Assessment (prioritizing the
inventoried items, assessing their Y2K readiness, planning corrective actions,
making initial contingency plans); and 4)Corrective Action Deployment
(implementing corrective actions, verifying implementation, developing,
finalizing and executing contingency plans). As of December 31, 1998, the
Ownership and Inventory steps were essentially complete for all program areas.
The target completion dates for priority items by remaining steps are as
follows: Assessment - May 1999; Corrective Action Deployment -- December 1999.
To date, the Company has achieved
14
<PAGE>
approximately ninety percent of its Assessment goals for its four program areas.
The Assessment status for each program area is as follows: 1)Information
Technology: Substantially all of the Company's business information systems
(manufacturing, distribution, sales, financial, and human resources) have been
assessed, corrected and verified, and corrected systems have been or have been
identified to be deployed. Hardware assessment is in process and on schedule for
completion. There can be no assurance that the Company will complete in a timely
manner the testing of such software/hardware products or the
development/installation of any updates necessary to render such products Y2K
compliant. Likewise, there can be no assurance that the Company will not
encounter Y2K problems arising from these technologies or any other technologies
that the Company may acquire in the future. 2)Physical Plant: Manufacturing
equipment assessment is substantially completed with corrective actions, if
necessary, scheduled. Facilities assessment is in process with continued
assessments being made. These efforts are expected to be completed on schedule.
3)Products: the Company continues to assess the readiness of its current
products. Product assessments are expected to be completed on time. 4)Extended
Enterprise: the Company has begun contacting its suppliers regarding their Y2K
readiness. The Company's Y2K supplier program includes assessing the readiness
of its suppliers with a particular focus on those considered essential for
prevention of a material disruption of the Company's business operations. The
assessment is ongoing. The Company is also discussing Y2K status with selected
strategic customers. The ability of vendors to supply and customers to purchase
may be affected by Y2K issues, as vendors may be unable to supply and/or
customers unable to purchase. There can be no assurance that the Company will
not experience a disruption in its business as a result of third party
noncompliance, the occurrence of which may have a material adverse effect on the
Company's business, operating results and financial condition. Costs to Address
Y2K Issues: Although the Company does not expect, and has not as of this date
incurred, the non-capitalized costs associated with its Y2K project plan to be
material, outside of labor time incurred by existing employees, there can be no
assurance that unidentified Y2K problems will not cause the Company to incur
material expenses in responding to such problems or otherwise have a material
adverse effect on the Company's business, operating results and financial
performance. Capitalizable costs, including costs of new hardware and software
and the related costs of implementation and installation will approximate $1.6
million. Risks of Y2K Issues and Contingency Plans: The Company continues to
assess the Y2K issues relating to its physical plant, products, suppliers and
customers, as well as legal risks that may be associated with noncompliance. The
Company's contingency planning process, although currently in the initial
discussion stage, will be intended to mitigate worst-case business disruptions,
such as delays in product delivery, which could potentially result from events
such as supply chain disruptions. As noted above, the Company expects its
contingency plans to be complete by December 1999. If there are unidentified
dependencies on internal systems or on key third parties to operate the
business, or if any required modifications are not completed in a timely basis
or are more costly to implement than currently anticipated, the Company's
business, financial condition or results of operations could be materially
adversely affected.
SOURCES OF SUPPLY. The Company purchases substantially all of its requirements
for valves from Asahi Organic Chemicals Industry Co. Ltd. ("AOC"), and a large
percentage of the pipe and fittings sold by the Company are supplied by
Alois-Gruber GmbH ("Agru"). The Company has entered into a Merger Agreement with
AOC. (See Footnote 12, Notes to Consolidated Financial Statements). In the event
that the parties fail to consummate the Merger, the parties have agreed to
continue their supply relationship on a non-exclusive basis until December 31,
2000. The Company would be permitted to purchase valves at prices no less
favorable than other purchasers in the same territory. Either party will be
permitted to terminate the supply agreement on 90 days notice after January 1,
2000. The Company's contract with Agru renews automatically for an additional
five year period unless either party gives notice of termination no less than
twelve months prior to the end of the term. The contract currently extends
through 2004. Although alternative sources of supply are available, the loss of
either AOC or Agru as a source of supply would have a material adverse effect on
the Company.
15
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Substantially all of the Company's purchases of valves are made from its
Japanese supplier and are transacted in Japanese yen. As a result, the Company
is exposed to fluctuations in foreign currency exchange rates. In accordance
with Statement of Financial Accounting Standards (SFAS) No. 119, DISCLOSURE
ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS,
the Company may use hedging procedures including foreign exchange forward
contracts and currency options in managing the fluctuations in foreign currency
exchange rates. The Company charges foreign currency transaction gains and
losses to operations in accordance with SFAS No. 52, FOREIGN CURRENCY
TRANSLATION.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
10.1* Merger Agreement and Amendment No.1 thereto by and
between the Company and Midnight Acquisition
Holdings, Inc., a wholly-owned subsidiary of Asahi
Organic Chemicals Industry Co., Ltd., the Company's
principal supplier of valves.
10.1.1 Amendment No.1 to the Stock Purchase Agreement, dated
October20, 1999, by and between the Company and Quail
Acquisition Corporation.
27 Financial Data Schedule
b) Reports on Form 8-K
During the quarter ended September 30, 1999, the Company filed
a report on Form 8-K dated August 10, 1999 under Item 2
Acquisition or Disposition of Assets, reporting the Company's
entering into a Merger Agreement with Midnight Acquisition
Holdings, Inc., a wholly-owned subsidiary of Asahi Organic
Chemicals Industry Co., Ltd., the Company's principal supplier
of valves.
* Incorporated by reference to the Registrant's Definitive Proxy Statement on
Schedule 14A dated October 27,1999.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the securities exchange act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASAHI/AMERICA, INC.
Dated: November 15, 1999 By: /s/ Leslie B. Lewis
----------------------------------
Leslie B. Lewis,
President and Principal
Executive Officer
By: /s/ Kozo Terada
----------------------------------
Kozo Terada,
Vice President, Principal
Financial and Accounting Officer
and Treasurer
17
<PAGE>
AMENDMENT NO. 1 TO
STOCK PURCHASE AGREEMENT
Amendment No. 1 to Stock Purchase Agreement dated as of August 9, 1999
between Quail Acquisition Corporation, a Massachusetts corporation ("Buyer"),
and Asahi/America, Inc., a Massachusetts corporation (the "Company;" such Stock
Purchase Agreement hereinafter being referred to as the "Agreement") made as of
October 21, 1999. Any capitalized terms used herein which are not otherwise
expressly defined in this Amendment are as defined in the Agreement.
WHEREAS, Buyer and the Company desire to amend certain terms of the
Agreement as set forth herein;
NOW, THEREFORE, in consideration of the premises and the payment of
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. AMENDMENTS. The Agreement is hereby amended as follows:
(a) The following section shall be added to Section 6:
6.9 Prepayment Penalties Associated with the Arkansas Development
Finance Authority Industrial Development Bonds (Quail Piping Products, Inc.
Project), November 14, 1997 (the "Arkansas Bonds") and the County of Mohave,
Arizona Industrial Development Bonds (Quail Piping Products, Inc. Project),
Series 1998-A (the "Arizona Bonds"). Any prepayment penalties caused by the
prepayment of the Arkansas Bonds and/or the Arizona Bonds as a result of the
Disposition of Quail shall be shared equally by Quail and Asahi; provided,
however, that the portion of such prepayment penalties payable by Asahi shall
not exceed, in the aggregate, $160,000. Any prepayment penalties incurred in
excess of $320,000, in the aggregate, shall be the sole responsibility of Quail,
which amount shall be in addition to the fifty percent of the first $320,000
paid by Quail as per the previous sentence. Asahi shall pay Quail amounts owed
by it hereunder within 30 days of receiving documentation reasonably
satisfactory to it of the payments paid and owing by Quail with respect thereto.
2. RATIFICATION. Except as specifically amended hereby
the terms of the Agreement are hereby ratified and confirmed in all respects.
3. AUTHORIZATION. This Amendment No. 1 to the Agreement has
been duly approved by the Special Committee constituted to act in connection
with this transaction and has been authorized by all necessary corporate action
on the part of the Company and no other corporate proceedings on the part of the
Company are necessary to authorize this
<PAGE>
Amendment or to consummate the transactions so contemplated. This Amendment has
been duly executed and delivered by the Company and, assuming this Amendment
constitutes a valid and binding obligation of Buyer, constitutes a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
executed and delivered as of October 21, 1999.
QUAIL ACQUISITION CORPORATION
By: /s/ Leslie B. Lewis
----------------------------------
Name: Leslie B. Lewis
Title: Chairman
ASAHI/AMERICA, INC.
By: /s/ Leslie B. Lewis
----------------------------------
Name: Leslie B. Lewis
Title: President and Chief Executive Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ASAHI/AMERICA, INC. CONTAINED ELSEWHERE IN
THIS QUARTERLY REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000906873
<NAME> ASAHI/AMERICAN, INC. & SUBSIDIARIES
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