-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S2XTRPPa+Rj6uSNvg9+6jUQ2IcYL2T/HJA2+Y+uk0J+mflU00FZq8ZRJnraF939D m+xeCG6Ij75rPNH2Z9klLg== 0000041980-97-000007.txt : 19970520 0000041980-97-000007.hdr.sgml : 19970520 ACCESSION NUMBER: 0000041980-97-000007 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960928 FILED AS OF DATE: 19970519 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GODDARD INDUSTRIES INC CENTRAL INDEX KEY: 0000041980 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490] IRS NUMBER: 042268165 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-02052 FILM NUMBER: 97611279 BUSINESS ADDRESS: STREET 1: 705 PLANTATION ST CITY: WORCESTER STATE: MA ZIP: 01605 BUSINESS PHONE: 5088522435 MAIL ADDRESS: STREET 1: P O BOX 165 CITY: WORCESTER STATE: MA ZIP: 01613-0765 10KSB/A 1 - 17 - SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] for the Fiscal Year Ended September 28, 1996 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] for the Transition Period from _________________________ to Commission File Number 0-2052 GODDARD INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Massachusetts 04-2268165 (State or other juris- (I.R.S. Employer Identifi- diction of incorporation cation No.) or organization) 705 Plantation Street, Worcester, Massachusetts, 01605 (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code (508) 852- 2435 Securities registered under Section 12(b) of the Act: Name of Each Exchange Title of Each Class On Which Registered None N/A Securities registered under Section 12(g) of the Act: Common Stock $.01 par value (Title of class) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 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 _____ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and if no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB [] The registrant's revenues for its most recent fiscal year are $8,300,167. The aggregate market value of the registrant's Common Stock, par value $.01 per share, held by non-affiliates of the registrant at December 13, 1996 was approximately $1,945,850, based on the mean of the high and low sale prices on that date as reported by the National Quotation Bureau, Inc. As of December 13, 1996, there were outstanding 2,040,129 shares of Common Stock, par value $.01 per share. Transitional Small Business Disclosure Format: Yes No X DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for the registrant's 1997 annual meeting involving the election of directors (the "Definitive Proxy Statement"), which is expected to be filed with the Commission within 120 days after the end of the registrant's fiscal year, are incorporated by reference in Part III of this Report. PART I ITEM 1. Business. General.Goddard Industries, Inc. (which together with its wholly-owned subsidiaries is hereinafter referred to as the "Company") is primarily engaged in the design, manufacture, distribution and sale of cryogenic valves for industrial and commercial use and in the distribution of plumbing goods, valves and fittings for residential and commercial use. The Company's Goddard Valve subsidiary designs, manufactures and sells cryogenic gate, globe and check valves and control devices required for the handling of liquefied natural gas, liquid oxygen and other liquefied gases. The principal markets for Goddard Valve's cryogenic valves historically have been public utility companies involved with liquefied natural gas and manufacturers of cryogenic tanks and transport trailers. In more recent years, markets for special cryogenic valves have developed for use on tanks required by the semi-conductor manufacturing and medical technology industries. Goddard Valve's cryogenic valves are distributed domestically both by direct sales to customers and through independent sales representatives. Goddard Valve also makes direct sales of the valves to customers in Canada, Europe and Asian countries. The Company's Webstone subsidiary is an importer of brass, stainless steel and plastic plumbing products, as well as valves for the gas industry, all of which are manufactured and packaged to Webstone's specifications in the Far East and in Europe, and marketed under the Webstone name nationally through sales representatives and in Canada through distributors. In addition, Webstone also manufactures and distributes nationally certain domestic plumbing products, some of which have been designed by the Goddard Valve subsidiary. The principal markets for Webstone's plumbing products are plumbing supply and hardware wholesalers who redistribute products to plumbers and contractors involved in new construction or home alterations, and to retail hardware outlets. The Company is a Massachusetts corporation organized in 1959. Its executive offices are located at 705 Plantation Street, Worcester, Massachusetts 01605. Sources of Supply; Foreign Suppliers. Raw materials for the Goddard Valve business consist of stainless steel, aluminum and bronze castings and bar stock, which are available from a variety of regular and competitive suppliers. The Company does not anticipate difficulty in obtaining sufficient raw materials for that business. Webstone purchases substantially all of the products for its plumbing supply business from a variety of sources in foreign countries. Webstone's name is stamped or cast into the part as well as its brand name being included in the packaging. These foreign operations involve hazards shared by most enterprises doing business in foreign countries, such as political risks, currency controls and fluctuations, tariffs and import controls. To date, Webstone has not been adversely affected by these matters. Webstone has alternative sources of supply in each country and does not anticipate problems in maintaining adequate sources of supply. Dependence Upon Principal Customers. During fiscal 1996 the Goddard Valve division sold a substantial majority of its products to three customers, manufacturers of cryogenic vessels. It was dependent on one customer for 46% of its cryogenic valve business (approximately 28% of the Company's total revenue), and any loss or significant decrease in business from this customer would have a material adverse effect on the business of the Company. In addition, two other customers accounted for approximately 14% and 12%, respectively, of the Goddard Valve division's cryogenic valve revenues during fiscal 1996, and the loss of either of those customer could have a material adverse effect upon the Company. No single customer accounts for 10% of the revenues of the Webstone plumbing supply subsidiary. Backlog. The dollar amount of backlog of orders believed to be firm for the Company's cryogenic valve subsidiary was approximately $1,846,000 as of the end of the 1996 fiscal year, as compared with approximately $776,000 at the end of the preceding fiscal year. The dollar amount of orders believed to be firm in the Company's plumbing supply subsidiary as of the end of the 1996 fiscal year was approximately $110,000, as compared with approximately $98,000 as of the end of the preceding fiscal year. No part of the backlog of either business is seasonal, and all backlog is expected to be shipped within the current fiscal year. Backlog varies according to business conditions within the industry for both businesses. Competition. All aspects of the Company's business are highly competitive. The Company believes there are between six and eight principal competitors in its cryogenic valve business. Goddard Valve competes on the basis of product performance and dependability. The Company believes that its competitive position within that industry has improved during the past couple of years, although there can be no assurance that that situation will continue. The Company believes there are approximately eight to ten other major importers of foreign plumbing supplies which distribute nationally and which compete with the Company's plumbing supply subsidiary. The Company does not believe that there have been any changes in competitive conditions in the plumbing supply business or in the competitive position of Webstone in that industry during the past fiscal year. Webstone competes on the basis of price and delivery. Research and Development. During the last fiscal year, the Company spent approximately $175,000 and had seven employees working full or part time on Company-sponsored research and development, all of which was spent on cryogenic valve development. During the previous year the Company spent approximately $138,000 for research and development. This increase reflected the effort on development of valves for the cryogenic business. The Company has obtained a number of patents and has additional patent applications pending with respect to certain of the products of its cryogenic valve subsidiary. There can be no assurance that any of the pending patent applications will be granted or that existing patents will be enforceable. While the Company believes the patents have value, it believes that the success of the cryogenic valve subsidiary depends more upon the technical competence and manufacturing skills of its employees than upon patents. Employees. The Company employs approximately 50 people, of whom 45 are full-time. ITEM 2. Properties. The Company's executive offices and the business of both the cryogenic valve subsidiary and the plumbing products subsidiary are located at 703-705 Plantation Street, Worcester, Massachusetts in a building on a main thoroughfare owned by Goddard Valve. The building is a one-story masonry building erected in 1961, containing 27,000 square feet. It is owned by Goddard Valve. The Company anticipates that as a result of the growth of both divisions over the past couple of years, it will be necessary to acquire approximately 10,000 additional square feet of warehouse and manufacturing space for its business. It is presently contemplated that this will be done by an addition to the existing building in the near future. With that addition, the facility should be adequate to meet Company needs. The Company believes that its existing facilities and equipment are well maintained and in good operating condition. ITEM 3. Legal Proceedings. In 1987, the Company notified the Massachusetts Department of Environmental Protection ("DEP") of the fact that an environmental site assessment performed at its facility at 705 Plantation Street, Worcester for a proposed bank financing had revealed that there may have been a release or threat of release of oil or hazardous materials. In 1989, the DEP designated the site as a disposal site under the Massachusetts Oil and Hazardous Material Release, Prevention and Response Act (popularly known as Chapter 21E). In 1991, the Company submitted a Phase One Limited Site Investigation report to DEP. The site has been designated as a Tier 1C Site under the Massachusetts Contingency Plan and further site investigation is required to be performed. Separately, in 1990, the Town of Shrewsbury commenced a lawsuit against the Company and Neles-Jamesbury, Inc. in Massachusetts Superior Court, alleging that they had caused Shrewsbury to incur response costs for assessment, containment and removal of oil and hazardous materials in relation to the town's Home Farm water wells. Shrewsbury sought damages for environmental response costs and injunctive relief. The Company filed an answer generally denying the allegations and joined eight other businesses located in the same industrial park area as third-party defendants. During 1992-93 some but not all counts of Shrewsbury's complaint were dismissed. The Company gave notice to its comprehensive general liability insurance carriers of the DEP claim and the Shrewsbury litigation and asked the carriers to defend and indemnify the Company against the claims. One of the carriers, St. Paul Fire and Marine Insurance Co., assumed primary responsibility for the defense of the litigation and two other carriers agreed to each pay a portion of defense costs, while reserving their right to contest coverage under the policies. In 1992, St. Paul filed suit in the Federal District Court of Massachusetts for a declaratory judgment that it had no duty to defend or indemnify the Company under its liability policies. That suit was dismissed without prejudice pending disposition of the Town of Shrewsbury litigation. In January 1997 the Company and five of the other defendants reached a settlement of the Shrewsbury litigation with the Town of Shrewsbury. The Company agreed to pay a total of $750,000 by March 31, 1997 as its share of the settlement, and other defendants agreed to pay additional amounts. In addition, the Company reached an agreement with its three insurance carriers. In exchange for a release of certain further claims, they will pay a total of $715,000 of the $750,000 amount Goddard is obligated to pay the Town of Shrewsbury. One of the insurance carriers has also agreed to pay $70,000 in full settlement of any claim for insurance coverage with respect to the Company's facility, to be used as the Company determines in defense of the DEP proceeding. ITEM 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to the stockholders of the Company during the fourth quarter of the 1996 fiscal year. PART II ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters. The Company's Common Stock is traded in the over-the-counter market in the "pink sheets". As of December 13, 1996, there were 911 holders of the Company's Common Stock. The quarterly high and low bid prices of the Company's Common Stock for the two fiscal years ending September 30, 1995 and September 28, 1996 are set forth below. Prices are based upon quotations from the National Quotation Bureau, Inc. FISCAL 1995 BID PRICES High Low Quarter Ending: 12/31/94 $.310 $.250 3/31/95 $.310 $.180 6/30/95 $.250 $.220 9/30/95 $.625 $.250 FISCAL 1996 BID PRICES High Low Quarter Ending: 12/31/95 $ .937 $ .312 3/31/96 1.000 .531 6/30/96 1.000 .812 9/28/96 1.250 .812 The Company has never declared a cash dividend, although it has declared stock dividends from time to time. ITEM 6. Management's Discussion and Analysis or Plan of Operation. Results of Operations - 1996 Compared to 1995 Consolidated sales for fiscal 1996 were a record $8,300,000. This was a 22.6% increase over consolidated sales in fiscal 1995. The 34% increase in sales in the Valve division resulted from substantially larger orders for both standard and newly designed product lines. The 8.5% increase in Webstone division revenues resulted from larger orders in a newly acquired faucet line and from an increased market share of standard catalog items. At year-end, the backlog of orders in the Valve division was approximately two and one half times higher than it was at last year-end. The Company's gross profit margins increased slightly to 36.4% from 35.8%, reflecting the efficiencies resulting from increased sales volume, while sales and administrative expenses declined as a percentage of sales from 23.8% to 22.0% for the same reason. Interest expense declined 32.1% for fiscal 1996 as a result of lower interest rates and somewhat lower borrowing levels. As a result of the above, the Company's net income increased 59.2% to $685,000 ($.33 per share), compared to $430,000 ($.21 per share) in fiscal 1995. Results of Operations - 1995 Compared to 1994 Consolidated sales for fiscal 1995 were a record $6,771,000, a 34.8% increase compared to 1994 sales of $5,024,000. The sales increase was shared by the Valve and Webstone divisions, both of which met their early sales forecasts for fiscal 1995. Sales increases in the Valve division reflected an increased level of orders for more sophisticated, higher priced products. Sales increases in the Webstone division reflected increased orders from geographic areas not previously serviced and the replacement of some less productive sales representatives with new, more productive ones. At the end of the fiscal year the order backlog was higher in both divisions compared to the previous year. Gross profit margins improved from 33.8% to 35.8%, reflecting efficiencies gained from increased volume and larger average order sizes in the Goddard division. Sales and administrative expenses declined as a percentage of sales from 28.7% to 23.8%, reflecting efficiencies gained from larger volume as well as certain operating efficiencies achieved. Interest expense increased by $60,000 as a result of an increase in interest rates and larger borrowings throughout the year to support increased inventory needs. As a result of the foregoing, consolidated net income for the year was a record $430,000 ($.21 per share). This represents a 350% increase over fiscal 1994. Liquidity and Capital Resources Historically, the Company has funded operations primarily through earnings and bank borrowings. At September 28, 1996, the Company had working capital of approximately $3,679,000, including $66,000 in cash. The Company also had a line of credit of $1,750,000 with The First National Bank of Boston collateralized by substantially all of the assets of the Company. On September 28, 1996, approximately $884,000 had been drawn under that line of credit, which bears interest at a rate equal to the bank's prime rate plus 3/4 of 1%. During fiscal 1996, the operations of the Company produced $417,000 of cash. The major sources of cash were net income ($685,000), accrued environmental settlement ($795,000), depreciation ($208,000), and increases in accrued expenses ($143,000). Principal uses of cash were the other receivables related to the environmental costs ($785,000), additional investment in inventories ($401,000) and increased accounts receivable ($181,000). During fiscal 1996, the Company used approximately $140,000 in investment activities for the purchase of machinery and equipment, compared to $132,000 in the prior year. Financing activities consumed approximately $287,000 as the Company paid down long term debt. The Company plans to add an additional 10,000 square feet of manufacturing and warehouse space to the rear of its existing building in Worcester and to finance the addition using moneys available under the First National Bank of Boston line of credit. After the use of a portion of the line of credit for that purpose, the Company believes that the remaining amounts available under line of credit should still provide sufficient liquidity to handle the normal working capital requirements of its present business, although there can be no assurance that that will be the case. The Company borrows funds for periods of up to five years for the purchase of new machinery and meets the required amortization and interest payments from its current working capital. The Company believes that its future capital requirements for equipment can be met from the cash flow from operations, bank borrowings and other available sources. As more fully described under Item 3 and in Note 8 to the financial statements, the Company has been a party to two lawsuits and an administrative proceeding relating to environmental matters. In January, 1997, the Company reached a settlement with the Town of Shrewsbury and the other defendants and third party defendants in the Shrewsbury litigation under which it is obligated to pay $750,000 by March 31, 1997. However, under settlements reached with its insurers, those insurers will pay $715,000 of that total. The Company expects that it will have to pay at least $45,000 for additional testing in connection with the DEP proceeding. One of the insurers will also pay the Company $70,000 for a release of any further Company claim against it related to that proceeding. Based upon presently available information, the Company does not anticipate that the resolution of all previously pending environmental matters will have a material adverse affect on the Company's financial resources. The Company's results of operations have not been materially affected by seasonality. ITEM 7. Financial Statements and Supplementary Data. The financial statements and supplementary data are listed under Part III, Item 13 in this report. ITEM 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosures. There have not been any changes in the Company's auditors in more than two fiscal years. PART III ITEM 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act. Information As To Officers, Directors and Beneficial Owners The following table sets forth certain information, as of November 30, 1996, with respect to each director, all officers and directors as a group (6 persons) and each person owning five percent or more of the Company's Common Stock. This table is based on information furnished by such persons. Number of Shares of Common Stock Year Term Name, Age and Principal Director Beneficially Percent Would Occupation Since Owned (1) of Expire Class and Class Dr. Jacky Knopp, Jr., 74 1972 77,000 (2) 3.8% 1999 President, Crosby Research Class 3 Associates (marketing and management consultants) 211 Delamere Road, Buffalo, NY; Account Executive, Moors & Cabot, Inc. (stock brokerage firm) 4575 Main Street, Amherst, NY; Professor Emeritus of Canisius College, Buffalo, NY Saul I. Reck, 78 1959 321,955 (3) 15.2% 1997 President of the Company Class 1 Lyle E. Wimmergren, 65 1978 5,000 (4) * 1998 Professor Emeritus of Class 2 Management Worcester Polytechnic Institute 55 Liberty Hill Road, Henniker, NH Robert E. Humphreys, 54 1997 457,950 (5) 22.5% 1998 President of Antigen Express, Class 2 Inc., a company focused on creating drugs for auto-immune deseases, August 1995-present; Professor and Interim Chair, Department of Pharmacology, University of Massachusetts Medical School prior to August 1995 64 Alcott Street, Acton, MA All executive officers and -- 939,805 (6) 44.4% -- directors as a group (6 persons) Joseph A. Lalli -- 183,550 (7) 9.0% -- 6 Middlemont Way, Stow, MA *Less than one percent (1) Unless otherwise noted, each person identified possesses sole voting and investment power. (2) Includes 36,000 shares owned Dr. Knopp's wife, as to which he disclaims beneficial interest, and an option to acquire 5,000 shares held by Dr. Knopp. (3) Includes 5,250 shares held by Mr. Reck's wife, as to which he disclaims beneficial interest. Also includes an option to purchase 75,000 shares held by Mr. Reck. (4) Consists of option to acquire 5,000 shares held by Mr. Wimmergren. (5) Includes 217,650 shares as to which Mr. Humphreys has sole voting and dispositive power and 225,300 shares as to which Mr. Humphreys' shares voting and dispositive power by virtue of a power of attorney over the investment accounts of seven persons. Mr. Humphreys and certain other persons, acting as a group, beneficially own an aggregate of 457,950 shares. (6) In addition to the matters noted above in (2)-(5), includes 19,900 shares owned by an executive officer jointly with his wife and options on 10,000 shares held by the officer. (7) Mr. Lalli has reported to the Company that a Schedule 13D, Admendment No. 6, was filed with the Securities and Exchange Commission indicating that he has sole voting and dispositive power of 154,050 shares and shared voting and dispositive power with his wife of 29,500 shares. All of the directors other than Mr. Humphreys have had the same principal occupation for the last five years, except that the Amherst, New York office of Moors & Cabot, Inc. at which Dr. Knopp is an account executive was previously owned by other brokerage firms, and each of Dr. Knopp and Mr. Wimmergren has become a professor emeritus at his institution. Saul I. Reck is the father of Joel M. Reck, Clerk of the Company. The Board of Directors of the Company held three meetings during the fiscal year ended September 28, 1996. Each present director attended at least 75% of the meetings of the Board of Directors and of all committees of which he was a member. The Board of Directors has an Audit Committee and a Compensation Committee, both composed of Dr. Knopp and Mr. Wimmergren. The Audit Committee, which met twice during the last fiscal year, is charged with recommending to the Board of Directors retention of a firm of independent accountants and with reviewing the Company's internal audit and accounting controls, the report of the independent accountants and the financial statements of the Company. The Compensation Committee, which met twice during the last fiscal year, is responsible for recommending salary and bonus levels of officers and key employees. There is no Nominating Committee of the Board of Directors. The Board of Directors as a whole will consider nominees for director submitted to it in writing by any shareholder. Executive Officers of the Company. The executive officers of the Company are as follows: Name Age Position Officer Since Saul I. Reck 78 Chairman of the Board 1959 President and Treasurer Donald R. Nelson 61 Vice President 1973 The term of office for all officers is from one annual meeting of the Board of Directors to the next, subject to the right of the Board of Directors to remove an officer at any time, subject to the provisions of Mr. Reck's Employment Agreement described under item 10 below. Saul I. Reck and Donald R. Nelson have been employed by the Company in the above-described capacities for more than five years. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's executive officers and directors, and persons who own more than 10% of the Company's Common Stock, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission. Executive officers, directors and greater than 10% sotkcholders are required to furnish the Company with copies of all Forms 3, 4 and 5 they file. Based solely on the Company's review of the copies of such forms it has received and written representations from certain reporting persons that they were not required to file Forms 5 for specified fiscal years, the Company believes that all of its executive officers, directors and greater than 10% stockholders complied with all Section 16(a) filing requirements applicable to them during the Company's fiscal year ended September 28, 1996, except that in January 1997 Messrs. Nelson, Wimmergren and Knopp filed Form 4s reflecting the grant of options for the purchse of shares of Common Stock to them on December 17, 1995. ITEM 10. Executive Compensation. SUMMARY COMPENSATION TABLE Annual Compensation Other Annual Name and Fiscal Year Salary Bonus (1) Compensation (2) Principal Ended ($) ($) ($) Position Saul I. Reck 9/28/96 $115,000 $108,700 $10,000 President & 9/30/95 115,000 55,000 10,000 Treasurer 10/1/94 115,000 0 10,000 (1) Under the terms of his Employment Agreement with the Company described below, Mr. Reck is entitled to receive a bonus equal to 10% of the amount by which Company pre-tax profits exceed specified base amounts. (2) Consists of cash payments to Mr. Reck to be used for purchase of retirement benefits. The following table shows information concerning the exercise of stock options during fiscal 1996 and the fiscal year- end value of unexeercised options and stock appreciation rights. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES Number of Value of Securities Unexercised Underlying In-the Money Unexercised Options/SARs at Options/SARs 9/28/96 Shares 9/28/96 Acquired on Exercise Value Exercisable Exercisable Realized Name (#) ($) (#) ($) Saul I. -- -- 75,000 $65,625 Reck Under an Employment Agreement with Saul I. Reck entered into in 1989, as amended in 1992 and again in 1994, Mr. Reck has agreed to be employed by the Company as Chairman of the Board and President on a full time basis. Mr. Reck received a base salary of $115,000 in fiscal 1996, plus $10,000 to be used to purchase a retirement benefit. In addition, Mr. Reck receives a bonus equal to 10% of the amount by which the Company's pre-tax profits exceed a base amount. After he retires, Mr. Reck will be entitled to receive an unfunded annuity of $60,000 per year for his life and his surviving spouse will be entitled to an annuity of $30,000 per year for life, with both amounts payable under these annuities subject to adjustment based upon cost of living increases after October 1, 1993. Compensation of Directors Each director who is not also an officer or employee of the Company receives a base fee of $2,400 per year. Each director who is not also an officer or employee of the Company and who lives in the greater Worcester area receives $500 for each directors meeting he attends. Each director who is not also an officer or employee of the Company and who lives outside the greater Worcester area receives $600 for each such meeting, plus travel expenses to and from Worcester. No extra compensation is paid for attendance at meetings of committees. All non-employee directors as a group were paid $10,200 for services rendered during fiscal year 1996. During fiscal 1996, options to purchase 5,000 shares of Common Stock were granted to each of the Company's then non-employee directors, including Messrs. Knopp and Wimmergren. The Board of Directors has a Severance Compensation Plan for certain officers and all directors in the event that there is a "change in control" of the Company not approved by the Board of Directors resulting in the termination of employment or reduction in the duties and responsibilities of the President, Vice- Presidents and Treasurer (as determined by the Board of Directors) and/or a termination of service as director of the Company. The plan provides that such President, Vice Presidents and Treasurer will continue to receive the compensation being paid to them at the time of the termination or change in the nature of employment, for a period of five years following such termination or change, and the non-employee directors will continue to receive directors' fees of $500 or $600 per fiscal quarter, depending on whether or not the director lives in the greater Worcester area, for such five year period. At the current rate of compensation this would entail an aggregate payment of $1,668,500 to the executive officers as a group and a payment of $34,000 to the non-employee directors as a group. ITEM 11. Security Ownership of Certain Beneficial Owners and Management. Information concerning security ownership of certain beneficial owners and management required by this Item 11 is hereby incorporated by reference to the information contained under the heading "Information As To Officers, Directors and Beneficial Owners" in Item 9 above ITEM 12. Certain Relationships and Related Transactions. None. ITEM 13. Exhibits and Reports on Form 8-K. (a)(1) Financial Statements. 1. Report of Greenberg, Rosenblatt, Kull & Bitsoli, P.C. dated November 19, 1996 and January __, 1997. (See page F-1 hereof.) 2. Consolidated Balance Sheet as of September 28, 1996 and September 30, 1995. (See page F-2 hereof.) 3. Consolidated Statement of Income for the fifty- two weeks ended September 28, 1996, the fifty-two weeks ended September 30, 1995 and fifty-two weeks ended October 1, 1994. (See page F-3 hereof.) 4. Consolidated Statement of Stockholders' Equity for the fifty-two weeks ended September 28, 1996, the fifty-two weeks ended September 30, 1995 and fifty-two weeks ended October 1, 1994. (See page F-4 hereof.) 5. Consolidated Statement of Cash Flows for the fifty-two weeks ended September 28, 1996, the fifty-two weeks ended September 30, 1995 and fifty- two weeks ended October 1, 1994. (See page F-5 hereof.) 6. Notes to the Consolidated Financial Statements. (See pages 22 - F-6 to F- hereof.) (a)(2) Exhibits. (3) Articles of Incorporation and By-Laws: (a) Articles of Organization. (Filed as Exhibit 3 to the Company's Registration Statement on Form S-1 (Registration No. 2-16854 of Reva Enterprises, Inc., now Goddard Industries, Inc.))* Articles of Amendment to the Articles of Organization, dated December 14, 1962. (Filed as Exhibit 3 to the Company's Form 10-K for the fiscal year ended September 28, 1985.)* Articles of Merger and Consolidation, dated July 29, 1968. (Filed as Exhibit 3 to the Company's Form 10-K for the fiscal year ended September 28, 1985.)* Restated Articles of Organization, dated March 31, 1971. (Filed as Exhibit 3 to the Company's Form 10-K for the fiscal year ended September 28, 1985.)* Articles of Amendment to Restated Articles of Organization, dated June 1, 1972. (Filed as Exhibit 3 to the Company's Form 10-K for the fiscal year ended September 28, 1985.)* Articles of Amendment to Restated Articles of Organization, dated October 11, 1985. (Filed as Exhibit 3 to the Company's Form 10-K for the fiscal year ended September 28, 1985.)* Articles of Amendment to Restated Articles of Organization dated March 13, 1987. (Filed as Exhibit 3 to the Company's Form 10-Q for the quarter ended March 28, 1987.)* (b)(1) By-Laws (filed as Exhibit 19 to the Company's Form 10-Q for the quarter ended March 31, 1984.)* (b)(2) By-Law Amendment dated as of September 28, 1990. (Filed as Exhibit 3(b)(2) to the Company's Form 10-K for the fiscal year ended September 29, 1990.)* (4) Instruments Defining the Rights of Security Holders: (a) Specimen certificate of common stock. (Filed as Exhibit 4(a) of Registration Statement on Form S-1 Registration No. 2-16854 of Reva Enterprises, Inc., now Goddard Industries, Inc.))* (10) Material Contracts: (a) Consolidating Revolving and Term Credit and Security Agreement dated as of January 3, 1991 among subsidiaries of the Company and The First National Bank of Boston (the "Bank"). (Filed as Exhibit 10(h) to the Company's Form 10-Q for the quarter ended March 31, 1991.)* (b) $1,600,000 revolving loan note and $383,124 term loan note, both dated January 3, 1991 from subsi diaries of the Company to the Bank. (Filed as Exhibit 10(i) to the Company's Form 10-Q for the quarter ended March 31, 1991.)* (c) Unlimited guaranty to the Bank by the Company of the obligations of the subsidiaries to the Bank. (Filed as Exhibit 10(v) to the Company's Form 10-Q for the quarter ended March 31, 1991.)* (d) Letter agreement between the Company's subsidiaries and the Bank dated April 27, 1992 modifying banking arrangements. (Filed as Exhibit (10) to the company's Form 10-Q for the quarter ended June 30, 1992.)* (e) Amended and Restated Employment Agreement between the Company and Saul I. Reck effective as of October 1, 1991 and executed May 1, 1992. (Filed as Exhibit 10(c) to the Company's Form 10-Q for the quarter ended June 30, 1992.)* (f) Restated Non-Qualified Stock Option Agreement between the Company and Saul I. Reck. (Filed as Exhibit 10(d) to the Company's Form 10-K for the fiscal year ended September 30, 1989.)* (g) Adoption Agreement (Non-Standardized Code 401(k) Profit Sharing Plan) dated July 31, 1991, together with related Defined Contribution Prototype Plan and Trust Agreement. (Filed as Exhibit 10(h) to the Company's Form 10-K for the fiscal year ended September 28, 1991.)* (h) Employee Stock Purchase Plan dated December 9, 1993. (Filed as Exhibit 10(h) to the Company's Form 10-KSB for the fiscal year ended October 1, 1994.)* (i) (A) Settlement Agreement and Release between the Company, and St. Paul Fire and Marine Insurance Company dated July, 1996. (B) Amendment to Settle Agreement and Release executed December 3, 1996. (j) Settlement Agreement and Release between the Company, and Gibralter Casualty Company dated January , 1997. (k) Settlement Agreement and Release between the Company and Lexington Insurance Company dated January , 1997. (l) Settlement Agreement among the Town of Shrewsbury, the Company and certain defendants and third-party defendants dated January , 1997. (11) Statement Re Computation of Per Share Earnings. The Statement Re Computation of Per Share Earnings is set forth in Note 14 to the Company's Consolidated Financial Statements. (21) Subsidiaries of the Registrant. (Filed as Exhibit 22 to the Company's Form 10-K for the fiscal year ended September 30, 1989.)* (27) Financial Statement Schedule. (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the last quarter of its fiscal year ended September 28, 1996. ______________________ *Not filed herewith. In accordance with Rule 12b-23 under the Securities Exchange Act of 1934, as amended, reference is made to the documents previously filed with the Commission. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GODDARD INDUSTRIES, INC. Dated: January __, 1997 By: /s/ Saul I. Reck Saul I. Reck, President In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE ________________________ Director, Principal Executive January , 1997 Saul I. Reck Officer, Principal Financing Officer and Principal Accounting Officer ________________________ Director January __, 1997 Jacky Knopp, Jr. ________________________ Director January __, 1997 Lyle Wimmergren GODDARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995 Independent Auditors' Report The Shareholders and Board of Directors Goddard Industries, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of Goddard Industries, Inc. and Subsidiaries as of September 28, 1996 and September 30, 1995 and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended September 28, 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 consolidated financial statements referred to above present fairly, in all material respects, the consoslidated financial position of Goddard Industries, Inc. and Subsidiaries as of September 28, 1996 and September 30, 1995 and the consolidated results of their operations and cash flows for each of the three years in the period ended September 28, 1996, in accordance with generally accepted accounting principles. /s/ GREENBERG, ROSENBLATT, KULL & BITSOLI, P.C. Worcester, Massachusetts November 19, 1996, except for Note 8, as to which the date is January , 1997 GODDARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995 1996 1995 ASSETS (All pledged, Note 4) Current assts: Cash $ 65,951 $ 74,937 Accounts receivabale (less allowance for doubtful accounts of $27,600 in 1996 and $28,600 in 1995) 1,154,871 973,477 Other receivables (Note 8) 785,000 - - Inventories (Note 2) 3,312,449 2,911,234 Prepaid expenses 33,809 23,018 Deferred income taxes (Note 7) 82,000 56,000 Total current assets 5,434,080 4,038.666 Property, plant and equipment (Note 3) 1,052,566 950,734 Other assets: Excess of cost of investment in subsidiaries over equity in net assets acquired (less accumulated amortization of $121,905 in 1996 and $118,149 in 1995) 18,380 22,136 Deferred income taxes (Note 7) 167,000 139,000 Total other assets 185,380 161,136 Total assets $6,672,026 $5,150,536 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt (Note 4) $ 51,000 $ 109,191 Accounts payable 317,321 305,655 Accrued expenses 399,861 256,631 Accrued environmental costs (Note 8) 795,000 - Income taxes payable 191,771 222,626 Total current liabilities 1,754,953 894,103 Long-term debt (Note 4) 1,026,398 1,092,503 Deferred compensation (Note 9) 551,000 513,000 Shareholders' equity: (Notes 5 and 13) Common stock - par value $.01 per share; authorized 3,000,000 shares, issued and outstanding 2,040,129 shares in 1996 and 2,032,804 in 1995 20,401 20,328 Additional paid in capital 399,353 395,763 Retained earnings (Note 4) 2,919,921 2,234,839 Total shareholders' equity 3,339,675 2,650,930 Total liabilities and shareholders' equity $6,672,026 $5,150,536 The accompanying notes are an integral part of the consolidate financial statements. GODDARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED SEPTEMBER 28, 1996, SEPTEMBER 30, 1995 AND OCTOBER 1, 1994 1996 1995 1994 Sales $8,300,167 $6,770,841 $5,023,858 Cost of sales (Note 10) 5,280,654 4,343,329 3,326,064 Gross profit 3,019,513 2,427,512 1,697,794 Selling and administrative expenses (Notes 8, 11 and 12) 1,822,502 1,614,656 1,443,436 Operating profit 1,197,011 812,856 254,358 Other income (expense): Interest expense (102,529) (151,009) (91,491) Other income 55,600 47,241 24,273 Total other income (expense) (46,929) (103,768) (67,218) Income before income taxes 1,150,082 709,088 187,140 Income taxes (benefit): Note (7) Current 519,000 296,000 85,000 Deferred (54,000) (17,000) (16,000) Total income taxes 465,000 279,000 69,000 Net income $ 685,082 $ 430,088 $ 118,140 Net income per share: (Note 14) Primary $ 0.33 $ 0.21 $ 0.06 Fully diluted $ 0.32 $ 0.21 $ 0.06 The accompanying notes are an integral part of the consolidated financial statements GODDARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED SEPTEMBER 28,1 996 SEPTEMBER 30, 1995 AND OCTOBER 1, 1994 Shares of Additional common Common paid-in Retained stock stock capital earnings Total Balance at October 2, 1993 2,030,698 $20,307 $ 394,862 $1,686,611 $2,101,780 Net income - - - 118,140 118,140 Stock issued under employee stock purchase plan (Note 13) 2,106 21 901 - 922 Balance at October 1, 1994 2,032,804 20,328 395,763 1,804,751 2,220,842 Net income - - - 430,088 430,088 Balance at September 30, 1995 2,032,804 20,328 395,763 2,234,839 2,650,930 Net income - - - 685,082 685,082 Stock issued under employee stock purchase plant (Note 13) 7,325 73 3,590 - 3,663 Balance at September 28, 1996 2,040,129 $20,401 $399,353 $2,919,921 $3,339,675 The accompanying notes are an integral part of the consolidated financial statements GODDARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 28, 1996, SEPTEMBER 30, 1995 AND OCTOBER 1, 1994 1996 1995 1994 Operating activities: Net income $ 685,082 $ 430,088 118,140 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 207,740 205,708 197,200 Provision for losses on accounts receivable(1,000) 12,000 15,621 Changes in assets and liabilities: Accounts receivable (180,394) (235,272) (99,859) Other receivables (785,000) - - - Inventories (401,215) (333,017) (663,121) Prepaid expenses and other (10,790) 52,098 (53,784) Accounts payable 11,666 (68,768) 265,817 Accrued expenses 143,230 99,484 (48,962) Accrued environmental costs 795,000 - - - Income taxes payable (30,855) 222,626 (27,214) Deferred income taxes (54,000) (17,000) (16,000) Deferred compensation 38,000 38,000 68,106 Net cash provided by (used in) operating activities 417,464 405,947 (244,056) Investing activities: Property, plant and equipment additions (139,817) (131,717) (133,364) Financing activities: Proceeds from long-term debt 2,900,000 1,909,000 1,740,003 Repayments of long-term debt (3,190,296) (2,170,927) (1,420,459) Issuance of common stock 3,663 - 922 Net cash provided by (used in) financing activities (286,633) (261,927) 320,466 Net increase (decrease) in cash (8,986) 12,303 (56,954) Cash - beginning 74,937 62,634 119,588 Cash - ending $ 65,951 $ 74,937 $ 62,634 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year: Interest $ 105,108 $ 150,069 $ 83,543 Income taxes $ 549,855 $ 46,945 $ 164,980 The accompanying notes are an integral part of the consolidated financial statements GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATE FINANCIAL STATEMENTS SEPTEMBER 28, 1996, SEPTEMBER 30, 1995 AND OCTOBER 1, 1994 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation: The consolidated financial statements include the accounts of Goddard Industries, Inc. and its wholly-owned subsidiaries. All material intercompany transactions have been eliminated. Fiscal year: The Company's fiscal year ends on the Saturday nearest to September 30. The years ended September 28, 1996, September 30, 1995 and October 1, 1994 each contain 52 weeks. Inventories: Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out method. Property, Plant and Equipment: Property, plant and equipment are carried at cost and depreciated using the straight - line method over the following estimated useful lives: YEARS Building and improvements 10 - 35 Machinery, equipment and tools 3 - 10 Office equipment and fixtures 5 - 10 Intangible Assets: The excess of cost of investment in subsidiaries over equity in net assets acquired is being amortized on a straight-line basis over 40 years. Advertising: Advertising costs are expensed when incurred. Income taxes: Taxes are provided for items entering into the determination of net income for financial reporting purposes, irrespective of when such items are reported for income tax purposes. Accordingly, deferred income taxes have been provided for all temporary differences. Tax credits are accounted for on the flow-through method, whereby credits earned during the year are used to reduce the current income tax provision. Estimates: The preparation of financial statements inconformity with generally accepted accounting principles requires the company management to make estimates and assumptions that affect certain reported amounts and disclosures. Although these estimates are based on management's knowledge of current events and actions to be undertaken in the future, they may differ from actual results. GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 28, 1996, SEPTEMBER 30, 1995 AND OCTOBER 1, 1994 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Forward Exchange Contracts: The Company periodically enters into forward exchange contracts in foreign currencies to hedge against anticipated foreign currency commitments with respect to inventory purchases. The gains or losses on these contracts are included as part of the inventory costs. (2) INVENTORIES Inventories consist of the following: 1996 1995 Finished goods $3,003,898 $2,705,283 Work in process 21,687 11,003 Raw materials 286,864 194,948 $3,312,449 $2,911,234 (3) PROPERTY, PLANT AND EQUIPMENT Propertry, plant and equipment consists of the following: 1996 1995 Land $ 12,865 $ 12,865 Building and improvements 665,658 651,344 Machinery, equipment and tools 2,821,028 2,543,826 Office equipement and fixtures 142,267 127,966 3,641,818 3,336,001 Accumulated depreciation (2,589,252) (2,385,267) $1,052,566 $ 950,734 Depreciation expense charged to income was $203,984, $201,952 and $193,443 in 1996, 1995 and 1994, respectively. GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 28, 1996, SEPTEMBER 30, 1995 AND OCTOBER 1, 1994 (4) LONG-TERM DEBT Long-term debt consists of the following: 1996 1995 Revolving line of credit of $1,750,000 of which a maximum of $300,000 may be used for letters of credit, due to expire March 31 1998. Advances are limited by a formula applied to eligible receivables and inventory and are secured by all assets of the Company. The agreement carries interest at the bank's prime rate plus 3/4% (9.0% and 9.5% for 1996 and 1995 respectively) and provides for a commitment fee of 1/2% of any unused balance. $884,503 $1,057,503 Capital lease obligation, payments of $5,273 per month including interest at 9%, due in 1999 157,895 - - Notes due 1998, unsecured, interest payable monthly at 10%, due to related parties. 35,000 35,000 Term note repaid in 1996 - 35,360 Capital lease obligations repaid in - 73,831 1,077,398 1,201,694 Current maturities 51,000 109,191 1,026,398 1,092,503 Minimum estimated principal payments are as follows: 1997 $51,000 1998 976,000 1999 50,398 $1,077.398 The above principal payments include amounts due under the capital lease obligation of $63,000 in 1997 and 1998 and $53,300 in 1999, including amounts representing interest of $21,400. The Company entered into the above reference lease agreements for certain machinery and equipment. Assets directly financed through leases totaling $166,000 for 1996 and $248,000 for 1995 are included in property plant and equipment. Amortization of these assets totaling $8,300 in 1996, $24,864 in 1995 and $21,280 in 1994, is included in depreciation expense and accumulated depreciation. Under the revolving line of credit and term note agreements, the Company is subject to a number of convenants, the most restrictive of which relate to maintenance of minimum working capital, tangible net worth, and profitability levels. These agreements also restrict payment of cash dividends to 10% of the imeediately preceding year's net income which represents unrestricted consolidated retained earnings. GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATE FINANCIAL STATEMENTS SEPTEMBER 28, 1996, SEPTEMBER 30, 1995 AND OCTOBER 1, 1994 (5) COMMON STOCK OPTIONS In 1989 the Company granted options to its chairman for 75,000 shares of common stock. In 1996 the Company granted options for 5,000 shares to each non-employee director and in varying amounts to certain employees, for an aggregate of 30,000 shares of common stock. The exercise price of each option equals the market price of the Company's stock on the date of grant and the option's maximum term is between five and ten years. The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1996: Dividend yield None Expected volatility 62.12% Risk free interest rate 6.12% Expected lives 5 years A summary of the status of the Company's outstanding options as of September 28, 1996, September 30, 1995 and October 1, 1994 and the changes during the years ending on those date is presented below: September 28, 1996 September 30, 1995 October 1, 1994 Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Outstanding at beginning of years: 75,000 $.25 75,000 $.25 85,000 $.32 Granted 30,000 $.50 - - - - - Exercised - - - - - - - Forfeited - - - - (10,000) $.84 Outstanding at end of year: 105,000 $.32 75,000 $.25 75,000 $.25 Options exerciseable at year end 105,000 75,000 75,000 Weighted average fair value of options granted during the year $.28 $ - $ - - GODDARD INDUSTRIES INC AND SUBSIDIARIES NOTES TO CONSOLIDATE FINANCIAL STATEMENTS SEPTEMBER 28, 1996, SEPTEMBER 30, 1995 AND OCTOBER 1, 1994 (5) COMMON STOCK OPTIONS (continued) The following summarizes information about fixed stock options outstanding at September 28, 1996: Options Outstanding Options Exercisable Weighted- Average Weighted Weighted Number Reamining Average Number Average Exercise Outstanding Contractual Exercise Exercisable Exercise Price at 9/28/96 Life Price at 9/28/96 Price $.25 75,000 3.25 years $.25 75,000 $.25 $.50 30,000 4.25 years $.50 30,000 $.50 105,000 105,000 The Company applies APB Opinion 25 in accounting for employee stock options. Accordingly, no compensation cost has been recognized. Had compensation costs been determined on the basis of FASB Statement 123 in 1996, net income would have been reduced to $680,065 which would have decreased primary net income per share by $.01 and would have had no affect on fully diluted net income per share. (6) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts reflected in the consolidated balance sheets for cash, accounts receivable, accounts payable and accrued expeneses approximate fiar value due to the short maturities of these instruments. The carrying value of long term debt approximate fair value since the rates and terms of these instruments are substantially equivalent to those the Company would offer or obtain at the balance sheet date. (7) INCOME TAXES The following is a reconciliation of income tax expense computed at the Federal statutory income tax rate to the provision for income taxes: 1996 1995 1994 Federal income taxes at the statutory rate $ 391,000 $241,000 $ 66,500 State income taxes net of federal income tax benefit 72,100 44,000 9,200 Surtax exemption - - (10,100) Nondeductible expenses 5,500 4,900 3,400 Other (3,600) (10,900) - - Income taxes $ 465,000 $279,000 $ 69,000 GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 28, 1996, SEPTEMBER 30, 1995 AND OCTOBER 1, 1994 (7) INCOME TAXES (continued) The provision for income taxes is summariezed as follows: 1996 1995 1994 Current: Federal $ 400,000 $ 227,000 $ 62,500 State 119,000 69,000 22,500 519,000 296,000 85,000 Deferred: Federal (42,000) (12,800) (12,300) State (12,000) (4,200) (3,700) (54,000) (17,000) (16,000) $ 465,000 $ 279,000 $ 69,000 The tax effects of the principal temporary differences giving rise to the net current and non-current deferred tax assets totaling $249,000 at September 28, 1996 and $195,000 at September 30, 1995 are as follows: 1996 1995 Deferred tax assets: Deferred compensation $ 220,400 $ 205,200 Inventory valuation 60,800 39,000 Accrued salaries 6,200 5,800 Environmental settlement 4,000 - - Bad debts 11,000 11,000 Total gross deferred tax assets 302,400 261,000 Deferred tax liabilities: Depreciation 53,400 66,000 Net deferred income tax assets $ 249,000 $ 195,000 Management does not believe that any valuation allowance is ncessary. (8) ENVIRONMENTAL MATTERS The Company is involved in the following environmental matters: Shrewsbury matter: In 1990, the Town of Shrewsbury, Massachusetts commenced a lawsuit in Massachusetts Superior Court against the Company and another Corporation, Neles-Jamesbury, alleging that they had caused the Twon to incur response costs for assessment, containment, and removal of oil and hazardous materials in relation to the Town's Home Farm water wells. The Town sought damages for environmental response costs and injunctive relief. The Company filed an answer generally denying the allgegations and joined, as third party defendants, eight other GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 28, 1996, SEPTEMBER 30, 1995 AND OCTOBER 1, 1994 (8) ENVIRONMENTAL MATTERS (continued) businesses located in the same industrial park area. During 1992 and 1993 some, but not all, counts of the Shrewssbury complaint were dismissed. The Company gave notice to its comprehensive general liability insurance carriers of the Shrewsbury litigation and the DEP claim (see below) and asked the carriers to defend and indemnify the Company against the claims. One of the carriers, St. Paul Fire and Marine Insurance Co., assumed primary responsibility for the defense of the litigation on behalf of all of the carriers while reserving their right to contest coverage under the policies. In 1992, St. Paul filed suit in the Federal District court of Massachusetts for a declaratory judgement that it had no duty to defend or indemnify the Company under its liability policies. That suit was dismissed without prejudice pending disposition of the Town of Shrewsbury litigation. In January 1997, the Company and five of the other defendants reached a settlement of the Shrewsbury litigation with the Town of Shrewsbury. The Company agreed to pay a total of $750,000 by March 31, 1997 as its share of the settlement, and other defendants agreed to pay additional amounts. In addition, the Company reached an agreement with its three insurance carriers. In exchange for a release of certain claims, they will pay a total of $715,000 of the $750,000 amount the Company is obligated to pay the Town of Shrewsbury. DEP matter: In connection with a proposed bank financing in 1987, the Company retained an environmental engineering firm to perform a site assessment at its corporated headquarters. The results of that assessment revealed that there may have been a release or threat of release of oil or hazardous materials and that an off-site source may be introducing the contaminants. As required by law, the Company notified the Massachusetts Department of Environmental Protection (DEP). In 1989 the DEP designated the site as a priority disposal site. A Phase One Limited Site Investigation report has been submitted to the DEP. In 1995, the Company received a Tier I Transition Classification and Permit Statement Cover Letter designating the site as a Tier IC Site under the Massachusetts Contingency Plan. Under DEP regulations, the Company must complete further site investigation by November 1997. One of the Company's insurance carriers has agreed to pay the Company $70,000 to be used as the Company determines in defense of the DEP proceeding in exchange for a release of any further claim with respect to this matter. In addition, environmental engineers employed by the Company estimate that the required remediation costs will be a minimum of $45,000. In the accompanying financial statements other receivables represents amounts due from insurance carriers with respect to the above environmental matters and accrued environmental costs represents amounts due the Town of Shrewsbury and the minimum estimated remediation costs related to the DEP matter. The net amount ($10,000) is reported in selling and administrative expense. (9) COMMITMENTS AND CONTINGENCIES Employment Agreements: The Company extended, on a year to year basis, the employment agreement with its President and Chairman of the Board. In connection with the contract, the President is entitled to incentive compensation equal to 10% of pretax earnings exceeding $200,000. Upon his retirement, the Company must pay an annuity which is being amortized over the period of the employment contract. Accordingly $38,000 has been charged to operations in 1996 and 1995, and $68,106 in 1994. GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATE FINANCIAL STATEMENTS SEPTEMBER 28, 1996, SEPTEMBER 30, 1995 AND OCTOBER 1, 1994 (9) COMMITMENTS AND CONTINGENCIES (continued) The Company has employment agreements with certain key executive officers and directors that become operative only upon a change in control of the Company without the approval of the Board of Directors. Compensation which might be payable under these agareements has been been reflected in the consolidated financial statements of the Company as of September 28, 1996, since a change in control, as defined, has not occurred. Other Commitments: At September 28, 1996 and September 30, 1995, the Company had approximately $88,000 and $118,000 in letters of credit outstanding. (10) RESEARCH AND DEVELOPMENT COSTS Research and development costs charged to operations in 1996, 1995, and 1994 were approximately $175,000, $138,000 and $115,000, respectively. (11) ADVERTISING COSTS Advertising costs charged to operations in 1996, 1995 and 1994 wqere approximately $41,000, $47,000 and $40,000, respectively. (12) PROFIT SHARING PLANT The Company has a profit sharing plan covering substantially all employees. The Company's contribution is determined annually by the Board of Directors. The amount approved for 1996, 1995, and 1994 was $50,000, $30,000 and $24,000, respectively. (13) EMPLOYEE STOCK PURCHASE PLAN The Company has a qualified employee stock purchase plan covering all employees except officers and directors. Employees participating in the plan are granted options semi-annually to purchase common stock of the Company. The number of full shares available for purchse is a function of the employee's accumulated payroll deductions at the end of each six month interval. The option price is the lesser of 85% of the fair value of the Company's common stock on the first day of the payment period or 85% of the fair value of the Company's common stock on the last day of the payment period. As of September 28,1 996, September 30, 1995 and October 1, 1994 there were no options outstanding under the plan. (14) NET INCOME PER SHARE Net income per share is computed on the weighted average number of shares outstanding. GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATE FINANCIAL STATEMENTS SEPTEMBER 28, 1996, SEPTEMBER 30, 1995 AND OCTOBER 1, 1994 (15) INDUSTRY SEGMENT INFORMATION The Company produces and sells cryogenic valves (industrial valves) and imports and distributes plumbing suppies for use in households, industry and agriculture (plubming supplies). The financial information relating to foreign and export sales is not presented as those items are not material. Summarized segment financial information for the years ended September 28, 1996, September 30, 1995 and October 1, 1994 is summarized as follows: For the year ended Industrial Plubming September 28, 1996 Valves Supplies Consolidated Sales to unaffiliated customers $5,009,952 $3,290,215 $8,300,167 Operating profit $1,102,708 $ 94,303 $1,197,011 Interest expense (102,529) Other income, net 55,600 Income before income taxes $1,150,082 Assets September 28, 1996 $4,519,965 $2,152,061 $6,672,026 Depreciation expense $ 194,276 $ 9,708 $ 203,984 Acquisition of property, plant and equipemtn $ 126,014 $ 13,803 $ 139,817 For the year ended Industrial Plumbing September 30, 1995 Valves Supplies Consolidated Sales to unaffiliated customers $3,738,962 $3,031,879 $6,770,841 Operating profit $ 669,752 $ 143,104 $ 812,856 Interest expense (151,009) Other income, net 47,241 Income before income taxes $ 709,088 Assets September 30, 1995 $2,840,762 $2,309,774 $5,150,536 Depreciation expense $ 192,862 $ 9,090 $ 201,952 Acquisition of property, plant and equipment $ 123,777 $ 7,940 $ 131,717 GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 28, 1996, SEPTEMBER 30, 1995 AND OCTOBER 1, 1994 (15) INDUSTRY SEGMENT INFORMATION (continued) For the year ended Industrial Plumbing October 1, 1994 Valves Supplies Consolidated Sales to unaffiliated customers $2,774,434 $2,249,424 $5,023,858 Operating profit $ 213,402 $ 40,956 $ 254,358 Interest expense (91,491) Other income, net 24,273 Income before income taxes $ 187,140 Assets October 1, 1994 $2,590,475 $2,100,558 $4,691,033 Depreciation expense $ 181,461 $ 11,982 $ 193,443 Acquisition of property, plant and equipment $ 191,838 $ 2,972 $ 194,810 The industrial valve segment of the Company sells a majority of its products to a limited number of customers, predominantly manufacturers of cryogenic vessels. Sale,s in thousands of dollars, to individual customers constituting 10% or more of total sales of the industrial valve segment were as follows: 1996 1995 1994 Customer A $2,317 46% $1,025 27% $ 491 18% Customer B $ 594 12% $ 426 11% $ 325 12% Customer C $ 703 14% $ - 0% $ 313 11% EXHIBITS EXHIBIT INDEX Exhibit Number Page (3) Articles of Incorporation and By-Laws: (a) Articles of Organization. (Filed as Exhibit 3 to the Company's Registration Statement on Form S-1 (Registration No. 2-16854 of Reva Enterprises, Inc., now Goddard Industries, Inc.))* Articles of Amendment to the Articles of Organization, dated December 14, 1962. (Filed as Exhibit 3 to the Company's Form 10-K for the fiscal year ended September 28, 1985.)* Articles of Merger and Consolidation, dated July 29, 1968. (Filed as Exhibit 3 to the Company's Form 10-K for the fiscal year ended September 28, 1985.)* Restated Articles of Organization, dated March 31, 1971. (Filed as Exhibit 3 to the Company's Form 10-K for the fiscal year ended September 28, 1985.)* Articles of Amendment to Restated Articles of Organization, dated June 1, 1972. (Filed as Exhibit 3 to the Company's Form 10-K for the fiscal year ended September 28, 1985.)* Articles of Amendment to Restated Articles of Organization, dated October 11, 1985. (Filed as Exhibit 3 to the Company's Form 10-K for the fiscal year ended September 28, 1985.)* Articles of Amendment to Restated Articles of Organization dated March 13, 1987. (Filed as Exhibit 3 to the Company's Form 10-Q for the quarter ended March 28, 1987.)* (b)(1)By-Laws (filed as Exhibit 19 to the Company's Form 10-Q for the quarter ended March 31, 1984.)* (b)(2)By-Law Amendment dated as of September 28,1990. (Filed as Exhibit 3(b)(2) to the Company's Form 10-K for the fiscal year ended September 29, 1990.)* (4) Instruments Defining the Rights of Security Holders: (a) Specimen certificate of common stock. (Filed as Exhibit 4(a) of Registration Statement on Form S-1 Registration No. 2- 16854 of Reva Enterprises, Inc., now Goddard Industries, Inc.))* (10) Material Contracts: (a) Consolidating Revolving and Term Credit and Security Agreement dated as of January 3, 1991 among subsidiaries of the Company and the First National Bank of Boston (the "Bank"). (Filed as Exhibit 10(h) to the Company's Form 10-Q for the quarter ended March 31, 1991.)* (b) $1,600,000 revolving loan note and $383,124 term loan note, both dated January 3, 1991 from subsidiaries of the Company to the Bank. (Filed as Exhibit 10(i) to the Company's Form 10-Q for the quarter ended March 31, 1991.)* (c) Unlimited guaranty to the Bank by the Company of the obligations of the subsidiaries to the Bank. (Filed as Exhibit 10(v) to the Company's Form 10-Q for the quarter ended March 31, 1991.)* (d) Letter agreement between the Company's subsidiaries and the Bank dated April 27, 1992 modifying banking arrangements. (Filed as Exhibit (10) to the company's Form 10-Q for the quarter ended June 30, 1992.)* (e) Amended and Restated Employment Agreement between the Company and Saul I. Reck effective as of October 1, 1991 and executed May 1, 1992. (Filed as Exhibit 10(c) to the Company's Form 10-Q for the quarter ended June 30, 1992.)* (f) Restated Non-Qualified Stock Option Agreement between the Company and Saul I. Reck. (Filed as Exhibit 10(d) to the Company's Form 10-K for the fiscal year ended September 30, 1989.)* (g) Adoption Agreement (Non-Standardized Code 401(k) Profit Sharing Plan) dated July 31, 1991, together with related Defined Contribution Prototype Plan and Trust Agreement. (Filed as Exhibit 10(h) to the Company's Form 10-K for the fiscal year ended September 28, 1991.)* (h) Employee Stock Purchase Plan dated December 9, 1993. (Filed as Exhibit 10(h) to the Company's Form 10-KSB for the fiscal year ended October 1, 1994.)* (i) (A) Settlement Agreement and Release between the Company, and St. Paul Fire and Marine Insurance Company dated July, 1996. (B) Amendment to Settlement Agreement and Release executed December 3, 1996. (j) Settlement Agreement and Release between the Company and Gibralter Cvasuality Company dated January , 1997. (k) Settlement Agreement and Release between the Company and Lexington Insurance Company dated January , 1997. (l) Settlement Agreement among the Town of Shrewsbury, the Company and certain defendants and third-party defendants dated January , 1997. (11) Statement Re Computation of Per Share Earnings. The Statement Re Computation of Per Share Earnings is set forth in Note 13 to the Company's Consolidated Financial Statements. (21) Subsidiaries of the Registrant. (Filed as Exhibit 22 to the Company's Form 10-K for the fiscal year ended September 30, 1989.)* (27) Financial Statement Schedule. SETTLEMENT AGREEMENT AND RELEASE This Settlement Agreement and Release ("Agreement") is made on this day of July 1995, by and between Goddard Industries, Inc. and Goddard Valve Corp., for themselves, as well as for their predecessors in interest, and their successors in interest, current parents, subsidiaries, divisions, affiliates, directors, officers, shareholders, partners, agents and employees, heirs and assigns, all other insureds or additional named insureds under the Policies and all persons and entities acting through or under any of them (collectively "Goddard") and St. Paul Fire and Marine Insurance Company, for itself and for its predecessors in interest, successors in interest, current and former parents, subsidiaries, divisions, affiliates, directors, officers, shareholders, agents, attorneys, employees, heirs, assigns and all persons and entities acting through or under any of them (collectively "St. Paul"); RECITALS WHEREAS, St. Paul is alleged to have issued primary and/or excess and/or umbrella liability insurance policies to Goddard, including but not necessarily limited to those listed in Exhibit A hereto (hereinafter the "Alleged Policies"); WHEREAS, St. Paul has filed suit against Goddard entitled St. Paul Fire and Marine Insurance Company v. Goddard Industries, Inc. No. 92-40075-NMG (D.Mass.) (the "Coverage Action"), which the court dismissed sua sponte without prejudice but which may be reopened, wherein it has sought a declaration that it is not responsible under the Alleged Policies to defend or indemnify Goddard for various suits or claims that have been filed or asserted or that may be filed or asserted against Goddard (the "Underlying Suits and Claims") involving or arising out of Goddard's facility and operations at 705 Plantation Street, Worcester, Massachusetts (the "Site"); WHEREAS the Underlying Suits and Claims include, but are not limited to, the following: 1. Town of Shrewsbury v. Neles-Jamesbury Inc., Civil No. 90-3751-B (Super. Ct. Mass., Worcester County) ("Shrewsbury Action"); and 2. Massachusetts Department of Environmental Protection ("DEP") March 30, 1989 Notice of Responsibility letter pursuant to M.G.L. c.21E and the Massachusetts Contingency Plan, 310 CMR 40.000, and further orders, agreements, and actions proceeding therefrom ("DEP Action"). WHEREAS, St. Paul has defended Goddard against certain Underlying Suits and Claims; WHEREAS, there is a dispute between Goddard and St. Paul with respect to the obligations of St. Paul under the Alleged Policies to indemnify Goddard with respect to the Underlying Suits and Claims; WHEREAS, St. Paul has denied that it has any obligation to provide coverage for the Underlying Suits and Claims; WHEREAS, the parties believe that it is in their mutual interest to reach an amicable resolution with respect to the Coverage Action, without admission of any issue of fact or law, and to resolve all past, present or future disputes relating to any obligations of St. Paul to Goddard with respect to any claims for property damage or personal injury arising out of or allegedly arising out of the Site; WHEREAS, the parties specifically intend to exclude from this Agreement any potential claims for bodily injury arising out of the Site, of which none are currently known to exist; NOW, THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, Goddard and St. Paul hereby agree as follows: 1. In full and final settlement of all claims for property damage or personal injury (but excluding bodily injury) that Goddard has or may have, nor or in the future, known or unknown, against St. Paul with respect to the Site, arising out of the Site, and with respect to the Underlying Suits and Claims, St. Paul with contribute fifty percent (50%) of any amount up to three hundred thousand dollars ($300,000) and seventy five percent (75%) of any amount over three hundred thousand dollars ($300,000) and up to five hundred thousand dollars ($500,000) towards any settlement Goddard can negotiate with the Town of Shrewsbury in the Shrewsbury Action. Under this formula, St. Paul's maximum contribution to any settlement of the Shrewsbury Action would be three hundred thousand dollars ($300,000), consisting of 50% of the first $300,000 (i.e., $150,000) plus 75% of the next $200,000 (i.e., $150,000). 2. In addition to the amount to be paid by St. Paul pursuant to Paragraph 1, in full and final settlement of all claims for property damage or personal injury (but excluding bodily injury) that Goddard has or may have, now or in the future, known or unknown, against St. Paul with respect to the Site, arising out of the Site, and with respect to the Underlying Suits and Claims, St. Paul will pay to Goddard seventy thousand dollars ($70,000) to be used by Goddard, as Goddard determins, in its defense of the DEP Action. 3. In consideration of the payments referred to in Paragraphs 1 and 2 and as of the date both payments are made by St. Paul, Goddard fully, absolutely and unconditionally releases and for all purposes forever discharges St. Paul from any and all claims, liabilities, obligations, demands, rights, actions and causes of action of every kind and nature, known and unknown, past, present and future, for property damage or personal injury (but excluding bodily injury) arising out of any alleged past, present or future duty or obligation with respect to the Site, arising out of the Site, and with respect to the Underlying Suits and Claims. 4. Infurther consideration of the payments referred to in Paragraphs 1 and 2, Goddard also agrees that it will be responsible for fifty percent (50%) of any amount up to three hundred thousand dollars ($300,000) and twenty five percent (25%) of any amount over three hundred thousand dollars ($300,000) and up to five hundred thousand dollars ($500,000) towards any settlement Goddard can negotiate with the Town of Shrewsbury in the Shrewsbury Action. Under this formula, Goddard's maximum responsibility in a settlement of the Shrewsbury Action would be two hundred thousand dollars ($200,000), consisting of 50% of the first $300,000 (i.e., $150,000) plus 25% of the next $200,000 (i.e., $50,000). It as agreed that Goddard can fulfill its responsibility under this Paragraph with funds from third-party sources and is free to pursue third-parties, including insurers other than St. Paul, for said amounts. 5. As of the date St. Paul makes the payments referred to in Paragraphs 1 and 2, Goddard forever fully and completely covenants not to sue or to tender any claim to St. Paul with respect to property damage or personal injury (but excluding bodily injury) at or arising out of the Site and with respect to the Underlying Suits and Claims. 6. It is agreed that all obligations under this Agreement are fully contingent upon Goddard successfully negotiating a settlement of the claims asserted against it in the Shrewsbury Action for five hundred thousand dollars ($500,000) or less. If Goddard is unable to reach a settlement in principle of the claims against it in the Shrewsbury Action for five hundred thousand dollars ($500,000) or less by the time the court in the Shrewsbury Action holds the pretrial conference in that matter, this Agreement is null and void in its entirety. It is agreed that the time deadline recited in this Paragraph for settlement of the Shrewsbury Action by Goddard can be extended only by written agreement signed by the parties to this Agreement. 7. Within thirty (30) days of St. Paul's receipt of an executed settlement agreement by Goddard and the Town of Shrewsbury in settlement of the Shrewsbury Action within the parameters set forth in Paragraph 6 above, St. Paul will issue a check to Goddard for seventy thousand dollars pursuant to Paragraph 2 above and a separate check to Goddard's counsel, Brown, Rudnick, Freed & Gesmer, as trustee for Goddard in the full amount as determined under the formula set forth in Paragraph 1. Goddard's counsel, as trustee, will deposit the check issued pursuant to Paragraph 1 in a trust account (the "Goddard/Shrewsbury Trust"), which at Goddard's option may bear interest to the benefit of Goddard. The parties aagree that the money in the Goddard/Shrewsbury Trust is to be used solely for payment of the settlement by Goddard of the Shrewsbury Action. 8. In settling the Shrewsbury Action within the parameters set forth in Paragraph 6, Goddard is at liberty to arrange for payments of the settlement amount in that action to take place over a period of time or in installments. Any such provision in the settlement of the Shrewsbury Action will not affect the time period for St. Paul to make its payments as set forth in Paragraph 7 above. 9. As of the date St. Paul makes the payments referred to in Paragraph 7, Goddard shall defend St. Paul in connection with, indemnify St. Paul for and hold St. Paul harmless from, all claims that have been or might be made or suits that have been or might be filed against St. Paul with respect to property damage or personal injury (but excluding suits or claims solely involving bodily injury) at or arising out of the Site, including but not limited to direct actions, garnishment actions, third- party actions, and claims for contribution, indemnification, equit5able allocation, equitable subrogation, or quantum meruit. In exercise of this obligation, Goddard shall have the right in its sole discretion to settle or otherwise compromise each judgment, claim or suit arising from each such claim or suit and to use counsel of its own choosing. However, should Goddard undertake the defense of St. Paul pursuant to this paragraph, St. Paul shall have the right of prior approval with respect to selection of counsel and with respect to the interpretation of the Alleged Policies. As a condition to Goddard's rights and obligations set forth in this paragraph, St. Paul shall have the duty to provide Goddard with prompt written notice of each claim or suite against it involving or arising out of the Site. 10. This Agreement shall be solely binding upon and inure to the benefit of the parties hereto and their espective successors and assigns. Nothing in this Agreement is intended nor shall it be construed to confer any benefit whatsoever on any persons other than the parties. No persons or entities are intended to be, nor will they be construed to be, third-party beneficiaries to this Agreement. 11. This Agreement does not constitute an admission by St. Paul of an obligation to defend or indemnify Goddard with respect to any policy or any suit or claim. 12. This Agreement is not intended to be and is not to be construed as a contract of insurance. 13. This Agreement shall not be admissible in any legal proceeding except to enforce its terms. 14. The terms of this Agreement shall remain confidential and shall not be disclosed to any person or entity without the prior written consent of all parties, except as required in the normal course of business for such purposes as audits, accounting and reinsurance. Should this Agreement be disclosed, the party making such disclosure shall use its best efforts to get a confidentiality agreement in keeping with this paragraph from the person or entity to which disclosure is made. Should a court order the disclosure of the terms of this Agreement to any other person, the parties shall use their best efforts to maintain its terms under seal. 15. Each of the parties has entered into this Agreement after consulting with counsel. Therefore, the language of this Agreement shall not presumptively be construed in favor or against either party. 16. This Agreement represents the entire understanding between the parties and, without limitation, the parties expressly agree that any previous communications, correspondence, memorialization of agreement and previous agreements are excluded from this Agreement and are not to be employed to construe this Agreement. Any other provisions of this Agreement to the contrary notwithstanding, this Agreement can only be modified by a writing signed by all parties and this provision cannot be orally waived. 17. Goddard has not assigned any of its rights pursuant to the Alleged Policies, and Goddard agrees that it will not attempt prospectively to assign any such rights that are to be released under this Agreement. 18. Goddard warrants that it has made reasonable inquiry of its officers and management, and as of its execution of this Agreement, it is unaware of any bodily injury claims or suits at or arising out of the Site that exist, that have been asserted or alleged, or that have been threatened. It is agreed that this warranty is an essential part of this Agreement, without which and for breach of which this Agreement fails in its entirety. 19. Goddard and St. Paul respectively warrant and represent that they are authorized to enter into this Agreement on their own behalf and on behalf of their respective shareholders, directors, officers, partners, employ3ees, agents, heirs, subsidiaries, divisions, affiliates, predecessors in interest, successors in interest, assigns and all persons or entities acting through or under any of them and that they respectively have the authority to bind such persons and entities to the terms of this Agreement. Goddard and St. Paul also represent and warrant that the persons whoc signatures are affixed hereto are authorized to sign this Agreement on their behalf and have the legal authority to bind them hereto. 20. If any provision of this Agreement or any portion of any provision of this Agreement is declared null and void or unenforceable by any court or tirbunal having jurisdiction, then such provision or such portion of a provision shall be considered separate and apart from the remainder or this Agreement which shall remain in full force and effect. 21. All notices or other communications which any party desires or is required to give shall be given in writing and shall be deemed to have been given if hand-delivered, sent by fasimile or mailed by depositing in the United States mail, prepaid to the party at the address noted below or such other person or address as either party may designate in writing from time to time: If to Goddard Saul I. Reck President Goddard Industries, Inc. 705 Plantation Street Box 765 Worcester, MA 01613-0765 If to St. Paul: David E. Nanzig Environmental Claim Manager The St. Paul Companies 385 Washington Street St. Paul, MN 55102 22. This Agreement shall be executed in two duplicate originals, with Goddard to retain one original and St. Paul to retain one original. IN WITNESS WHEREOF, the parties, by their duly authorized representatives, affix their signatures hereto. By: /s/ Saul I. Reck President Goddard Industires, Inc. By: /s/ David E. Nanzig Environmental Claim Manager St. Paul Fire and Marine Insurance Company St. Paul Mercury Insurance Company AMENDMENT TO SETTLEMENT AGREEMENT AND RELEASE Pursuant to Paragraph 16 of the Settlement Agreement and Release ("Agreement")(Attached hereto as Exhibit A) entered into in July 1995, by and between Goddard Industries, Inc. and Goddard Valve corp., for themselves, as well as for their predecessors in interest, and their successors in interest, current parents, subsidiaries, divisions, affiliates, directors, officers, shareholders, partners, agents and employees, heirs and assigns, all other insureds or additional named insureds under the Policies and all persons and entities acting through or under any of them (collectively "Goddard") and St. Paul Fire and Marine Insurance Company, for itself and for its predecessors in interest, successors in interest, current and former parents, subsidiaries, divisions, affiliates, directors, officers, shareholders, agents, attorneys, employees, heirs, assigns and all persons and entities acting through or under any of them (collectively "St.Paul"), Goddard and St. Paul hereby, for good and valuable consideration which is acknowledged, amend and modify the Agreement as follows: 1. Paragraph number 1 of the Agreement is replaced with the following language: In full and final settlement of all claims for property damage or personal injury (but excluding bodily injury) that Goddard has or may have, now or in the future, known or unknown, against St. Paul with respect to the Site, arising out of the Site, and with respect to the Underlying Suits and Claims, St. Paul will contribute fifty percent (50%) of any amount up to three hundred thousand dollars ($300,000), seventy five percent (75%) of any amount over three hundred thousand dollars ($300,000) and up to five hundred thousand dollars ($500,000), ninety percent (90%) of any amount over five hundred thousand dollars ($500,000) and up to six hundred fifty thousand dollars ($650,000), and sixty five percent (65%) of any amount over six hundred fifty thousand dollars ($650,000) and up to seven hundred fifty thousand dollars ($750,000) towards any settlement Goddard can negotiate with the Town of Shrewsbury in the Shrewsbury Action. Under this formula, St. Paul's maximum contribution to any settlement of the Shrewsbury Action would be five hundred thousand dollars ($500,000), consisting of 50% of the first $300,000 (i.e., $150,000) plus 75% of the next $200,000 (i.e., $150,000) plus 90% of the next $150,000 (i.e., $135,000) plus 65% of the next $100,000 (i.e., $65,000). 2. Paragraph number 4 of the Agreement is replaced with the following language: 4. In further consideration of the payments referred to in Paragraphs 1 and 2, Goddard also agrees that it will be responsible for fifty percent (50%) of any amount up to three hundred thousand dollars ($300,000), twenty five percent (25%) of any amount over three hundred thousand dollars ($300,000) and up to five hundred thousand dollars ($500,000), ten percent (10%) of any amount over five hundred thousand dollars ($500,000) and up to six hundred fifty thousand dollars ($650,000), and thirty five percent (35%) of any amount over six hundred fifty thousand dollars ($650,000) and up to seven hundred and fifty thousand dollars ($750,000) towards any settlement Goddard can negotiate with the Town of Shrewsbury in the Shrewsbury Action. Under this formula, Goddard's maximum responsibility in a settlement of the Shrewsbury Action would be two hundred fifty thousand dollars ($250,000), consisting of 50% of the first $300,000 (i.e., $150,000) plus 25% of the next $200,000 (i.e., $50,000) plus 10% of the next $150,000 (i.e., $15,000) plus 35% of the next $100,000 (i.e., $35,000). It is agreed that Goddard can fulfill its responsibility under this Paragraph with funds from third-party sources and is free to pursue third-parties, including insurers other than St.Paul, for said amounts. 3. paragraph number 6 of the Agreement is replaced with the following language: 6. It is agreed that all obligations under this Agreement are fully contingent upon Goddard successfully negotiating a settlement of the claims asserted against it in the Shrewsbury Action for seven hundred fifty thousand dollars ($750,000) or less. If Goddard is unable to reach a settlement in principle of the claims against it in the Shrewsbury Action for seven hundred fifty thousand dollars ($750,000) or less by the time the court in the Shrewsbury Action holds the pretrial conference in that matter, this Agreement is null and void in its entirety. It is agreed that the time deadline recited in this Paragraph for settlement of the Shrewsbury Action by Goddard can be extended only by written agreement signed by the parties to this Agreement. 4. All other terms and conditions of the Agreement remain unchanged and binding on the parties. 5. Goddard and St. Paul respectively warrant and represent that they are authorized to enter into this Amendment to the Agreement on their own behalf and on behalf of their respective shareholders, directors, officers, partners, employees, agents, heirs, subsidiaries, divisions, affiliates, predecessors in interest, successors in interest, assigns and all persons or entities acting through or under any of them and that they respecctively have the authority to bind such persons and entities to the terms of this Amendment to the Agreement. Goddard and St. Paul also represent and warrant that the persons whose signatures are affixed hereto are authorized to sign this Amendment to the Agreement on their behalf and have the legal authority to bind them hereto. 6. This Amendment to the Agreement shall be executed in two duplicate originals, with Goddard to retain one original and St. Paul to retain one original. IN WITNESS WHEREOF, the parties, by their duly authorized representatives, affix their signatures hereto. By: ______________________________________ Dated: ______________ Saul I. Reck President Goddard Industries, Inc. By: ______________________________________ Dated: ______________ David E. Nanzig Environmental Claim Manager St. Paul Fire and Marine Insurance Company St. Paul Mercury Insurance Company SETTLEMENT AGREEMENT AND RELEASE This Settlement Agreement and Release ("Agreement") is made on this ____ day of January, 1997, by and between Goddard Industries, Inc. and Goddard Valve Corp. ("Policyholder") and Lexington Insurance Company ("Insurer"). RECITALS WHEREAS, Insurer issued Insurance Policy No. 8632097 to Policyholder, effective for the period of 1984-1985 (the "Policy"); WHEREAS, a coverage dispute has arisen between Policyholder and Insurer, relating to coverage for various suits or claims that have been filed or asserted against Policyholder (the "Underlying Suits and Claims") involving or arising out of Policyholder's facility and operations at 705 Plantation Street, Worcester, Massachusetts (the "Site"); WHEREAS, the Underlying Suits and Claims are: 1. Town of Shrewsbury v. Neles-Jamesbury, Inc., Civil Action 90- 3751-B (Super. Ct. Mass., Worcester County) ("Shrewsbury Action"); and 2. Massachusetts Department of Environmental Protection ("DEP") March 30, 1989 Notice of Responsibility letter pursuant to G.L. c.21E and the Massachusetts Contingency Plan, 310 CMR 40.000, and further orders, agreements, and actions proceeding therefrom (the "DEP Action"). WHEREAS, Insurer has provided a partial defense for Policyholder against the Underlying Suits and Claims; WHEREAS, there is a dispute between Policyholder and Insurer with respect to the obligations of Insurer under the policy to indemnify Policyholder with respect to the Underlying Suits and Claims; WHEREAS, Insurer has denied that it has any obligation to provide coverage for the Underlying Suits and Claims; WHEREAS, the parties believe that it is in their mutual interest to reach an amicable resolution with respect to the coverage action, without admission of any issue of fact or law; NOW, THEREFORE, in consideration of the foregoing recitals, covenants, conditions and payment hereinafter described, and for other good and valuable consideration, the receipt whereof is hereby acknowledged, the parties hereby agree as follows: 1. In full and final settlement of all environmental claims for property damage or personal injury that Policyholder has or may have, now or in the future, known or unknown, against Insurer with respect to the Site, arising out of the Site, and with respect to the Underlying Suits and Claims, Insurer will contribute Ninety Thousand Dollars ($90,000.00) toward a settlement that Policyholder negotiates with the Town of Shrewsbury in the Shrewsbury Action. 2. In consideration of the payment referred to in Paragraph 1, and as of the date the payment is made by Insurer, Policyholder fully, absolutely and unconditionally releases and for all purposes forever discharges Insurer from any and all environmental claims, liabilities, obligations, demands, rights, actions and causes of action of every kind and nature, known and unknown, past, present and future, for property damage or personal injury arising out of any alleged past, present or future duty or obligation with respect to the Site, arising out of the Site, and with respect to the Underlying Suits and Claims. 3. As of the date Insurer makes the payments referred to in Paragraphs 1, Policyholder forever fully and completely covenants not to sue or to tender any environmental claim to Insurer with respect to property damage or personal injury at or arising out of the Site and with respect to the Underlying Suits and Claims. 4. Within ten (10) days of Insurer's receipt of an executed settlement agreement by Policyholder and the Town of Shrewsbury in settlement of the Shrewsbury Action, Insurer will issue a check to Policyholder for Ninety Thousand Dollars ($90,000.00) pursuant to Paragraph 1 above. 5. The parties agree that the money paid by Insurer is to be used solely for payment of the settlement by Policyholder of the Shrewsbury Action, but Policyholder is at liberty to arrange for payments of the settlement amount in that action to take place over a period of time or in installments. Any such provision in the settlement of the Shrewsbury Action will not affect the time period for the Insurer to make its payment as set forth in Paragraph 4 above. 6. This Agreement shall be solely binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Nothing in this Agreement is intended nor shall it be construed to confer any benefit whatsoever on any persons other than the parties. No persons or entities are intended to be, nor will they be construed to be, third-party beneficiaries to this Agreement,. 7. This Agreement does not constitute an admission by Insurer of an obligation to defend or indemnify Policyholder with respect to any policy or any suit or claim. 8. This Agreement is not intended to be and is not to be construed as a contract of insurance. 9. This Agreement shall not be admissible in any legal proceeding except to enforce its terms. 10. Each of the parties has entered into this Agreement after consulting with counsel. Therefore, the language of this Agreement shall not presumptively be construed in favor or against either party. 11. This Agreement represents the entire understanding between the parties and, without limitation, the parties expressly agree that any previous communications, correspondence, memorialization of agreement and previous agreements are excluded from this Agreement and are not to be employed to construe this Agreement. Any other provisions of this Agreement to the contrary notwithstanding, this Agreement can only be modified by a writing signed by all parties and this provision cannot be orally waived. 12. Policyholder has not assigned any of its rights pursuant to the alleged Policy, and Policyholder agrees that it will not attempt prospectively to assign any such rights that are to be released under this Agreement. 13. Policyholder and Insurer respectively warrant and represent that they are authorized to enter into this Agreement on their own behalf and on behalf of their respective shareholders, directors, officers, partners, employees, agents, heirs, subsidiaries, divisions, affiliates, predecessors in interest, successors in interest, assigns and all persons or entities acting through or under any of them and that they respectively have the authority to bind such persons and entities to the terms of this Agreement. Policyholder and Insurer also represent and warrant that the persons whose signatures are affixed hereto are authorized to sign this Agreement on their behalf and have the legal authority to bind them hereto. 14. If any provision of this Agreement or any portion of any provision of this Agreement is declared null and void or unenforceable by any court or tribunal having jurisdiction, then such provision or such portion of a provision shall be considered separate and apart from the remainder or this Agreement which shall remain in full force and effect. 15. All notices or other communications which any party desires or is required to give shall be given in writing and shall be deemed to have been given if hand-delivered, sent by facsimile or mailed by depositing in the United States mail, prepaid to the party at the address noted below or such other person or address as either party may designate in writing from time to time. If to Policyholder: Saul I. Reck President Goddard Industries, Inc. 705 Plantation Street Box 765 Worcester, MA 01613-0765 If to Insurer: Kenneth Lakin, Esq. Bradhurst, Lakin & Lakin One Elm Square Andover, MA 01810 16. This Agreement shall be executed in two duplicate originals, with Policyholder to retain one original and Insurer to retain one original. IN WITNESS WHEREOF, the parties, by their duly authorized representatives, affix their signatures hereto. GODDARD INDUSTRIES, INC. By: _______________________________ Saul I. Reck, President LEXINGTON INSURANCE COMPANY By: _______________________________ Kenneth Lakin, Esq. #541969 v1 - REINERNB - bm6p01!.DOC - 1170/2 SETTLEMENT AGREEMENT AND RELEASE This Settlement Agreement and Release ("Agreement") is made on this ____ day of January, 1997, by and between Goddard Industries, Inc. and Goddard Valve Corp. ("Policyholder") and Gilbratar Casualty Company ("Insurer"). RECITALS WHEREAS, Insurer issued Insurance Policy No. GSL00619 to Policyholder, effective for the period of 4/18/83-4/18/84 (the "Policy"); WHEREAS, a coverage dispute has arisen between Policyholder and Insurer, relating to coverage for various suits or claims that have been filed or asserted against Policyholder (the "Underlying Suits and Claims") involving or arising out of Policyholder's facility and operations at 705 Plantation Street, Worcester, Massachusetts (the "Site"); WHEREAS, the Underlying Suits and Claims are: 1. Town of Shrewsbury v. Neles-Jamesbury, Inc., Civil Action 90- 3751-B (Super. Ct. Mass., Worcester County) ("Shrewsbury Action"); and 2. Massachusetts Department of Environmental Protection ("DEP") March 30, 1989 Notice of Responsibility letter pursuant to G.L. c.21E and the Massachusetts Contingency Plan, 310 CMR 40.000, and further orders, agreements, and actions proceeding therefrom (the "DEP Action"). WHEREAS, Insurer has provided a partial defense for Policyholder against the Underlying Suits and Claims; WHEREAS, there is a dispute between Policyholder and Insurer with respect to the obligations of Insurer under the policy to indemnify Policyholder with respect to the Underlying Suits and Claims; WHEREAS, Insurer has denied that it has any obligation to provide coverage for the Underlying Suits and Claims; WHEREAS, the parties believe that it is in their mutual interest to reach an amicable resolution with respect to the coverage action, without admission of any issue of fact or law; NOW, THEREFORE, in consideration of the foregoing recitals, covenants, conditions and payment hereinafter described, and for other good and valuable consideration, the receipt whereof is hereby acknowledged, the parties hereby agree as follows: 1. In full and final settlement of all environmental claims for property damage or personal injury that Policyholder has or may have, now or in the future, known or unknown, against Insurer with respect to the Site, arising out of the Site, and with respect to the Underlying Suits and Claims, Insurer will contribute One Hundred Twenty-Five Thousand Dollars ($125,000.00) toward a settlement that Policyholder negotiates with the Town of Shrewsbury in the Shrewsbury Action. 2. In consideration of the payment referred to in Paragraph 1, and as of the date the payment is made by Insurer, Policyholder fully, absolutely and unconditionally releases and for all purposes forever discharges Insurer from any and all environmental claims, liabilities, obligations, demands, rights, actions and causes of action of every kind and nature, known and unknown, past, present and future, for property damage or personal injury arising out of any alleged past, present or future duty or obligation with respect to the Site, arising out of the Site, and with respect to the Underlying Suits and Claims. 3. As of the date Insurer makes the payments referred to in Paragraphs 1, Policyholder forever fully and completely covenants not to sue or to tender any environmental claim to Insurer with respect to property damage or personal injury at or arising out of the Site and with respect to the Underlying Suits and Claims. 4. Within ten (10) days of Insurer's receipt of an executed settlement agreement by Policyholder and the Town of Shrewsbury in settlement of the Shrewsbury Action, Insurer will issue a check to Policyholder for One Hundred Twenty-Five Thousand Dollars ($125,000.00) pursuant to Paragraph 1 above. 5. The parties agree that the money paid by Insurer is to be used solely for payment of the settlement by Policyholder of the Shrewsbury Action, but Policyholder is at liberty to arrange for payments of the settlement amount in that action to take place over a period of time or in installments. Any such provision in the settlement of the Shrewsbury Action will not affect the time period for the Insurer to make its payment as set forth in Paragraph 4 above. 6. This Agreement shall be solely binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Nothing in this Agreement is intended nor shall it be construed to confer any benefit whatsoever on any persons other than the parties. No persons or entities are intended to be, nor will they be construed to be, third-party beneficiaries to this Agreement,. 7. This Agreement does not constitute an admission by Insurer of an obligation to defend or indemnify Policyholder with respect to any policy or any suit or claim. 8. This Agreement is not intended to be and is not to be construed as a contract of insurance. 9. This Agreement shall not be admissible in any legal proceeding except to enforce its terms. 10. Each of the parties has entered into this Agreement after consulting with counsel. Therefore, the language of this Agreement shall not presumptively be construed in favor or against either party. 11. This Agreement represents the entire understanding between the parties and, without limitation, the parties expressly agree that any previous communications, correspondence, memorialization of agreement and previous agreements are excluded from this Agreement and are not to be employed to construe this Agreement. Any other provisions of this Agreement to the contrary notwithstanding, this Agreement can only be modified by a writing signed by all parties and this provision cannot be orally waived. 12. Policyholder has not assigned any of its rights pursuant to the alleged Policy, and Policyholder agrees that it will not attempt prospectively to assign any such rights that are to be released under this Agreement. 13. Policyholder and Insurer respectively warrant and represent that they are authorized to enter into this Agreement on their own behalf and on behalf of their respective shareholders, directors, officers, partners, employees, agents, heirs, subsidiaries, divisions, affiliates, predecessors in interest, successors in interest, assigns and all persons or entities acting through or under any of them and that they respectively have the authority to bind such persons and entities to the terms of this Agreement. Policyholder and Insurer also represent and warrant that the persons whose signatures are affixed hereto are authorized to sign this Agreement on their behalf and have the legal authority to bind them hereto. 14. If any provision of this Agreement or any portion of any provision of this Agreement is declared null and void or unenforceable by any court or tribunal having jurisdiction, then such provision or such portion of a provision shall be considered separate and apart from the remainder or this Agreement which shall remain in full force and effect. 15. All notices or other communications which any party desires or is required to give shall be given in writing and shall be deemed to have been given if hand-delivered, sent by facsimile or mailed by depositing in the United States mail, prepaid to the party at the address noted below or such other person or address as either party may designate in writing from time to time. If to Policyholder: Saul I. Reck President Goddard Industries, Inc. 705 Plantation Street Box 765 Worcester, MA 01613-0765 If to Insurer: Mr. Anthony Leanza Gilbratar Insurance Company Eight Center Drive Jamesburg, NJ 08831 16. This Agreement shall be executed in two duplicate originals, with Policyholder to retain one original and Insurer to retain one original. IN WITNESS WHEREOF, the parties, by their duly authorized representatives, affix their signatures hereto. GODDARD INDUSTRIES, INC. By: _______________________________ Saul I. Reck, President GILBRATAR CASUALTY COMPANY By: _______________________________ #542345 v1 - REINERNB - bmh501!.DOC - 1170/2 1 Independent Auditors' Report _______________________________ 1 -----END PRIVACY-ENHANCED MESSAGE-----