-----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, TjmB8SEzMUh2MN7DqLxDnfMDsEl2X1I7xrq6OR/k/u/JWo/DQPoGqVTkq+a+5tvH /BQ942KPr0qGlAkY04TZbA== 0000950135-98-006472.txt : 19990101 0000950135-98-006472.hdr.sgml : 19990101 ACCESSION NUMBER: 0000950135-98-006472 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981003 FILED AS OF DATE: 19981231 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: 10KSB40 SEC ACT: SEC FILE NUMBER: 000-02052 FILM NUMBER: 98779660 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 10KSB40 1 GODDARD INDUSTRIES, INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB (Mark One) [X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Fiscal Year Ended October 3, 1998 or [ ] Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition Period from ________________ to ____________________ Commission File Number 0-2052 ------ GODDARD INDUSTRIES, INC. ---------------------------------------------------------- (Name of Small Business Issuer 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 Exchange 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 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 [ ] 1 2 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 [X] The registrant's revenues for its most recent fiscal year are $9,732,000. The aggregate market value of the registrant's Common Stock, par value $.01 per share, held by non-affiliates of the registrant at December 1, 1998 was approximately $3,105,000, 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 1, 1998, there were outstanding 2,129,982 shares of Common Stock, par value $.01 per share. Transitional Small Business Disclosure Format: Yes [ ] No [X] -2- 3 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 Corp. subsidiary ( referred to as the "Valve Division") 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. Additionally, the Company has developed a manifold system to allow addition of controls to a cryogenic tank as a single unit. The principal markets for the Valve Division'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. The Valve Division's cryogenic valves are distributed domestically both by direct sales to customers and through independent sales representatives. The Valve Division also makes direct sales of the valves to customers in Canada, Europe and Asian countries. The Company's indirect subsidiary, The Webstone Company, Inc. (referred to as the "Webstone Division"), 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 its specifications in the Far East and in Europe. These products are marketed under the Webstone name nationally through sales representatives and in Canada through distributors. In addition, the Webstone Division also manufactures and distributes nationally certain domestic plumbing products, some of which have been designed by the Valve Division. The principal markets for the Webstone Division'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. Recently the Company expanded its distribution of plumbing products to include direct sales to plumbing contractors from an outlet of its main facility. 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 Valve Division's business consist of stainless steel, aluminum and bronze castings and bar stock, which are available from a variety of regular and competitive -3- 4 suppliers. The Company does not anticipate difficulty in obtaining sufficient raw materials for that business. The Webstone Division purchases most of the products for its plumbing supply business from a variety of sources in foreign countries. The Webstone name is stamped or cast into the part as well as its brand name being included in the packaging. The Webstone Division has alternative sources of supply in each country and does not anticipate problems in maintaining adequate sources of supply. The Webstone Division's reliance on foreign suppliers involves hazards shared by most enterprises doing business in foreign countries, including foreign economic and political risks, currency fluctuations and controls, tariffs and import controls. A substantial portion of the Webstone Division's purchases are made in East Asian countries. The Webstone Division's supplies have not been affected by the economic downturn in East Asia, although there can be no assurance that it will not be affected in the future. DEPENDENCE UPON PRINCIPAL CUSTOMERS. During fiscal 1998 the Valve Division sold a substantial amount of its products to three customers which are manufacturers of cryogenic vessels. It was dependent on one customer for 30% of its cryogenic valve business (approximately 17.7% 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, three other customers accounted for a significant amount, although less than 10%, of the Valve Division's cryogenic valve revenues during fiscal 1998, and the loss of any of those customers also could have a material adverse effect upon the Company. No single customer accounts for 10% or more of the revenues of the Webstone Division. BACKLOG. The dollar amount of backlog of orders believed to be firm for the Valve Division was approximately $886,900 as of the end of the 1998 fiscal year, as compared with approximately $860,000 at the end of fiscal 1997 and $1,846,000 at the end of fiscal 1996. The higher backlog at the end of fiscal 1996 compared to fiscal 1997 and fiscal 1998 was the result of a number of large orders received in fiscal 1996 which were delivered in fiscal 1997. The dollar amount of orders believed to be firm in the Webstone Division as of the end of fiscal 1998 was approximately $150,000, as compared with approximately $107,000 as of the end of fiscal 1997 and $110,000 at the end of fiscal 1996. -4- 5 No part of the backlog of either business is seasonal. Backlog varies according to business conditions within the industry for both businesses. All backlog is expected to be shipped within the current fiscal year. COMPETITION. All aspects of the Company's business are highly competitive. The Company believes there are between six and eight principal competitors in the Valve Division's cryogenic valve business. The Valve Division competes on the basis of product performance and dependability. The Company believes that the Valve Division's competitive position within that industry has improved during the past several 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 Webstone Division. 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 the Webstone Division in that industry during the past fiscal year. The Webstone Division competes on the basis of price and delivery. RESEARCH AND DEVELOPMENT. During the last fiscal year, the Company spent approximately $156,000 and had six 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 $175,000 for research and development. The Company has obtained a number of patents and has additional patent applications pending with respect to certain of the products of the Valve Division. 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 Valve Division depends more upon the technical competence and manufacturing skills of its employees than upon patents. 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 an approximately 37,000 square foot one-story building, including a 27,000 square foot masonry structure erected in 1961 and a 10,000 square foot steel structure added in 1997. The Company believes that the facility is adequate to meet Company needs for the foreseeable future. The -5- 6 Company believes that its existing facilities and equipment are well maintained and in good operating condition. ITEM 3. LEGAL PROCEEDINGS. In 1995 the Massachusetts Department of Environmental Protection ("DEP") designated the Company's facility at 705 Plantation Street, Worcester as a Tier 1C Site under the Massachusetts Contingency Plan as a result of a prior release of hazardous materials on the site. The Company was required to conduct response actions required under the Massachusetts Contingency Plan. These actions culminated in the filing of a Class C Response Action Outcome Statement with the DEP in September 1998. Based upon the information presently available, no further legal action is required. 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 1998 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 on the Nasdaq Bulletin Board. As of December 1, 1998, there were approximately 860 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 27, 1997 and October 3, 1998 are set forth below. Prices are based upon quotations from the National Quotation Bureau, Inc. ================================= FISCAL 1997 BID PRICES High Low ---- --- Quarter Ending: 12/31/96 $1.875 $1.625 3/31/97 $2.50 $2.00 6/30/97 $2.75 $2.563 9/27/97 $4.375 $4.00 -6- 7 FISCAL 1998 BID PRICES High Low ---- --- Quarter Ending 12/31/97 $4.50 $3.50 3/31/98 $4.50 $2.00 6/30/98 $3.75 $2.375 10/3/98 $2.875 $1.50 The Company has paid stock dividends from time to time in the past and paid a single cash dividend of $.03/share in February, 1998. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. RESULTS OF OPERATIONS - 1998 COMPARED TO 1997 Consolidated sales for fiscal 1998 were $9,732,000, a 3.7% decline from record sales of $10,108,000 reported for fiscal 1997. The Webstone division sales increased 15.2% as a result of a broader marketing program while the Valve division experienced a reduction of 13.2%, reflecting the lower level of activity in the cryogenic industry due to a decline in orders received by the Company's customers in Asia. The Company's year-end order backlog totaled $1,036,000, a 7.1% increase compared to last year's level. Gross profit margins for fiscal 1998 remained unchanged from fiscal 1997 at 37.5%. Sales and administrative expenses increased from 22% to 24% of revenues as a result of small increases in personnel in both the Valve and Webstone divisions. Interest expense and other income also remained substantially unchanged from fiscal 1997. Net income for fiscal 1998 was $747,000 compared to $890,000 for fiscal 1997 as a result of the decline in consolidated sales and the modest increase in sales and administrative expense. This produced basic net income per share of $.35 in fiscal 1998 compared to $.43 in fiscal 1997. RESULTS OF OPERATIONS - 1997 COMPARED TO 1996 Consolidated sales for fiscal 1997 were a record $10,108,000, a 21.8% increase over consolidated sales in fiscal 1996. This was primarily due to a 34.3% increase in sales in the Valve Division from $5,000,000 to $6,727,000 resulting from more frequent orders from larger customers. Sales in the Webstone Division increased 2.8% from $3,290,000 to $3,382,000 as a result of customers testing some of our newer product lines. Backlog declined from $1,956,000 at fiscal 1996 year-end to $967,000 at fiscal 1997 year-end as the result of completion in fiscal -7- 8 1997 of a number of large orders received by the Valve Division in fiscal 1996 which were delivered in fiscal 1997. The Company's gross profit margin decreased slightly from 38.5% in fiscal 1996 to 37.5% in fiscal 1997 as a result of a small increase in basic costs of materials. Sales and administrative expenses declined as a percentage of sales from 24.1% to 22.0% reflecting economies as a result of increased sales volume. Consolidated operating profit increased 31.1% from $1,197,000 in fiscal 1996 to $1,570,000 in fiscal 1997. Operating profit of the Valve Division increased 35.9% from $1,103,000 in fiscal 1996 to $1,498,000 in fiscal 1997, while operating profit of the Webstone Division declined by 24.1% from $94,000 in fiscal 1996 to $72,000 in fiscal 1997. Interest expense declined 16.5% for fiscal 1997 as a result of lower interest rates and somewhat lower borrowing levels. As a result of the above developments, the Company's net income increased 30.0% to $890,000 in fiscal 1997, compared to $685,000 in fiscal 1996. This produced basic net income per share of $.43 in fiscal 1997 and $.34 in fiscal 1996. LIQUIDITY AND CAPITAL RESOURCES The Company funds operations primarily through earnings and bank borrowings when required. At October 3, 1998, the Company had working capital of approximately $4,122,000 including $283,000 in cash. The Company also had a line of credit of $1,750,000 with BankBoston collateralized by substantially all of its assets. At year-end approximately $238,000 had been drawn under that line of credit, which bears interest at a rate equal to the bank's prime rate plus 1/2 of 1%. During fiscal 1998, operations produced $1,030,000 of cash. The major sources of cash were net income ($747,000), depreciation ($257,000) and the reduction of inventory ($131,000), while the major use of cash was income tax payments ($82,000). Cash produced by operations was used principally for property, plant and equipment additions ($245,000), net reduction in long term debt ($526,000) and payment of dividends ($63,000). The Company believes that the amounts available under the line of credit should 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. -8- 9 With respect to the "Year 2000 problem," all of the Company's financial applications have been tested and the Company has concluded that they will be able to process information or logic involving the Year 2000 and beyond completely and accurately. The Company anticipates that work on its Valve Division's inventory, order processing and related applications will be Year 2000 compliant by the second quarter of fiscal 1999. Most of the Company's PC-based software is currently able to process information or logic involving the Year 2000 and beyond or performs functions that are not data-dependent. The Company is testing all of its personal computers to insure that the hardware and firmware is Year 2000 capable, and will perform upgrades as needed. The Company anticipates that this work will be completed by early in the fourth quarter of fiscal 1999. The Company has contacted its critical vendors and major customers with regard to the Year 2000 and is not yet aware of any major Year 2000 problems in its dealings with them. The Company will continue to follow up on these contacts to insure an uninterrupted flow of supplies and services into the new millennium. The Company's Webstone Division will be converting to a Year 2000 compliant hardware and software package rather than upgrading its existing software. The Company is in the process of evaluating packages and intends to select a package during the second quarter of fiscal 1999. The Company anticipates that the conversion process will be completed by the fourth quarter of fiscal 1999. As a contingency plan for converting to the new system, the Webstone Division's purchasing system, the only system that uses dates more than one month into the future, can be upgraded in a matter of weeks. The Company anticipates that it will be fully Year 2000 compliant by the end of fiscal 1999 and well before the end of calendar 1999. The Company has not yet prepared any contingency plan for dealing with a reasonable worst case scenario, but anticipates that it will do so by the fourth quarter of fiscal 1999. The Company's results of operations have not been materially effected 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. -9- 10 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. Information required by this Item 9 is hereby incorporated in part by reference to the Company's definitive Proxy Statement which is expected to be filed by the Company within 120 days after the close of its fiscal year. EXECUTIVE OFFICERS OF THE COMPANY The executive officers of the Company who are neither directors of the Company or nominees for director are as follows: Name Age Position Executive Officer Since - ---- --- -------- ----------------------- Donald R. Nelson 62 Vice President of the 1973 Company Michael E. Reck 41 President of Webstone 1997 Division 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, and subject to the provisions of the Employment Agreement of the Chief Executive Officer, Mr. Salvatore Vinciguerra. Mr. Nelson has been employed by the Company in the above-described capacity for more than five years. Michael E. Reck has been employed by the Company for more than five years, first as National Sales Manager of Webstone, then as vice President of Sales for Webstone. In November 1996 he was named President of the Webstone Division, and in December, 1997 he was designated an executive officer of the Company. ITEM 10. EXECUTIVE COMPENSATION. Information required by this Item 10 is hereby incorporated by reference to the Company's definitive Proxy Statement which is expected to be filed by the Company within 120 days after the close of its fiscal year. -10- 11 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information required by this Item 11 is hereby incorporated in part by reference to the Company's definitive Proxy Statement which is expected to be filed by the Company within 120 days after the close of its fiscal year. 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 16, 1998. (See page 16 hereof.) 2. Consolidated Balance Sheet as of October 3, 1998 and September 27, 1997. (See page 17 hereof.) 3. Consolidated Statement of Income for the fifty-three weeks ended October 3, 1998, the fifty-two weeks ended September 27, 1997, and the fifty-two weeks ended September 28, 1996. (See page 18 hereof.) 4. Consolidated Statement of Stockholders' Equity for the fifty-three weeks ended October 3, 1998, the fifty-two weeks ended September 27, 1997, and the fifty-two weeks ended September 28, 1996. (See page 19 hereof.) 5. Consolidated Statement of Cash Flows for the for the fifty-three weeks ended October 3, 1998, the fifty-two weeks ended September 27, 1997, and the fifty-two weeks ended September 28, 1996. (See page 20 hereof.) 6. Notes to the Consolidated Financial Statements. (See pages 21-33 hereof.) (a)(2) EXHIBITS. (3) Articles of Incorporation and By-Laws: (a)(1) 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.)* -11- 12 (a)(2) 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.)* (a)(3) 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.)* (a)(4) 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) Consolidated 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.)* -12- 13 (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) Adoption Agreement (Non-Standardized Code ss.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.)* (g) 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.)* (h) Employment Agreement between the Company and Salvatore J. Vinciguerra dated October 19, 1998, filed herewith. (i) 1998 Equity Incentive Plan adopted by Board of Directors November 30, 1998, subject to stockholder approval, filed herewith. (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 Data 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 October 3, 1998. - ---------------------- *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. -13- 14 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: December 22, 1998 By: /s/ Salvatore J. Vinciguerra ------------------------------------ Salvatore J. Vinciguerra, 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 - --------- ----- ---- /s/ Salvatore J. Vinciguerra Principal Executive Officer, December 22, 1998 - ----------------------------- Principal Financing and Salvatore J. Vinciguerra Accounting Officer /s/ Saul I. Reck Chairman of the Board of December 22, 1998 - ----------------------------- Directors Saul I. Reck /s/ Jacky Knopp, Jr. Director December 22, 1998 - ----------------------------- Jacky Knopp, Jr. /s/ Robert E. Humphreys Director December 28, 1998 - ----------------------------- Robert E. Humphreys Director December __, 1998 - ----------------------------- Lyle Wimmergren 14 15 GODDARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 3, 1998 AND SEPTEMBER 27, 1997 -15- 16 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 October 3, 1998 and September 27, 1997 and related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended October 3, 1998. 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 consolidated financial position of Goddard Industries, Inc. and Subsidiaries as of October 3, 1998 and September 27, 1997 and the consolidated results of their operations and cash flows for each of the three years in the period ended October 3, 1998, in conformity with generally accepted accounting principles. Greenberg, Rosenblatt, Kull & Bitsoli, P.C. Worcester, Massachusetts November 16, 1998 16 17 GODDARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS OCTOBER 3, 1998 AND SEPTEMBER 27, 1997 ASSETS 1998 1997 (All pledged, Note 4) CURRENT ASSETS: Cash $ 283,473 $ 82,943 Accounts receivable(less allowance for doubtful accounts of $35,300 in 1998 and $30,900 in 1997) 1,174,946 1,203,244 Inventories (Note 2) 3,410,767 3,541,862 Refundable income taxes 92,723 - Prepaid expenses 27,184 31,420 Deferred income taxes (Note 7) 111,000 133,000 TOTAL CURRENT ASSETS 5,100,093 4,992,469 PROPERTY, PLANT AND EQUIPMENT (Note 3) 1,614,758 1,440,831 OTHER ASSETS: Deferred income taxes (Note 7) 131,000 165,000 Other 10,868 14,624 Total other assets 141,868 179,624 TOTAL ASSETS $6,856,719 $6,612,924 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt (Note 4) $ 184,000 $ 119,000 Accounts payable 289,775 374,689 Accrued expenses 457,406 423,035 Accrued environmental costs (Note 8) 4,648 45,000 Deferred compensation 42,500 - Income taxes payable - 10,502 TOTAL CURRENT LIABILITIES 978,329 972,226 LONG-TERM DEBT (Note 4) 377,515 786,668 DEFERRED COMPENSATION (Note 9) 508,500 551,000 SHAREHOLDERS' EQUITY: (Notes 5 and 13) Common stock - par value $.01 per share, authorized 3,000,000 shares, issued and outstanding 2,129,982 shares in 1998 and 2,126,649 in 1997 21,299 21,266 Additional paid-in capital (Note 14) 477,923 471,511 Retained earnings (Note 4) 4,493,153 3,810,253 TOTAL SHAREHOLDERS'EQUITY 4,992,375 4,303,030 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,856,719 $6,612,924 The accompanying notes are an integral part of the consolidate financial statements 17 18 GODDARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME YEARS ENDED OCTOBER 3, 1998 SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 1998 1997 1996 SALES $9,732,242 10,108,379 8,300,167 COST OF SALES 6,082,601 6,313,043 5,105,186 GROSS PROFIT 3,649,641 3,795,336 3,194,981 SELLING AND ADMINISTRATIVE EXPENSES(Notes 8, 10, 11 and 12) 2,335,138 2,225,582 1,997,970 Operating profit 1,314,503 1,569,754 1,197,011 OTHER INCOME (EXPENSE): Interest expense (86,202) (85,654) (102,529) Other income 32,459 31,232 55,600 TOTAL OTHER INCOME (EXPENSE) (53,743) (54,422) (46,929) INCOME BEFORE INCOME TAXES 1,260,760 1,515,332 1,150,082 INCOME TAXES (Benefit):(Note 7) Current 458,000 674,000 519,000 Deferred 56,000 (49,000) (54,000) Total Income Taxes 514,000 625,000 465,000 NET INCOME $ 746,760 $ 890,332 $ 685,082 EARNINGS PER SHARE: (Note 15) Basic $ 0.35 $ 0.43 $ 0.34 Diluted $ 0.35 $ 0.43 $ 0.33 The accompanying notes are an integral part of the consolidated financial statements 18 19 GODDARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED OCTOBER 3, 1998 SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996
Shares Additional of common Common paid-in Retained stock stock capital earnings Total Balance at September 30, 1995 2,032,804 $ 20,328 $395,763 $2,234,839 $2,650,930 Net income - - - 685,082 685,082 Stock issued under employee stock purchase plant (Note 13) 7,325 73 3,590 - 3,663 Balance at September 28, 1996 2,040,129 20,401 399,353 2,919,921 3,339,675 Net income - - - 890,332 890,332 Stock options exercised 80,000 800 62,608 - 63,408 Stock issued under employee stock purchase plan (Note 13) 6,520 65 9,550 - 9,615 Balance at September 27, 1997 2,126,649 21,266 471,511 3,810,253 4,303,030 Net income 746,760 746,760 Dividends paid ($.03 per share) - - - (63,860) (63,860) Stock options exercised 2,000 20 3,680 - 3,700 Stock issued under employee stock purchase plan (Note 13) 1,333 13 2,732 - 2,745 Balance at October 3, 1998 2,129,982 $ 21,299 $477,923 $4,493,153 $4,992,375
The accompanying notes are an integral part of the consolidated financial statements 19 20 GODDARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW YEARS ENDED OCTOBER 3, 1998 SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996
1998 1997 1996 OPERATING ACTIVITIES: Net income $ 746,760 $ 890,332 $ 685,082 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 257,477 240,510 207,740 Provision for losses on accounts receivable 4,400 3,300 (1,000) Changes in assets and liabilities: Accounts receivable 23,898 (51,673) (180,394) Other receivables - 785,000 (785,000) Inventories 131,095 (229,413) (401,215) Refundable income taxes (92,723) - - Prepaid expenses 4,236 2,389 (10,790) Accounts payable (84,914) 57,368 11,666 Accrued expenses 34,371 23,174 143,230 Accrued environmental costs (40,352) (750,000) 795,000 Income taxes payable (10,502) (181,269) (30,855) Deferred income taxes 56,000 (49,000) (54,000) Deferred compensation - - 38,000 Net cash provided by operating activities: 1,029,746 740,718 417,464 INVESTING ACTIVITIES: Property,plant and equipment additions (245,448) (409,190) (139,817) FINANCING ACTIVITIES: Proceeds from long-term debt 2,553,800 3,293,171 2,734,000 Repayments of long-term debt (3,080,153) (3,680,730) (3,024,296) Issuance of common stock 6,445 73,023 3,663 Cash dividends paid (63,860) - - NET CASH USED IN FINANCING ACTIVITIES (583,768) (314,536) (286,633) NET INCREASE (DECREASE) IN CASH 200,530 16,992 (8,986) CASH - BEGINNING 82,943 65,951 74,937 CASH - ENDING $ 283,473 $ 82,943 $ 65,951 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION CASH PAID DURING THE YEAR: Interest $ 90,413 $ 87,754 $ 105,108 Income taxes $ 558,525 $ 813,111 $ 549,855
The accompanying notes are an integral part of the consolidated financial statements 20 21 GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 3, 1998, SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 (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 year ended October 3, 1998 contains 53 weeks while the years ended September 27, 1997 and September 28, 1996 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 included in other assets and 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 in conformity with generally accepted accounting principles requires 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. 21 22 GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 3, 1998, SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue Recognition: The Company recognizes revenue when goods are shipped from its facilities. 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 cost of sales. Reclassifications: Certain amounts in the 1997 and 1996 financial statements have been reclassified to conform with the 1998 presentation with no effect on previously reported net income or retained earnings. (2) INVENTORIES: Inventories are comprised of the following: 1998 1997 Finished goods $2,847,658 $3,106,049 Work in process 139,945 66,441 Raw materials 423,164 369,372 $3,410,767 $3,541,862 (3) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following: 1998 1997 Land $ 12,865 $ 12,865 Building and improvements 978,537 909,881 Machinery, equipment and tools 3,546,532 3,189,821 Office equipment and fixtures 156,551 154,270 4,694,485 4,266,837 Accumulated depreciation (3,079,727) (2,826,006) $ 1,614,758 $ 1,440,831 Depreciation expense charged to income was $253,721, $236,754 and $203,984 and in 1998, 1997 and 1996, respectively. 22 23 GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 3, 1998, SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 (4) LONG-TERM DEBT Long-term debt consists of the following: 1998 1997 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 30, 2000. 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 1/2 of one percent in 1998 and 3/4 of one percent in 1997 (8.75% and 9.25%, respectively). $238,000 $621,000 Capital lease obligation, payments of $5,273 per month including interest at 9%, due in 1999. 50,641 106,653 Capital lease obligation, payments of $6,807 per month including interest at 8.5%, due in 2000. 108,713 178,015 Capital lease obligation, payments of $5,750 per month including interest at 8.5%, due in 2001. 164,161 - 561,515 905,668 Current maturities 184,000 119,000 $377,515 $786,668 Minimum estimated principal payments are as follows: 1999 $184,000 2000 333,400 2001 44,115 $561,515 The above principal payments include amounts due under the capital lease obligations of $203,000 in 1999, $103,000 in 2000, and $46,000 in 2001, including amounts representing interest of $29,000. 23 24 GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 3, 1998, SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 (4) LONG-TERM DEPT (continued) The Company entered into the above referenced lease agreements for certain machinery and equipment. Assets directly financed through leases totaling $182,000 for 1998, $216,000 for 1997, and $166,000 for 1996 are included in property, plant and equipment. Amortization of these assets totaling $47,000 in 1998, $35,000 in 1997 and $8,300 in 1996 is included in depreciation expense and accumulated depreciation. Under the revolving line of credit, the Company is subject to a number of covenants which relate to maintenance of minimum working capital, tangible net worth, and profitability levels. These agreements also restrict acquisition of property, plant and equipment and payment of cash dividends. (5) COMMON STOCK OPTIONS In each of 1998, 1997 and 1996, the Company granted non-qualified options for 5,000 shares to each non-employee director and in varying amounts to certain employees, for an aggregate of 110,000 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 five 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 1998, 1997 and 1996. 1998 1997 1996 Dividend yield None None None Expected volatility 74.01% 68.19% 62.12% Risk-free interest rate 4.79% 5.80% 6.12% Expected lives 5 years 5 years 5 years A summary of the status of the Company's outstanding options as of October 3, 1998, September 27, 1997 and September 28, 1996 and the changes during the years ending on those dates are presented below: 24 25 GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 3, 1998, SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 (5) COMMON STOCK OPTIONS (Continued)
October 3, 1998 September 27, 1997 September 28, 1996 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Share Price Shares Price Shares Price Outstanding at beginning of year: 64,000 $1.34 105,000 $0.32 75,000 $0.25 Granted 41,000 2.88 39,000 1.88 30,000 0.50 Exercised (2,000) 0.50 (80,000) 0.27 - - Outstanding at end of year: 103,000 $1.97 64,000 $1.34 105,000 $0.32 Options exercisable at year-end 103,000 64,000 105,000 Weighted average fair value of options granted during the year $ 1.84 $ 1.16 $ 0.28
The following summarizes information about fixed stock options outstanding at October 3, 1998: Weighted average remaining Weighted Weighted Number contractual average Number average Exercise outstanding at life exercise exercisable at exercise price October 3, 1998 in years price October 3, 1998 price $0.50 23,000 2.25 $0.50 23,000 $0.50 $1.88 39,000 3.50 $1.88 39,000 $1.88 $2.88 41,000 4.50 $2.88 41,000 $2.88 103,000 103,000 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 1998, 1997 and 1996, net income would have been reduced to $701,496, $865,767 and $680,065 which would have decreased primary earnings per share by $.02 in 1998 and $.01 in 1997 and 1996. Diluted earnings per share in 1998 and 1997 would have been decreased by $.02 and there would have been no affect in 1996. 25 26 GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 3, 1998, SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 (6) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts reflected in the consolidated balance sheets for cash, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short maturities of these instruments. The carrying value of long-term debt approximates 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: 1998 1997 1996 Federal income taxes at statutory rate $428,700 $515,200 $391,000 State income taxes net of federal income tax benefit 79,900 103,600 72,100 Nondeductible expenses 5,300 5,800 5,500 Other 100 400 (3,600) Income taxes $514,000 $625,000 $465,000 The provision for income taxes is summarized as follows: Current: Federal $350,000 $517,000 $400,000 State 108,000 157,000 119,000 458,000 674,000 519,000 Deferred: Federal 43,000 $(37,000) $(42,000) State 13,000 (12,000) (12,000) 56,000 (49,000) (54,000) $514,000 $625,000 $465,000 26 27 GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 3, 1998, SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1998 (7) INCOME TAXES (Continued) The tax effects of the principal temporary differences giving rise to the net current and noncurrent deferred tax assets totaling $242,000 at October 3, 1998 and $298,000 at September 27, 1997 are as follows: 1998 1997 Deferred tax assets: Deferred compensation $220,400 $220,400 Inventory valuation 68,600 93,300 Accrued salaries 9,300 9,200 Environmental matters 1,900 18,000 Bad debts 14,100 12,400 Total gross deferred tax assets 314,300 353,300 Deferred tax liabilities: Depreciation 72,300 55,300 $242,000 $298,000 Management does not believe that any valuation allowance is necessary. (8) ENVIRONMENTAL MATTER The results of a site assessment at the Company's headquarters in 1987 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 1995, the Company received a Tier 1 Transition Classification and Permit Statement Cover Letter designating the site as a Tier IC Site under the Massachusetts Contingency Plan. Those response actions culminated in the filing of a Class "C" Response Action Outcome Statement with the DEP in September 1998. Based upon the information presently available, periodic monitoring is required. In the accompanying financial statements, accrued environmental costs represent costs related to filing of the Class "C" Response Action Outcome Statement. The cost of periodic monitoring is not expected to be significant. 27 28 GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 3, 1998, SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 (9) COMMITMENTS AND CONTINGENCIES Employment Agreements: The Company extended through January 15, 1999 the employment agreement with its Chairman of the Board and former President. In connection with the contract, the Chairman was entitled to incentive compensation equal to 10% of annual pretax earnings exceeding $200,000 through October 3, 1998. In connection with the above agreement the Company has a non-qualified, unfunded deferred compensation plan for the Chairman providing for payments, in the form of a joint and survivor annuity beginning January 15, 1999, of $60,000 for his life and, upon his death $30,000 to his spouse for her life. The payments will be adjusted annually for increases in the Consumer Price Index (CPI) since 1993 with a lump sum payment due annually within forty-five days of the fiscal year end. As of October 3, 1998 the deferred compensation liability represents the actuarial present value of this obligation based upon the following assumptions: Interest rate 7.25% Annual increases in the CPI 3.00% Post-retirement mortality 1983 Group Annuity Table For the year ended September 28, 1996 costs charged to operations in connection with this agreement were $38,000. There were no such charges during the years ended October 3, 1998 and September 27, 1997. 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 agreements has not been reflected in the consolidated financial statements of the Company as of October 3, 1998, since a change in control, as defined, has not occurred. Other Commitments: At October 3, 1998 and September 28, 1996, the Company had approximately $60,000 and $88,000 in letters of credit outstanding. (10) RESEARCH AND DEVELOPMENT COSTS Research and development costs charged to operations in 1998, 1997 and 1996 were approximately $156,000, $175,000 and $175,000, respectively. (11) ADVERTISING COSTS Advertising costs charged to operations in 1998, 1997, and 1996 were approximately $68,000, $77,000 and $41,000, respectively. 28 29 GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 3, 1998, SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 (12) PROFIT SHARING PLAN The Company has a profit sharing plan covering substantially all employees. The Company's profit sharing contribution is determined annually by the Board of Directors. Incorporated into the plan are the provisions of Section 401(k) of the Internal Revenue Code, which allows employees to contribute to their accounts on a pretax basis. The Company matches employee contributions up to a maximum of 25% of each employee's contribution. Total contributions by the Company amounted to approximately $71,000, $73,000 and $63,000 in 1998, 1997, and 1996 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 purchase 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 October 3, 1998, September 27, 1997, and September 28, 1996, there were no options outstanding under the plan. (14) ADDITIONAL PAID-IN CAPITAL In connection with non-qualified stock options exercised during the year ended September 27, 1997 which are discussed in Note 5, the Company has adjusted Additional paid-in capital to reflect the tax benefit attributable to the difference between the exercise price and the fair value of the Company's stock on the date of exercise. This restatement of approximately $42,000 had no affect on previously reported net income, retained earnings, or earnings per share for the year ended September 27, 1997 and was made to reflect the true economic resources received by the Company in connection with the issuance of the related common shares. (15) EARNINGS PER SHARE The Company adopted Statement of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings per Share," effective with the year ending October 3, 1998. SFAS No. 128 changes the method of computing earnings per share (EPS) and required that they be presented on both a basic and diluted basis. In accordance with SFAS No. 128 EPS for the years ended September 27, 1997 and September 28, 1996 have been restated. 29 30 GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 3, 1998, SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 (15) EARNINGS PER SHARE (Continued) The following data show the amounts used in computing EPS and the effects on income and the weighted average number of shares of dilutive potential common stock. Year ended October 3, 1998 Net Common income shares EPS Basic EPS: Income available to common shareholders $746,760 2,128,414 $0.35 Dilutive effect of potential common stock: Stock options - 20,445 Diluted EPS: Income available to common shareholders after assuming exercise of dilutive securities $746,760 2,148,859 $0.35 Year ended September 27, 1997 Net Common income shares EPS Basic EPS: Income available to common shareholders $890,332 2,066,503 $0.43 Dilutive effect of potential common stock: Stock options - 18,829 Diluted EPS: Income available to common shareholders after assuming exercise of dilutive securities $890,332 2,085,332 $0.43 Year ended September 28, 1996 Net Common income shares EPS Basic EPS: Income available to common shareholders $685,082 2,035,943 $0.34 Dilutive effect of potential common stock: Stock options - 41,412 Diluted EPS: Income available to common shareholders after assuming exercise of dilutive securities $685,082 2,077,355 $0.33 30 31 GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 3, 1998, SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 (16) SUBSEQUENT EVENT In October 1998, the Board of Directors entered into an employment agreement with a key executive requiring minimum annual payments of $140,000. In connection with this agreement, the executive was granted non-qualified options that expire in October 2008, to acquire 200,000 shares of the Company's common stock. The grant price is the mean between the bid and asked prices on the date of grant ($1.625). The options vest at a rate of 25% per year commencing at the end of the first year of employment. (17) INDUSTRY SEGMENT INFORMATION The Company produces and sells cryogenic valves (industrial valves) and imports and distributes plumbing supplies for use in households, industry and agriculture (plumbing supplies). The financial information relating to foreign and export sales is not present as those items are not material. Summarized segment financial information for the years ended October 3, 1998, September 27, 1997 and September 28, 1996 is summarized as follows: For the year ended Industrial Plumbing October 3, 1998 Valves Supplies Consolidated Sales to unaffiliated customers $5,838,295 $3,893,947 $9,732,242 Operating profit $1,275,656 $ 38,847 $1,314,503 Interest expense (86,202) Other income, net 32,459 Income before income taxes $1,260,760 Assets October 3, 1998 $4,656,086 $2,200,633 $6,856,719 Depreciation expense $ 239,398 $ 14,323 $ 253,721 Acquisition of property, plant and equipment $ 406,866 $ 20,782 $ 427,648 31 32 GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 3, 1998, SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 (17) INDUSTRY SEGMENT INFORMATION (continued) For the year ended Industrial Plumbing September 27, 1997 Valves Supplies Consolidated Sales to unaffiliated customers $6,726,853 $3,381,526 $10,108,379 Operating profit $1,498,202 $ 71,552 1,569,754 Interest expense (85,654) Other income, net 31,232 Income before income taxes $1,515,332 Assets September 27, 1997 $4,396,304 $2,216,620 $ 6,612,924 Depreciation expense $ 223,604 $ 13,150 $ 236,754 Acquisition of property, plant and equipment $ 613,889 $ 11,130 $ 625,019 For the year ended Industrial Plumbing September 28, 1997 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 equipment $ 292,014 $ 13,803 $ 305,817 32 33 GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 3, 1998, SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 (17) INDUSTRY SEGMENT INFORMATION (Continued) The industrial valve segment of the Company sells a majority of its products to a limited number of customers, predominantly manufacturers of cryogenic vessels. Sales, in thousands of dollars, to individual customers constituting 10% or more of total sales of the industrial valve segment were as follows: 1998 1997 1996 Customer A $1,724 30% $2,194 33% $2,317 46% Customer B $ - - $ - - $ 594 12% Customer C $ - - $ - - $ 703 14% $1,724 30% $2,194 33% $3,614 72% 33 34 EXHIBIT INDEX EXHIBIT NUMBER PAGE - ------- ---- (3) Articles of Incorporation and By-Laws: (a)(1) 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.)* (a)(2) 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.)* (a)(3) 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.)* (a)(4) 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) Consolidated 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.)* E-1 35 EXHIBIT NUMBER PAGE - ------- ---- (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) Adoption Agreement (Non-Standardized Code ss.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.)* (g) 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.)* (h) Employment Agreement between the Company and Salvatore J. Vinciguerra dated October 19, 1998, filed herewith. (i) 1988 Equity Incentive Plan adopted by Board of Directors November 30, 1998, subject to stockholder approval, filed herewith. (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 Data Schedule. E-2 EX-10.(H) 2 EMPLOYMENT AGMNT BETWEEN GODDARD & VINCIGUERRA 1 EXHIBIT 10(h) EMPLOYMENT AGREEMENT This agreement made as of this 19th day of October, 1998, by and between Goddard Industries, Inc., 705 Plantation Street, Worcester, Massachusetts ("Employer") and Salvatore J. Vinciguerra, 5 Byfield Road, Newton, Massachusetts ("Employee"), (hereinafter "Agreement"). WHEREAS, Employer, through subsidiaries, is in the business of manufacturing and distributing cryogenic valves and importing and distributing plumbing supplies; and WHEREAS, Employer desires to employ Employee in the position of Chief Executive Officer, President and Treasurer and Employee desires to be so employed. NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions set forth herein, the parties agree as follows: 1. TERM. This Agreement commences on October 19, 1998. This Agreement shall continue in effect unless and until it is terminated by Employer or Employee in accordance with this Agreement. 2. EMPLOYMENT-AT-WILL. Employment with Employer is on an at-will basis. Employer retains the right to terminate Employee for any reason, or no reason, at any time. No notice or pay shall be required if termination is for "cause" as defined in Section 5 below. In the event of termination by Employer, Employer will pay Employee six (6) months' Salary, as hereinafter defined, at the time of termination. Employee has the right to terminate employment with Employer at any time for any reason, or no reason. 3. SCOPE OF DUTIES. Employee shall be employed by Employer as its Chief Executive Officer, President and Treasurer. Employee will, if so elected, serve in any other office of Employer and as an officer or director of any subsidiary or affiliate of Employer without compensation in addition to that provided in this Agreement. In addition, Employer shall use reasonable efforts to cause Employee to be elected to its Board of Directors. During the term of employment, Employee's full working time, attention and best efforts shall be devoted to the furtherance of the business of Employer. In accordance with the foregoing, Employee shall not engage in any other business activity, except as may be approved by the Board of Directors; provided, however, that nothing herein shall be construed as preventing Employee from: (a) investing his assets in a manner not otherwise prohibited by this Agreement, and in such form or manner as shall not require any material services on his part in the operations or affairs of the companies or other entities in which such investments are made; (b) serving on the board of directors of any company, which is not competitive with Employer, provided that he shall not be required to render any material services with respect to the operations or affairs of any such company; or 2 (c) engaging in religious, charitable, or other community or non-profit activities which do not impair his ability to fulfill his duties and responsibilities under this Agreement. Employee represents that, in the performance of his services for Employer, he will regularly and typically exercise sound discretion and independent judgment with respect to the significant matters entrusted to him. Employee agrees to adhere to applicable Employer policies, procedures and requirements performing his assigned work. Employee further agrees to exert his best efforts and to conduct himself in a professional manner at all times. Employer employs Employee and Employee accepts employment upon the terms and conditions set forth in this Agreement. 4. COMPENSATION PLAN. (a) SALARY. A Salary at the rate of One Hundred Forty Thousand ($140,000.00) Dollars per year shall be paid to Employee by Employer in equal installments at such intervals as Employer generally pays its officers. For purposes of this Agreement, the term "Salary" shall mean the annual amount as fixed from time to time by the Board of Directors, customarily denominated as Salary, before deductions for income tax, social security tax and other customary withholdings. Salary shall not include any payment or other benefit which is denominated as or is in the nature of a bonus, incentive payment, profit sharing payment, performance share award, stock option, retirement or pension accrual, insurance benefit, other fringe benefit or expense allowance, whether or not taxable to Employee as income. (b) INCENTIVE COMPENSATION. Employee will be paid a bonus of up to twenty-five percent (25%) of Salary within ninety (90) days following the end of each fiscal year of Employer commencing with the 1999 fiscal year. The precise amount of such bonus shall be determined by the Board of Directors based upon its good faith evaluation of Employee's performance. (c) INCENTIVE STOCK OPTIONS. Employer shall grant Employee incentive stock options ("ISO") in the amount of Two Hundred Thousand (200,000) shares of common stock as of October 19, 1998, pursuant to Employer's 1998 Equity Incentive Plan, subject to ratification by Employer's stockholders at the next annual meeting of stockholders. In addition to any previously vested option shares, the ISO shall automatically vest and be exercisable by Employee to the extent of seventy-five (75%) percent of the not yet vested option shares upon any Change of Control of Employer, as defined in Exhibit A. In addition to any previously vested option shares, the ISO shall also automatically vest and be exercisable by Employee to the extent of seventy-five (75%) percent of the not yet vested option shares upon termination by Employer for reasons other than for cause, as defined in Section 5 of this Agreement. The term of the ISO shall commence on October 19, 1998 and shall continue for ten (10) years with vesting of twenty-five percent (25%) per year, commencing at the end of the first year of employment. The grant price shall be the mean between the bid and asked prices on the date of grant. 2 3 (d) OTHER BENEFITS. Employee shall be entitled to the following benefits: Health Insurance: Employer shall contribute $300 per month toward Employee's Health Insurance for family plan. Life Insurance: Employer shall provide Life Insurance to Employee in an amount equal to 75% of Employee's annual base salary. Disability Insurance: If Employee shall be entitled to disability payments as determined by Employer in accordance with its practice for determining such eligibility, Employer shall pay Employee his Salary (in the manner in which it is usually paid pursuant to Section 4(a) above) for up to six (6) months of such disability. 401K Plan: Employee may make such contributions to the 401K Plan as determined by applicable law. Employer shall contribute 25% of the first $5,000 of Employee's contributions per year. Profit Sharing Plan: Employer's contribution if any, to Employer's Profit Sharing Plan, shall be determined each year by Employer's Board of Directors. Employee's share of such Employer contributions shall be pro rata based on Employee's Salary plus bonus. Vacation: Employee shall be entitled to four (4) weeks' paid vacation per year. Automobile: Employer shall provide Employee with an automobile. Business Expenses: Employer shall, subject to such requirements with respect to substantiation and documentation as may be specified by Employer, reimburse Employee for all reasonable and necessary travel and other business expenses incurred by Employee in the performance of his duties. (e) COMPENSATION IF CHANGE OF CONTROL. If Employer undergoes a Change of Control (as defined in Exhibit A), which is agreed to by the Board of Directors, and a VOLUNTARY or involuntary termination of Employee's employment occurs subsequent to a Change of Control within twenty-four (24) months after the date on which such Change of Control occurs, Employee shall be entitled to receive an amount equal to twelve (12) months' Salary at the rate then in effect. Employee's compensation in the case of Change of Control to which the Board of Directors does not agree is covered by the presently existing policy of Employer, which grants five years of Salary to Employee. 3 4 5. TERMINATION FOR CAUSE. (a) This Agreement may be terminated effective immediately by the Board of Directors of Employer for cause by written notice to Employee, which shall set forth the specific nature of the reasons for termination. Only the following acts or omissions by Employee shall constitute "cause" for such termination: (i) the commission of a felony related to Employer's affairs; (ii) deliberate dishonesty significantly detrimental to the best interest of Employer or any subsidiary thereof; or (iii) willful disloyalty to Employer or refusal or failure of Employee to obey the proper directions of the Board of Directors. (b) Employee's obligation with respect to non-competition (as described in section 6 below) shall continue in full force and effect following termination without regard to the reason or circumstances of the termination. 6. NON-COMPETITION. (a) During the term of this Agreement and for a period of twelve (12) months thereafter, Employee shall not (i) engage directly or indirectly, either individually or as owner, partner, agent, employee, consultant or otherwise, except for the account of and on behalf of Employer or its affiliates, in any activity in competition in any material respect with the business of Employer ("Employer's Business") or its affiliates, or in competition in any material respect with Employer's Business or that of its affiliates, solicit or otherwise attempt to establish any business relationships with any persons, firm or corporation which was, at any time during the term of this Agreement, a customer or supplier of Employer, wherever located, or (ii) disclose any confidential information of Employer or its affiliates which is now known to Employee or which hereafter may become known to Employee as a result of Employee's employment or association with Employer or use the same in any way other than in connection with the business of Employer or its affiliates. Employee acknowledges that Powell Valve Corp., Rego Valve, Bestabell Company, Circle Seal (Watts) and Cryolab are among Employer's direct primary competitors. (b) Employee recognizes that these restrictions on competition are reasonable because of Employer's investment and goodwill in its customer lists and other proprietary information and its continued efforts and investment in expanding the scope of its businesses and trading area and Employee's knowledge of Employer's Business and business plan. However, if any period of time, geographical area or other terms should be judged unreasonable in any judicial proceeding, then the period of time, geographical area or other terms shall be reduced to such extent as may be deemed required so as to be reasonable and enforceable. (c) For the purposes of this Agreement, Employer's Business includes manufacturing and distributing cryogenic valves and importing and distributing plumbing supplies. Employer's Business includes all component parts, processes and related customer services whether designed, manufactured or provided by Employer or obtained from outside sources, and further includes any related product or business added during the term of this Agreement. 4 5 7. CONFIDENTIAL INFORMATION. (a) CONFIDENTIAL INFORMATION. Employee recognizes that, by reason of his employment with Employer, he will be engaged in, have contact with, and gain knowledge of proprietary information relating to, and concerned with, the actual or contemplated business operations, products and policies of Employer, its suppliers, customers and other persons. (For purposes of this Agreement, the term "proprietary information" includes all trade secrets, customer information, inventions, discoveries, processes, formulae, records, computer programs or data, agreements, business and financial systems, plans and policies, prospects and opportunities discussed or considered by Employer (such as lending relationships, product development, potential acquisitions or dispositions of business or facilities) or any information or knowledge which is confidential and not public.) Accordingly, Employee agrees that: (i) He will not during his employment by Employer or after its termination, directly or indirectly disclose to any other person or entity, or use for his own account, or for other than Employer's business, without first obtaining the written consent of Employer, any proprietary information arising out of or obtained in the course of Employee's employment with Employer. Employee shall at all times keep confidential all proprietary information belonging to Employer, any clients of Employer or affiliated or subsidiary companies, and the licensees, clients, customers, consultants or collaborators of any of them. Employee will in turn not disclose to Employer any confidential information or material belonging to others. (ii) He will retain no copies of, and shall promptly deliver to Employer at the termination of his employment or at any other time Employer may request, all memoranda, notes, records, models, sketches, plans or other documents made or compiled by or delivered to him concerning any proprietary information of Employer. (b) INVENTIONS AND PATENTS. Employee agrees that any and all inventions, discoveries, computer programs, ideas or improvements (the "Inventions") in any way relating to the business of Employer shall immediately become the sole and absolute property of Employer and shall be immediately disclosed to Employer for its sole use and benefit. Employee agrees that, upon request of Employer, he will at any time, whether or not then in the employ of Employer, sell and assign all his right, title and interest to such Inventions to Employer, its successors or assigns, and give Employer the right to have letters patent or copyrights issued thereon issued in its name, and will give Employer the right to apply for and obtain patents or copyrights on such Inventions in any and all countries foreign to the United States as Employer may select. Employee will at any time, whether or not then in the employ of Employer, upon the request of Employer and without further remuneration, (i) execute, acknowledge and deliver to Employer, any document which Employer shall deem necessary to effect valid assignments to it of all Employee's right, title and interest in, to and under the Inventions and any licenses and rights to grant licenses acquired by him, and (ii) execute any document which Employer shall deem necessary to enable it to file and prosecute applications for copyright or letters patent of the United States and any foreign country on such Inventions, and (iii) do all other things (including 5 6 the giving of evidence in suits, interferences, oppositions, revocations and other proceedings) that Employer shall deem necessary or convenient for copyrighting, patenting or prosecuting or asserting copyrights or patents for any and all such Inventions, for the prosecution of applications for the reissue, renewal and extension of such copyrights or patents and for the establishing of any fact becoming known to Employee as an incident to his employment. 8. CONFLICTING AGREEMENTS. Employee represents and warrants that the execution of this Agreement and the performance of his duties and obligations hereunder will not breach or be in conflict with any other agreement to which he is a party or is bound and that he is not now subject to any covenants against competition or similar covenants which would affect the performance of his duties hereunder. 9. REMEDIES FOR BREACHES. Employee agrees that any breach of Paragraph 6 regarding non-competition would cause Employer irreparable harm and that money damages would be an inadequate remedy for any such breach, because damages are not susceptible to exact measurement in dollars. Therefore, Employer shall be entitled to injunctive relief (including, but not limited to a temporary restraining order, preliminary injunction or permanent injunction) to prohibit such breaches. Employer will also be entitled to costs and attorneys' fees in the event of a breach of Section 6. This paragraph in no way limits the remedies Employer has at law or in equity for breaches of any other paragraph of this Agreement. 10. ASSIGNMENT. Employee's rights, obligations and duties under this Agreement shall not be assigned by, nor are they assignable by, Employee. 11. NOTICES. Any notice required or permitted to be given under this Agreement shall be sufficient if it is in writing and if it is sent by registered mail, return receipt requested to the parties at the addresses specified in the opening paragraph of this Agreement. Notwithstanding the foregoing, delivery by hand shall be deemed sufficient for any notices between Employer and Employee. 12. ENTIRE AGREEMENT. This instrument contains the entire Agreement of the parties. This Agreement supersedes and terminates all prior agreements between the parties and the parties agree and understand that any such prior agreement shall not be effective unless contained in a writing expressly identifying it as a modification and signed by Employee and by an officer of Employer. 13. SEVERABILITY. Each provision of this Agreement shall be considered severable such that if any one provision or clause conflicts with existing or future applicable law, or may not be given full effect because of such law, this shall not affect any other provision of the Agreement which, consistent with such law, shall remain in full force and effect. All surviving clauses shall be construed so as to effectuate the purpose and intent of the parties. 14. GOVERNING LAW. This Agreement shall be governed by the laws of the Commonwealth of Massachusetts and any litigation in connection herewith shall be brought in the state or federal courts of the Commonwealth of Massachusetts. Employee consents to personal jurisdiction in the Commonwealth of Massachusetts. 6 7 15. WAIVER. No waiver of any provision of this Agreement shall be valid unless it is in writing and signed by the person against whom it is sought to be enforced. The failure of any party at any time to insist on strict performance of any condition, promise, agreement or understanding contained in this Agreement shall not be construed as a waiver or relinquishment of the right to insist on strict performance of the same condition, promise, agreement or understanding at any future time. 16. COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 17. EFFECT OF HEADINGS. Headings are for convenience of reference only and shall not effect the meaning or construction of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as an instrument under seal as of the date first written above. GODDARD INDUSTRIES, INC. By: __________________________ ______________________________ Saul I. Reck, President Salvatore J. Vinciguerra 7 8 EXHIBIT A DEFINITION OF CHANGE OF CONTROL "Change of Control" shall mean the occurrence of any one of the following events: (1) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Act")) BECOMES a "beneficial owner" (as such term is defined in Rule 13d-3 promulgated under the Act) (other than Employer, any trustee or other fiduciary holding securities under an employee benefit plan of Employer, or any Corporation owned, directly or indirectly, by the stockholders of Employer in substantially the same proportions as their ownership of stock of Employer), directly or indirectly, of securities of Employer representing 50% of more of the combined voting power of Employer's then outstanding securities; or (2) persons who, as of the date of this Agreement, constituted Employer's Board of Directors and persons becoming directors of Employer subsequent to the date of this Agreement whose election was proposed or approved by at least a majority of the then existing directors cease for any reason, including without limitation as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board; (3) the stockholders of Employer approve a merger or consolidation of Employer with any other corporation or other entity, other than (a) a merger or consolidation which would result in the voting securities of Employer outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of Employer or such surviving entity outstanding immediately after such merger or consolidation or (b) a merger or consolidation effected to implement a recapitalization of Employer (or similar transaction) in which no "person" (as hereinabove defined) acquires more than 50% of the combined voting power of Employer's then outstanding securities; or (4) the stockholders of Employer approve a plan of complete liquidation of Employer or an agreement for the sale or disposition by Employer of all or substantially all of Employer's assets, which plan or agreement is consummated and closed. 8 EX-10.(I) 3 1998 EQUITY INCENTIVE PLAN 1 EXHIBIT 10(i) GODDARD INDUSTRIES, INC. 1998 EQUITY INCENTIVE PLAN Section 1. PURPOSE The purpose of the Goddard Industries, Inc. 1998 Equity Incentive Plan (the "Plan") is to attract and retain key employees, directors and consultants to provide an incentive for them to assist the Company to achieve long-range performance goals, and to enable them to participate in the long-term growth of the Company. Section 2. DEFINITIONS (a) "Affiliate" means any business entity in which the Company owns directly or indirectly 50% or more of the total combined voting power or has a significant financial interest as determined by the Committee. (b) "Award" means any Option, Stock Appreciation Right, Performance or Award Share, or Restricted Stock awarded under the Plan. (c) "Award Share" means a share of Common Stock awarded to an employee without payment therefor. (d) "Board" means the Board of Directors of the Company. (e) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (f) "Committee" means a committee of not less than two non-employee directors appointed by the Board to administer the Plan or, alternatively, if the Board so determines, the whole Board of Directors. (g) "Common Stock" or "Stock" means the Common Stock, par value $.01 per share, of the Company. (h) "Company" means Goddard Industries, Inc., a Massachusetts corporation. (i) "Designated Beneficiary" means the beneficiary designated by a Participant, in a manner determined by the Board, to receive amounts due or exercise rights of the Participant in the event of the Participant's death. In the absence of an effective designation by a Participant, Designated Beneficiary shall mean the Participant's estate. (j) "Fair Market Value" means the fair market value as determined in accordancewith Section 14. (k) "Incentive Stock Option" means an option to purchase shares of Common Stock awarded to a Participant under Section 6 which is intended to meet the requirements of Section 422 of the Code or any successor provision. (l) "Nonstatutory Stock Option" means an option to purchase shares of Common Stock awarded to a Participant under Section 6 which is not intended to be an Incentive Stock Option. (m) "Option" means an Incentive Stock Option or a Nonstatutory Stock Option. (n) "Participant" means a person selected by the Board to receive an Award under the Plan. (o) "Performance Cycle" or "Cycle" means the period of time selected by the Board during which performance is measured for the purpose of determining the extent to which an award of Performance Shares has been earned. 2 (p) "Performance Shares" mean shares of Common Stock which may be earned by the achievement of performance goals awarded to a Participant under Section 8. (q) "Restricted Period" means the period of time selected by the Board during which an award of Restricted Stock may be forfeited to the Company. (r) "Restricted Stock" means shares of Common Stock subject to forfeiture awarded to a Participant under Section 9. (s) "Stock Appreciation Right" or "SAR" means a right to receive any excess in value of shares of Common Stock over the exercise price awarded to a Participant under Section 7. (t) "Stock Unit" means an award of Common Stock or units that are valued in whole or in part by reference to, or otherwise based on, the value of Common Stock, awarded to a Participant under Section 10. Section 3. ADMINISTRATION (a) The Plan shall be administered by the Committee. The Committee shall serve at the pleasure of the Board, which may from time to time appoint additional members of the Committee, remove members and appoint new members in substitution for those previously appointed, and fill vacancies however caused. Except where the Plan is administered by the entire Board of Directors, a majority of the Committee shall constitute a quorum and the acts of a majority of the members present at any meeting at which a quorum is present shall be deemed the action of the Committee, except that where grants are being made to one or more members of the Committee, a member who is the subject of a grant being presented to that meeting shall count toward the quorum but may not vote on any grant at that meeting, and a majority of the members eligible to vote shall be sufficient for any action. The Committee may act by unanimous written consent in lieu of a meeting. (b) Subject to the express provisions of this Plan and provided that all actions taken shall be consistent with the purposes of the Plan, the Committee shall have full and complete authority and the sole discretion to: (i) determine those persons eligible under Section 4; (ii) select those persons to whom Awards shall be granted under the Plan; (ii) determine the number of shares covered by and the form of the Awards to be granted; (iii) determine the time or times when Awards shall be granted; (iv) establish the terms and conditions upon which Options may be exercised or Awards vested, including exercise in conjunction with other awards made or compensation paid; (v) alter any restrictions or conditions upon any Awards; and (vi) adopt rules and regulations, establish, define and/or interpret any other terms and conditions, and make all other determinations (which may be on a case-by-case basis) deemed necessary or desirable for the administration of the Plan. Section 4. ELIGIBILITY All employees and, in the case of Awards other than Incentive Stock Options, directors and consultants of the Company or any Affiliate capable of contributing significantly to the successful performance of the Company, other than a person who has irrevocably elected not to be eligible, are eligible to be Participants in the Plan. Section 5. STOCK AVAILABLE FOR AWARDS (a) Subject to adjustment under subsection (b), Awards may be made under the Plan of Options to acquire not in excess of 300,000 shares of Company Common Stock. Other Awards may be made as the Board may determine, provided that a maximum of 300,000 shares of Common Stock may be issued under this Plan. If any Award in respect of shares of Common Stock expires or is terminated unexercised or is forfeited for any reason or settled in a manner that results in fewer shares outstanding than were initially awarded, including without limitation the surrender of shares in payment for the Award or any tax obligation thereon, the shares subject to such Award or so surrendered, as the case may be, to the extent of such expiration, termination, forfeiture or decrease, -2- 3 shall again be available for award under the Plan, subject, however, in the case of Incentive Stock Options, to any limitation required under the Code. Common Stock issued through the assumption or substitution of outstanding grants from an acquired company shall not reduce the shares available for Awards under the Plan. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares. (b) In the event that the Board determines that any stock dividend, extraordinary cash dividend, creation of a class of equity securities, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares, offering of rights to purchase Common Stock at a price substantially below fair market value, or other similar transaction affects the Common Stock such that an adjustment is required in order to preserve the benefits or potential benefits intended to be made available under the Plan, then the Board, subject, in the case of Incentive Stock Options, to any limitation required under the Code, shall equitably adjust any or all of (i) the number and kind of shares in respect of which Awards may be made under the Plan, (ii) the number and kind of shares subject to outstanding Awards, and (iii) the award, exercise or conversion price with respect to any of the foregoing, provided that the number of shares subject to any Award shall always be a whole number. In addition, if considered appropriate, the Board may make provision for a cash payment with respect to an outstanding Award.. Section 6. STOCK OPTIONS (a) Subject to the provisions of the Plan, the Board may award Incentive Stock Options and Nonstatutory Stock Options and determine the number of shares to be covered by each Option, the option price therefor and the conditions and limitations applicable to the exercise of the Option. The terms and conditions of Incentive Stock Options shall be subject to and comply with Section 422 of the Code, or any successor provision, and any regulations thereunder. (b) The Board shall establish the option price at the time each Option is awarded, which price shall not be less than 100% of the Fair Market Value of the Common Stock on the date of award with respect to Incentive Stock Options. (c) Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable Award or thereafter. The Board may impose such conditions with respect to the exercise of Options, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable. (d) No shares shall be delivered pursuant to any exercise of an Option until payment in full of the option price therefor is received by the Company. Such payment may be made in whole or in part in cash or, to the extent permitted by the Board at or after the award of the Option, by delivery of a note or shares of Common Stock owned by the Optionholder, including Restricted Stock, valued at their Fair Market Value on the date of delivery, or such other lawful consideration as the Board may determine. (e) The Board may provide for the automatic award of an Option upon the delivery of shares to the Company in payment of an Option for up to the number of shares so delivered. (f) In the case of Incentive Stock Options the following additional conditions shall apply: (i) Such options shall be granted only to employees of the Company, and shall not be granted to any person who owns stock that possesses more than ten percent of the total combined voting power of all classes of stock of the Company or of its parent or subsidiary corporation (as those terms are defined in section 422(b) of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder), unless, at the time of such grant, the exercise price of such option is at least 110% of the fair market value of the stock that is subject to such option and the option shall not be exercisable more than five years after the date of grant; -3- 4 (ii) Such options shall not be granted more than ten years from the date hereof and shall not be exercisable more than ten years from the date of grant; (iii) Such options shall, by their terms, be transferable by the optionee only by will or the laws of descent and distribution, and shall be exercisable only by such employee during his lifetime. Section 7. STOCK APPRECIATION RIGHTS Subject to the provisions of the Plan, the Board may award SARs in tandem with an Option (at or after the award of the Option), or alone and unrelated to an Option. SARs in tandem with an Option shall terminate to the extent that the related Option is exercised, and the related Option shall terminate to the extent that the tandem SARs are exercised. Section 8. PERFORMANCE SHARES (a) Subject to the provisions of the Plan, the Board may award Performance Shares and determine the number of such shares for each Performance Cycle and the duration of each Performance Cycle. There may be more than one Performance Cycle in existence at any one time, and the duration of Performance Cycles may differ from each other. The payment value of Performance Shares shall be equal to the Fair Market Value of the Common Stock on the date the Performance Shares are earned or, in the discretion of the Board, on the date the Board determines that the Performance Shares have been earned. (b) The Board shall establish performance goals for each Cycle, for the purpose of determining the extent to which Performance Shares awarded for such Cycle are earned, on the basis of such criteria and to accomplish such objectives as the Board may from time to time select. During any Cycle, the Board may adjust the performance goals for such Cycle as it deems equitable in recognition of unusual or non-recurring events affecting the Company, changes in applicable tax laws or accounting principles, or such other factors as the Board may determine. (c) As soon as practicable after the end of a Performance Cycle, the Board shall determine the number of Performance Shares which have been earned on the basis of performance in relation to the established performance goals. The payment values of earned Performance Shares shall be distributed to the Participant or, if the Participant has died, to the Participant's Designated Beneficiary, as soon as practicable thereafter. The Board shall determine, at or after the time of award, whether payment values will be settled in whole or in part in cash or other property, including Common Stock or Awards. Section 9. RESTRICTED STOCK (a) Subject to the provisions of the Plan, the Board may award shares of Restricted Stock and determine the duration of the Restricted Period during which, and the conditions under which, the shares may be forfeited to the Company and the other terms and conditions of such Awards. Shares of Restricted Stock may be issued for no cash consideration or such minimum consideration as may be required by applicable law. (b) Shares of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered, except as permitted by the Board, during the Restricted Period. Shares of Restricted Stock shall be evidenced in such manner as the Board may determine. Any certificates issued in respect of shares of Restricted Stock shall be registered in the name of the Participant and unless otherwise determined by the Board, deposited by the Participant, together with a stock power endorsed in blank, with the Company. At the expiration of the Restricted Period, the Company shall deliver such certificates to the Participant or if the Participant has died, to the Participant's Designated Beneficiary. -4- 5 Section 10. STOCK UNITS (a) Subject to the provisions of the Plan, the Board may award Stock Units subject to such terms, restrictions, conditions, performance criteria, vesting requirements and payment rules as the Board shall determine. (b) Shares of Common Stock awarded in connection with a Stock Unit Award shall be issued for no cash consideration or such minimum consideration as may be required by applicable law. Such shares of Common Stock may be designated as Award Shares by the Board. Section 11. EXERCISE OF OPTIONS; PAYMENT (a) Options may be exercised in whole or in part at such time and in such manner as the Committee may determine and as shall be prescribed in the written agreement with each holder. (b) The purchase price of shares of Stock upon exercise of an Option shall be paid by the Option holder in full upon exercise and may be paid as the Committee may determine in its sole discretion in any combination of: (i) cash or check payable to the order of the Company; (ii) property valued at Fair Market Value; (iii) delivery of a promissory note; (iv) delivery of shares of Common Stock (valued at Fair Market Value at the date of purchase of the Common Stock subject to the Option); or (iii) such other means as the Committee may permit. (c) With the consent of the Committee, payment of the exercise price may also be made by delivery of a properly executed exercise notice to the Company, together with a copy of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds to pay the exercise price. To facilitate such arrangements, the Company may enter into agreements for coordinating procedures with one or more securities brokerage firms. The date of delivery of such exercise notices shall be deemed the date of exercise. (d) The Committee may impose such conditions with respect to the exercise of Options, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable, including making the Common Stock issued upon exercise subject to restrictions on vesting or transferability, or to risk of forfeiture, upon the happening of such events as the Committee may determine, any of which may be accelerated or waived in the Committee's sole discretion. (e) No shares of Common Stock shall be issued upon exercise of any Option under this Plan until full payment in the form approved by the Committee has been made and all other legal requirements applicable to the issuance or transfer of such shares and such other requirements as are consistent with the Plan have been complied with to the satisfaction of the Committee. Section 12. GENERAL PROVISIONS APPLICABLE TO AWARDS (a) DOCUMENTATION. Each Award under the Plan shall be evidenced by a writing delivered to the Participant specifying the terms and conditions thereof and containing such other terms and conditions not inconsistent with the provisions of the Plan as the Board considers necessary or advisable to achieve the purposes of the Plan or comply with applicable tax and regulatory laws and accounting principles. (b) BOARD DISCRETION. Each type of Award may be made alone, in addition to or in relation to any other type of Award. The terms of each type of Award need not be identical, and the Board need not treat Participants uniformly. Except as otherwise provided by the Plan or a particular Award, any -5- 6 determination with respect to an Award may be made by the Board at the time of award or at any time thereafter. (c) SETTLEMENT. The Board shall determine whether Awards are settled in whole or in part in cash, Common Stock, other securities of the Company, Awards or other property. The Board may permit a Participant to defer all or any portion of a payment under the Plan, including the crediting of interest on deferred amounts denominated in cash and dividend equivalents on amounts denominated in Common Stock. (d) DIVIDENDS AND CASH AWARDS. In the discretion of the Board, any Award under the Plan may provide the Participant with (i) dividends or dividend equivalents payable currently or deferred with or without interest, and (ii) cash payments in lieu of or in addition to an Award. (e) TERMINATION OF EMPLOYMENT. The Board shall determine the effect on an Award of the disability, death, retirement or other termination of employment of a Participant and the extent to which, and the period during which, the Participant's legal representative, guardian or Designated Beneficiary may receive payment of an Award or exercise rights thereunder. (f) CHANGE IN CONTROL. In order to preserve a Participant's rights under an Award in the event of a change in control of the Company, the Board in its discretion may, at the time an Award is made or at any time thereafter, take one or more of the following actions: (i) provide for the acceleration of any time period relating to the exercise or realization of the Award, (ii) provide for the purchase of the Award upon the Participant's request for an amount of cash or other property that could have been received upon the exercise or realization of the Award had the Award been currently exercisable or payable, (iii) adjust the terms of the Award in a manner determined by the Board to reflect the change in control, (iv) cause the Award to be assumed, or new rights substituted therefor, by another entity, or (v) make such other provision as the Board may consider equitable and in the best interests of the Company. (g) WITHHOLDING. The Participant shall pay to the Company, or make provision satisfactory to the Board for payment of, any taxes required by law to be withheld in respect of Awards under the Plan no later than the date of the event creating the tax liability. In the Board's discretion, such tax obligations may be paid in whole or in part in shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value on the date of delivery. The Company and its Affiliates may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to the Participant. (h) FOREIGN NATIONALS. Awards may be made to Participants who are foreign nationals or employed outside the United States on such terms and conditions different from those specified in the Plan as the Board considers necessary or advisable to achieve the purposes of the Plan or comply with applicable laws. (i) AMENDMENT OF AWARD. The Board may amend, modify or terminate any outstanding Award, including substituting therefor another Award of the same or a different type, changing the date of exercise or realization and convening an Incentive Stock Option to a Nonstatutory Stock Option, provided that the Participant's consent to such action shall be required unless the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant. Section 13. FAIR MARKET VALUE (a) If the Common Stock is then traded on any national securities exchange or automated quotation system which has sale price reporting, the Fair Market Value of the Common Stock shall be the mean between the high and low sales prices, if any, on such exchange or system on the date as of which Fair Market Value is being determined or, if none, shall be determined by taking a weighted -6- 7 average of the means between the highest and lowest sales prices on the nearest date before and the nearest date after that date in accordance with applicable regulations under the Code. (b) If the Common Stock is then traded on an exchange or system which does not have sale price reporting, the Fair Market Value of the Common Stock shall be the mean between the average of the "Bid" and the average of the "Ask" prices, if any, as reported for such the date as of which Fair Market Value is being determined, or, if none, shall be determined by taking a weighted average of the means between the highest and lowest sales prices on the nearest date before and the nearest date after such date in accordance with applicable regulations under the Code. (c) With respect to Common Stock if it is not publicly traded and with respect to any other property, the Fair Market Value of such property shall be determined in good faith by the Committee or in the manner otherwise provided by the Committee from time to time. Section 14. MISCELLANEOUS (a) NO RIGHT TO EMPLOYMENT. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment. The Company expressly reserves the right at any time to dismiss a Participant free from any liability or claim under the Plan, except as expressly provided in the applicable Award. (b) NO RIGHTS AS SHAREHOLDER. Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a shareholder with respect to any shares of Common Stock to be distributed under the Plan until he or she becomes the holder thereof. A Participant to whom Common Stock is awarded shall be considered the holder of the Stock at the time of the Award except as otherwise provided in the applicable Award. (c) GOVERNING LAW. The provisions of the Plan shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts. (d) EFFECTIVE DATE OF PLAN. The effective date of this Plan shall be the date of adoption by the Board of Directors. If the Plan is subject to the approval of the stockholders under subsection (e) below, upon such approval it shall be effective as of the date of adoption by the Board of Directors. If prior to such approval the Committee grants Awards under the Plan of a type that require stockholder approval, upon such approval such Awards shall be effective as of the date of grant. (e) STOCKHOLDER APPROVAL. The adoption of this Plan, or any amendment hereto, shall be subject to approval by stockholders only to the extent required by (i) the Code, (ii) the rules under Section 16 of the Securities Exchange Act of 1934, (iii) rules of any stock exchange or over-the-counter stock market, or (iv) as otherwise required by law. Any such approval shall be obtained within the time required by such law or rule. Any stockholder approval of this Plan or any amendment so required shall mean the affirmative vote of at least a majority of the shares of capital stock present and entitled to vote at a duly held meeting of stockholders, unless a greater vote is required by state law, or the law or rule requiring stockholder approval, in which case such greater requirement shall apply. Stockholder approval may be obtained by written consent in lieu of meeting to the extent permitted by applicable state law. (f) AMENDMENT OF PLAN. The Board of Directors of the Company may at any time, and from time to time, amend, suspend or terminate this Plan in whole or in part; provided, however, that the Board of Directors may not modify the Plan in a manner requiring the approval of stockholders under subsection (e) above unless such approval is obtained to the extent required. -7- 8 (g) TERM OF PLAN. This Plan shall terminate ten years from the date of adoption by the Board of Directors, and no Award shall be granted under this Plan thereafter, but such termination shall not affect the validity of Awards granted prior to the date of termination. -8- EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS OCT-03-1998 SEP-28-1997 OCT-03-1998 283,473 0 1,210,246 35,300 3,410,767 5,100,093 4,694,485 3,079,727 6,856,719 978,329 0 0 0 21,299 0 6,856,719 9,732,242 9,732,242 6,082,601 2,335,138 53,743 (4,400) 86,202 1,260,760 514,000 746,760 0 0 0 746,760 .35 .35
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