SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended October 26, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ____________
Commission file number 0-15046
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WESTERBEKE CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 041925880
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(State or other jurisdiction of Employer (I.R.S. Identification No.)
incorporation or organization)
Avon Industrial Park
Avon, Massachusetts 02322 02322
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 588 - 7700
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of each class which registered
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None None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock,
$.01 par value
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(Title of class)
Indicate by a check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period as the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes____X_____ No __________
Indicate by a check mark if disclosure of delinquent filers, pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ].
State the aggregate market value of the voting stock held by non-
affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid
and asked prices of such stock, as of a specified date within 60 days prior
to the date of filing.
Aggregate market value as of January 17, 1997............ $2,688,300
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value, as of January 17, 1997..... 2,078,550
shares
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I
ITEM 1. BUSINESS.
General
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The Company is primarily engaged in the business of designing,
manufacturing and marketing marine engine and air-conditioning products.
The Company was organized in 1932 and was re-incorporated in Delaware in
1986. The Company's marine products consist of diesel and gasoline engine-
driven electrical generator sets, inboard propulsion engines, self-
contained, reverse-cycle air-conditioners, and associated spare parts and
accessories. In addition, the Company manufactures and markets electrical
generator sets for use in non-marine applications. The Company markets its
products throughout the United States and internationally principally for
recreational marine applications. Accordingly, the market for the Company's
products is dependent on the market for recreational boats, including
auxiliary powered sailboats, powerboats, houseboats and other pleasure
boats. The market for recreational boats, and consequently the Company's
products, may be adversely affected by general economic conditions.
Products
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The Company's marine engine product line consists of 18 models of
electrical generator sets, 19 models of inboard propulsion engines, and
associated spare parts and accessories. The Company also offers 11 models
of non-marine generator sets.
The Company's diesel and gasoline engine-driven marine generator sets
are installed in powerboats, houseboats, large sailboats and other pleasure
and commercial boats to provide electricity for communication and
navigational equipment, lighting, refrigeration and other galley services,
and other safety, operating and convenience needs. The Company's present
line of generator sets produce from 4.5 to 65 kilowatts of electricity. A
generator set consists of an electrical generator and an attached diesel or
gasoline engine used to drive the generator. These engines are fresh water
cooled and range from two to eight cylinders.
The Company's propulsion engines are inboard engines, generally
installed as auxiliary power systems for sailboats. The Company's
propulsion engines are fresh water cooled and range from two to six
cylinders and from 12 to 108 horsepower. Management believes that more than
90% of the propulsion engines produced by the Company are installed in
sailboats of up to 50 feet in length. The Company's higher horsepower
propulsion engines are also installed in powerboats of up to approximately
30 feet in length such as fishing boats, cruisers and work boats.
The Company's product line also includes marine diesel auxiliary
engines and associated spare and replacement parts marketed under the
Universal(R) name and marine air-conditioning products marketed under the
Rotary Aire(R) name. The Company manufactures and markets two self-
contained, reverse-cycle air-conditioning units and accessories under the
Rotary Aire(R) name. These units can be installed in powerboats,
houseboats, sailboats and other pleasure and commercial boats.
The Company's product line includes 11 models of non-marine electrical
generator sets which may be installed in bus-converted motor coaches,
specialty vehicles, such as refrigeration trucks, and ambulances and other
emergency vehicles to provide electricity for lighting, refrigeration and
other safety, operating and convenience needs. These generators may also be
used as stand-by or secondary power sources in the event of power outages or
in locations where primary power is not readily available, such as
construction sites, rural areas and less developed countries.
The Company offers a complete line of spare parts and accessories for
its current product lines and for most discontinued models. The Company's
line of spare parts includes oil and fuel filters, belts, thermostats,
distributor caps, fuses, spark plugs, wiring, alternators, heat exchangers,
circuit breakers, water and fuel pumps, starter motors and fuel solenoids.
Many basic parts are packaged and sold as spare part kits. Accessories
offered by the Company include various control and instrument panels,
exhaust silencers and generator sound enclosures.
The Company provides its distributors, dealers and final customers
with documentation covering operation, maintenance and repair procedures for
its products. Management believes that the provision of current and
comprehensive documentation enhances the Company's marketing and competitive
effectiveness. See "Marketing and Sales" and "Competition" below.
Each of the Company's products is covered by a one-year limited
warranty covering parts and authorized labor. In addition, the Company
offers a five-year limited warranty on certain marine generator sets. Many
of the Company's suppliers also warrant their products for parts and labor.
Some of the Company's major suppliers warrant their products for the
duration of the Company's warranties. The Company has not experienced any
unusual warranty claims during any of the last three fiscal years. The
Company's distributors are generally responsible for administering the
Company's warranties through the dealer network. See "Marketing and Sales"
below.
Governmental Regulation
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Many of the Company's products are subject to exhaust emission
standards pursuant to regulations promulgated by the Environmental
Protection Agency (the "EPA"), effective September 1, 1996, and by the
State of California, effective August 1, 1995. The emission standards are
intended to reduce the emissions of hydrocarbons, nitrogen oxides, carbon
monoxide, particulates and smoke. It is anticipated that by January 1,
1999, all of the Company's products will be subject to such regulations.
All of the regulations include manufacturer testing requirements, mandated
warranties on emissions related components, product labeling and reporting
requirements. Additionally, future regulations may include provisions for
selective enforcement audits and recall and repair requirements.
At this time, all of the Company's products which are subject to these
emissions regulations comply with the regulations. However, the emission
standards established by the regulations will become broader in scope and
more stringent regarding emissions levels each year. As a result, research
and development expenditures for emissions compliance will continue at a
significant level for the foreseeable future. Additionally, if at any time
the Company cannot effect the required modifications of its products to meet
the required emissions levels within the time frame allowed, the Company
could be materially adversely affected.
Design and Development
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The Company has an ongoing product improvement and development program
intended to enhance the reliability, performance and longevity of existing
products, and to develop new products. A significant portion of the
Company's senior management's time, as well as the efforts of the Company's
ten person product engineering department, is spent in this area. In prior
years, the Company's product development program resulted in the
introduction of the Company's line of gasoline engine-driven generator sets
and propulsion engines. As part of the Company's ongoing product
development program, the Company upgrades its engine products and
periodically adds models to its product line. For example, as and when
improvements in component parts allow, the Company may manufacture smaller
or more light-weight versions of existing models. In fiscal 1996, the
product engineering department focused principally on the modernization of
the Company's existing product line and modifications which the Company
believes will be required as a result of the emissions standards discussed
above. In addition, in response to demand, the Company may expand its
engine product line by manufacturing generator sets or propulsion engines
with different kilowattage or horsepower than its existing models. The
Company intends to introduce upgraded and new models as and when developed.
The Company's design and engineering focus is on reliability, ease of
maintenance, compactness, operating smoothness, safety and longevity, among
other technical and performance factors. The Company's technical and
performance specifications are utilized by the Company's suppliers in
producing certain component parts, metal and nonmetal fabrications and other
peripheral equipment that the Company manufactures and assembles into
finished products. Generally, the Company retains title to Company-
developed drawings, patterns and specifications used by these suppliers.
For the three fiscal years ended October 1996, the Company incurred
expenses of approximately $2,085,700 for design and development activities
as follows: 1996 - $918,700, 1995 - $678,700 and 1994 - $488,300. All these
activities were conducted and sponsored by the Company and the major portion
of these expenses was applied toward salaries and other expenses of the
Company's product design and engineering personnel.
Manufacturing and Sources of Supply
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The Company's manufacturing activities are conducted in an
approximately 37,500 square foot facility owned by the Company. See "Item 2
- - Properties" below. The Company has approximately 52 persons employed in
various manufacturing and assembly functions. See "Employees" below.
The Company's engine products generally contain from 250 to 500
component parts and assemblies purchased from domestic and foreign
manufacturers and suppliers. Some of these component parts are manufactured
to Company specifications, while others are further machined and assembled
by the Company. The basic component of the Company's engine products is a
"long block" engine, which is a complete engine block and head assembly
without peripheral equipment. Peripheral equipment added by the Company
includes subassemblies (generators, transmissions, alternators, carburetors,
motors and pumps), machined castings (flywheels, bellhousings, manifolds,
mounts, pulleys, brackets and couplings), sheet metal fabrications (control
and instrumentation panels), injection-molded plastic and other non-metallic
fabrications (belt guards, drip trays, belts, hoses and panels) and various
other component parts (mounts, switches and other electrical devices).
The Company purchases "long block" engines from five foreign
manufacturers. The Company currently purchases all of its requirements of
"long block" engines on a purchase order basis rather than pursuant to long-
term supply agreements. In certain cases, the Company has an agreement with
its "long block" engine manufacturers to supply these component parts
exclusively to the Company for marine products of the type produced by the
Company. Orders for "long block" engines are dollar-denominated and
therefore fluctuations in the dollar/yen exchange rate have had and will
continue to have an effect on the cost of the Company's raw materials. See
"Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations." The Company believes that the purchase of "long
block" engines on a purchase order basis has become the more common
industry practice. While the interruption of supply of "long block" engines
from existing suppliers would have a material adverse effect on the
Company's operations until alternative services are secured, management
believes that there are adequate alternative sources of supply of "long
block" engines available to it. In addition, the Company does not have
long-term supply agreements with other manufacturers of other component
parts or peripheral equipment. The Company believes that it can obtain
these parts and equipment from a variety of sources on commercially
reasonable terms. However, the disruption of its supply of these parts,
equipment or "long block" engines would have a material adverse effect on
the Company's operations.
The lead time between ordering and receipt of component parts varies
with the part involved, but generally ranges from a few weeks in the case of
unfinished products to three to six months in the case of "long block"
engines, generators and transmissions. The Company has not experienced any
difficulties in obtaining finished or unfinished components or peripheral
equipment on commercially reasonable terms.
Most of the Company's purchases of component parts and peripheral
equipment from Japanese ("long block" engines), Italian (generators) and
other foreign manufacturers are dollar-denominated. Fluctuations in
exchange rates have resulted, and may in the future result, in price
increases from some of the Company's suppliers. Management believes that to
varying degrees the Company's competitors in the engine product markets have
been and will be similarly affected since many of its competitors also
purchase component parts and peripheral equipment abroad. However, some of
the Company's principal competitors are divisions of large and diversified
multinational companies with extensive production facilities and sales and
marketing staffs and substantially greater financial resources than the
Company and therefore may be better situated to accommodate price increases
from suppliers due to fluctuations in exchange rates. The engine product
markets are price sensitive, and there can be no assurance that the Company
will be able to pass on price increases from its suppliers to its customers.
The manufacturing of a particular engine product requires the
integration of a number of engineering, machining and assembly functions in
order to produce high quality components. Prior to final assembly, the
Company's manufacturing activities involve machining various metal and
nonmetal component parts on computer-controlled and conventional milling
machines, lathes, drill presses, welders and other machinery, modification
and assembly of electrical and mechanical subassemblies, calibration of
electrical devices and components and testing for variances from
specifications and operating parameters. The Company has approximately ten
machine operators who satisfy approximately 95% of the Company's machining
needs. The remainder of the machining is performed by independent
contractors.
The Company has a final assembly line for its engine products where
component parts, subassemblies and peripheral equipment are assembled onto
"long-block" engines. Following final assembly, each generator set and
propulsion engine is tested at increasing loads up to full operating
capacity to verify performance and safety features. After product testing,
the product is pressure hot water washed, primed and painted, unpainted
components are attached, and the product is packed and shipped to the
customer, generally via common carrier freight collect.
The Company's air-conditioning products are produced on a separate
assembly line where component parts (compressors, evaporator and condensing
coils, fans, electrical components and plastic housings), purchased from
manufacturers and suppliers, are assembled into final units. The Company
does not have any long-term supply agreements with the manufacturers of
these component parts. However, the Company believes it can obtain most of
these parts from a variety of sources on commercially reasonable terms.
Following assembly, each air-conditioner is painted and tested for
performance, leakage and compliance with safety standards.
Management believes that the Company's present facilities are
sufficient for the production of its products in the foreseeable future.
Any future expansion will be dependent upon future growth in demand for the
Company's products. See "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Item 2 - Properties"
below.
Quality Control and Computerization
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Management believes that maintaining high quality manufacturing
standards is important to its competitive position and also believes that
the Company has developed a reputation for high quality products. The
Company maintains quality control systems and procedures which it reviews
with its manufacturing personnel and which it modifies as appropriate.
The Company's quality control systems and procedures include the
testing of each fully assembled generator set and propulsion engine at
increasing loads up to full operating capacity to verify performance and
safety features. The checklist includes testing wiring and electrical
systems, all connections and fittings, fuel and oil systems, the fresh water
cooling system and safety shutdown features. In the case of the Company's
generator sets, output current, voltage and frequency are also tested. The
results of the tests are recorded and each product is approved by quality
assurance personnel before it leaves the testing area.
In line with its policy of updating and improving its manufacturing
operations, the Company utilizes a computerized manufacturing management
system which integrates the Company's inventory control, sales and financial
functions with its manufacturing operations.
Marketing and Sales
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The Company's marine engine and air-conditioning products are marketed
through a nationwide and international network of distributors and dealers.
The Company markets its non-marine engine products through a sales
representative and to distributors. In addition, the Company's two sales
managers and senior management devote a substantial amount of time to the
overall coordination of the Company's sales to distributors, as well as to
the Company's direct sales to boat and other manufacturers (OEM's). Direct
sales by the Company to OEM's accounted for approximately 34%, 35%, and 34%
of total sales for the fiscal years ended October 1996, 1995 and 1994,
respectively.
The Company's marine products are sold to distributors for resale to
manufacturers of powerboats, houseboats, sailboats and other pleasure and
commercial boats, and to boat dealers and marinas. Boat manufacturers
install the Company's products as original equipment. In addition, the
Company's distributors resell the Company's marine products to over 400
authorized dealers (including boatyards and marinas) located on or near
major navigable waterways throughout the United States and Canada. These
dealers install the Company's generator sets, propulsion engines and air-
conditioners as either new or replacement equipment. In addition, many of
these dealers maintain inventories of spare parts and accessories in order
to maintain and repair the Company's marine products.
The Company's distributor network consists of 10 domestic and 46
foreign distributors. The Company's distributors are located along the
East, West and Gulf Coasts and in the Great Lakes Region. Two of the
Company's foreign distributors are located and operate in Canada, 16 are
located and operate in Europe, six are located and operate in Central and
South America, and nine are located and operate in the Far East. The
Company also has distributors in Australia, New Zealand, Pakistan, Egypt,
Turkey, Bahrain, Bermuda, Tahiti, the British West Indies, the U.S. Virgin
Islands, Bangladesh, Maldives and the Netherlands Antilles. Each
distributor operates in a specified region under a distribution agreement
with the Company which assigns to the distributor the nonexclusive
responsibility for sales and service of the Company's products in its
territory, including warranty administration, accounts receivable collection
and other customer related functions. Each distributor maintains
inventories of the Company's marine products, including spare parts and
accessories, in order to provide boat manufacturers and dealers with prompt
delivery of products. Typically, the Company's distributors and dealers
also distribute and sell other marine accessories and products. Generally,
however, the Company's distributors do not sell products which compete with
the Company's products.
Sales to international customers totaled $2,594,500 (12.6% of net
sales), $2,279,300 (12.1% of net sales) and $1,708,000 (11.4% of net sales)
for the fiscal years ended October 1996, 1995 and 1994, respectively. See
Note 2 of Notes to Consolidated Financial Statements included in "Item 8 -
Financial Statements and Supplementary Data" for additional information
concerning sales to international customers for the Company's three most
recent fiscal years. Management is not aware of any special tariffs,
importation quotas or any other restrictions imposed by the foreign
countries in which the Company sells its products. All of the Company's
international sales are dollar-denominated which protects the Company to
some extent against foreign currency exchange rate fluctuations, although
significant increases in the value of the dollar in relation to foreign
currencies may adversely impact the Company's ability to market its products
abroad. Management believes that, to varying degrees, the Company's
competitors in the marine product market are similarly affected since many
of its competitors also sell products abroad. However, some of the
Company's principal competitors are divisions of large and diversified
multinational companies with extensive production facilities and sales and
marketing staffs and substantially greater financial resources than the
Company and therefore may be better situated to accommodate fluctuations in
exchange rates. Management is not aware of any other unusual or special
risks associated with this aspect of the Company's business. The Company
considers international customers to be an important market for its marine
products.
An important aspect of the Company's marketing approach and
competitive position is the ability of its technical personnel and its
distributors to provide technical assistance to boat manufacturers and
dealers with a view to developing specifications and performance parameters
for unit or serial production of its marine products. To that end, the
Company selects its distributors with great care and continually monitors
their technical expertise. In addition, at times the Company conducts
seminars in each distribution region. These sessions are conducted by
personnel from the Company and from its distributors and are open to boat
manufacturers, dealers and individual boat owners. The Company occasionally
sponsors service schools at its manufacturing facility designed to upgrade a
distributor's technical expertise and to introduce product innovations and
new products. See "Competition" below.
The Company markets the Westerbeke(R), Universal(R) and Rotary Aire(R)
names and its marine products through various methods of advertising.
Certain advertising is accomplished under a cooperative system with the
Company's distributors. Under this system, the Company pays a portion of
the cost of and approves the advertising developed by its distributors.
Advertisements are placed in trade publications such as Soundings, Motor
Boating and Sailing, Sail, Power & Motor Yacht and Cruising World. In
addition, a substantial amount of the Company's advertising is conducted
through the distribution of technical and sales literature and pamphlets,
direct mailings and sponsorship of exhibits at boat shows. During the
fiscal years ended October 1996, 1995 and 1994, the Company incurred
advertising and promotional expenses of $453,200, $368,400, and $283,000,
respectively.
For the fiscal year ended October 26, 1996, sales to Sea Ray Boats,
Inc., Marysville Marine Distributors, Inc. and Hansen Marine Engineering,
Inc., accounted for approximately 18.9%, 18.4% and 10.9%, respectively, of
the Company's total sales. See Note 2 of Notes to Consolidated Financial
Statements included in " Item 8 - Financial Statements and Supplementary
Data." The Company believes that, if necessary, it could replace any of its
distributors or sell the products presently distributed by them directly to
boat manufacturers and dealers. However, the loss of these customers or the
inability to replace these distributors could have a material adverse effect
on the Company.
The market for the Company's products is dependent on the market for
recreational boats, including auxiliary powered sailboats, powerboats,
houseboats and other pleasure boats. In addition, the recreational marine
boat business is seasonal in nature and accordingly, the Company's business
generally experiences some fluctuations in its business during the course of
the year. See Note 14 of Notes to Consolidated Financial Statements
included in "Item 8 - Financial Statements and Supplementary Data."
Proprietary Rights
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Although the Company follows a policy of protecting its proprietary
rights to its marine engine products and designs, it does not believe that
its business, as a whole, is materially dependent upon such protection. The
Company has registered the names Westerbeke(R), Universal(R), Rotary Aire(R)
and Atomic Four(R) under Federal trademark law.
Backlog and Credit Terms
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The Company believes that because its production is based upon
cancelable purchase orders rather than long-term agreements, the amount of
its backlog is not an important indicator of future sales. The Company
extends credit to certain of its customers on terms which it believes are
normal and customary in the marine industry.
Competition
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The business of manufacturing and supplying marine products is
extremely competitive. The Company faces competition from a number of
companies, including at least seven significant competitors, some of which
are divisions of large and diversified multinational companies with
extensive production facilities and sales and marketing staffs and
substantially greater financial resources than the Company. Such
competitors may be better situated to accommodate price increases from
suppliers due to fluctuations in exchange rates. In addition, the Company
faces competition from similar companies as it expands its product line or
seeks other non-marine applications for its product line. Although price is
an important competitive factor, the Company believes that its pricing is
competitive.
The market for the Company's marine products is dependent on the
market for recreational boats which may experience contracting sales as a
result of general economic conditions. A contracting market may result in
additional competition particularly for direct sales to large boat
manufacturers.
The Company believes that it can compete effectively with all of its
present competitors based upon the high quality, reliability, performance
and longevity of its products, the comprehensiveness of its line of
products, price, the effectiveness of its customer service and the technical
expertise of its personnel and that of its distributors.
Employees
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At December 31, 1996, the Company had 87 full-time employees,
including officers and administrative personnel. None of the Company's
employees is covered by a collective bargaining agreement and the Company
considers its relationship with its employees to be excellent.
Directors and Executive Officers of the Company
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The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Position with the Company Age
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<S> <C> <C>
John H. Westerbeke, Jr............ Chairman, President and 56
Director (Class C)
John H. Westerbeke, Sr............ Director (Class C) 87
Carleton F. Bryant, III........... Executive Vice President, 51
Treasurer, Chief Operating
Officer and Secretary
Gerald Bench...................... Director (Class A) 55
Thomas M. Haythe.................. Director (Class B) 57
Nicholas H. Safford............... Director (Class B) 64
James W. Storey................... Director (Class B) 62
</TABLE>
John H. Westerbeke, Jr. has been President and a director of the
Company since 1976. In June 1986, Mr. Westerbeke, Jr. assumed the
additional position of Chairman of the Company. Mr. Westerbeke, Jr. has
served in various managerial capacities since joining the Company in 1966.
John H. Westerbeke, Sr. is the founder of the Company. Mr.
Westerbeke, Sr. has served as a director of the Company since 1946 and was
Chairman of the Board of Directors of the Company from 1976 until June 1986.
Mr. Westerbeke, Sr. is presently employed by the Company in various
engineering capacities.
Carleton F. Bryant, III has been Executive Vice President, Treasurer,
Chief Operating Officer, and Secretary of the Company since May 1993. From
October 1987 to May 1993, Mr. Bryant was Director of Business Development
for Analysis & Computer Systems, Inc., a developer of computer software and
systems. From June 1980 to October 1987, Mr. Bryant held various management
positions with Bird-Johnson Company, a manufacturer of ship propellers, bow
thrusters and hydraulic actuators. From 1969 to 1980, Mr. Bryant held a
variety of management positions with Bath Iron Works Corporation, a
shipbuilder.
Gerald Bench has been a director of the Company since June 1986. Mr.
Bench has been the President and Chief Executive Officer of Hadley Fruit
Orchards, Inc. since November 1996 and was a consultant from March 1995 to
November 1996. Mr. Bench was a partner in ICAP Marine Group (consulting
firm) from November 1993 to February 1995. Mr. Bench was the Chairman and
President of TDG Aerospace, Inc. (manufacturer of aircraft de-icing devices)
from October 1991 to November 1993. Mr. Bench was the President of
Thermion, Inc. (manufacturer of heaters for aircraft de-icing devices) from
April 1990 to September 1991. From July 1989 to March 1990, Mr. Bench was
the general manager of Lermer Corporation (manufacturer of airline galley
equipment). Mr. Bench is the former Chairman of the Board, President, Chief
Executive Officer and director of E&B Marine Inc. (marine supplies and
accessories). Mr. Bench had held various executive positions with E&B
Marine Inc. for more than 30 years.
Thomas M. Haythe has been a director of the Company since June 1986.
Mr. Haythe has been a partner of the law firm of Haythe & Curley since its
formation in February 1982. Mr. Haythe is also a director of Novametrix
Medical Systems Inc. (manufacturer of electronic medical instruments), Guest
Supply, Inc. (provider of hotel guest room amenities, accessories and
products), Isomedix Inc. (provider of sterilization services), Ramsay Health
Care, Inc. (provider of psychiatric health care services) and Ramsay Managed
Care, Inc. (provider of managed mental health care services).
Nicholas H. Safford has been a director of the Company since February
1991. Mr. Safford has been the President of Nicholas H. Safford & Co., Inc.
(investment counselor and private trustee) since 1983 and from 1979 to 1981.
From 1982 to 1983, Mr. Safford was the President and a director of Wendell,
Safford and Co., Inc. (investment counseling firm). Prior to 1978, Mr.
Safford was Vice President and a director of David L. Babson & Co., Inc.
(investment counseling firm).
James W. Storey has been a director of the Company since June 1986.
Mr. Storey was the President of Wellingsley Corporation (private investment
management company) from December 1986 through December 1992. Mr. Storey is
currently an independent consultant. From 1982 to 1986, Mr. Storey was the
President and Chief Executive Officer of Codex Corporation, a subsidiary of
Motorola, Inc., and was a Vice President of Motorola, Inc. Mr. Storey had
held various managerial positions with Codex Corporation since 1966. Mr.
Storey is also a director of Progress Software Corporation (software) and
Kurzweil Applied Intelligence Inc. (software).
ITEM 2. PROPERTIES.
The Company's executive and administrative offices and manufacturing
operations are located in Avon, Massachusetts in an approximately 37, 500
square foot facility owned by the Company. The Company also leases a
warehouse of approximately 16,000 square feet. Management believes that the
Company's present facilities are sufficient for the production of its
products in the foreseeable future. Any future expansion will be dependent
upon future growth in demand for the Company's products. Annual warehouse
rent was approximately $78,400 in fiscal 1996 and $71,300 in fiscal 1995.
See Notes 8 and 10 of Notes to Consolidated Financial Statements included in
"Item 8 - Financial Statements and Supplementary Data."
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is party to certain claims, suits and
complaints which arise in the ordinary course of business. Currently, there
are no such claims, suits or complaints which, in the opinion of management,
would have a material adverse effect on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded in the over-the-counter market on
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") under the symbol WTBK. On January 17, 1997, there were
approximately 177 shareholders of record. The following table sets forth
the range of high and low bid quotations per share of the Company's Common
Stock from October 30, 1994 through October 26, 1996, on the NASDAQ. High
and low bid quotations represent prices between dealers and do not reflect
retail mark-ups, mark-downs or commissions and may not represent actual
transactions.
<TABLE>
<CAPTION>
Common Stock Prices
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High Low
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<S> <C> <C>
FISCAL 1995
First Quarter (October 30, 1994 to
January 28, 1995) $2.313 $1.563
Second Quarter (January 29, 1995 to
April 29, 1995) 2.625 1.688
Third Quarter (April 30, 1995 to
July 29, 1995) 2.875 2.125
Fourth Quarter (July 30, 1995 to
October 28, 1995) 2.375 2.125
FISCAL 1996
First Quarter (October 29, 1995 to
January 27, 1996) $4.125 $2.125
Second Quarter (January 28, 1996 to
April 27, 1996) 3.250 2.375
Third Quarter (April 28, 1996 to
July 27, 1996) 2.875 1.875
Fourth Quarter (July 28, 1996 to
October 26, 1996) 2.688 2.000
</TABLE>
On January 17, 1997, the last bid and asked price quotations for the
Company's Common Stock were $2.50 and $2.875 respectively.
No dividends have been paid or declared on the Common Stock of the
Company and the Company does not expect to pay any dividends on its Common
Stock in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
Five Year Comparison of Selected Financial Data
<TABLE>
<CAPTION>
October 26, October 28, October 29, October 30, October 31,
1996 1995 1994 1993 1992
For the Year: ----------- ----------- ----------- ----------- -----------
(In thousands, except for per share amount)
<S> <C> <C> <C> <C> <C>
Net sales $20,653 $18,794 $15,038 $13,411 $15,106
Gross profit 4,778 4,292 3,399 3,104 3,293
Selling, general and administrative expense 2,672 2,514 2,223 2,143 2,316
Research and development expense 919 679 488 383 387
Income from operations 1,187 1,099 688 579 591
Interest (income) expense (47) (43) (19) (10) 14
Income before cumulative effect of change in
accounting principle 737 698 432 336 313
Net income 737 698 633 336 397
Income per share before cumulative effect of
change in accounting method 0.33 0.31 0.19 0.16 0.15
Net income per share* 0.33 0.31 0.28 0.16 0.19
At end of year:
Total assets $12,681 $10,999 $10,264 $ 8,772 $ 9,281
Working capital 6,315 5,908 5,733 5,520 5,547
Long-term liabilities 520 189 267 177 268
Stockholders' equity 9,841 9,091 8,319 7,658 7,322
<FN>
<F*> * See Note 1 of Notes to Consolidated Financial Statements.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations:
The following table sets forth, for the years indicated, the percentages
which the following items in the Consolidated Statements of Operations bear
to Net Sales.
<TABLE>
<CAPTION>
Years Ended
---------------------------------------
October 26, October 28, October 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 %
Gross profit 23.1 22.8 22.6
Selling, general and administrative expenses 12.9 13.4 14.8
Research and development expense 4.4 3.6 3.2
Income from operations 5.7 5.8 4.6
Interest income, net 0.2 0.2 0.1
Provision for income taxes 2.4 2.4 1.8
Net income 3.6 3.7 4.2
</TABLE>
Fiscal 1996 compared to Fiscal 1995
- -----------------------------------
Net sales increased $1,858,700 or 9.9% in fiscal 1996 as compared to fiscal
1995. The increase was attributable to higher unit sales of the Company's
marine generators. The overall increase is primarily the result of more
favorable economic conditions benefiting the pleasure boat industry.
International sales were $2,594,500 in 1996, representing 12.6% of net
sales, as compared to $2,279,300 in 1995, or 12.1% of net sales. The
increase in 1996 is the result of higher unit sales caused by improved
economies in the European countries.
Gross profit increased $485,900 or 11.3% in fiscal 1996 as compared to
fiscal 1995. Gross profit as a percentage of sales increased to 23.1% in
fiscal 1996 as compared to 22.8% in fiscal 1995. The increase in gross
profit percentage is primarily due to improved manufacturing productivity
during the year.
Selling, general and administrative expense increased $157,800 or 6.3% in
fiscal 1996 as compared to fiscal 1995. The Company incurred higher
marketing and promotional expenses due to increased boat show and travel
activity. Employee compensation costs were also higher as a result of the
Company's improved profitability.
Research and development expense increased $240,000 or 35.4% in fiscal 1996
as compared to fiscal 1995. The increase is due to additional engineering
personnel and increased consulting costs associated with product
development. The Company has also realized increased costs due to the
compliance with federal and state exhaust emission requirements. See "
Business - Governmental Regulation".
Net interest income was $47,400 in fiscal 1996 compared to $42,900 in fiscal
1995. The increase is primarily due to increased interest income earned on
higher invested cash balances during the year.
The Company's income tax expense in fiscal 1996 was $497,200 as compared to
$444,400 in fiscal 1995.
The Company's net income was $737,400 as compared to $697,600 in fiscal
1995. The increase is mainly attributable to higher unit sales throughout
fiscal 1996.
Fiscal 1995 compared to Fiscal 1994
- -----------------------------------
Net sales increased $3,756,700 or 25.0% in fiscal 1995 as compared to fiscal
1994. The increase was attributable to higher unit sales of the Company's
marine generators, diesel propulsion engines, and after-market parts
revenues. The overall increase is primarily the result of more favorable
economic conditions benefiting the pleasure boat industry.
International sales were $2,279,300 in 1995, representing 12.1% of net
sales, as compared to $1,708,000 in 1994, or 11.4% of net sales. The
increase in 1995 is the result of higher unit sales caused by improved
economies in the European countries.
Gross profit increased $893,000 or 26.3% in fiscal 1995 as compared to
fiscal 1994. Gross profit as a percentage of sales increased to 22.8% in
fiscal 1995 as compared to 22.6% in fiscal 1994. The increase in gross
profit percentage is primarily due to increased parts revenues and improved
manufacturing productivity during the year.
Selling, general and administrative expense increased $291,200 or 13.1% in
fiscal 1995 as compared to fiscal 1994. The Company incurred higher
marketing and promotional expenses due to increased boat show and travel
activity. Administration costs also increased primarily due to higher legal
costs associated with the negotiation of supplier contracts. Employee
compensation costs were also higher as a result of the Company's improved
profitability.
Research and development expense increased $190,400 or 39.0% in fiscal 1995
as compared to fiscal 1994. The increase is due to additional engineering
personnel and increased consulting costs associated with product
enhancements. The Company also realized increased costs due to the
compliance with proposed federal and new California state exhaust emission
requirements.
Net interest income was $42,900 in fiscal 1995 compared to $19,000 in fiscal
1994. The increase is primarily due to increased interest income earned on
higher invested cash balances during the year.
The Company's income tax expense in fiscal 1995 was $444,400 as compared to
$275,000 in fiscal 1994.
The Company's net income was $697,600 as compared to $633,000 in fiscal
1994. The increase is mainly attributable to higher unit sales throughout
fiscal 1995. Net income for 1994 includes $201,300 resulting from the
cumulative effect of adopting Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes ("Statement 109"). Statement 109
required a change from the deferred method under APB Opinion 11 to the asset
and liability method of accounting for income taxes.
Effective October 30, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities. Under this statement, the Company's marketable securities
are classified as "available for sale" and are recorded at current market
value with a offsetting adjustment to stockholders' equity.
Liquidity and Capital Resources
During fiscal 1996, net cash used by operations was $581,100 as compared to
net cash provided by operations of $336,700 in fiscal 1995. Major uses of
cash during fiscal 1996 include increases in inventories and accounts
receivable, offset partially by an increase in accounts payable. The rise
in inventories is primarily the result of increased demand and the timing of
engine purchase order receipts.
During fiscal 1996 and 1995, the Company purchased property, plant and
equipment of $570,400 and $349,400, respectively. The Company plans capital
spending of approximately $500,000 on machinery and equipment during fiscal
1997.
The Company has a $3,000,000 Credit Agreement with State Street Bank and
Trust Company, collateralized by inventory, accounts receivable and general
intangibles. The Credit Agreement was renewed on March 31, 1996, and will
expire on March 31, 1997. The Company believes that it will be able to
continue to extend the term of the Credit Agreement on commercially
reasonable terms. As of October 26, 1996, the Company had approximately
$2,624,100 in unused borrowing capacity under the Credit Agreement and
approximately $375,900 committed to cover the Company's reimbursement
obligations under certain open letters of credit and bankers' acceptances.
On January 23, 1996, the Company entered into a $500,000 revolving line of
credit agreement (the "Revolving Line of Credit") and term loan facility
(the "Term Loan") with State Street Bank and Trust Company, collateralized
by various emission testing and product development equipment and subject to
working capital and equity covenants. On July 31, 1996, the Revolving Line
of Credit terminated and automatically converted into a five year Term Loan
in the principal amount of $491,600 bearing a fixed interest rate of 8.96%.
As of October 26, 1996, the outstanding principal amount was approximately
$475,000.
Management believes cash flow from operations and borrowings available under
the Credit Agreement will provide for working capital needs, principal
payments on long-term debt, and capital and operating leases through fiscal
1997.
Domestic inflation is not expected to have a major impact on the Company's
operations.
The costs of engine blocks and other components are subject to foreign
currency fluctuations (primarily the Japanese yen). The value of the U.S.
dollar relative to the yen had no material effect on the cost of the
Company's products in fiscal 1996.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 123 in October 1995, which statement
establishes financial accounting and reporting standards for stock based
employee compensation plans. The Company plans to adopt the disclosure
requirements of SFAS No. 123 and continue to apply the accounting provisions
of Opinion No. 25 of the Accounting Principles Board. Accordingly, adoption
of SFAS No. 123 is not expected to have a material impact on the Company's
consolidated financial statements.
This Annual Report on Form 10-K may contain forward-looking information
about the Company. The Company is hereby setting forth statements
identifying important factors that may cause the Company's actual results to
differ materially from those set forth in any forward-looking statements
made by the Company. Some of the most significant factors include: an
unanticipated down-turn in the recreational boating industry resulting in
lower demand for the Company's products; the unanticipated loss of, or
decline in sales to, a major customer; the unanticipated loss of a major
supplier; the inability of the Company to effect required modifications of
its products to meet governmental regulations with respect to emission
standards; and foreign currency fluctuations resulting in cost increases to
the Company for its foreign supplied components. Accordingly, there can be
no assurances that any anticipated future results will be achieved.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
WESTERBEKE CORPORATION AND SUBSIDIARY
-------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended October 26, 1996,
October 28, 1995 and October 29, 1994
KPMG Peat Marwick LLP
99 High Street Telephone 617 988 1000 Telefax 617 988 0800
Boston, MA 02110-2371
Independent Auditors' Report
----------------------------
To the Board of Directors and Stockholders of
Westerbeke Corporation:
We have audited the accompanying consolidated balance sheets of Westerbeke
Corporation and subsidiary as of October 26, 1996 and October 28, 1995, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
October 26, 1996. In connection with our audits of the consolidated
financial statements, we have also audited the financial statement schedule
as listed in Item 14(a)2. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule 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 in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Westerbeke Corporation and subsidiary as of October 26, 1996 and October 28,
1995, and the results of their operations and their cash flows for each of
the years in the three-year period ended October 26, 1996, in conformity
with generally accepted accounting principles. Also in our opinion, the
related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
By /s/ KPMG Peat Marwick LLP
Boston, Massachusetts
December 20, 1996
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 26, October 28,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 200,500 $ 1,322,200
Accounts receivable, net of allowance for doubtful
accounts of $60,700 and $60,500, respectively
(Note 2) 2,318,500 1,541,400
Inventories (Note 3) 5,428,000 4,313,500
Prepaid expenses and other assets 249,000 134,100
Deferred income taxes (Note 9) 439,400 316,200
----------------------------
Total current assets 8,635,400 7,627,400
Property, plant and equipment, net (Notes 4,8 and 10) 1,782,300 1,594,900
Other assets, net (Note 5) 1,204,600 1,140,800
Investments in marketable securities (Note 1) 922,300 486,100
Note receivable - related party (Note 6) 136,600 149,400
----------------------------
$ 12,681,200 $ 10,998,600
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 8) $ 123,400 $ 22,100
Current portion of obligations under capital leases
(Note 10) - 12,700
Accounts payable 1,630,300 1,077,600
Accrued expenses and other liabilities 557,400 380,400
Accrued income taxes (Note 9) 8,900 226,300
----------------------------
Total current liabilities 2,320,000 1,719,100
----------------------------
Deferred income taxes (Note 9) 123,900 144,200
Long-term debt, net of current portion (Note 8) 396,300 44,700
----------------------------
520,200 188,900
----------------------------
Commitments and contingencies (Notes 7 and 10)
Stockholders' equity (Notes 11 and 12):
Common stock, $.01 par value; authorized 5,000,000
shares; issued 2,122,950 shares in 1996 and
2,064,650 in 1995 21,200 20,600
Additional paid-in-capital 5,959,800 5,902,100
Unrealized gain on marketable securities (Note 1) 159,100 71,200
Retained earnings 3,834,100 3,096,700
----------------------------
9,974,200 9,090,600
Less - Treasury shares, 44,400, at cost 133,200 -
----------------------------
Total stockholders' equity 9,841,000 9,090,600
----------------------------
$ 12,681,200 $ 10,998,600
============================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------
October 26, October 28, October 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net sales (Note 2) $20,652,900 $18,794,200 $15,037,500
Cost of sales 15,874,900 14,502,100 11,638,400
-----------------------------------------
Gross profit 4,778,000 4,292,100 3,399,100
Selling, general and administrative expense 2,672,100 2,514,300 2,223,100
Research and development expense 918,700 678,700 488,300
-----------------------------------------
Income from operations 1,187,200 1,099,100 687,700
Interest income, net 47,400 42,900 19,000
-----------------------------------------
Income before income taxes and cumulative effect
of change in accounting principle 1,234,600 1,142,000 706,700
Provision for income taxes (Note 9) 497,200 444,400 275,000
-----------------------------------------
Income before cumulative effect of change in
accounting principle 737,400 697,600 431,700
Cumulative effect of change in method of accounting
for income taxes (Note 9) - - 201,300
-----------------------------------------
Net income $ 737,400 $ 697,600 $ 633,000
=========================================
Income per share:
Income before cumulative effect of change in
accounting principle $ 0.33 $ 0.31 $ 0.19
Cumulative effect of change in method of accounting
for income taxes - - $ 0.09
-----------------------------------------
Net income per share $ 0.33 $ 0.31 $ 0.28
=========================================
Weighted average shares 2,262,833 2,248,564 2,220,667
=========================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Three years ended October 26, 1996
<TABLE>
<CAPTION>
Common Stock Additional Unrealized Gain Total
------------------ Paid-in on Marketable Retained Treasury Stockholders'
Shares Amount Capital Securities Earnings Stock Equity
--------- ------- ---------- --------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 30, 1993 2,033,750 $20,300 $5,871,500 - $1,766,100 - $7,657,900
Exercise of stock options 27,800 300 27,500 - - - 27,800
Net Income - - - - 633,000 - 633,000
-------------------------------------------------------------------------------------
October 29, 1994 2,061,550 20,600 5,899,000 - 2,399,100 - 8,318,700
Exercise of stock options 3,100 - 3,100 - - - 3,100
Unrealized gain on marketable securities - - - $ 71,200 - - 71,200
Net Income - - - - 697,600 - 697,600
-------------------------------------------------------------------------------------
October 28, 1995 2,064,650 20,600 5,902,100 71,200 3,096,700 - 9,090,600
Exercise of stock options 58,300 600 57,700 - - - 58,300
Repurchase of 44,400 shares - - - - - ($133,200) (133,200)
Unrealized gain on marketable securities - - - 87,900 - - 87,900
Net Income - - - - 737,400 - 737,400
-------------------------------------------------------------------------------------
October 26, 1996 2,122,950 $21,200 $5,959,800 $159,100 $3,834,100 ($133,200) $9,841,000
=====================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------
October 26, October 28, October 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 737,400 $ 697,600 $ 633,000
Reconciliation of net income to net cash provided
(used) by operating activities:
Cumulative effect of accounting change - - (201,300)
Depreciation and amortization 404,700 402,500 398,400
Deferred income taxes (143,500) (80,500) -
Changes in operating assets and liabilities:
Accounts receivable (777,100) 26,800 (291,500)
Inventories (1,114,500) (634,800) (393,200)
Prepaid expenses and other assets (114,900) 24,300 29,900
Recoverable income taxes - - 64,600
Other Assets (85,500) (200,000) (208,300)
Accounts payable 552,700 (179,300) 841,700
Accrued expenses and other liabilities 177,000 69,200 (1,900)
Income taxes payable (217,400) 210,900 6,400
-----------------------------------------
Net cash (used) provided by operating activities (581,100) 336,700 877,800
-----------------------------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (570,400) (349,400) (463,600)
Note receivable-related party - - (165,000)
Proceeds from payment of note receivable - related
party 12,800 12,600 3,000
Investment in marketable securities (348,300) (313,000) (101,900)
-----------------------------------------
Net cash used in investing activities (905,900) (649,800) (727,500)
-----------------------------------------
Cash flows from financing activities:
Exercise of stock options 58,300 3,100 27,800
Purchase of treasury stock (133,200) - -
Proceeds from equipment line 491,600 - -
Principal payments on long-term debt and capital
lease obligations (51,400) (95,400) (92,000)
-----------------------------------------
Net cash provided (used) in financing activities 365,300 (92,300) (64,200)
-----------------------------------------
(Decrease) increase in cash and cash equivalents (1,121,700) (405,400) 86,100
Cash and cash equivalents, beginning of period 1,322,200 1,727,600 1,641,500
-----------------------------------------
Cash and cash equivalents, end of period $ 200,500 $ 1,322,200 $ 1,727,600
=========================================
Supplemental cash flow disclosures:
Interest paid $ 24,900 $ 8,700 $ 17,000
Income taxes paid $ 857,900 $ 313,700 $ 204,000
Supplemental disclosures of cash flow items:
Increase in unrealized gains on marketable securities $ 87,900 $ 71,200 -
=========================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 26, 1996, October 28, 1995 and October 29, 1994
1. Summary of Significant Accounting Policies:
Basis of Presentation
The consolidated financial statements include the accounts of Westerbeke
Corporation (the "Company"), and its wholly owned subsidiary, Westerbeke
International, Inc. (a foreign sales corporation). Westerbeke
International, Inc. was inactive during fiscal years 1996, 1995, and 1994.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses. Actual results could differ from these estimates.
Cash Equivalents
All highly liquid investments with an original maturity of three months or
less are considered to be cash equivalents.
Investments in Marketable Securities
Marketable investment securities at October 26, 1996 and October 28, 1995
consist of equity securities in various mutual funds. The Company adopted
the provisions of Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities (Statement
115) at October 30, 1994. Under Statement 115, the Company classifies its
marketable securities in one of two categories: trading or available-for-
sale.
Trading and available-for-sale securities are recorded at fair value.
Unrealized holding gains and losses on trading securities are included in
earnings. Unrealized holding gains and losses, on available-for-sale
securities are excluded from earnings and are reported as a separate
component of stockholders' equity until realized. Transfers of securities
between categories are recorded at fair value at the date of transfer.
Unrealized holding gains and losses are recognized in earnings for transfers
into trading securities.
A decline in the market value of any available-for-sale security below cost
that is deemed other than temporary is charged to earnings resulting in the
establishment of a new cost basis for the security.
Dividend and interest income are recognized when earned. Realized gains and
losses for securities classified as available-for-sale are included in
earnings with cost determined using the specific identification method.
Marketable investment securities at October 26, 1996 include equity
securities, principally mutual funds for which the Company has both intent
and ability to hold. Equity securities are stated at the fair market value
at October 26, 1996 and at October 28, 1995. The total cost of the
marketable securities at October 26, 1996 was $763,200. The total cost of
marketable securities at October 28, 1995 was $414,900. Unrealized holding
gains in investment securities at October 26, 1996 and October 28, 1995 were
$159,100 and $71,200, respectively.
Inventories
Inventories are valued at the lower of cost (determined on the last-in,
first-out method) or market.
Depreciation and Amortization
The Company computes depreciation and amortization expense on a straight-
line basis over the following estimated useful lives:
<TABLE>
<CAPTION>
Asset Classification Estimated Useful Lives
- -------------------- ----------------------
<S> <C>
Building and building improvements 15 - 40 years
Machinery and equipment 10 years
Patterns 5 years
Furniture and fixtures 5 - 10 years
Transportation equipment 3 - 5 years
Equipment under capital lease 5 - 10 years
Intangibles 3 - 17 years
</TABLE>
Intangible assets are classified in other assets. Maintenance and repairs
are charged to expense in the period incurred. The cost and accumulated
depreciation of assets retired or sold are removed from the accounts and any
gain or loss is credited or charged to income.
Leasehold improvements are amortized on a straight-line basis over the
shorter of the life of the lease or their estimated useful lives.
Revenue Recognition
The Company recognizes revenue upon shipment of product.
Fair Value of Financial Instruments
Financial instruments of the Company consist of cash, cash equivalents,
accounts receivable, accounts payable and accrued liabilities. The carrying
value of these financial instruments approximates their fair value because
of the short maturity of these instruments. Based upon borrowing rates
currently available to the Company for issuance of similar debt with similar
terms and remaining maturities, the estimated fair value of long-term debt
approximates their carrying amounts.
Product Warranty Cost
The anticipated costs related to product warranty are expensed at the time
of sale of the product. Accrued warranty expense of $211,100 and $196,100 is
included in accrued expenses and other liabilities at October 26, 1996 and
October 28, 1995, respectively.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Effective October 31, 1993, the Company adopted Statement 109,
Accounting for Income Taxes, and has reported the cumulative effect of that
change in the method of accounting for income taxes in the fiscal 1994
consolidated statement of operations.
Under the asset and liability method of Statement 109, deferred income taxes
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the effect on
deferred taxes of a change in tax rate is recognized in income in the period
that includes the enactment date.
Net Income Per Share
Net income per share is computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during each fiscal year. Common stock equivalents are not
included in loss years because they are antidilutive.
2. Business Segment
The Company has one business segment; the designing, manufacturing and
marketing of marine engines and related products. The profitability of the
Company is directly tied to the marine industry. The industry is subject to
fluctuations in economic conditions that may adversely affect the Company.
Four customers accounted for approximately 56%, 58% and 52% of Company
revenues for the fiscal years ended 1996, 1995 and 1994, respectively. The
loss of one of these customers could adversely affect the Company's
profitability.
Net sales include export sales, primarily to customers in the Far East,
Canada and Europe of approximately $2,594,500, $2,279,300 and $1,708,000 for
fiscal years ended October 26, 1996, October 28, 1995, and October 29, 1994,
respectively. In fiscal 1996, three customers accounted for sales in excess
of 10% of net sales as follows: $3,928,900, $3,819,600 and $2,265,800. In
fiscal 1995, four customers accounted for sales in excess of 10% of net
sales as follows: $3,993,600, $2,664,600, $2,171,900 and $2,011,700. In
fiscal 1994, four customers accounted for sales in excess of 10% of net
sales as follows: $2,667,900, $2,006,600, $1,572,000 and $1,525,300.
At October 26, 1996, three customers accounted for trade accounts receivable
in excess of 10% of net accounts receivable as follows: $480,500, $333,100,
and $321,500. At October 28, 1995, three customers accounted for trade
accounts receivable in excess of 10% of net accounts receivable as follows:
$267,400, $223,000, and $217,400. The Company performs ongoing credit
evaluations of its customers and therefore does not require
collateralization of trade receivables.
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
October 26, 1996 October 28, 1995
---------------- ----------------
<S> <C> <C>
Raw materials $4,563,900 $3,319,000
Work-in-process 354,100 322,700
Finished goods 510,000 671,800
------------------------------
$5,428,000 $4,313,500
==============================
</TABLE>
The Company uses the last-in, first-out (LIFO) method to value inventory.
The Company believes the LIFO inventory method results in a better matching
of costs and revenues during periods of changing prices. Inventories would
have been $1,145,600 and $1,204,000 higher at October 26, 1996 and October
28, 1995, respectively, if the first-in, first-out (FIFO) method had been
used. Inventory cost determined on the FIFO method approximates replacement
or current cost.
The basic component of the Company's engine products is a "long block"
engine, which is a complete engine block and head assembly without
peripheral equipment. The Company purchases "long block" engines from five
foreign manufacturers. While the interruption of supply of "long block"
engines from existing suppliers would have a material adverse effect on the
Company's operations until alternative sources are secured, management
believes that there are adequate alternative sources of supply of "long
block" engines available to it.
4. Property, Plant and Equipment
Property, plant and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
October 26, 1996 October 28, 1995
---------------- ----------------
<S> <C> <C>
Land $ 48,000 $ 48,000
Building and building improvements 1,320,200 1,280,100
Furniture and fixtures 434,000 423,700
Machinery patterns and equipment 2,275,400 1,756,100
Transportation equipment 11,700 11,100
Leasehold improvements 20,400 20,400
Equipment under capital lease 845,400 845,400
-------------------------------
4,955,100 4,384,800
Less accumulated depreciation 3,172,800 2,789,900
-------------------------------
$ 1,782,300 $ 1,594,900
===============================
</TABLE>
The Company incurred depreciation expense of approximately $383,000,
$377,300, and $353,000 for fiscal years 1996, 1995, and 1994, respectively.
5. Other Assets
The Company has entered into a split-dollar insurance arrangement with John
H. Westerbeke, Jr., the chairman, president and chief executive officer of
the Company, as part of his employment agreement (see note 10), pursuant to
which the Company will pay the premium costs of certain life insurance
policies. Upon surrender of the policies or payment of the death benefit,
the Company is entitled to repayment of an amount equal to the cumulative
premiums previously paid by the Company, with all remaining payments to be
made to Mr. Westerbeke Jr. or his beneficiaries. Included in other assets
at October 26, 1996 and October 28, 1995 is $1,001,300 and $801,300,
respectively, which represents the cumulative value of insurance premiums
paid to date.
6. Note Receivable-Related Party
The Company holds a note receivable from John H. Westerbeke, Jr., the
chairman, president and chief executive officer of the Company. The
principal amount of the secured loan at October 26, 1996 and October 28,
1995 was $136,600 and $149,400, respectively. The loan was used by Mr.
Westerbeke, Jr. to purchase a 40 foot sailboat. The loan bears interest at
7-3/4% per annum, is secured by a security interest in the sailboat and is
payable in monthly installments over a ten year period. The Company has
leased the sailboat from Mr. Westerbeke, Jr. pursuant to a lease expiring in
July 1999 at a rental of $2,660 per month (see Note 10). The Company makes
use of the boat to evaluate the performance of its marine engines and
products and for other corporate matters.
7. Revolving Demand Note Payable
The Company has a $3,000,000 Credit Agreement with State Street Bank and
Trust Company, collateralized by inventory, accounts receivable and general
intangibles. The Credit Agreement was renewed on March 31, 1996, and will
expire on March 31, 1997. The Company believes that it will be able to
continue to extend the term of the Credit Agreement on commercially
reasonable terms. As of October 26, 1996, the Company had approximately
$2,624,100 in unused borrowing capacity under the Credit Agreement and
approximately $375,900 committed to cover the Company's reimbursement
obligations under certain open letters of credit and bankers' acceptances.
8. Long-Term Debt
<TABLE>
<CAPTION>
October 26, 1996 October 28, 1995
---------------- ----------------
<S> <C> <C>
Mortgage note with an interest rate of 5 1/2%
with repayment terms through August 1998. $ 44,700 $ 66,800
Term Loan with an interest rate of 8.96%
with repayment terms through July 2001. 475,000 -
-----------------------------
519,700 66,800
Less current portion 123,400 22,100
-----------------------------
$ 396,300 $ 44,700
=============================
</TABLE>
On January 23, 1996, the Company entered into a $500,000 revolving line of
credit agreement (the "Revolving Line of Credit") and term loan facility
(the "Term Loan") with State Street Bank and Trust Company, collateralized
by various emission testing and product development equipment and subject to
working capital and equity covenants. On July 31, 1996, the Revolving Line
of Credit terminated and automatically converted into a five year Term Loan
in the principal amount of $491,600 bearing a fixed interest rate of 8.96%.
As of October 26, 1996, the outstanding principal amount was approximately
$475,000.
At October 26, 1996, the real estate mortgage note is collateralized by
certain land and buildings with a net book value of approximately $680,700.
Aggregate maturities of long-term debt for each of the ensuing five years
are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ---------
<C> <C>
1997 $ 123,400
1998 121,300
1999 100,000
2000 100,000
2001 75,000
---------
$ 519,700
=========
</TABLE>
9. Income Taxes
As discussed in Note 1, the Company adopted Statement 109 as of October 31,
1993. The cumulative effect of this change in accounting for income taxes
of $201,300 is determined as of October 31, 1993 and is reported separately
in the consolidated statement of operations for the year ended October 29,
1994.
Income tax expense attributable to income from continuing operations
consists of:
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------------
October 26, 1996 October 28, 1995 October 29, 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Federal:
Current $ 486,700 $ 396,000 $ 210,000
Deferred (109,600) (63,400) -
-----------------------------------------------
377,100 332,600 210,000
-----------------------------------------------
State:
Current 154,000 128,900 65,000
Deferred (33,900) (17,100) -
-----------------------------------------------
120,100 111,800 65,000
-----------------------------------------------
Total $ 497,200 $ 444,400 $ 275,000
===============================================
</TABLE>
The Company has no available book or tax net operating loss carryforwards.
Income tax expense was $497,200, $444,400, and $275,000 for the years ended
October 26, 1996, October 28, 1995, and October 29, 1994, respectively, and
differed from the amounts computed by applying the U.S. federal income tax
rate of 34 percent to pretax income as a result of the following:
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------------
October 26, 1996 October 28, 1995 October 29, 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Provision at statutory rate $ 419,800 $ 388,300 $ 240,300
State tax provision, net of
federal tax benefit 79,300 73,800 42,900
Officers' life insurance - 2,000 -
Other, net (1,900) (19,700) (8,200)
-----------------------------------------------
Total $ 497,200 $ 444,400 $ 275,000
===============================================
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at October
26, 1996, and October 28, 1995 are presented below.
<TABLE>
<CAPTION>
October 26, 1996 October 28, 1995
---------------- ----------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable reserve $ 64,700 $ 41,100
Inventory reserves and capitalization 259,500 196,100
Accrued bonus 30,200 -
Warranty reserve 85,000 79,000
----------------------------
Total gross deferred tax assets 439,400 316,200
Less valuation allowance - -
----------------------------
Net deferred tax assets 439,400 316,200
----------------------------
Deferred tax liabilities:
Fixed assets, principally due to
accelerated depreciation methods (123,900) (144,200)
----------------------------
Net deferred tax assets $ 315,500 $ 172,000
============================
</TABLE>
There was no net change in the total valuation allowance for the year ended
October 26, 1996. Management believes that the realization of deferred tax
assets is more likely than not because future operations of the Company are
expected to generate sufficient taxable income.
10. Commitments and Contingencies
Lease Obligations
The Company has lease agreements for a warehouse and certain equipment (see
note 6) expiring at various dates through 1999. Rental expense under
operating leases was $110,300, $91,500, and $76,200 for the years ended
October 26, 1996, October 28, 1995 and October 29, 1994, respectively.
Property, plant and equipment includes $38,000 of equipment under capital
lease, net of accumulated amortization of $807,400 at October 26, 1996.
The future minimum lease payments required under operating leases that have
initial or remaining noncancelable lease terms in excess of one year are as
follows:
<TABLE>
<CAPTION>
Year Operating
---- ---------
<C> <C>
1997 $ 92,000
1998 93,600
1999 63,100
---------
Total future minimum lease payments $ 248,700
=========
</TABLE>
Letters of Credit and Bankers' Acceptances
Certain foreign vendors require the Company to provide letters of credit at
the time purchase orders are placed. As of October 26, 1996, the Company
was contingently liable for open letters of credit and bankers' acceptances
of approximately $375,900 (see note 7).
Royalty Arrangements
As a result of the acquisition of Rotary Marine, Inc. of Sarasota, Florida,
on January 5, 1990, the Company is required to make contingent cash payments
to the sellers based upon a percentage of sales of marine air conditioning
products and accessories by the Company during the fiscal years ending 1992
through 1996. No payment was made in fiscal 1996, 1995 or 1994 as the sales
criteria were not met.
Employment Agreements
In March of 1993, the Company entered into an Employment Agreement (the
"Agreement") with John H. Westerbeke, Jr., the chairman of the board,
president, and chief executive officer of the Company. The Agreement calls
for Mr. Westerbeke, Jr. to be paid an annual salary of $141,750, subject to
increases based upon the Consumer Price Index and at the discretion of the
Company. The Agreement also provides for payment of a bonus at the
discretion of the board of directors of the Company. In September 1996,
the Board of Directors established an incentive plan for Mr. Westerbeke
pursuant to which Mr. Westerbeke will have an annual bonus opportunity,
based on net income and increases in sales, in each of the four years
beginning with the 1997 fiscal year. Mr. Westerbeke may elect to have all
or any part of his base salary or bonus paid as deferred compensation in
five annual installments commencing upon his retirement or other termination
of employment, or upon a change of control of the Company, as defined in the
Agreement. Amounts deferred by Mr. Westerbeke are contributed by the Company
to a trust established to hold and invest these funds until such time as the
amounts are payable to Mr. Westerbeke. The Agreement also requires the
Company to pay premiums for certain life insurance policies on the life of
Mr. Westerbeke, Jr. In addition, in the event of a change in control of the
Company, Mr. Westerbeke, Jr. may terminate his employment during the one
year period following such change in control, and in such event, the Company
is required to pay him a lump sum cash payment in an amount equal to three
times his average annual cash compensation during the most recent five
taxable years of the Company. In addition, in such circumstances, the
Company is required to continue to carry group life and health insurance for
Mr. Westerbeke, Jr. for a three year period and is required to pay any
premiums payable on the life insurance policies on his life for a three year
period.
Under an employment agreement between the Company and John H. Westerbeke,
Sr., a director of the Company, Mr. Westerbeke, Sr. will be paid $35,000 per
year. This agreement provides that following his retirement, Mr.
Westerbeke, Sr. will act as consultant to the Company at an annual
consulting fee of $30,000.
11. Stockholders' Equity
In June 1986, the board of directors and the stockholders of the Company
adopted the Company's 1986 Stock Option Plan (the "Option Plan"), under
which 300,000 shares of common stock have been made available. The Company
has also reserved 250,000 shares of common stock for issuance in connection
with a Supplemental Stock Option Plan (the "Supplemental Plan"). The
Supplemental Plan permits acceleration of the exercisability of options in
the event of a change in control of the Company with the Company retaining
the right of first refusal with respect to shares issued under this plan.
In March 1996, the board of directors and the stockholders of the Company
adopted the Company's 1996 Stock Option Plan (the "1996 Option Plan"), under
which 150,000 shares of common stock have been made available. As of
October 26, 1996, there has been no activity under the 1996 Option Plan.
Options under the plans may be either nonqualified stock options or
incentive stock options. Options may be granted to eligible employees of
the Company and members of the board of directors.
The price at which the shares may be granted may not be less than the lower
of fair market value or tangible book value in the case of nonqualified
options, or 100% of the fair market value in the case of incentive stock
options. The options generally become exercisable in 20% annual increments
beginning on the date of the grant and expire at the end of ten years.
Information for fiscal years 1994, 1995 and 1996, with respect to the Option
Plan, is as follows:
<TABLE>
<CAPTION>
Shares Option Price
-------- --------------
<S> <C> <C>
Outstanding at October 30, 1993 224,500 $1.00 - $1.875
Exercised (7,700) $1.000
Canceled (6,200) $1.875
--------------------------
Outstanding at October 29, 1994 210,600 $1.00 - $1.125
Exercised (3,100) $1.000
--------------------------
Outstanding at October 28, 1995 207,500 $1.00 - $1.125
Exercised (26,100) $1.000
Canceled (6,400) $1.000
--------------------------
Outstanding at October 26, 1996 175,000 $1.125
==========================
</TABLE>
The outstanding options expire on various dates through May 2003. Options
for 122,100 shares of common stock were exercisable at October 26, 1996.
Options for 88,100 shares are available for future grant under the Option
Plan.
Information for fiscal years 1994, 1995, and 1996, with respect to the
Supplemental Plan, is as follows:
<TABLE>
<CAPTION>
Shares Option Price
-------- ---------------
<S> <C> <C>
Outstanding at October 30, 1993 175,400 $0.875 - $1.125
Exercised (20,100) $1.000
---------------------------
Outstanding at October 29, 1994
and October 28, 1995 155,300 $0.875 - $1.125
Exercised (32,200) $0.875 - $1.000
Granted 33,300 $3.000
---------------------------
Outstanding at October 26, 1996 156,400 $0.875 - $3.000
===========================
</TABLE>
The outstanding options expire on various dates through March 2003. Options
for 101,800 shares of common stock were exercisable at October 26, 1996.
Options for 41,300 shares are available for future grant under the
Supplemental Plan.
Preferred Stock
As of October 26, 1996 and October 28, 1995, 1,000,000 shares of $1.00 par
value Serial Preferred Stock were authorized; none were issued or
outstanding.
12. 1986 Employee Stock Purchase Plan
In June 1986, the board of directors and the stockholders of the Company
adopted the Company's 1986 Employee Stock Option Plan (the "Purchase Plan").
Under the Purchase Plan, an aggregate of 100,000 shares of common stock are
available for purchase by eligible employees of the Company, including
directors and officers, through payroll deductions over successive six-month
offering periods. The Purchase Plan will become effective when so declared
by the board of directors.
The Purchase Plan is intended to qualify as an "Employee Stock Purchase
Plan" within the meaning of Section 423 of the Internal Revenue Code. The
purchase price of the common stock under the Purchase Plan will be 85% of
the average of the closing high bid and last asked prices per share in the
over-the-counter market on either the first or last day of each six-month
offering period, whichever is less. As of October 26, 1996, there has been
no activity under the Purchase Plan.
13. Employee Benefit Plan
In 1994, the Company started an Employee Deferred Compensation Plan that
covers all employees over 21 years of age who have completed at least 3
months of service with the Company. Contributions by the Company are
discretionary and are determined by the Company's board of directors. The
Company's defined contribution plan, available to substantially all salaried
employees, contains a matched savings provision that permits both pretax and
after-tax employee contributions. Participants can contribute up to 15% of
their annual compensation and receive a 25% matching employer contribution
on up to 8% of their annual compensation. During the fiscal year ended
October 26, 1996 the Company contributed $11,800 to the plan. The Company
made no contribution to the plan during the fiscal years ended October 28,
1995 and October 29, 1994.
14. Quarterly Financial Data (Unaudited)
(In thousands, except per share amounts)
Selected quarterly financial data for the years ended October 26, 1996 and
October 28, 1995 is as follows:
<TABLE>
<CAPTION>
Fiscal
Fiscal 1996: First Second Third Fourth Year
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net sales $ 3,930 $ 5,535 $ 5,928 $ 5,260 $ 20,653
Gross profit 708 1,353 1,422 1,295 4,778
Income from operations 9 379 528 271 1,187
Net income 32 225 306 174 737
Net income per share 0.01 0.10 0.14 0.08 0.33
<CAPTION>
Fiscal
Fiscal 1995: First Second Third Fourth Year
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net sales $ 4,305 $ 5,245 $ 4,879 $ 4,365 $ 18,794
Gross profit 956 1,215 1,087 1,034 4,292
Income from operations 177 347 323 252 1,099
Net income 114 213 200 171 698
Net income per share 0.05 0.09 0.09 0.08 0.31
</TABLE>
SCHEDULE II
WESTERBEKE CORPORATION AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNT
For the years ended October 26, 1996, October 28, 1995
and October 29, 1994
<TABLE>
<CAPTION>
Balance at Charged to Charged Balance
Beginning of Costs and to Other at End
Period Expenses Accounts Deductions of Year
------------ ---------- -------- ---------- --------
<S> <C> <C> <S> <C> <C>
1994
Allowance for doubtful accounts $ 59,500 $ 1,300 - - $ 60,800
1995
Allowance for doubtful accounts $ 60,800 - - 300 $ 60,500
1996
Allowance for doubtful accounts $ 60,500 - - (200) $ 60,700
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART I I I
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Certain biographical information concerning the directors of the
company as of January 1, 1997 is set forth below. Such information was
furnished by them to the Company.
<TABLE>
<CAPTION>
Certain
Name of Director Age Biographical Information
---------------- --- ------------------------
<S> <C> <S>
GERALD BENCH 55 President and Chief Executive Officer, Hadley Fruit
Orchards, Inc. since November 1996; Consultant, Hadley
Fruit Orchards, Inc. from March 1995 to November 1996;
Partner, ICAP Marine Group (consulting firm) from
November 1993 to February 1995; Chairman and President,
TDG Aerospace, Inc. (manufacturer of aircraft de-icing
devices) from October 1991 to November 1993; President,
Thermion, Inc. (manufacturer of heaters for aircraft
de-icing devices) from April 1990 to September 1991;
General Manager, Lermer Corporation (manufacturer of
airline galley equipment) from June 1989 through March
1990; former Chairman of the Board, President, Chief
Executive Officer and Director of E&B Marine Inc.
(marine supplies and accessories) from prior to 1988;
Director of the Company since June 1986
THOMAS M. HAYTHE 57 Partner, Haythe & Curley (attorneys) since February
1982; Director: Novametrix Medical Systems Inc.
(manufacturer of electronic medical instruments), Guest
Supply, Inc. (provider of hotel guest room amenities,
accessories and products), Isomedix Inc. (provider of
sterilization services), Ramsay Health Care, Inc.
(provider of psychiatric health care services) and
Ramsay Managed Care, Inc. (provider of managed mental
health care services); Director of the Company since
June 1986.
NICHOLAS H. SAFFORD 64 President, Nicholas H. Safford & Co., Inc. (investment
counselor and private trustee) since 1983 and from 1979
to 1981; former president and director of Wendell,
Safford & Co., Inc. (investment counseling firm) from
1982 to 1983; former vice president and director of
David L. Babson & Co., Inc. (investment counseling
firm) prior to 1978; Director of the Company since
February 1991.
JAMES W. STOREY 62 Consultant since January 1993; President, Wellingsley
Corporation (private investment management company)
from December 1986 through December 1992; President and
Chief Executive Officer of Codex Corporation, a
subsidiary of Motorola, Inc. from 1982 to 1986; Vice
President of Motorola, Inc. from 1982 to 1986;
Director: Progress Software Corporation (software) and
Kurzweil Applied Intelligence Inc. (software); Director
of the Company since June 1986.
JOHN H. WESTERBEKE, JR. 56 President of the Company since 1976; Director of the
Company since 1976; Chairman of the Board of Directors
of the Company since June 1986.
JOHN H. WESTERBEKE, SR. 87 Founder of the Company; Presently serving in various
engineering capacities with the Company; Chairman of
the Board of Directors of the Company from 1946 to June
1986.
</TABLE>
For additional information concerning the management of the Company,
see "Item 1 - Business - Executive Officers" contained in Part I hereof.
The Board of Directors of the Company consists of three classes of
directors, Class A, Class B and Class C. Directors in each class are
elected for a term of three years. The term of office of the Class B
directors will expire at the Annual Meeting of Stockholders to be held in
1997. Class C and Class A directors will be elected at the Annual Meetings
to be held in 1998 and 1999, respectively. Mr. Bench is a Class A director,
Messrs. Haythe, Safford and Storey are Class B directors and Messrs.
Westerbeke, Jr. and Westerbeke, Sr. are Class C directors.
The directors and officers of the Company other than Messrs. Bench,
Haythe, Safford and Storey are active in the business on a day-to-day basis.
Messrs. Westerbeke, Sr. and Westerbeke, Jr. are father and son. No other
family relationships exist between any of the directors and officers of the
Company.
Section 16 (a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than
ten percent of the Company's Common Stock, to file with the SEC initial
reports of ownership and reports of changes in ownership of Common Stock.
Officers, directors and greater than ten percent stockholders are required
by SEC regulations to furnish the Company with copies of all Section 16 (a)
reports they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and representations that no other
reports were required, during the fiscal year ended October 26, 1996 all
Section 16 (a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information for the fiscal years ended
October 26, 1996, October 28, 1995 and October 29, 1994 concerning the
compensation paid or awarded to the Chief Executive Officer and the other
executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
---------------------- ------------
Fiscal
Year
Ended All Other
Name and Principal Position October Salary Bonus Options(#) Compensation
--------------------------- ------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
John H. Westerbeke, Jr. 1996 $151,531 $ 80,696(1) - $ 38,647(2)
President, Chairman of the Board 1995 148,998 5,730 - 51,920(2)
of Directors and Class C Director 1994 145,186 3,212 - 62,143(2)
Carleton F. Bryant, III 1996 $ 94,500 $ 24,532 - -
Executive Vice President, 1995 94,500 16,667 - -
Treasurer, Chief Operating Officer, 1994 94,500 2,173 - -
and Secretary
<FN>
- --------------------
<F1> (1) Includes a $75,000 bonus earned in fiscal year 1996, payment of which
has been deferred.
<F2> (2) Includes amounts ($20,357, $31,980 and $45,842 in fiscal 1996, 1995 and
1994, respectively) reflecting the current dollar value of the benefit
to Mr. Westerbeke of premiums paid by the Company with respect to a
split-dollar insurance arrangement (see "Employment Agreements" below
for a description of such arrangement). Such benefit was determined
by calculating the time value of money (using the applicable federal
rates) of the premiums paid by the Company in the fiscal years ended
October 26, 1996, October 28, 1995 and October 29, 1994 for the
period from the date on which each premium was paid until March 31,
1999 (which is the earliest date on which the Company could terminate
the agreement and request a refund of premiums paid).
</FN>
</TABLE>
The Company did not grant any stock options to the executive officers
named in the Summary Compensation Table during the fiscal year ended October
26, 1996.
The following table sets forth the number and value of options held by
the executive officers named in the Summary Compensation Table at October
26, 1996. During the fiscal year ended October 26, 1996, none of the
executive officers named in the Summary Compensation Table exercised any
options or warrants to purchase Common Stock.
OPTION VALUES AT OCTOBER 26, 1996
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised In-the-Money(1)
Options at Options at
October 26, 1996 October 26, 1996
--------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John H. Westerbeke, Jr. 140,000 30,000 $ 236,300 $ 50,600
Carleton F. Bryant, III 60,000 40,000 $ 105,000 $ 70,000
<FN>
- ---------------------
<F1> (1) In-the-money options are those where the fair market value of the
underlying Common Stock exceeds the exercise price of the option.
The value of in-the-money options is determined in accordance with
regulations of the Securities and Exchange Commission by subtracting
the aggregate exercise price of the option from the aggregate year-end
value of the underlying Common Stock.
</FN>
</TABLE>
In June 1996, the Company granted options to purchase 11,100 shares of
Common Stock at an exercise price of $3.00 per share to each of Messrs.
Bench, Haythe and Storey, directors of the Company. These options become
exercisable in cumulative annual installments of 20% commencing on the date
of grant and expire in June 2006. Additionally, in June 1996, Messrs.
Haythe, Safford and Storey, directors of the Company, exercised other
options to purchase 11,100, 10,000 and 11,100 shares of Common Stock,
respectively. Pursuant to an agreement with these directors, the Company
purchased the shares of Common Stock issued upon such exercise from Messrs.
Haythe, Safford and Storey at a purchase price of $3.00 per share, the fair
market value of the Common Stock on the date of purchase.
Employment Agreements
- ---------------------
The Company has an Employment Agreement (the "Agreement") with John H.
Westerbeke, Jr., the Chairman of the Board, President and Chief Executive
Officer of the Company, which provides for his employment by the Company at
an annual base salary, subject to increases based upon the Consumer Price
Index and at the discretion of the Company. During fiscal 1996, Mr.
Westerbeke's salary was $151,531. The Agreement also provides for payment
of a bonus at the discretion of the Board of Directors of the Company. In
September 1996, the Board of Directors established an incentive plan for
Mr. Westerbeke pursuant to which Mr. Westerbeke will have an annual bonus
opportunity, based on net income and increases in sales, in each of the four
years beginning with the 1997 fiscal year. Mr. Westerbeke may elect to have
all or any part of his base salary or bonus paid as deferred compensation in
five annual installments commencing upon his retirement or other termination
of employment, or upon a change of control of the Company, as defined in the
Agreement. Amounts deferred by Mr. Westerbeke are contributed by the Company
to a trust established to hold and invest these funds until such time as the
amounts are payable to Mr. Westerbeke. The Agreement also requires
the Company to pay premiums for certain life insurance policies on the life
of Mr. Westerbeke as described below. The Agreement may be terminated by
the Company upon the disability of Mr. Westerbeke, by the Company with or
without cause, and by Mr. Westerbeke in the event there has occurred a
constructive termination of employment by the Company. In addition, in the
event of a change in control of the Company, as defined in the Agreement,
Mr. Westerbeke may terminate his employment during the one year period
following such change in control, and in such event, the Company will be
required to pay him a lump sum cash payment in an amount equal to three
times his annual cash compensation during the most recent five taxable years
of the Company, less $1,000. In addition, in such circumstances, the
Company is required to continue to carry group life and health insurance for
Mr. Westerbeke for a three year period and is required to pay any premiums
payable on the split-dollar life insurance policies on his life for a three
year period. Under the Agreement, Mr. Westerbeke has agreed not to compete
with the Company for a period of one year following termination of his
employment.
The Company has entered into a split-dollar insurance arrangement with
Mr. Westerbeke, Jr., pursuant to which the Company will pay the premium
costs of certain life insurance policies that pay a death benefit of not
less than $2,594,432 in the aggregate upon the death of Mr. Westerbeke.
Upon surrender of the policies or payment of the death benefit thereunder,
the Company is entitled to repayment of an amount equal to the cumulative
premiums previously paid by the Company, with all remaining payments to be
made to Mr. Westerbeke or his beneficiaries. See footnote (1) to the
"Summary Compensation Table" above for further information on premium
payments made by the Company.
The Company has an agreement with Carleton F. Bryant, III, the
Executive Vice President, Treasurer and Chief Operating Officer of the
Company, which provides for his employment by the Company at an annual
salary of $94,500. Under a related agreement Mr. Bryant agrees not to
compete with the Company for a period of three years following the
termination of his employment.
The Company has an agreement with John H. Westerbeke, Sr., a director
of the Company, which provides for his employment by the Company at an
annual salary of $35,000 until Mr. Westerbeke, Sr. retires. This agreement
also provides that following his retirement, Mr. Westerbeke, Sr. will act as
consultant to the Company at an annual consulting fee of $30,000. The
Company paid Mr. Westerbeke, Sr. $35,000 during fiscal 1996.
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
Thomas M. Haythe, a director of the Company and a member of the
Compensation Committee, is a partner of the New York City law firm of Haythe
& Curley, which firm acted as legal counsel to the Company during the past
fiscal year. It is expected that Haythe & Curley will continue to render
legal services to the Company in the future.
Compensation of Directors
- -------------------------
The Company currently pays its directors a fee of $2,000 for attending
each meeting of the Board of Directors of the Company.
Termination of Employment and Change of Control Arrangements
- ------------------------------------------------------------
See "Employment Agreements" above for information concerning certain
change of control arrangements with respect to John H. Westerbeke, Jr., the
Chairman of the Board, President and Chief Executive Officer of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The shareholders (including any "group" as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934) who, to the
knowledge of the Board of Directors of the Company, owned beneficially more
than five percent of any class of the outstanding voting securities of the
Company as of January 1, 1997, each director and each executive officer
named in the Summary Compensation Table of the Company who owned
beneficially shares of Common Stock and all directors and executive officers
of the Company as a group, and their respective shareholding as of such date
(according to information furnished by them to the Company), are set forth
in the following table. Except as indicated in the footnotes to the table,
all of such shares are owned with sole voting and investment power.
<TABLE>
<CAPTION>
Shares of Common Stock
Name and Address Owned Beneficially Percent of Class
---------------- --------------------------- ----------------
<S> <C> <C>
FMR Corp........................ 213,738 (1) 10.3%
82 Devonshire Street
Boston, MA 02109
Gerald Bench.................... 2,220 (2) *
17 1/2 Passaic Avenue
Spring Lake, New Jersey 07762
Thomas M. Haythe................ 11,220 (3) *
237 Park Ave.
New York, New York 10017
Nicholas H. Safford............. 10,100 (4) *
9 Cleaves Street
Rockport, Massachusetts 01966
James W. Storey................. 11,220 (5) *
3 Saddle Ridge Road
Dover, Massachusetts 02030
John H. Westerbeke, Jr. ........ 1,218,250 (6) 54.9%
Avon Industrial Park
Avon, Massachusetts 02322
John H. Westerbeke, Sr. ........ 0 -
Avon Industrial Park
Avon, Massachusetts 02322
Carleton F. Bryant, III......... 60,000 (7) 2.8%
Avon Industrial Park
Avon, Massachusetts 02322
All Directors and Officers as a 1,313,010 (2)(3)(4)(5)(6)(7) 56.8%
Group (seven persons)
<FN>
- --------------------
<F*> (*) Less than one percent.
<F1> (1) Information as to the holding of FMR Corp. ("FMR") is based upon a
report on Schedule 13G filed with the Securities and Exchange
Commission. Such report indicates that 213,738 shares were
beneficially owned by FMR with sole voting power and sole dispositive
power.
<F2> (2) Consists of 2,220 shares issuable upon the exercise of presently
exercisable stock options held by Mr. Bench.
<F3> (3) Consists of 11,220 shares issuable upon the exercise of presently
exercisable stock options held by Mr. Haythe.
<F4> (4) Consists of 10,100 shares issuable upon the exercise of presently
exercisable stock options held by Mr. Safford.
<F5> (5) Consists of 11,220 shares issuable upon the exercise of presently
exercisable stock options held by Mr. Storey.
<F6> (6) Includes 140,000 shares issuable upon the exercise of presently
exercisable stock options held by Mr. Westerbeke, Jr.
<F7> (7) Consists of 60,000 shares issuable upon the exercise of presently
exercisable stock options held by Mr. Bryant.
</FN>
</TABLE>
To the Company's knowledge, there have been no significant changes in
stock ownership or control of the Company as set forth above since January
1, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company leases a 40-foot sailboat from Mr. Westerbeke, Jr. the
Chairman of the Board, President and Chief Executive Officer of the Company,
pursuant to a lease expiring in July 1999. The Company pays an annual
rental to him of $31,920 and also pays approximately $10,000 to $15,000 of
annual expenses in connection with the operation and maintenance of the
sailboat. The Company makes use of the sailboat to evaluate the performance
of its marine engine products and for other corporate purposes. In July
1994, Mr. Westerbeke, Jr. executed a promissory note payable to the Company
in the principal amount of $165,000. The proceeds of the loan were used by
Mr. Westerbeke, Jr. to purchase the sailboat which is leased to the Company
as described above. The loan, which is due June 1, 2004, is payable in
equal monthly installments which commenced on July 1, 1994, together with
interest at 7.75% per annum and is secured by the sailboat. Management of
the Company believes that the terms of the lease and of the secured loan are
no less favorable to the Company than it could obtain from an unrelated
party.
Thomas M. Haythe, a Class B director of the Company, is a partner of
the New York City law firm of Haythe & Curley, which firm has acted as legal
counsel to the Company during the past fiscal year. It is expected that
Haythe & Curley will continue to render legal services to the Company in the
future.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements:
<TABLE>
<CAPTION>
Included in PART II of this report: Page
----
<S> <C>
Report of KPMG Peat Marwick LLP................ 23
Consolidated Balance Sheets at
October 26, 1996 and October 28, 1995......... 24
Consolidated Statements of Operations
for the three years in the period ended
October 26, 1996.............................. 25
Consolidated Statements of Changes in
Stockholders' Equity for the three years
in the period ended October 26, 1996.......... 26
Consolidated Statements of Cash Flow
for the three years in the period ended
October 26, 1996.............................. 27
Notes to Consolidated Financial Statements..... 28
2. Financial Statement Schedule:
Included in PART II of this report:
Schedule II - Valuation and Qualifying
Account for the three years in the period
ended October 26, 1996........................ 38
</TABLE>
Schedules other than those listed above are omitted because
they are not applicable, or the required information is shown in
the Consolidated Financial Statements or Notes thereto. Columns
omitted from schedules filed have been omitted because the
information is not applicable.
3. Exhibits:
The exhibits required to be filed as part of this Annual
Report on Form 10-K are listed in the attached Index to Exhibits.
(b) Current Reports on Form 8-K:
During the fiscal quarter ended October 26, 1996, the
Company did not file any Current Reports on Form 8-K.
* * *
Copies of the exhibits filed with this Annual Report on Form 10-K or
incorporated by reference herein do not accompany copies hereof for
distribution to stockholders of the Company. The Company will furnish a
copy of any of such exhibits to any stockholder requesting the same for a
nominal charge to cover duplicating costs.
POWER OF ATTORNEY
The registrant and each person whose signature appears below hereby
appoint John H. Westerbeke, Jr. and Thomas M. Haythe as attorney-in-fact
with full power of substitution, severally, to execute in the name and on
behalf of the registrant and each such person, individually and in each
capacity stated below, one or more amendments to this Annual Report on Form
10-K, which amendments may make such changes in this Annual Report as the
attorney-in-fact acting in the premises deems appropriate and to file any
such amendment(s) to this Annual Report with the Securities and Exchange
Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to
be signed on its behalf by the undersigned thereunto duly authorized.
Dated: January 22, 1997
WESTERBEKE CORPORATION
By /s/ John H. Westerbeke, Jr.
-----------------------------------
John H. Westerbeke, Jr.
Chairman of the Board and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Dated: January 22, 1997
By /s/ John H. Westerbeke, Jr.
-----------------------------------
John H. Westerbeke, Jr.
Chairman of the Board, President
and Principal Executive Officer
Dated: January 22, 1997 By /s/ Carleton F. Bryant III
-----------------------------------
Carleton F. Bryant III
Executive Vice President, Chief
Operating Officer and Principal
Financial and Accounting Officer
Dated: January 22, 1997 By /s/ Gerald Bench
-----------------------------------
Gerald Bench
Director
Dated: January 22, 1997 By /s/ Thomas M. Haythe
-----------------------------------
Thomas M. Haythe
Director
Dated: January 22, 1997 By /s/ Nicholas H. Safford
-----------------------------------
Nicholas H. Safford
Director
Dated: January 22, 1997 By /s/ James W. Storey
-----------------------------------
James W. Storey
Director
Dated: January 22, 1997 By /s/ John H. Westerbeke , Sr.
-----------------------------------
John H. Westerbeke, Sr.
Director
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Name of Exhibit Page
- ------- --------------- ----
<C> <S> <C>
2 Agreement and Plan of Merger between the Company
and J.H. Westerbeke Corporation, a Massachusetts
corporation......................................... (1)
3(a) Certificate of Incorporation of the Company (as
amended)............................................ (1)
3(b) By-Laws of the Company.............................. (4)
10(a) Agreement dated as of June 30, 1986 by and
between the Company and John H. Westerbeke, Sr...... (1)
10(b) 1986 Stock Option Plan of the Company as
amended on January 6, 1987 and on May 26, 1988...... (4)
10(c) 1986 Employee Stock Purchase Plan of the
Company............................................. (1)
10(d) Supplemental Stock Option Plan of the
Company............................................. (4)
10(e) 1996 Stock Option Plan of the Company...............
10(f) Agreement dated as of June 1, 1986 by and among
the Company, Ruth A. Westerbeke, John H.
Westerbeke, Jr., John H. Westerbeke, Sr. and
Ruth A. Westerbeke, as trustees..................... (1)
10(g) Form of Agreement with Distributors -
Domestic............................................ (5)
10(h) Form of Agreement with Distributors -
International....................................... (1)
10(i) Supplemental Medical Insurance Policy............... (1)
10(j) Letter Agreement dated May 22, 1992 between
the Company and State Street Bank and Trust
Company............................................. (2)
10(k) Letter Agreement dated March 20, 1996 between
the Company and State Street Bank and Trust
Company.............................................
10(l) Security Agreement dated June 4, 1992 by the
Company in favor of State Street Bank and Trust
Company............................................. (2)
10(m) Note of the Company dated March 29, 1996,
due March 31, 1997 in the principal amount of
$3,000,000 payable to the order of State Street
Bank and Trust Company..............................
10(n) Loan Facility Agreement dated January 23, 1996
between the Company and State Street Bank
and Trust Company................................... (6)
10(o) Security Agreement dated January 23, 1996
by the Company in favor of State Street Bank
and Trust Company................................... (6)
10(p) Note of the Company dated January 23, 1996,
due June 30, 2001 in the principal amount of
$500,000 payable to the order of State Street Bank
and Trust Company................................... (6)
10(q) Asset Purchase Agreement dated as of January 5,
1990 by and among the Company, Westerbeke
Rotary Aire, Inc., Rotary Marine, Inc., Eugene
Whipp and Arville J. Collins........................ (4)
10(r) Convertible Subordinated Note of the Company
and Westerbeke Rotary Aire, Inc. dated January 5,
1990 in the principal amount of $115,000 payable
to Rotary Marine, Inc............................... (4)
10(s) Lease dated November 4, 1987 by and between
GBD/Odyssey Associates Limited Partnership and
the Company......................................... (4)
10(t) Lease Amendment Agreement dated April 29, 1991
by and between GBD/Odyssey Associates Limited
Partnership and the Company.........................
10(u) Second Lease Amendment Agreement dated April 7,
1993 by and between GBD/Odyssey Associates
Limited Partnership and the Company................. (3)
10(v) Third Lease Amendment Agreement dated February
20, 1996 by and between GBD/Odyssey Associates
Limited Partnership and the Company.................
10(w) Subordination, Nondisturbance and Attornment
Agreement dated November 8, 1994 by and among
the Company, New Avon Limited Partnership and
UNUM Life Insurance Company of America.............. (4)
10(x) Employment Agreement dated March 24, 1993
between the Company and John H. Westerbeke, Jr.,
Chairman, President and Chief Executive Officer of
the Company......................................... (3)
10(y) Employment Agreement dated May 14, 1993
and Confidentiality Agreement dated May 14, 1993
between the Company and Carleton F. Bryant III,
Chief Operating Officer of the Company.............. (3)
21 Subsidiary of the Company...........................
23 Consent of KPMG Peat Marwick LLP....................
24 Power of Attorney................................... (See Page 51
of Annual
Report on
Form 10-K)
27 Financial Data Schedule.............................
<FN>
- --------------------
<F1> (1) Incorporated by reference to Exhibits to Registration Statement No.
33-6972 filed with the Securities and Exchange Commission.
<F2> (2) Incorporated by reference to Exhibits to Annual Report on Form 10-K for
fiscal year ended October 31, 1992.
<F3> (3) Incorporated by reference to Exhibits to Annual Report on Form 10-K for
fiscal year ended October 30, 1993.
<F4> (4) Incorporated by reference to Exhibits to Annual Report on Form 10-K for
fiscal year ended October 29, 1994.
<F5> (5) Incorporated by reference to Exhibits to Annual Report on Form 10-K for
fiscal year ended October 28, 1995.
<F6> (6) Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q
for fiscal quarter ended January 27, 1996.
</FN>
</TABLE>
Exhibit 10(e)
WESTERBEKE CORPORATION
1996 STOCK OPTION PLAN
Purposes of Plan. The purposes of the Plan, which shall be known as
the Westerbeke Corporation 1996 Stock Option Plan and is hereinafter
referred to as the "Plan", are (i) to provide incentives for key employees,
directors, consultants and other individuals providing services to
Westerbeke Corporation (the "Company") and its subsidiary corporations
(within the meaning of Section 424(f) of the Internal Revenue Code of 1986,
as amended (the "Code"), and referred to herein as "Subsidiary") by
encouraging their ownership of the common stock, $.01 par value, of the
Company (the "Stock") and (ii) to aid the Company in retaining such key
employees, directors, consultants and other individuals upon whose efforts
the Company's success and future growth depends, and attracting other such
employees, directors, consultants and other individuals.
Administration. The Plan shall be administered by the Stock Option
Committee (the "Committee") of the Board of Directors, as hereinafter
provided. For purposes of administration, the Committee, subject to the
terms of the Plan, shall have plenary authority to establish such rules and
regulations, to make such determinations and interpretations, and to take
such other administrative actions as it deems necessary or advisable. All
determinations and interpretations made by the Committee shall be final,
conclusive and binding on all persons, including optionees and their legal
representatives and beneficiaries.
The Committee shall be appointed from time to time by the Board of
Directors and shall consist of not fewer than three of its members. Unless
otherwise determined by the Board of Directors, no member of the Board of
Directors who serves on the Committee shall be eligible to participate in
the Plan. The Board of Directors shall designate one of the members of the
Committee as its Chairman. The Committee shall hold its meetings at such
times and places as it may determine. A majority of its members shall
constitute a quorum. All determinations of the Committee shall be made by a
majority of its members. Any decision or determination reduced to writing
and signed by all members shall be as effective as if it had been made by a
majority vote at a meeting duly called and held. The Committee may appoint
a secretary (who need not be a member of the Committee). No member of the
Committee shall be liable for any act or omission with respect to his
service on the Committee, if he acts in good faith and in a manner he
reasonably believes to be in or not opposed to the best interests of the
Company.
Stock Available for Options. There shall be available for options
under the Plan a total of 150,000 shares of Stock, subject to any
adjustments which may be made pursuant to Section 5(f) hereof. Shares of
Stock used for purposes of the Plan may be either authorized and unissued
shares, or previously issued shares held in the treasury of the Company, or
both. Shares of Stock covered by options which have terminated or expired
prior to exercise shall be available for further options hereunder. The
maximum number of shares of Stock which may be subject to options granted to
any individual in any two-year period shall not exceed 100,000 shares,
subject to any adjustments which may be made pursuant to Section 5(f)
hereof.
Eligibility. Options under the Plan may be granted to key employees
of the Company or any Subsidiary, including officers or directors of the
Company or any Subsidiary, and to directors, consultants and other
individuals providing services to the Company or any Subsidiary. Options
may be granted to eligible individuals whether or not they hold or have held
options previously granted under the Plan or otherwise granted or assumed by
the Company. In selecting individuals for options, the Committee may take
into consideration any factors it may deem relevant, including its estimate
of the individual's present and potential contributions to the success of
the Company and its Subsidiaries. Service as a director, officer or
consultant of or to the Company or any Subsidiary shall be considered
employment for purposes of the Plan (and the period of such service shall be
considered the period of employment for purposes of Section 5(d) of the
Plan); provided, however, that incentive stock options may be granted under
the Plan only to an individual who is an "employee", as such term is used in
Section 422 of the Code, of the Company or any Subsidiary.
Terms and Conditions of Options. The Committee shall, in its
discretion, prescribe the terms and conditions of the options to be granted
hereunder, which terms and conditions need not be the same in each case,
subject to the following:
Option Price. The price at which each share of Stock covered by an
option granted under the Plan may be purchased shall be determined by the
Committee and shall not be less than the market value per share of Stock on
the date of grant of the option. The date of grant of an option shall be
the date specified by the Committee in its grant of the option.
Option Period. The period for exercise of an option shall in no event
be more than ten years from the date of grant, or in the case of any option
intended to be an incentive stock option granted to an individual owning, on
the date of grant, stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any Subsidiary, more
than five years from the date of grant. Options may, in the discretion of
the Committee, be made exercisable in installments during the option period.
Any shares not purchased on any applicable installment date may be purchased
thereafter at any time before the expiration of the option period. The
Committee shall have the authority at any time to accelerate the
exercisability of all or any portion of any option granted under the Plan.
Exercise of Options. In order to exercise an option, the Optionee
shall deliver to the Company written notice specifying the number of shares
of Stock to be purchased, together with cash or a certified or bank
cashier's check payable to the order of the Company in the full amount of
the purchase price therefor; provided that, for the purpose of assisting an
Optionee to exercise an option, the Company may make loans to the Optionee
or guarantee loans made by third parties to the Optionee, on such terms and
conditions as the Board of Directors may authorize; and provided further
that such purchase price may be paid in shares of Stock owned by the
Optionee for a period of at least six months having a market value on the
date of exercise equal to the aggregate purchase price, or in a combination
of cash and Stock. For purposes of this Section 5(c), the market value per
share of Stock shall be the last sale price regular way on the date of
reference, or, in case no sale takes place on such date, the average of the
high bid and low bid prices, in either case on the principal national
securities exchange on which the Stock is listed or admitted to trading, or
if the Stock is not listed or admitted to trading on any national securities
exchange, the last sale price reported on the National Market System of the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") on such date, or the average of the closing high bid and low
asked prices of the Stock in the over-the-counter market reported on NASDAQ
on such date, whichever is applicable, or if there are no such prices
reported on NASDAQ on such date, as furnished to the Committee by any New
York Stock Exchange member selected from time to time by the Committee for
such purpose. If there is no bid or asked price reported on any such date,
the market value shall be determined by the Committee in accordance with the
regulations promulgated under Section 2031 of the Code, or by any other
appropriate method selected by the Committee. If the Optionee so requests,
shares of Stock purchased upon exercise of an option may be issued in the
name of the Optionee or another person. An Optionee shall have none of the
rights of a stockholder until the shares of Stock are issued to him. An
option may not be exercised for less than ten shares of Stock, or the number
of shares of Stock remaining subject to such option, whichever is smaller.
Effect of Termination of Employment. An option may not be exercised
after the Optionee has ceased to be in the employ of the Company or any
Subsidiary, except in the following circumstances:
(i) If the Optionee's employment is terminated by action of
his employer, or by reason of disability or retirement under any
retirement plan maintained by the Company or any Subsidiary, the
option may be exercised by the Optionee within three months after such
termination, but only as to any shares exercisable on the date the
Optionee's employment so terminates;
(ii) In the event of the death of the Optionee during the
three month period after termination of employment covered by (i)
above, the person or persons to whom his rights are transferred by
will or the laws of descent and distribution shall have a period of
one year from the date of his death to exercise any options which were
exercisable by the Optionee at the time of his death;
(iii) In the event of the death of the Optionee while
employed, the option shall thereupon become exercisable in full, and
the person or persons to whom the Optionee's rights are transferred by
will or the laws of descent and distribution shall have a period of
one year from the date of the Optionee's death to exercise such
option. The provisions of the foregoing sentence shall apply to any
outstanding options which are incentive stock options to the extent
permitted by Section 422(d) of the Code and such outstanding options
in excess thereof shall, immediately upon the occurrence of the event
described in the preceding sentence, be treated for all purposes of
the Plan as nonstatutory stock options and shall be immediately
exercisable as such as provided in the foregoing sentence.
Notwithstanding any provision of the Plan to the contrary, the Committee
shall have the authority to extend the period during which any option may be
exercised; provided, however, that an option may not be exercised more than
eighteen (18) months after termination of employment and in no event shall
any option be exercisable more than ten years from the date of grant
thereof. Nothing in the Plan or in any option granted pursuant to the Plan
(in the absence of an express provision to the contrary) shall confer on any
individual any right to continue in the employ of the Company or any
Subsidiary or interfere in any way with the right of the Company to
terminate his employment at any time.
Nontransferability of Options. Except as provided in the next
sentence, (i) during the lifetime of an Optionee, options held by such
Optionee shall be exercisable only by him and (ii) no option shall be
transferable other than by will or the laws of descent and distribution.
The Committee shall have the authority to make any option transferable in
whole or in part by the optionee to members of the family of the optionee or
to trusts for the benefit of, or partnerships or other entities beneficially
owned by, the optionee or members of his family.
Adjustments for Change in Stock Subject to Plan. In the event of a
reorganization, recapitalization, stock split, stock dividend, combination
of shares, merger, consolidation, rights offering, extraordinary dividend or
divestiture (including a spin-off) or any other change in the corporate
structure or shares of the Company, (i) except as provided in (ii) below,
the Committee shall make such adjustments, if any, as it deems appropriate
in the number and kind of shares subject to the Plan, in the number and kind
of shares covered by outstanding options, or in the option price per share,
or both and (ii) the Board of Directors of the Company shall make such
adjustments, if any, as it deems appropriate in the maximum number of shares
which may be subject to options granted to all directors of the Company and
in the maximum number of shares which may be subject to options granted to
each director, in each case pursuant to Section 5(j), in the number and kind
of shares covered by outstanding options, or in the option price per share,
or both, with respect to options held by directors of the Company.
Acceleration of Exercisability of Options Upon Occurrence of Certain
Events. In connection with any merger or consolidation in which the Company
is not the surviving corporation and which results in the holders of the
outstanding voting securities of the Company (determined immediately prior
to such merger or consolidation) owning less than a majority of the
outstanding voting securities of the surviving corporation (determined
immediately following such merger or consolidation), or any sale or transfer
by the Company of all or substantially all its assets or any tender offer or
exchange offer for or the acquisition, directly or indirectly, by any person
or group of all or a majority of the then outstanding voting securities of
the Company, all outstanding options under the Plan shall become exercisable
in full, notwithstanding any other provision of the Plan or of any
outstanding options granted thereunder, on and after (i) the fifteenth day
prior to the effective date of such merger, consolidation, sale, transfer or
acquisition or (ii) the date of commencement of such tender offer or
exchange offer, as the case may be. The provisions of the foregoing
sentence shall apply to any outstanding options which are incentive stock
options to the extent permitted by Section 422(d) of the Code and such
outstanding options in excess thereof shall, immediately upon the occurrence
of the event described in clause (i) or (ii) of the foregoing sentence, be
treated for all purposes of the plan as nonstatutory stock options and shall
be immediately exercisable as such as provided in the foregoing sentence.
Notwithstanding the foregoing, in no event shall any option be exercisable
after the date of termination of the exercise period of such option
specified in Sections 5(b), 5(d) and 5(j)(2).
Registration, Listing and Qualification of Shares of Stock. Each
option shall be subject to the requirement that if at any time the Board of
Directors shall determine that the registration, listing or qualification of
the shares of Stock covered thereby upon any securities exchange or under
any federal or state law, or the consent or approval of any governmental
regulatory body is necessary or desirable as a condition of, or in
connection with, the granting of such option or the purchase of shares of
Stock thereunder, no such option may be exercised unless and until such
registration, listing, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Board of
Directors. The Company may require that any person exercising an option
shall make such representations and agreements and furnish such information
as it deems appropriate to assure compliance with the foregoing or any other
applicable legal requirement.
Other Terms and Conditions. The Committee may impose such other terms
and conditions, not inconsistent with the terms hereof, on the grant or
exercise of options, as it deems advisable.
Terms and Conditions of Options Granted to Directors. Notwithstanding
any provision contained in the Plan to the contrary, during any period when
any member of the Committee shall not be a "disinterested person" as defined
in Rule 16b-3 under the Securities Exchange Act of 1934, as such Rule was in
effect at April 30, 1991, then, the terms and conditions of options granted
under the Plan to any director of the Company during such period shall be as
follows:
(1) The price at which each share of Stock subject to an
option may be purchased shall, subject to any adjustments which may be
made pursuant to Section 5(f), in no event be less than the market
value per share of Stock on the date of grant, and provided further
that in the event the option is intended to be an incentive stock
option pursuant to Section 6 and the Optionee owns on the date of
grant securities possessing more than 10% of the total combined voting
power of all classes of securities of the Company or of any
Subsidiary, the price per share shall not be less than 110% of the
market value per share of Stock on the date of grant.
(2) The option may be exercised to purchase shares of Stock
covered by the option not sooner than six months following the date of
grant. The option shall terminate and no shares of Stock may be
purchased thereunder more than ten years after the date of grant,
provided that if the option is intended to be an incentive stock
option pursuant to Section 6 and the Optionee owns on the date of
grant stock possessing more than 10% of the total combined voting
power of all classes of securities of the Company or of any
Subsidiary, the option shall terminate and no shares of Stock may be
purchased thereunder more than five years after the date of grant.
(3) The maximum number of shares of Stock which may be subject
to options granted to all directors pursuant to this Section 5(j)
shall be 150,000 shares in the aggregate. The maximum number of
shares of Stock which may be subject to options granted to any
director who is an officer or employee of the Company is 100,000. The
maximum number of shares of Stock which may be subject to options
granted to any director who is not an officer or employee of the
Company shall be 20,000 shares.
Additional Provisions Applicable to Incentive Stock Options. The
Committee may, in its discretion, grant options under the Plan to eligible
employees which constitute "incentive stock options" within the meaning of
Section 422 of the Code, provided, however, that (a) the aggregate market
value of the Stock with respect to which incentive stock options are
exercisable for the first time by the Optionee during any calendar year
shall not exceed the limitation set forth in Section 422(d) of the Code, (b)
if the Optionee owns on the date of grant securities possessing more than
10% of the total combined voting power of all classes of securities of the
Company or of any Subsidiary, the price per share shall not be less than
110% of the market value per share on the date of grant and (c) Section
5(d)(ii) hereof shall not apply to any incentive stock option.
Amendment and Termination. Unless the Plan shall theretofore have
been terminated as hereinafter provided, the Plan shall terminate on, and no
option shall be granted hereunder after, December 31, 2005; provided,
however, that the Board of Directors may at any time prior to that date
terminate the Plan. The Board of Directors may at any time amend the Plan
or the terms of any option outstanding under the Plan; provided, however,
that, except as contemplated in Section 5(f), the Board of Directors shall
not, without approval by a majority of the votes cast thereon by the
stockholders of the Company at a meeting of stockholders at which a proposal
to amend the Plan is voted upon, (i) increase the maximum number of shares
of Stock for which options may be granted under the Plan, (ii) amend the
Plan to change the minimum option price, (iii) amend the Plan to extend the
period during which options may be granted or exercised, or (iv) except as
otherwise provided in the Plan, amend the requirements as to the class of
individuals eligible to receive options. No termination or amendment of the
Plan or any option outstanding under the Plan may, without the consent of an
Optionee, adversely affect the rights of such Optionee under any option held
by such Optionee.
Effectiveness of Plan. The Plan will not be made effective unless
approved at a meeting of stockholders of the Company duly called and held
for such purpose by a majority of the votes cast thereon by the stockholders
of the Company, and no option granted hereunder shall be exercisable prior
to such approval.
Withholding. It shall be a condition to the obligation of the Company
to issue shares of Stock upon exercise of an option, that the Optionee (or
any beneficiary or person entitled to act under Section 5(d) hereof) pay to
the Company, upon its demand, such amount as may be requested by the Company
for the purpose of satisfying any liability to withhold federal, state or
local income or other taxes. If the amount requested is not paid, the
Company may refuse to issue such shares of Stock.
Other Actions. Nothing contained in the Plan shall be construed to
limit the authority of the Company to exercise its corporate rights and
powers, including but not by way of limitation, the right of the Company to
grant or assume options for proper corporate purposes other than under the
Plan with respect to any employee or other person, firm, corporation or
association.
Exhibit 10(k)
State Street
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110-2804
March 20, 1996
Mr. Carleton F. Bryant III
Chief Operating Officer
Westerbeke Corporation
Avon Industrial Park
Avon, MA 02322
Dear Carl:
I am pleased to inform you that State Street Bank and Trust Company (the
"Bank") has completed the necessary credit approval process to renew a
$3,000,000 secured line of credit (the "Line of Credit") for Westerbeke
Corporation (the "Company").
The terms and conditions of the Bank's facility to the Company are as
follows:
Line of Credit - $3,000,000
The Bank will make available a Line of Credit, secured by a first lien on
the Company's accounts receivable and inventory, to be used for working
capital purposes. Advances under the Line of Credit will be limited to the
lesser of (I) $3,000,000 or (ii) a formula including up to 80% of the unpaid
face amount of all eligible accounts receivable which are no more than
ninety ("90") days from invoice date, plus 40% of inventory. Advances
against inventory will be capped at $2,000,000. The Line of Credit may be
used for direct borrowings, letters of credit up to 270 days, and bankers'
acceptances. This line of credit will expire March 31, 1997.
A one quarter of one percent (1/4%) per annum fee will be payable on the
unused Line of Credit amount, charged quarterly in arrears. Borrowings will
bear interest at the State Street Bank and Trust Company Prime Rate, as
announced from time to time.
Equipment Line - $500,000
The Bank will also provide an equipment line of credit, available for
drawdowns until June 30, 1996. On July 1, 1996 the equipment line will
convert to a five year secured term loan. The loan will amortize in sixty
(60) equal monthly principal payments. The term loan will mature by July
31, 2001. The interest rate on the equipment line will be the Bank's Prime
Rate. At the time of conversion to a term loan, interest will be at the
Company's option, floating at the Bank's Prime Rate or fixed at a rate equal
to the rate determined by the Bank as its Cost of Funds plus 225 basis
points.
All other terms of the original commitment, as amended from time to time,
will remain the same.
Carl, congratulations on another excellent year at Westerbeke! If the above
facilities meet with your approval, please indicate your acceptance by
signing on the line provided below. Thank you.
Sincerely,
By /s/ Suzanne L. Dwyer
Suzanne L. Dwyer
Loan Officer
Accepted:
WESTERBEKE CORPORATION
By /s/ Carleton F. Bryant III
By: Carleton F. Bryant III
Title: Chief Operating Officer
Date: March 22, 1996
Exhibit 10(m)
TIME NOTE - GRID - FLUCTUATING INTEREST
$3,000,000.00 March 29, 1996
Boston, Massachusetts
On March 31, 1997, for value received, Westerbeke Corporation (the
"Borrower") promises to pay to the order of STATE STREET BANK AND TRUST
COMPANY ("Bank") at the office of Bank located at 225 Franklin Street,
Boston, Massachusetts 02110, or such other place as the holder hereof shall
designate, Three Million DOLLARS or, if less, the aggregate unpaid principal
amount of all loans made by the Bank to the Borrower, together with interest
on unpaid balances payable monthly in arrears on the first day of each
calendar month and on the due date hereof, at a fluctuating interest rate
per annum equal to
Zero% above Bank's Prime Rate in effect from time to time. Each change in
such interest rate shall take effect simultaneously with the corresponding
change in such Prime Rate. "Prime Rate" shall mean the rate of interest
announced by Bank in Boston from time to time as its "Prime Rate". Interest
shall be calculated on the basis of actual days elapsed and a 360-day year.
If this note is not paid in full on the due date, whether as stated or by
acceleration, interest on unpaid balances shall thereafter be payable on
demand at a fluctuating interest rate per annum equal to 4% above the Prime
Rate in effect from time to time.
All loans hereunder and all payments on account of principal and
interest hereof shall be recorded by the Bank and prior to any transfer
hereof, endorsed on the grid on the reverse hereof which is part of this
note. The entries on the records of the Bank (including any appearing on
this note) shall be prima facie evidence of amounts outstanding hereunder.
This note shall, at the option of the holder, become immediately due
and payable without notice or demand upon the occurrence of any of the
following events:
(a) Failure to make any payment of interest when due;
(b) Failure for 90 days to discharge any attachment or levy on any
property of the Borrower;
(c) Default in the payment or performance of any liability,
obligation or agreement of any maker hereof to or with the holder hereof;
(d) Occurrence of any of the following with respect to the Borrower
or any endorser or guarantor hereof: admission in writing of his or its
inability, or be generally unable, to pay his or its debts as they become
due, death, dissolution, termination of existence, cessation of normal
business operations, insolvency, appointment of a receiver of any part of
the property of, legal or equitable assignment, conveyance or transfer of
property for the benefit of creditors by, or the commencement of any
proceedings under any bankruptcy or insolvency laws by or against, such
person.
Any deposits or other sums at any time credited by or due from the
holder to the Borrower, or to any endorser or guarantor hereof, and any
securities or other property of the Borrower or any endorser or guarantor at
any time in the possession of the holder may at all times be held and
treated as collateral for the payment of this note and any and all other
liabilities (direct or indirect, absolute or contingent, sole, joint or
several, secured or unsecured, due or to become due, now existing or
hereafter arising) of the Borrower to the holder. Regardless of the
adequacy of collateral, the holder may apply or set off such deposits or
other sums against such liabilities at any time in the case of the Borrower,
but only with respect to matured liabilities in the case of endorsers and
guarantors.
The Borrower and every endorser and guarantor of this note hereby
waive presentment, demand, notice, protest and all other demands and notices
in connection with the delivery, acceptance, performance, default or
enforcement hereof and consent that this note may be extended from time to
time and that no extension or other indulgence, and no substitution, release
or surrender of collateral and no discharge or release of any other party
primarily or secondarily liable hereon, shall discharge or otherwise affect
the liability of the Borrower or any such endorser or guarantor. No delay
or omission on the part of the holder in exercising any right hereunder
shall operate as a waiver of such right or of any other right hereunder, and
a waiver of any such right on any one occasion shall not be construed as a
bar to or waiver of any such right on any future occasion.
This note is secured by any and all collateral at any time granted to
Bank to secure any obligations of any maker hereof.
The Borrower and every endorser and guarantor of this note agree to
pay on demand all costs and expenses (including legal costs and attorneys'
fees) incurred or paid by the holder in enforcing this note on default.
This note shall take effect as a sealed instrument and shall be
governed by the laws of the Commonwealth of Massachusetts.
Address Westerbeke Corporation
- ------- ----------------------
Borrower's Name (print or type)
Avon Industrial Park By /s/ Carleton F. Bryant III
- -------------------- ------------------------------
Signature Executive V/P
Avon, MA 02322
- --------------
Exhibit 10(t)
LEASE AMENDMENT AGREEMENT
-------------------------
This Lease Amendment Agreement made as of the 29th day of April, 1991,
by GBD/Odyssey Limited Partnership (also known as GBD/Odyssey Associates
Limited Partnership), a Massachusetts limited partnership whose address is
One Washington Street -Suite 204, Wellesley, Massachusetts 02181 (hereafter
called "Lessor") and Westerbeke Corporation, a Delaware corporation with
offices at 41 Ledin Drive, Avon, Massachusetts 02322 (hereafter called
"Lessee"),
WITNESSETH:
-----------
WHEREAS, pursuant to the terms of the Commercial Lease, a photocopy of
which is annexed hereto, (hereafter called the "Lease"), Lessor leased to
Lessee approximately 15,680 square feet of building space (hereafter called
the "Leased Premises") located at 40 Robbie Road, Avon, Massachusetts, with
the term commencing on or about January 1, 1988 and expiring on December 31,
1989; and
WHEREAS, pursuant to the provisions of Section 29 of the Lease, the
Lease was extended for a two year period commencing on January 1, 1990 and
expiring on December 21, 1991; and
WHEREAS, Lessee and Lessor have negotiated in good faith an extension
of the Lease term on terms and conditions different than those provided for
in the Lease, all as set forth hereinafter.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained herein, Lessor and Lessee hereby amend the Lease,
effective as of the date first written above as follows:
1. Term. The original term of the Lease contained in Section 3 of
the Lease shall be amended to be a term of seven (7) years commencing on
January 1, 1988 and expiring on December 31, 1994. Notwithstanding the
foregoing, Lessee shall have the right to terminate the Lease with six
months prior notice provided that (i) such notice is provided in writing,
(ii) such notice shall not be given to Lessor prior to January 1, 1993,
(iii) a check for Eighteen Thousand ($18,000) Dollars, as additional rent in
consideration only of Lessee's exercising such right to terminate, shall be
included with such notice, (iv) the Lessee is not in default beyond any
applicable grace period in the performance of any material obligation of
Lessee under the Lease as of the date of Lessee's notice to Lessor and (v)
the Lessee shall faithfully continue to fulfill all of its obligations under
the Lease after such notice including the payment of any rent or additional
rent as the same may become due prior to the early termination of the Lease.
2. Annual Rent. Section 4 shall be deleted in its entirety and the
following clause shall be substituted in its place: "Lessee shall pay to
Lessor rent at the rate of Seventy-four Thousand Four Hundred Eighty Dollars
($74,480) per year for the first five years of the term, paid on the first
of the month in advance in monthly installments at the rate of Six Thousand
Two Hundred Sixty Dollars and Sixty-Seven Cents ($6260.67). Lessee shall
pay to Lessor rent at the rate of Seventy-six Thousand Eight Hundred Thirty-
two Dollars ($76,832) per year during the sixth year of the Lease Term, paid
on the first of the month in advance in monthly installments at the rate of
Six Thousand Four Hundred Two Dollars and Sixty-Seven Cents ($6402.67).
Lessee shall pay to Lessor rent at the rate of Eighty Thousand Seven Hundred
Fifty-Two Dollars ($80,752.00) per year during the seventh year of the term,
paid on the first of the month in advance in monthly installments at the
rate of Six Thousand Seven Hundred Twenty-nine Dollars and Thirty Four Cents
($6729.34). The rent and other sums payable by Lessee hereunder shall be
paid without notice or demand, and without abatement, deduction, setoff,
reduction or suspension, except as expressly provided in this lease."
3. Option to Extend. The entire Section 29 of the Lease shall be
deleted in its entirety.
4. Nondisturbance of Lessee. Section 14 of the Lease shall be
amended by adding the following at the end thereof:
As a condition of Lessee's delivering such a subordination instrument
as contemplated in the preceding sentence, Lessor shall deliver to
Lessee a nondisturbance and attornment agreement (a "Nondisturbance
Agreement") executed by Lessee and any party (a "Mortgagee') holding a
mortgage, deed of trust, any other instrument in the nature of a
mortgage or any instrument effecting an assignment of rents and/or
leases (each, a "Security Instrument") covering any portion of the
Leased Premises, and (a) with respect to any Security Instrument which
affects the Leased Premises as of March 31, 1991, Lessor shall use its
best efforts to deliver to Lessee a Nondisturbance agreement and (b)
with respect to any Security Instrument which affects the Leased
Premises after March 31, 1991, Lessor shall deliver to Lessee a
Nondisturbance Agreement at the request of the Lessee. Such
Nondisturbance Agreement shall provide (a) that in the event of an
entry by the Mortgagee pursuant to its Security Instrument, a
foreclosure of the Security Instrument, the Mortgagee's taking
possession of any portion of any portion of the Leased Premises by
deed in lieu of the Mortgagee's exercising its rights under the
Security Instrument, or the exercise by the Mortgagee of any of its
rights under the Mortgage, (i) the Mortgagee shall not disturb
Lessee's right of possession of the Leased Premises under the terms of
this Lease so long as Lessee is not in default beyond any applicable
grace period in the performance of its obligations under this Lease,
and (ii) Lessee will attorn to and recognize the Mortgagee and any
successor in interest to the Mortgagee, including any purchaser at
foreclosure, as its landlord under this Lease for the remainder of the
term of this Lease (as the same may be modified by the terms of this
Lease) upon the same terms and conditions as are set forth in this
Lease and Lessee will pay and perform all of its obligations as tenant
pursuant to this lease, and (b) such other terms and conditions as the
Mortgagee or Lessee shall reasonably request.
5. No Defaults. Each of Lessor and Lessee agrees that, as of the
date hereof, the Lease is in full force and effect, that, to the best of its
knowledge, no default by the other party exists, and that the Lessee has
paid to Lessor all amounts of rent, additional rent and other sums payable
to Lessor by Lessee which are due and payable under the Lease.
6. Miscellaneous. (a) The Lease is hereby amended so that each and
every reference therein to the Lease shall be deemed to refer to the Lease
as amended hereby. (b) Except as modified herein, all terms and conditions
of the Lease shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Lease
Amendment Agreement as of the date first written above.
LANDLORD: TENANT:
GBD/ODYSSEY WESTERBEKE CORPORATION
LIMITED PARTNERSHIP
By Its General Partner, Odyssey
Associates Limited Partnership
BY: /s/ Christopher Collins BY: /s/ Stephen Hocheiser
Christopher Collins Stephen Hocheiser
General Partner
westbk
Exhibit 10(v)
THIRD LEASE AMENDMENT AGREEMENT
This Third Lease Amendment Agreement is made as of this 20th day of
February, 1996 and reference is made to a certain Commercial Lease dated
November 4, 1987, Lease Amendment Agreement dated April 29, 1991 and 2nd
Lease Amendment Agreement dated April 7, 1993 (hereinafter collectively the
"Lease") made by and between GBD/Odyssey Limited Partnership and its
successor-in-interest New Avon Limited Partnership (hereinafter "Landlord")
and Westerbeke Corporation (hereinafter "Tenant") for the Demised Premises
consisting of approximately 15,680 square feet in the building commonly
known as The Odyssey Building, 40 Robbie Road, Avon, Massachusetts;
WITNESSETH:
WHEREAS, the term of said Lease shall expire on the last day of June, 1996,
and;
WHEREAS, the Tenant desires to extend the Term of said Lease for a period of
three (3) years beyond the current expiration date (the "Extended Term") and
to have the option to further extend the Term for an additional two years,
and;
WHEREAS, the Landlord desires to accommodate the Tenant in these respects,
NOW, THEREFORE, the parties hereto covenant and agree as follows:
1. TERM: The Term as stated on page 1 of the Commercial Lease as
subsequently amended by the Lease Amendment Agreement and 2nd Lease
Amendment Agreement is hereby amended and extended for a term of three (3)
years, which Term shall commence on the first day of July, 1996 and shall
expire on the last day of June, 1999, as if such Term had been originally
set forth herein.
2. ANNUAL RENT: Section 4 of the Commercial Lease as modified by Section
2 of both the Lease Amendment Agreement and the 2nd Lease Amendment
Agreement shall be deleted in their entirety and the following provisions
shall be substituted in their place:
"Tenant shall pay to Landlord annual rent at the rate of Fifty-nine Thousand
Five Hundred Eighty-four Dollars ($59,584.00) for the first year of the
Extended Term, paid on the first day of the month in advance in equal
installments of Four Thousand Sixty-five Dollars and Thirty-three Cents
($4,965.33).
Tenant shall pay to Landlord annual rent at the rate of Sixty-one Thousand
One Hundred Fifty-two Dollars ($61,152.00) for the second year of the
Extended Term, paid on the first day of the month in advance in equal
monthly installments of Five Thousand Ninety-six Dollars ($5,096.00).
Tenant shall pay to Landlord annual rent at the rate of Sixty-two Thousand
Seven Hundred Twenty Dollars ($62,720.00) for the third year of the Extended
Term, paid on the first day of the month in advance in equal installments of
Five Thousand Two Hundred Twenty-six Dollars and Sixty-seven Cents
($5,226.67).
The rent and other sums payable by Tenant hereunder shall be paid without
notice or demand, and without abatement, deduction, setoff, reduction or
suspension, except as expressly provided in the Lease."
3. REAL ESTATE TAXES AND OPERATION COSTS: Section 6 of the Commercial
Lease shall be deleted in its entirety and the following provisions shall be
substituted in its place:
"For the purpose of this Section 3, the following terms shall have the
following meanings:
A. Real Estate Taxes - real estate taxes levied against the land and
building of which the Demised Premises are a part, including betterment
assessments and other governmental charges which may be charged, assessed or
imposed upon the land, building and other improvements of which the Demised
Premises are a part.
B. Operation Cost - all reasonable costs and expenses incurred by Landlord
in connection with the maintenance and operation of the land and building of
which the Demised Premises are a part. Operation Cost shall include,
without limitation, all reasonable costs and expenses incurred by Landlord
(a) in repairs to the building and its appurtenances and the exterior signs
thereon, (b) in carrying fire, casualty, plate glass, rent and liability
insurance upon the building (including, without limitation, insurance
carried under so-called "blanket" and/or "umbrella" policies), (c) in
providing services including, but not limited to, lighting, plowing,
cleaning, maintaining and beautifying the exterior of the building and the
land appurtenant to the building and the landscaping and gardening (if any)
thereof, (d) in paying wages, unemployment taxes and benefits of personnel
engaged in the management and operation of the building (appropriately
prorated where a person's duties are not limited solely to the building),
(e) in paying for electricity, water and sewerage and other utilities
charges imposed by the entity providing such services, to the extent not
separately metered to the Demised Premises, and the cost of maintaining any
utility systems outside the Demised Premises (including, without limitation,
any rooftop HVAC equipment), and (f) a management fee equal to five percent
(5%) of gross receipts from the operation of the building. Landlord's
Operation Cost shall not include charges which are attributable to utility
charges for which Landlord shall receive direct payment from other tenants
with respect to other space in the Building; the cost of providing
additional services to Tenant (or to other tenants in the Building) not
generally furnished to all occupants of the Building, for which Landlord
shall receive direct payment from Tenant (or direct payment from such other
tenants); payments of principal, interest or other charges on mortgages and
payments of ground rent on any ground lease; legal fees or other expenses in
connection with the leasing of other space of Landlord in the Building or
the collection of rent or enforcement of lease obligations; or salaries of
executives or principals of Landlord (except as the same may be reflected in
any management fee).
C. Tenant's Tax and Operation Cost Obligation - for any calendar year (or
partial calendar year) occurring during the Term, the sum of Real Estate
Taxes and Operation Cost multiplied by Tenant's share of Operation Cost,
which share shall be Ten and Twenty-seven Hundredths Percent (10.27%). For
the partial calendar years at the beginning and end of the Term, Tenant's
Tax and Operation Cost Obligation shall be equal to Tenant's Tax and
Operation Cost Obligation as determined pursuant to the immediately
preceding sentence, multiplied by that fraction of the relevant calendar
year during which this lease was in effect.
Tenant shall pay to Landlord, as additional rent, Tenant's Tax and Operation
Cost Obligation for each calendar year (or partial calendar year) during the
Term.
Tenant shall pay to Landlord in advance on the first day of every month
during the Term, payment on account of Tenant's obligations under this
Section along with payment of annual rent under Section 2. Tenant's initial
monthly payment on account of real estate taxes under this Section shall be
Six Hundred Seven Dollars and Forty-seven Cents ($607.47) and its initial
monthly payment on account of operation cost under this Section shall be
Seven Hundred Eighty-four Dollars ($784.00). From time to time, and upon
prior written notice to Tenant, Landlord shall have the right to adjust the
amount of Tenant's monthly payments. Following the end of each calendar
year, Landlord shall determine the exact amount of Tenant's Tax and
Operation Cost Obligation with respect to the calendar year then ended, and
appropriate adjustments shall be made (either by additional payment by
Tenant or crediting by Landlord toward subsequent obligations of Tenant
under this Section, or refund if at end of Term), so that the amount of such
adjustment, when aggregated with the amount of Tenant's monthly payments
during the preceding calendar year, will equal Tenant's Tax and Operation
Cost Obligation for such calendar year. Within ninety (90) days after the
end of each calendar year, Tenant shall receive a statement from Landlord
detailing the previous twelve months operating expenses for the Building and
the estimated monthly Operation Cost Obligation for the subsequent period.
In addition to the foregoing, Tenant shall pay all taxes upon its personal
property in or upon the Demised Premises.
Notwithstanding the foregoing, it is understood and agreed that disposal of
Tenant's refuse or related material shall be the sole responsibility of
Tenant, and Tenant shall provide proper disposal container(s) located on the
perimeter of the property for this purpose (subject to Landlord's approval,
which shall not be unreasonably withheld or delayed) at Tenant's sole cost
and expense.
With respect to the pro-ration of annual water usage by all tenants in the
building, in the event that a tenant occupying a portion of the building
uses a greater amount of water than is customarily used by other tenant in
the building, the water usage for that tenant shall be separately metered
(at that tenant's expense) and billed to that tenant, exclusive of other
tenants in the Building."
4. EXTENSION OPTION: Provided Tenant is not then in default under this
Lease (and shall not be in default on the expiration date of this Lease),
Tenant shall have the option, subject to the conditions set forth below, to
extend this Lease for the term of two (2) years from the date of expiration
of the Term as stated in Section 1 (the "extension period"), upon the terms
and conditions as in this Lease contained. To exercise this option, Tenant
shall give written notice to Landlord not later than one hundred eight (180)
days prior to the expiration of the Term as stated in Section 1. Tenant
shall pay to Landlord for the term of such extension period base annual rent
equal to Market Rate. Within thirty (30) days of Landlord's receipt of
Tenant's notice to extend, Landlord shall give notice to Tenant specifying
the proposed Market Rate, as more specifically set forth in Exhibit C
attached hereto, said Market Rate defined as the amount of rent a
prospective tenant, in an arms-length transaction, would be willing to pay
on the date that the Extension Period commences, for a two-year period and
in light of the fact that Tenant shall be responsible for paying Real Estate
Taxes and Operation Cost as set forth herinbefore.
5. NO DEFAULTS: Each of the Landlord and Tenant agrees that, as of the
date hereof, the Lease is in full force and effect and that, to the best of
its knowledge, no default by the other party exists and that the Tenant has
paid to Landlord all amounts of rent, additional rent and other sums payable
to Landlord by Tenant which are due and payable under the Lease.
6. MISCELLANEOUS: (a) The Lease is hereby amended so that each and every
reference therein to the Lease shall be deemed to refer to the Lease as
amended hereby. (b) Except as modified herein, all terms and conditions of
the Lease shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Third Lease
Amendment Agreement as of the date first written above.
LANDLORD: TENANT:
NEW AVON LIMITED PARTNERSHIP WESTERBEKE CORPORATION
By Its General Partner,
New Avon Development Corporation
BY: /s/ Lawrence J. Rothschild BY: /s/ Carleton F. Bryant III
---------------------------- --------------------------
Lawrence J. Rothschild, President
Title: Executive VP
Print Name: Carleton F. Bryant III
EXHIBIT C
Determination of Market Rate
Landlord shall, within thirty (30) days of notice (i) from its departing
tenant, and/or (ii) of Tenant's notice to exercise its extension option
hereunder, designate the Market Rate.
If Tenant disagrees with Landlord's designation of the Market Rate, Tenant
shall have the right by written notice given within thirty (30) days after
Tenant has been notified of Landlord's designation, to submit the
determination of Market Rate to arbitration. Such notification by Tenant
shall be deemed to be an exercise of Tenant's right to expand into adjacent
space the balance of the Lease Term. Market Rate shall be submitted to
arbitration as follows: Market Rate shall be determined by impartial
arbitrators, one to be chosen by Tenant at the time it submits such Market
Rate to arbitration, one to be chosen by Landlord within fifteen (15) days
thereafter, and a third to be selected, if necessary, as provided below.
Each arbitrator shall be an M.A.I. appraiser or shall have at least five (5)
years experience in evaluating real estate similar to the Demised Premises.
The unanimous decision of the two first chosen, without selection and
participation of a third arbitrator, or the written decision of the third
arbitrator chosen and selected as provided below, shall be conclusive and
binding upon Landlord and Tenant. Unless the two arbitrators selected by
Landlord and Tenant have reached a designation, they shall so notify the
then Regional Director of the Boston chapter of the American Arbitration
Association and request him to select an impartial third arbitrator, to
determine Market Rate as herein defined. Within thirty (30) days after
being designated, the third arbitrator shall determine the Market Rate as
being either the Market Rate determined by Landlord's appraiser of the
Market Rate determined by Tenant's appraiser, whichever he believes to be
closer to the true Market Rate. The arbitration contemplated hereunder
shall be governed by the commercial arbitration rules of the American
Arbitration Association. Landlord shall bear the costs and expenses of the
arbitrator which it chooses and Tenant shall bear the cost and expenses of
the arbitrator which it chooses. In arriving at their determination
hereunder, the arbitrators shall consider the rental market for space
comparable to the space adjacent to the Demised Premises within a five (5)
mile radius of the Building. Landlord and Tenant shall bear the expense of
the third arbitrator and the costs and expenses of the arbitration
proceeding hereunder equally. If the dispute between the parties as to the
Market Rate has not been resolved before the commencement of (i) the
Expansion Space term, and/or (ii) the Extension Option, then Tenant shall
pay rent for the (i) Expansion Space, and/or (ii) the Extension Term based
upon the then payable Annual Rent set forth herein and its additional share
of Real Estate Taxes and Operation Cost payable with respect to the time
period in question until either the agreement of the parties as to the
Market Rate, or the decision of the arbitrators, as the case may be, at
which time Tenant shall pay any underpayment of rent with respect to the
time period in question to Landlord.
Exhibit 21
Subsidiary of Westerbeke Corporation
Westerbeke International, Inc., a U.S. Virgin Islands corporation,
which qualifies as a foreign sales corporation.
Exhibit 23
KPMG Peat Marwick LLP
99 High Street Telephone 617 988 1000 Telefax 617 988 0800
Boston, MA 02110-2371
Consent of Independent Auditors
-------------------------------
The Board of Directors and Stockholders
of Westerbeke Corporation:
We consent to the incorporation by reference in the Registration Statement (
File No. 33-24435) on Form S-8 of Westerbeke Corporation of our report dated
December 20, 1996 relating to the consolidated balance sheets of Westerbeke
Corporation and subsidiary as of October 26, 1996 and October 28, 1995, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
October 26, 1996, and related schedule, which report appears in the October
26, 1996 annual report on Form 10-K of Westerbeke Corporation.
By /s/ KPMG Peat Marwick LLP
-----------------------------
Boston, Massachusetts
January 22, 1997
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<NAME> WESTERBEKE CORP.
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