SCHEDULE 14A(Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATIONProxy Statement Pursuant to Section 14(a) of the Filed by the Registrant |X| Check the appropriate box: |
|X| Preliminary Proxy Statement | |_| Soliciting Material Under Rule 14a-12 |
|_| Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
|_| Definitive Proxy Statement |
|_| Definitive Additional Materials |
Goddard Industries, Inc. —————————————————————————————— Payment of Filing Fee (Check the appropriate box): |
|_| | No fee required. |
|_| | Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
(1) | Title of each class of securities to which transaction applies: ——————————————————————————————————————— |
(2) | Aggregate number of securities to which transaction applies: ——————————————————————————————————————— |
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): ——————————————————————————————————————— |
(4) | Proposed maximum aggregate value of transaction: ——————————————————————————————————————— |
(5) | Total fee paid: ——————————————————————————————————————— |
|_| | Fee paid previously with preliminary materials: |
|X| | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
(1) | Amount Previously Paid: $14.88 ——————————————————————————————————————— |
(2) | Form, Schedule or Registration Statement No.: Schedule 13E-3 ——————————————————————————————————————— |
(3) | Filing Party: Goddard Industries, Inc. ——————————————————————————————————————— |
(4) | Date Filed: June 27, 2003 ——————————————————————————————————————— |
GODDARD INDUSTRIES, INC. |
1. | To consider and act upon a proposal to amend the Company’s Restated Articles of Organization, as amended, to provide for a reverse stock split of the Company’s common stock that would result in (i) stockholders receiving one share of new common stock for every 500 shares of our existing common stock that they own, and (b) stockholders receiving cash in lieu of any fractional share they would otherwise be entitled to receive as a result of the reverse stock split at a rate of $0.80 per share on a pre-split basis. The reverse stock split is intended to reduce the number of stockholders of record to a number fewer than 300 so that we can terminate our reporting obligations under the Securities Exchange Act of 1934, as amended. |
2. | To consider and act upon a proposal to amend the Company’s Restated Articles of Organization, as amended, to change the name of the Company to “Balkore Industries, Inc.” |
3. | To elect one Class I director to serve until the Company’s Annual Meeting of Stockholders to be held in 2006 and until his successor is duly elected and qualified. |
4. | To consider and act upon a proposal to grant Company management the discretionary authority to adjourn the Special Meeting to a date or dates not later than __________ __, 2003, if necessary to enable Company management to solicit additional proxies in favor of Proposal Nos. 1 and 2. |
5. | To transact such other business as may properly come before the meeting and any adjournment thereof. |
The Board of Directors has fixed the close of business on September__, 2003, as the record date (the “Record Date”) for the determination of stockholders entitled to notice of and to vote at the Special Meeting and any adjournment thereof. Only stockholders at the close of business on the Record Date are entitled to notice of and to vote at such meeting. The transfer books will not be closed. For the reasons set forth in the Proxy Statement, our Board of Directors unanimously recommends that you vote in favor of Proposal Nos. 1, 2 and 4 and for the nominee as Class I director specified under Proposal No. 3. You are cordially invited to attend the meeting. However, whether or not you expect to attend the Special Meeting, it is very important for your shares to be represented at the Special Meeting. We respectfully request that you promptly date, execute and mail the enclosed proxy in the enclosed stamped envelope for which no additional postage is required if mailed in the United States. A proxy may be revoked by a stockholder by notifying the Clerk of the Company in writing at any time prior to its use, by executing and delivering a subsequent dated proxy or by personally appearing at the Special Meeting and casting your vote, each as specified in the enclosed Proxy Statement.YOUR VOTE IS IMPORTANT. PLEASE PROMPTLY EXECUTE AND RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED. By Order of the Board of Directors: Joel M. Reck, Clerk |
Dated: | September___, 2003 Worcester, Massachusetts |
GODDARD INDUSTRIES, INC. |
1. | To approve and adopt an amendment to the Company’s Restated Articles of Organization, as amended (the “Articles of Organization”), providing for a reverse stock split that would result in (a) stockholders receiving one share of “new” common stock, $.01 par value (“New Common Stock”) for every 500 shares of our currently existing common stock, $.01 par value (“Existing Common Stock”), owned as of the effective date of the amendment, and (b) stockholders receiving cash in lieu of any fractional share of New Common Stock they would otherwise be entitled to receive as a result of the reverse stock split, at a rate of $0.80 per share of Existing Common Stock. The reverse stock split is intended to reduce the number of record stockholders to fewer than 300 so that after the reverse split we can terminate the registration of our New Common Stock under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and thereby end our obligations as a public company. |
2. | To approve and adopt an amendment to the Company’s Articles of Organization to change the name of the Company to “Balkore Industries, Inc.” |
3. | To elect one Class I director to serve until the Company’s Annual Meeting of Stockholders to be held in 2006 and until his successor is duly elected and qualified. |
4. | To consider and act upon a proposal to grant Company management the discretionary authority to adjourn the Special Meeting to a date or dates not later than __________ __, 2003, if necessary to enable Company management to solicit additional proxies in favor of Proposal Nos. 1 and 2. |
5. | The proxies will be voted in accordance with the recommendation of management as to any other matters which may properly come before the Special Meeting or any adjournment thereof. |
Only those stockholders of record at the close of business on September __, 2003 (the “Record Date”) are entitled to notice of and to vote at the Special Meeting, including any adjournments thereof. The approximate date on which this Proxy Statement and the enclosed proxy are first being sent to stockholders is September___, 2003. The mailing address of the Company is c/o Goddard Industries, Inc., P.O. Box 765, Worcester, Massachusetts 01613. The Company’s Annual Report on Form 10-KSB for the fiscal year ended September 28, 2002 and the Company’s Quarterly Report on Form 10-QSB for the fiscal quarter ended June 28, 2003 (in each case restated to incorporate amendments) are enclosed with this Proxy Statement. |
No person is authorized to give any information or to make any representation not contained in this Proxy Statement or the related Schedule 13E-3, and if given or made, such information or representation should not be relied upon as having been authorized by the Company. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the transactions proposed herein or determined if this Proxy Statement is truthful or complete. Neither the Securities and Exchange Commission nor any state securities commission has passed upon the merits or fairness of the transactions contemplated hereby nor upon the adequacy or accuracy of the information contained in this Proxy Statement. Any representation to the contrary is a criminal offense. |
TABLE OF CONTENTS |
i |
• | Our Board of Directors unanimously approved the reverse stock split and payment of cash in lieu of fractional shares in order to reduce the number of our stockholders of record to substantially fewer than 300. If the reverse split had been carried out on September ___, 2003, the record date for the determination of stockholders entitled to notice of and vote at the stockholder meeting (the “Record Date”), there would have been [_____] stockholders of record remaining following the reverse stock split. |
• | If we have fewer than 300 stockholders of record of our common stock, we will be able to terminate our registration under the Exchange Act, which will relieve us of the administrative burdens and costs of filing periodic reports with the SEC and fulfilling the other obligations imposed on a “public company.” Based on our historical costs and after taking into account the effect of the sale of the Goddard Valve business and the things we will still do as a private company, we expect that we will save more than $150,000 per year by terminating our reporting obligations under the Exchange Act. |
• | The reasons for the reverse stock split are discussed below under the caption “SPECIAL FACTORS RELATED TO REVERSE STOCK SPLIT – Purpose and Reasons for the Reverse Stock Split” on page 8. |
What will termination of our registration under the Exchange Act mean? |
• | We will no longer be a public company under the federal securities laws. |
• | We will no longer be required to file annual, quarterly and other reports that we currently file with the SEC. |
• | Brokers and dealers would typically not make a market or publish quotations for our common stock, and we do not intend to take any action to encourage the development of a public market for our common stock after we terminate registration under the Exchange Act. |
• | For further information, see “SPECIAL FACTORS RELATED TO REVERSE STOCK SPLIT” on page 8 and “PROPOSAL NO. 1-REVERSE STOCK SPLIT” on page 31. |
What will I receive if the reverse stock split is approved? |
• | One share of “new” common stock (referred to herein as “New Common Stock”) will be exchanged for every 500 shares of existing common stock (referred to herein as “Existing Common Stock”) held as of the effective date of the reverse stock split. |
• | The procedure for the exchange of shares of Existing Common Stock for New Common Stock is described below under the caption “PROPOSAL NO. 1-REVERSE STOCK SPLIT –Exchange of Certificates and Payment of Fractional Shares” on page 31. |
• | No new certificates representing fractional shares will be issued. Instead, we will purchase each fractional share for a cash payment equal to $0.80 per share of Existing Common Stock. This transaction will not involve commissions or other transaction fees that would be charged if you sold shares on the open market. If the reverse split had been carried out on the Record Date, approximately $_____ in the aggregate would have been paid for resulting fractional shares. |
1 |
• | The payment of cash in lieu of fractional shares is described below under the caption “PROPOSAL NO. 1-REVERSE STOCK SPLIT – Exchange of Certificates and Payment of Fractional Shares” on page 31. |
How did our Board of Directors and our two key executive officers determine the fairness of the reverse stock split to our stockholders? |
• | Our Board of Directors, including the independent directors, and our two key executive officers all have concluded that the reverse stock split is fair to our stockholders, including our unaffiliated stockholders, from a financial point of view. This conclusion was based primarily on the price being paid for fractional shares, the liquidity opportunity to holders of fewer than 500 shares of Existing Common Stock provided in the absence of an active trading market, and the benefit to continuing stockholders of reduced expenses to our company. See “SPECIAL FACTORS RELATED TO REVERSE STOCK SPLIT – Fairness of the Reverse Stock Split Proposal” on page 16. |
• | With respect to valuation, we engaged Orchard Partners, Inc. (referred to herein as Orchard Partners), an independent valuation firm, to provide its opinion of a fair value to be paid in cash for the fractional shares in the reverse stock split. |
• | Orchard Partners opined to our Board of Directors that a value of $0.80 per share of our Existing Common Stock in connection with the reverse stock split is fair from a financial point of view to the holders of our Existing Common Stock. See “SPECIAL FACTORS RELATED TO REVERSE STOCK SPLIT – Opinion of Orchard Partners” on page 20. Our Board of Directors relied upon the opinion of Orchard Partners. |
What are the interests of our affiliates in the transaction? |
• | The economic interest of our executive officers, directors and their affiliates in the reverse stock split is the same as the economic interest of our unaffiliated stockholders, in that affiliated and unaffiliated stockholders will receive the same consideration for their fractional shares. The interests of our executive officers, directors and their affiliates differ from those of our unaffiliated stockholders, however, to the extent that if our obligations under the Exchange Act are terminated, officers, directors and affiliates will no longer be subject to liability under various provisions of the federal securities laws that govern the actions of officers and directors of public companies. For example, our officers and directors will not be subject to the reporting and short-swing profit provisions of Section 16 and the loan prohibition rules of the Sarbanes-Oxley Act, and our principal executive officer and principal financial officer will not be required to make certifications with respect to our financial statements which would expose them to civil and criminal sanctions, and such officers will not be subject to the profits forfeiture rule of the Sarbanes-Oxley Act. Upon termination of Exchange Act registration, we will continue to be subject to the general anti-fraud provisions of federal and applicable state securities laws. |
• | Based upon stock holdings as of the Record Date, the payment of cash in lieu of fractional shares in the reverse stock split would eliminate approximately 4% of our common equity. As a result, the aggregate beneficial ownership (including shares issuable upon exercise of options and warrants) of our executive officers, directors and their affiliates would increase slightly from 67.5% to 69.2%. Similarly, it would result in the aggregate beneficial ownership of all unaffiliated stockholders holding 500 or more shares of Existing Common Stock increasing slightly from approximately 30.6% to 30.8%. The aggregate ownership of shares actually outstanding (exclusive of options and warrants) would increase slightly from 53.1% to 55.1% for our affiliates, would decrease slightly from 46.9% to 44.9% for non-affiliated stockholders, and would increase slightly from 44.2% to 44.9% for those non-affiliated stockholders who owned at least 500 currently existing common stock prior to the reverse split. Thus, the reverse stock split will not significantly affect the control of our company. |
2 |
• | Stockholders, including officers and directors, who own more than 500 shares, will continue to participate in the future growth or profits, if any, that we may experience. However, all stockholders, including officers and directors, who own fewer than 500 shares will be cashed-out completely and will no longer have any ownership or voting rights and will not be able to participate in the future growth or profits, if any, that we may experience. |
• | As of June 28, 2003, we had net operating loss carry-forwards that, if fully realized, would be expected to produce approximately $112,600 in tax benefits. The carry-forwards expire on various dates through the year ended September 30, 2007. As a result of recent operating results, we have established a valuation allowance of $30,000 with respect to these tax benefits. If we are successful in the future, and we are able to generate sufficient taxable income prior to September 30, 2007 to fully utilize this net operating loss carry-forward, our continuing stockholders (including any affiliates that continue as stockholders) will derive approximately $30,000 of benefit related to periods prior to June 28, 2003. Based upon stock ownership as of the Record Date, our affiliates would derive approximately $16,530 of these benefits by virtue of their approximately 55.1% ownership of the Company following the completion of the proposed reverse stock split transaction. Our existing current stockholders have already derived the benefit of the remainder of the deferred tax asset related to the net operating loss carry-forward. |
• | For further information, see “SPECIAL FACTORS RELATED TO REVERSE STOCK SPLIT –Fairness of the Reverse Stock Split Proposal” on page 16, “—Potential Disadvantages” on page 11, “—Certain Effects of Reverse Stock split on page 24,” and “PROPOSAL NO. 1- REVERSE STOCK SPLIT” on page 31. |
Do I have appraisal or dissenters’ rights? |
• | Under Massachusetts law, you do not have the right to demand the appraised value of your shares or any other dissenters’ rights if you vote against the reverse stock split proposal. See “PROPOSAL NO. 1-REVERSE STOCK SPLIT – Appraisal and Dissenters’ Rights” on page 32. |
How will I be affected by the reverse stock split if I own fewer than 500 shares of common stock? |
• | If you hold fewer than 500 shares of our Existing Common Stock, you will no longer have any voting or ownership rights in our company after the reverse stock split is completed. Instead, you will be entitled to receive a cash payment equal to $0.80 per share of Existing Common Stock. As a result, you will no longer be able to participate in any growth or profits that we may have in the future, if any. See “SPECIAL FACTORS RELATED TO REVERSE STOCK SPLIT – Certain Effects of Reverse Stock Split” on page 24. |
What are the principal advantages of the reverse stock split? |
• | We believe that substantial regulatory compliance costs will be avoided (historically estimated at $150,000/year, and believed to be substantially more under new SEC rules) if we cease to be a public reporting company. |
• | Both affiliated and unaffiliated stockholders receiving New Common Stock will benefit from the reduction of direct and indirect costs we currently incur, and the increased costs we will incur in the future, to maintain our status as a public company. These savings, together with further cost reductions anticipated for our US operations, will enable us to approach our breakeven point or possibly become profitable once again. |
3 |
• | Currently, only an extremely limited trading market exists for our securities, so cashing out fractional shares in the reverse stock split will allow both affiliated and unaffiliated stockholders holding a number of shares not evenly divisible by 500 to obtain cash for that portion of otherwise illiquid stock holdings. |
• | Stockholders holding a number of shares not evenly divisible by 500 will receive a cash payment for the portion of their stock interest that would otherwise be represented by a fractional share, without incurring brokerage or other transaction costs normally associated with the sale of securities. |
• | Our management and employees will be able to focus their time and energy on the operations of the continuing business rather than on preparing the annual, quarterly and other reports they are currently required to prepare and file, and on the implementation and documentation of the new controls and procedures that are required by the Sarbanes-Oxley Act. |
• | To review the principal advantages of the reverse stock split in greater detail, please read the discussions under “SPECIAL FACTORS RELATED TO REVERSE STOCK SPLIT – Purpose and Reasons for the Reverse Stock Split” on page 8 and “ —Fairness of the Reverse Stock Split Proposal” on page 16. |
What are the principal disadvantages of the reverse stock split? |
• | Stockholders who are cashed-out completely will no longer have any ownership or voting rights and will not be able to participate in any future growth or profits, if any, that we may experience. |
• | We will become a private company, and we will not take any action to facilitate the development of a public market for our securities unless we re-register under the Exchange Act in the future, which is not anticipated. |
• | We will no longer be subject to the reporting, disclosure and corporate governance requirements of the Exchange Act. This will reduce the requirements for reporting and providing disclosure to stockholders, including the requirement to prepare and distribute to our stockholders proxy and information statements in accordance with Regulation 14A of the Exchange Act in connection with annual and special meetings of our stockholders. However, we may, but will no longer be required to, provide you with periodic financial statements. In addition, we will send you notice of our annual and special meetings of stockholders to the extent required by state law or our articles of organization or bylaws. |
• | To review the principal disadvantages of the reverse stock split in greater detail, please read the discussions under “SPECIAL FACTORS RELATED TO REVERSE STOCK SPLIT – Potential Disadvantages” on page 11 and “– Fairness of the Reverse Stock Split Proposal” on page 16. |
Will I have any federal income tax consequences as a result of the reverse stock split? |
• | Stockholders who only receive shares of New Common Stock will not be subject to taxation as a result of the reverse stock split. |
• | The receipt of cash for fractional shares in the reverse stock split will be taxable for federal income tax purposes. Stockholders who receive cash in lieu of fractional shares will recognize capital gain or loss in an amount equal to the difference between the amount of cash received and the adjusted basis of the fractional shares surrendered for cash. |
4 |
• | To review the material federal income tax consequences in greater detail, please read the discussion under “SPECIAL FACTORS RELATED TO REVERSE STOCK SPLIT –Material Federal Income Tax Consequences” on page 27. |
Why are we proposing to amend our Articles of Organization to change our name to Balkore Industries, Inc. |
• | In January 2003, we sold the business of Goddard Valve Corporation, one of our subsidiaries, to Engineered Controls International, Inc. In that transaction, we agreed to change our corporate name to a name that does not include the word “Goddard” or “Goddard Industries” or any derivatives thereof. Under Massachusetts law, a change in our corporate name requires us to file Articles of Amendment to our Articles of Organization. We are asking you to approve the amendment so we may change our corporate name to “Balkore Industries, Inc.” |
• | For further information, please see “PROPOSAL NO. 2-CORPORATE NAME CHANGE” on page 34. |
Who is being nominated for election as director? |
• | Our Articles of Organization and By-Laws provide that our Board of Directors shall be composed of three classes of directors, with one class to be elected each year. This year, the term of Class I directors expires. The Board of Directors has nominated Mr. Saul I. Reck for reelection to serve as our Class I director until the 2006 Annual Meeting of Stockholders and until his successor has been duly elected and qualified. |
• | For further information regarding the election of directors, please see “PROPOSAL NO. 3 - ELECTION OF DIRECTORS” on page 35. |
Why should I grant management discretionary authority to adjourn the Special Meeting to a later date? |
• | In the event the number of votes in person or by proxy voting in favor of either Proposal No. 1 to amend our Articles of Organization to effect the reverse stock split or Proposal No. 2 to amend our Articles of Organization to change our corporate name is greater than the number of shares voted against the applicable proposal but is insufficient to approve the applicable proposal, management would like to have the option to adjourn the meeting for a specified period of time to solicit additional proxies to support the approval of Proposal Nos. 1 and 2. |
• | For further information regarding the granting of discretionary authority to adjourn the meeting to solicit additional proxies, please see “PROPOSAL NO. 4 - ADJOURNMENT OF THE SPECIAL MEETING.” |
Where and when is the special meeting in lieu of annual meeting? |
• | The special meeting will be held at 10:00 a.m., local time, on October ___, 2003, at the Beechwood Inn located at 363 Plantation Street, Worcester, Massachusetts. |
Who is entitled to vote on the proposals? |
• | Stockholders of record as of the close of business on September __, 2003, are entitled to notice of and to vote at the special meeting. Each share of Existing Common Stock is entitled to one vote. |
5 |
What vote is required to approve and adopt the amendments to our Articles of Organization to provide for the reverse stock split and to change our corporate name? |
• | The affirmative vote of the holders of a majority of the outstanding shares of Existing Common Stock is required to approve the amendments to our Articles of Organization to effect the reverse stock split and to change our corporate name. The representation in person or by proxy of a majority of the issued and outstanding shares of Existing Common Stock entitled to vote is necessary to provide a quorum at the special meeting. Each of our executive officers and directors, who have the power to vote 53.1% of our outstanding shares of Existing Common Stock in the aggregate, have indicated that they intend to vote in favor of the proposed amendments to our Articles of Organization. Therefore, assuming our executive officers and directors vote in favor of the proposed amendments, the amendments will be approved no matter how you or other stockholders vote. The Board of Directors recommends that you vote “for” each of Proposal No. 1 and Proposal No. 2 to amend our Articles of Organization to effect the reverse stock split and the corporate name change. |
• | For further information regarding the amendments to our Articles of Organization, please see “PROPOSAL NO. 1 - REVERSE STOCK SPLIT” on page 30 and “PROPOSAL NO. 2 - CORPORATE NAME CHANGE” on page 34. |
What vote is required to elect Mr. Saul I. Reck as a director? |
• | A plurality of the votes cast for any nominee for director is required for the election of directors. If there are no other nominees for director, Mr. Reck will receive a sufficient number of votes to be elected as director. If there are other nominees, which we do not expect at this time, the nominee with the most votes will be elected as director. The Board of Directors recommends that you vote “for” the election of Mr. Reck to serve as a director. |
• | For further information regarding the election of directors, please see “PROPOSAL NO. 3 - ELECTION OF DIRECTORS” on page 35. |
What vote is required to approve the granting of discretionary authority to adjourn the special meeting? |
• | The affirmative vote of the holders of a majority of the outstanding shares of Existing Common Stock present in person or by proxy and entitled to vote at the special meeting is required to approve the proposal to grant management discretionary authority to adjourn the special meeting. The Board of Directors recommends that you vote “for” Proposal No. 4 to grant management discretionary authority to adjourn the special meeting to solicit additional proxies for Proposal Nos. 1 and 2. |
• | For further information regarding the granting of discretionary authority, please see “PROPOSAL NO. 4 – ADJOURNMENT OF THE SPECIAL MEETING” on page 42. |
How do I vote? |
• | Each stockholder should sign and date the enclosed proxy card and return it to us in the prepaid envelope. Unless contrary instructions are indicated on the proxy, all shares represented by valid proxies received pursuant to this solicitation will be voted in favor of each of the proposals. If you specify a different choice by means of the enclosed proxy, your shares will be voted in accordance with your specifications. For a further discussion on the voting process, please see “GENERAL INFORMATION-Voting Procedures” on page 28. |
What should I do if I hold my shares in “street name”? |
• | If you do not own your stock in your name, but instead hold shares through a nominee, such as a bank or broker, you should contact your nominee to determine how the proposals will affect you. For a further discussion on the treatment of shares held in street name, please see “GENERAL INFORMATION-Voting of Proxies” on page 28. |
6 |
Independent Auditors(1) | — | $ 45,000 | |||||
Legal Counsel | — | $ 55,000 | |||||
Printing and Mailing | — | $ 3,000 | |||||
Transfer Agent | — | $ 7,000 | |||||
All Other(2) | — | $ 40,000 | |||||
Total(3): | — | $150,000 |
(1) This amount reflects only the incremental annual cost of public company compliance, and assumes we will continue our practice of having an independent audit performed under Australian accounting and auditing rules of the annual financial statements of our Australian operations following deregistration. Our actual auditing costs for fiscal 2002, estimated auditing costs following the reverse stock split and expected savings are as follows: |
FY 2002 | Estimated Post Reverse Split | Savings | |||||||
---|---|---|---|---|---|---|---|---|---|
US | $82,000 | $37,000 | $45,000 | ||||||
Australian | $17,000 | $17,000 | — | ||||||
Total Audit Fees: | $99,000 | $54,000 | $45,000 |
(2) “All Other” includes allocation of direct payroll costs (exclusive of benefits) for employees involved in preparation and filing of our SEC filings. |
(3) All amounts reflected in this chart reflect our estimates of the direct costs that we have historically incurred in connection with our SEC reporting requirements which we will not continue to incur following the completion of deregistration. It assumes we will mail quarterly financial statements to stockholders and have annual stockholder meetings. |
The Sarbanes-Oxley Act was enacted by Congress in July 2002 in response to a series of corporate accounting and other scandals at a number of large companies. These scandals resulted in increased scrutiny and tightening of requirements in the accounting and corporate governance world. These requirements include, among others, new requirements and documentation regarding disclosure controls and procedures, internal control over financial reporting and management’s assessment of each, the audit and attestation of internal controls by independent auditors, enhanced responsibilities imposed upon audit committees, stricter rules on independence of outside directors, and more formal corporate governance requirements, and accelerated and more detailed reporting requirements. The Sarbanes-Oxley Act also increased the fines and penalties for violations of the securities laws. For example, the chief executive officer and chief financial officer are now required to certify that financial statements included in periodic SEC filings fully comply with the requirements of the Exchange Act in all material respects. A knowing wrongful certification will subject them to criminal penalties of up to $5 million or imprisonment of up to 20 years or both. Another example is the requirement for the chief executive officer and chief financial officer to forfeit to the company any bonuses or other incentive compensation received from the company or any profits received from the sale of securities during the 12 month period after the first public issuance of a financial document containing any financial statements that is required to be restated due to the material noncompliance of the company, as a result of misconduct, with any financial reporting requirement under the securities laws. 8 |
We believe these new requirements were created by Congress with the scandals at larger companies primarily in mind, but they create a significant burden for smaller companies, such as ours, that have limited resources available to devote to compliance with these new requirements. While some of the new rules and regulations enacted in response to the Sarbanes-Oxley Act will not be applicable to us (for example, the requirement for “accelerated filers” to file annual and quarterly reports on an shortened time schedule), we believe it would be difficult for us to meet all of the new Sarbanes-Oxley Act requirements which are applicable to us without hiring additional personnel and obtaining additional legal and accounting assistance. Although at this time we cannot accurately determine the full annual cost of compliance with the new requirements arising from the various SEC and stock exchange rules under the Sarbanes-Oxley Act, surveys and estimates by independent third parties have suggested that total costs of being public may increase by as much as 100% or more. We believe that as a result of the new requirements which are applicable to us, the annual costs associated with our being a public company would increase substantially. In light of the significant expenses we incur as a public company and the limited trading market for our Existing Common Stock, our Board of Directors believes that both we and our stockholders receive little benefit from having our common stock registered under the Exchange Act. In addition to saving $150,000, or substantially more, in direct costs annually as described above, if the transaction is completed, our management and employees will no longer be required to devote their time and energy to completing the periodic reports required of publicly traded companies under the Exchange Act or to developing and documenting new systems and procedures mandated by the new rules under the Sarbanes-Oxley Act. Instead, they will be able to focus their efforts on the operations of our business. Management believes it is important to take advantage of this opportunity to reduce overhead and focus our limited resources on regaining profitability. Our Board of Directors and each of Mr. Salvatore J. Vinciguerra, our President and Chief Executive Officer, and Mr. Kenneth E. Heyman, our Chief Financial Officer, are proposing to effect the reverse stock split at this time, as opposed to other points in our operating history, primarily because: |
• | As a result of the January 2003 sale of our Goddard Valve business and the June 2003 sale of the real estate out of which Goddard Valve operated to a different party, we currently have the capital resources necessary to pay the costs of the reverse stock split transaction, including both payment for the fractional shares that will be cashed out and payment of professional fees and other transactional expenses, without seriously impairing our working capital. At many points in the past, our cash situation would have made it difficult to complete such a transaction. |
• | With the reduction in size of our company following the sale of the Goddard Valve business and the real estate, there is a smaller asset and revenue base over which to spread the costs of being a public company; and |
• | As a result of the enactment of the Sarbanes Oxley Act of 2002, they believe that the costs of our continuing as a public company would increase significantly in the future. |
In view of the foregoing, we believe the amendment to our Articles of Organization to effect the reverse stock split and the resulting termination of the registration of our common stock under the Exchange Act will provide a more efficient means of using our capital to benefit our continuing stockholders. 9 |
• | We will not be required to publicly disclose material developments; |
• | We will no longer be subject to the more extensive reporting, disclosure and corporate governance provisions of the Exchange Act, , such as filing of quarterly and annual reports with the SEC and proxy statement disclosure in connection with stockholder meetings and the related requirement of an annual report to stockholders, so that we will not be legally obligated to do those things. However, it is the present intent of the Board of Directors that periodic financial statements (which may or may not be audited) would be mailed to stockholders and that an annual meeting of stockholders would continue to be held. |
• | The restrictions of the Exchange Act, including without limitation the reporting and short-swing profit provisions of Section 16, will no longer apply to our executive officers, directors and 10% stockholders; and |
• | The corporate governance provisions of the Sarbanes-Oxley Act of 2002, including any penalties for violations of such provisions, will not apply to us or our directors or officers, since those provisions only apply to companies with a class of securities registered under the Exchange Act. For example, the following requirements will not apply: (i) the requirement that our chief executive officer and chief financial officer certify that the financial statements contained in our periodic reports comply with the requirements under the Exchange Act and that the information contained in our periodic reports fairly presents, in all material respects, the financial condition and results of our operations; (ii) management’s annual assessment of the company’s internal controls and the attestation by the company’s independent auditors to management’s assessment of such internal controls; (iii) the prohibitions on loans to officers and directors of reporting companies; (iv) the enhanced responsibilities of members of audit committees; and (v) the requirements for maintenance of a code of ethics for senior financial officers and whistleblower procedures. |
10 |
In late 2002, the Board of Directors determined that it was no longer in the best interest of the Company to continue to pursue the business of Goddard Valve Corporation, because the market for the products of that subsidiary was continuing to decline. Accordingly, in January 2003, we sold the business of Goddard Valve Corporation for a purchase price of approximately $3.9 million. The sale of this business represented approximately half our annual sales in the most recent fiscal year. Following the sale of the business of Goddard Valve Corporation, our primary operations now consist of the operations of our Australian subsidiary, Mack Valves, and we no longer have any significant United States operations. Because we no longer have any significant operations in the United States, in February, 2003 our Board of Directors determined to attempt to sell the real property located at 705 Plantation Street, Worcester, Massachusetts, which was the location of the business of Goddard Valve Corporation as well as our principal executive offices. In May 2003, we entered into a purchase and sale agreement to sell the real property located at 705 Plantation Street for an aggregate purchase price of approximately $825,000. This transaction closed on June 19, 2003. Following the sale, we rented a small amount of office space from the new owner on a tenant at-will basis while we continued our search for suitable new quarters. We do not anticipate difficulty in locating appropriate new space at a reasonable rate. In early 2003, after completion of the sale of the Goddard Valve business, our Board of Directors began to more seriously consider a transaction to become a private company as a means to reduce our expenses. At the Board of Directors’ meeting on May 5, 2003, Salvatore J. Vinciguerra, our President and Chief Executive Officer, expressed management’s view that the Company was expending a large percentage of revenues (approximately 4% of revenue after the sale of Goddard Valve Corporation) to maintain its present status as a public company, while the Company and its stockholders were deriving few of the normal benefits of being public. The Board considered the advantages and disadvantages of being a private company and unanimously directed management to develop a proposal for the Company to terminate its reporting obligations under the Exchange Act, addressing potential reverse split ranges and proposed valuation for redeeming fractional shares. Management discussed with our legal counsel the means of terminating our reporting obligations under the Exchange Act. After discussion with legal counsel of the options available, management determined that a reverse stock split was the most feasible. The alternatives considered by the Board of Directors are described below in “—Alternatives Considered by the Board of Directors.” The Board of Directors directed our legal counsel and financial advisor to more fully explore the requirements and procedures for pursuing the proposed reverse stock split. At a June 26, 2003, meeting of the Board of Directors, the Board reviewed with legal counsel the duties of directors under Massachusetts law in evaluating a reverse stock split and discussed the preparation of documents to be filed with the SEC in this regard. Orchard Partners, Inc. (“Orchard Partners”), the financial advisor retained by the Board of Directors, reviewed its analysis of the different methods of valuation of the Company and orally presented its opinion to the directors, which was subsequently confirmed in writing, that as of June 26, 2003, a $0.80 pre-split valuation per share of Existing Common Stock to be paid for fractional shares resulting from the reverse stock split was fair from a financial point of view to those stockholders receiving such payment for fractional shares. The discussion of the fairness opinion is summarized under “Opinion of Orchard Partners” below. The Board then discussed the fairness of the reverse stock split to our stockholders. See “—Fairness of the Reverse Stock Split Proposal” below. After the completion of the presentations and discussions, the Board approved the reverse stock split, including the determination to pay cash in lieu of fractional shares at the rate of $0.80 per share. All corporate actions necessary in connection therewith were approved unanimously, and the Board directed that the reverse stock split be submitted for approval by our stockholders at the Special Meeting. Mr. Jacky Knopp, Jr. and Mr. Lyle Wimmergren, the two independent directors on the Board of Directors, voting separately as a group, also unanimously approved the resolutions relating to the reverse stock split and actions contemplated thereby. 12 |
(c)Continuing As Is.The Board of Directors considered taking no action to reduce the number of our stockholders of record, and simply continuing the business as is. However, due to the significant cost of compliance under the Exchange Act, especially in relation to our overall expenses and cash flow, the Board of Directors believes that taking no action at this time is not in the best interests of our company. Based on our experience in prior years, we estimate our direct costs associated with compliance with the SEC’s reporting requirements as they existed prior to the enactment of the Sarbanes-Oxley Act to have been approximately $150,000 for every year we continue as a public company. Although at this time we cannot accurately determine the full annual cost of compliance with the new requirements arising from the various SEC and stock exchange rules under the Sarbanes-Oxley Act, we believe that as a result of the new requirements, the annual costs associated with our being a public company would increase substantially. Our Board also believes if we continue as is, the ability of our Mack Valves Australian subsidiary to succeed as a stand-alone business would be hindered by the significant costs and burdens of the parent company being a U.S. public company, with all of the burdens that entails and without, as a practical matter, being able to realize the liquidity and capital access benefits normally associated with being a public company. (d)Alternative Reverse Split Ratios.The Board considered ratios from one-for-200 to one-for-600 shares for the reverse stock split and reviewed the anticipated reduction in the number of stockholders based on our stockholder list and cash requirements for payments in lieu of fractional shares at each such ratio based on our stock ledger. The table below sets forth a summary of the information considered by the Board with respect to the determination of the reverse split ratio based upon stock holdings as of May 29, 2003 and a $0.80 per share pre-reverse stock split valuation. Based upon this information, the Board determined that a one-for-500 share ratio was most appropriate based on (i) the additional cash needed for payments in lieu of fractional shares associated with increasing the reverse stock split ratio, and (ii) the potential for the number of stockholders of record to increase, recognizing that the objective of the reverse stock split is to reduce the number of stockholders of record and allow us to terminate our reporting obligations and reduce the likelihood that we would be required to re-register under the Exchange Act in the foreseeable future. We selected the one-for-500 share ratio in order to reduce the number of holders sufficiently below 300 to permit deregistration while maintaining prudent and appropriate cash reserves. |
Reverse Split Ratio | Number of Record Holders “Cashed Out”(1) | Cash Payments in Lieu of Fractional Shares | Number of Record Holders Remaining(2) | |||||
---|---|---|---|---|---|---|---|---|
1 for 200 | 189 | $32,000 | 354 | |||||
1 for 300 | 218 | $29,000 | 325 | |||||
1 for 400 | 352 | $78,000 | 191 | |||||
1 for 500 | 364 | $74,000 | 179 | |||||
1 for 600 | 370 | $88,000 | 173 |
(1) | Record holders who would receive cash in lieu of their entire equity interest in the Company at the assumed reverse stock split ratio. |
(2) | Record holders who would receive at least one share of New Common Stock in exchange for their shares of Existing Common Stock. |
(e)Liquidation.Our Board of Directors also considered, in concept, an orderly liquidation of our remaining operations, which currently reside in Australia, followed by a distribution of the net proceeds. Our Board of Directors did not, however, believe that such a transaction was in the best interests of our company and our stockholders at this time because we only recently sold our U.S. assets and we are still evaluating how well the Australian operations will perform as a stand-alone business. The Board of Directors also believes that the liquidation of the Company would entail significant costs in the amount of approximately $1.05 million as a result of payments that would have to be made to third parties in the event the Company were liquidated during the next couple of years. The principal components of these payments would be approximately $800,000 which would be required to be paid to the sellers of the Mack Valves business to satisfy the terms of the original purchase of the Mack Valves business in November, 2000. While the Board of Directors does not believe that liquidation of the Company is in the best interests of the Company or our stockholders at this time, the Board has not precluded the possibility that the Company will liquidate the remaining business in the future. 14 |
Both affiliated and unaffiliated stockholders receiving shares of New Common Stock will benefit from the reduction of direct and indirect costs we incur to maintain our public company status. In addition, both affiliated and unaffiliated stockholders holding a number of shares not evenly divisible by 500 will receive a cash payment for the portion of their interest that would otherwise be represented by a fractional share, without incurring brokerage or other transactions costs. Our Board of Directors by unanimous vote on June 26, 2003, with no member of the Board of Directors dissenting or abstaining from such approval, adopted a resolution declaring the terms and conditions of the reverse stock split to be advisable, and directing that a proposed amendment to our Articles or Organization effecting the reverse stock split be submitted to stockholders for consideration. Mr. Jacky Knopp, Jr. and Mr. Lyle Wimmergren, the independent directors of the Board of Directors, voting separately as a group, also unanimously approved the resolutions relating to the reverse stock split and the actions contemplated thereby. In determining the fairness of the reverse stock split to both affiliated and unaffiliated stockholders, and determining to approve the reverse stock split and recommend that stockholders approve it, the Board of Directors considered the following material factors: |
• | The fairness opinion and analysis of Orchard Partners as of June 26, 2003, as described below under “Opinion of Orchard Partners”. The Board relied on Orchard Partners’ valuation analysis in making its determination that the $0.80 per share of Existing Common Stock is fair from a financial point of view, and adopted Orchard Partners’ analysis of such factors as its own. See “SPECIAL FACTORS RELATED TO REVERSE STOCK SPLIT – Opinion of Orchard Partners.” |
• | Information regarding our financial condition, including the significant costs associated with the reporting requirements under the Exchange Act. This information also supported the decision to proceed with the reverse stock split at a one-for-500 ratio and $0.80 per share valuation by showing that at the moment we have sufficient funds to pay cash in lieu of fractional shares in the reverse stock split. |
• | The very small market capitalization of our company, which makes it very unlikely that any market maker will make a market in our common stock. |
• | The very limited trading market and extremely limited liquidity of our Existing Common Stock supported the Board’s decision to recommend the reverse stock split. As set forth in the “Opinion of Orchard Partners,” Orchard Partners observed that shares of our Existing Common Stock are thinly traded and may not provide a meaningful indicator of value. As reported on the OTC Bulletin Board, shares of our Existing Common Stock traded on only one day during the month of May 2003 and on only two days during the month of April 2003. Since stockholders are not currently realizing one of the principal benefits of public ownership, a liquid trading market, the Board determined the costs of public reporting were not warranted. |
• | The very small size of our company in terms of assets and revenue, reduces the need for access to public capital markets and makes it more difficult to bear the administrative expense of being a public company. |
• | The benefit afforded, in the absence of an established trading market, by the reverse stock split for unaffiliated stockholders who hold a small number of shares to receive a cash payment for their interest without brokerage costs, and for larger stockholders to receive a cash payment in respect of a portion of their interest, which supported the determination that the reverse stock split is fair to affiliated and unaffiliated stockholders. Further, for those stockholders who are not cashed-out, the reverse stock split will not change their rights, preferences or limitations as stockholders. |
16 |
• | The historical trading range of our Existing Common Stock, for the limited amount of trading which has occurred over the last three years, has ranged from a low sale price of $0.09 to a high sale price of $2.00. The last four trades preceding the public announcement of the intent to seek a reverse split, as reported on the OTC Bulletin Board, were for 6,500 shares at $1.00 on June 23, 2003, 2,000 shares at $.80 per share on June 16, 2003, 700 shares at $.35 per share on May 28, 2003, and 4,000 shares at $.60 per share on April 22, 2003, respectively. |
• | The lack of any interest in acquiring the remaining business of the Company and the belief that seeking proposals to acquire the Company at this time would not be in the best interest of the Company or our stockholders at this time because we are still evaluating how our Australian operations will succeed as a stand-alone business. |
• | The anticipated increased costs of compliance with the additional requirements imposed on public companies under the Sarbanes-Oxley Act and related SEC and stock exchange rules was viewed by the Board as yet another disadvantage of remaining a public reporting company. |
• | The fact that the one-for-500 reverse stock split ratio would not significantly affect control of our company. If the reverse split had been effected on May 29, 2003, we would have continued to have 179 stockholders, with executive officers, directors and their affiliates beneficially owning approximately 69.2% of New Common Stock following the reverse stock split. Accordingly, the Board did not view the reverse stock split as having a significant impact on control of our company. |
The Board also considered a number of potential disadvantages to the reverse stock split. Following the reverse stock split and the termination of our reporting obligations under the Exchange Act, there will be no opportunity for a public market for our securities to develop, unless we were to re-register our securities, which we do not anticipate at this time. In addition, the termination of our reporting obligations under the Exchange Act will substantially reduce the information that we are required to furnish to stockholders. See “SPECIAL FACTORS RELATED TO REVERSE STOCK SPLIT – Potential Disadvantages” and “ – Background.” The Board of Directors determined that the reverse stock split was fair to affiliated and unaffiliated stockholders notwithstanding the foregoing, because (1) affiliated and unaffiliated stockholders are treated identically from an economic perspective in the reverse stock split, (2) the reverse stock split does not significantly increase the control and percentage ownership of affiliates in the Company and (3) the Board adopted the analysis of Orchard Partners and relied on the Orchard Partners’ opinion, which supported the fairness of the purchase price for fractional shares in the reverse stock split. The Board of Directors placed the greatest weight on Orchard Partners’ opinion in view of Orchard Partners’ valuation experience, and after reviewing the values indicated by the income, market and asset approaches as applied by Orchard Partners (see “SPECIAL FACTORS RELATED TO REVERSE STOCK SPLIT – Opinion of Orchard Partners”). Our Board of Directors recognized that the amount to be paid for fractional shares is less than the pro forma net book value per share of the Company’s equity of $1.84 per share, and the pro forma book value of the Company’s equity less the book value of our goodwill of $0.92 per share at March 29, 2003. However, the Board, did not consider the book value as a significant indicator of value because it is an accounting methodology based on the historical cost of our assets and is not reflective of the current value of our company or the amount which could be realized in a liquidation. Our Board of Directors did not assign any particular weight to any of the other factors. 17 |
The principal of Orchard Partners has been designated an Accredited Senior Appraiser by the American Society of Appraisers. Orchard Partners is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions and appraisals for financial reporting and other purposes. Pursuant to our engagement with Orchard Partners, we agreed to pay Orchard Partners a fee of $15,000, half of which was paid at the beginning of the engagement and the remaining portion was paid upon rendering the fairness opinion. The fee paid to Orchard Partners was in no way contingent upon the results of its analysis. We agreed to indemnify Orchard Partners for certain liabilities that may arise out of our engagement with them. No other compensation or fees has been directly paid to Orchard Partners or any principal thereof during the past two years. In the fall of 2001, the Company engaged Fector, Detwiler to provide a fairness opinion to the Company in connection with the Company’s private placement of units in December 2001. Fector, Detwiler paid Orchard Partners $1,750 to review its work. Analysis Orchard Partners delivered its report to our Board of Directors on June 27, 2003. Orchard Partners’ fairness opinion confirms that as of June 26, 2003, a price of $0.80 per share, based on 2,560,684 shares outstanding, is fair, from a financial point of view, to our stockholders as payment in lieu of fractional shares issued as a result of the reverse stock split. The complete text of Orchard Partners’ opinion to the Board of Directors dated June 26, 2003, is attached hereto asAppendix B. The following discussion is qualified in its entirety by reference to the full text of such opinion. Stockholders are urged to, and should, read the opinion carefully in its entirety. The engagement of Orchard Partners and its opinion are for the benefit of the Board of Directors. The opinion addresses only the fairness, from a financial point of view, of the purchase price for fractional shares as a result of the reverse stock split. The Orchard Partners’ opinion is available for inspection and copying at our principal executive offices during regular business hours to any of our stockholders or their designated representatives. Our principal executive offices are currently located at 705 Plantation Street, Worcester, Massachusetts 01605. Orchard Partners directed its opinion to the Board of Directors for its consideration in connection with the cash to be paid to stockholders in lieu of fractional shares as a result of the reverse stock split. Its opinion does not constitute a recommendation to you as to how you should vote at the Special Meeting with respect to the proposal to amend our Articles of Organization to effect the reverse stock split. The opinion addresses only the financial fairness as of June 26, 2003 of the value of the minority interest of our Existing Common Stock. It does not address the relative merits of the amendment to effect the reverse stock split or any alternatives to the amendment. Further, it does not address our underlying decision to proceed with or effect the amendment. In connection with rendering its opinion, Orchard Partners, among other things, reviewed: (i) our Annual Report on Form 10-KSB, as amended, for the year ended September 28, 2002, our quarterly reports on Form 10-QSB for the fiscal quarters ended since September 28, 2002 and other recent public filings; (ii) management’s forecasted financial statements; (iii) historical trading prices and volume for our Existing Common Stock; (iv) relevant external and internal public information, including economic, investment, industry, public market and transaction data; (v) lack of marketability and minority interest studies; and (vi) certain information of a business and financial nature, including financial forecasts and related assumptions. In addition, Orchard Partners performed such other analyses and examinations as they deemed appropriate. 19 |
In preparing its opinion, Orchard Partners did not assume the responsibility to independently verify the information referred to above. Instead, with our consent, Orchard Partners assumed the foregoing information to be accurate and complete in all material respects. Orchard Partners assumed that there were no material changes in our assets, financial condition, results of operations, business or prospects other than those noted in the following sentence since the respective dates of the last financial statements made available to Orchard Partners. Management provided Orchard Partners with a pro forma balance sheet as of March 29, 2003 that reflected the following changes to our balance sheet since that date: an increase in cash of $982,000; a decrease in refundable taxes on income of $402,000; a decrease in real estate held for sale of $265,000; a decrease in net assets of discontinued operations of $208,000; a decrease in accounts payable of $98,000; a decrease in accrued expenses of $91,000; and an increase in retained earnings of $296,000. These pro forma changes reflected primarily the effects of the sale of the real estate located at 705 Plantation Street, Worcester, MA, the collection of refundable taxes on income and changes in accounts related to the sale of the Goddard Valve Corporation. Orchard Partners assumed that the reverse stock split would be consummated in a manner that complies in all respects with the applicable provisions of the federal securities laws and all other applicable federal and state statutes, rules and regulations. In addition, Orchard Partners did not assume responsibility for making an independent evaluation, appraisal or physical inspection of any of our assets or liabilities (contingent or otherwise), nor was Orchard Partners furnished with any such appraisals. Orchard Partners’ opinion was based on economic, monetary and market and other conditions existing as of, and the information made available to it as of, June 26, 2003. Accordingly, although subsequent developments could potentially impact Orchard Partners’ opinion, Orchard Partners has not assumed any obligation to update, revise or reaffirm its opinion. Orchard Partners arrived at a range of going concern values for our company by using two principal valuation approaches: the income approach and the market approach. Orchard Partners’ application of the income approach relied on a discounted cash flow analysis. A discounted cash flow analysis provides insight into the intrinsic value of a business based on the projected earnings and capital requirements and the net present value of the subsequent unleveraged free cash flows to be generated by the assets of such business. In its application of the market approach, Orchard Partners considered: (1) valuation multiples observed in market trading of comparable public companies, and (2) valuation multiples observed in the merger and acquisition marketplace. No company used in the public market analysis or precedent transaction analysis described below is identical to our company. Accordingly, an analysis of the data described below necessarily involves complex judgments concerning differences in financial and operating characteristics of the businesses and other factors that could affect the public trading value or the acquisition value of the companies to which they are being compared. Orchard Partners also considered the pro forma book value of our company’s assets, as described below. Income Approach: Discounted Cash Flow Analysis. Orchard Partners performed a discounted cash flow analysis of our company to derive an indication of going-concern value. The analysis referenced below represents only a portion of the overall analysis performed by Orchard Partners, and Orchard Partners expresses no judgment as to the appropriateness or accuracy of any assumptions or projections provided by management. Orchard Partners’ discounted cash flow analysis was based on projections provided by our management and certain independently derived assumptions, as well as discussions with management with respect to our future outlook. Management provided Orchard Partners with the following projections for the years ending September 30: 20 |
Revenues | Earnings (Loss) before interest and taxes | Net Income (Loss) | |||||
---|---|---|---|---|---|---|---|
2003 | 3,764,000 | (324,000 | ) | (250,000 | ) | ||
2004 | 4,148,000 | (155,000 | ) | (122,000 | ) | ||
2005 | 4,231,000 | (134,000 | ) | (95,000 | ) | ||
2006 | 4,316,000 | (128,000 | ) | (85,000 | ) | ||
In the view of our management, the projections were prepared on a reasonable basis, reflect the best currently available estimates and judgments, and present, to the best of the knowledge and belief of our management, the expected course of action and expected future performance of our company. Orchard Partners’ discounted cash flow analysis was based on projected unleveraged free cash flows of our company for the years ending September 2003 through 2006, and applied a range of discount rates from 10.1% to 13.7% to reflect the perceived risk of our operations. Orchard Partners’ analysis calculated a terminal value at the end of the projection period using a Gordon growth model, incorporating a perpetuity growth rate of 2% and a range of discount rates from 10.1% to 13.7%. The discount rates are Orchard Partners’ estimate of the weighted average cost of capital for our company, assuming a cost of equity of 15.6%, an after-tax cost of debt of 4.4%, equity weightings ranging from a low of 51% to a high of 83%, and debt weightings ranging from a low of 17% to a high of 49%. Orchard Partners’ discounted cash flow analysis resulted in indications of total enterprise value ranging from $1.0 million to $1.5 million for our company. Based upon a discount rate of 10.7%, a pro forma cash balance of $2.1 million and a debt balance of $1.5 million, the indicated value of our equity is $2.0 million, or $0.74 per share. Market Approach: Comparable Transactions. Orchard Partners’ searched for acquisition transactions in which the target company was a manufacturer of valves or other fluid control products. Orchard Partners identified 10 transactions it deemed to be relevant for which sufficient data was available to calculate a multiple of total enterprise value to revenue. In eight of the 10 transactions identified, the enterprise value was less than $100 million. Those transactions were the acquisition of the Rockwood Swendeman product line by Circor International, Inc.; the acquisition of the Goddard Valve business from us by Engineered Controls International, Inc.; the acquisition of Regeltechnik Kornwestheim GmbH and Societe Alsacienne Regulaves Thermiques von Rohr, S.A. by Circor International, Inc.; the acquisition of TOMCO Products, Inc. & U.S. Para Plate Corporation by Circor International, Inc.; the acquisition of the Powers Process Controls Division of Mark Controls Corporation, a subsidiary of Crane Co. by Watts Industries, Inc., Uro-Tec, Inc. and Bompet, C.A. In the acquisitions of Regeltechnik Kornwestheim GmbH and Societe Alsacienne Regulaves Thermiques von Rohr, S.A., Circor International, Inc. reported the combined revenues of the two companies but did not report the revenues of the companies individually. The data for the acquisitions of Uro-Tec, Inc. and Bompet, C.A. are derived from Pratt’s Stats Transaction Reports, which do no not disclose the names of the acquirers. Orchard Partners reviewed the purchase prices and implied firm value as a multiple of revenue for the identified transactions with enterprise values of less than $100 million. Revenue multiples ranged from 0.27 to 1.65, with a mean and median of 0.96 and 1.07, respectively. In four of these transactions, sufficient data was available to calculate a multiple of total enterprise value to earnings before interest, taxes, depreciation and amortization (EBITDA). EBITDA multiples ranged from 1.4 to 18.0, with a mean and median of 7.9 and 6.1, respectively. Based upon the median multiple of EBITDA, Orchard Partners calculated an indicated enterprise value for our company of $1.6 million, with a corresponding equity value of $2.2 million, or $0.80 per share. Market Approach: Guideline Company Analysis. In its selection of comparable public companies, Orchard Partners used the 10-K Wizard database to identify companies with primary Standard Industrial Classification Code 3490 (Miscellaneous Fabricated Metal Products). Orchard Partners screened this group to identify those companies whose operations include the manufacture of valves or other fluid control products. Orchard Partners ultimately identified the following five companies as guideline companies for the purpose of valuing a minority interest in our company: Circor International, Inc., Watts Industries, Inc., Denison International plc, Sun Hydraulics Corporation and The Gorman-Rupp Company. For these guideline companies, Orchard Partners calculated multiples of enterprise value to revenues and enterprise values to EBITDA. Revenue multiples ranged from 0.85 to 1.11, with a median of 0.93. EBITDA multiples ranged from 7.1 to 11.3, with a median of 7.1. Orchard Partners calculated indicated enterprise values for our company of $3.3 million and $1.8 million, based on median multiples of revenues and EBITDA respectively. 21 |
Orchard Partners noted that analysts’ estimates of long term growth rates for the guideline companies, as reported by Multex, are higher than management’s forecast of the long term growth rate for our company. Using regression analysis, Orchard Partners found a positive correlation between analysts’ estimates of 5-year growth rates for the guideline companies and the guideline companies’ reported earnings before interest and taxes, reduced by 40% for taxes, plus depreciation and amortization expenses. Based on the formula derived from this regression analysis, the multiple of EBITDA indicated by the guideline companies for our company is 4.4, the corresponding enterprise value is $1.1 million, and the corresponding equity value is $1.7 million, or $0.65 per share. Pro Forma Book Value. Management provided Orchard Partners with a pro forma balance sheet that adjusts the balances shown on our March 29, 2003 balance sheet for the sale of our real property located at 705 Plantation Street, Worcester, MA, the collection of refundable taxes on income and changes in accounts related to the sale of the business of Goddard Valve Corporation. Orchard Partners noted that the pro forma book value of our equity is $5.0 million, or $1.84 per share, and that the pro forma book value of our equity less the book value of our goodwill is $2.5 million, or $0.92 per share. Orchard Partners observed that the equity values corresponding to the pro forma book values are higher than the equity values indicated by the income and market approaches to valuation. Orchard Partners estimated an orderly liquidation value for our assets, net of interest bearing debt, to be approximately $1.7 million, or $0.65 per share. Orchard noted that the fair value of a minority interest in the equity of our company is less than the net book value of our assets because the book value of certain assets, such as goodwill, may not be fully realized in a liquidation event. Orchard noted that, based upon management’s intent to repurchase fewer than 100,000 shares of our Existing Common Stock as a result of the reverse stock split, the cost of repurchasing the shares at a price of $0.80 per share would be less than the annual estimated cost of public reporting. Orchard Partners also observed that shares of our company’s Existing Common Stock are thinly traded and may not provide a meaningful indicator of value. As reported on the OTC Bulletin Board, our shares of Existing Common Stock traded only on one day during the month of May 2003 and only on two days during the month of April 2003. Based on the analysis of Orchard Partners, together with all of the foregoing factors, including the fact that the most recent trading for our Existing Common Stock preceding the public announcement of intent to seek a reverse split, as reported on the OTC Bulletin Board, were for 6,500 shares at $1.00 per share on June 23, 2003, 2,000 shares at $.80 per share on June 16, 2003, 700 shares at $.35 per share on May 28, 2003, and 4,000 shares at $.60 per share on April 22, 2003, respectively, the Board believes that, in lieu of fractional shares, the payment of cash in an amount equal to $0.80 per share of Existing Common Stock is substantively fair to our shareholders. Furthermore, the Board believes that in the overall context of our financial situation, the amendment to effect the reverse stock split is substantively fair to our shareholders, including unaffiliated stockholders as a group. 22 |
As of the end of the fiscal quarter ended June 28, 2003, we had net operating loss carry-forwards that, if fully realized, would be expected to produce approximately $112,600 in tax benefits. The carry-forwards expire various dates through the year ended September 30, 2007. As a result of recent operating results, we have established a valuation allowance of $30,000 with respect to these tax benefits. If we are successful in the future, and we are able to generate sufficient taxable income prior to September 30, 2007 to fully utilize this net operating loss carry-forward, our continuing stockholders (including any affiliates that continue as stockholders) will derive approximately $30,000 of benefit related to periods prior to June 28, 2003. Based upon stock ownership as of the Record Date, our affiliates would derive approximately $16,530 of these benefits by virtue of their ownership of approximately 55.1% of the Company following the completion of the proposed reverse stock split transaction. Our existing current stockholders have already derived the benefit of the remainder of the deferred tax asset related to the net operating loss carry-forward. 4. Effect on Control. The reverse stock split will have the same effect on shares of common stock currently held by affiliates of our company as it will on shares of common stock currently held by nonaffiliates of our company. As of the Record Date, the directors and executive officers of our company and their affiliates beneficially owned an aggregate of [2,493,730] shares of our Existing Common Stock, or approximately 67.5% of the outstanding shares. Therefore, they effectively control the Company. After the reverse stock split, their percentage of beneficial ownership will increase approximately 1.7%, to 69.2%, and they will continue to control the Company. See “INFORMATION ABOUT GODDARD INDUSTRIES, INC. – Ownership of Voting Securities of Goddard Industries, Inc.” 5. Effect on Finances. Based upon current stock holdings we estimate that the total number of fractional shares to be purchased by us as a result of the reverse stock split would be approximately 93,000 shares of Existing Common Stock,at a cost of approximately $74,000. We intend to make payment for the fractional shares from our available cash balances, which will reduce these cash balances. We have not arranged for any alternative financing to consummate the transaction in the event our available cash balances are insufficient since our cash and cash equivalents as of June 28, 2003 are currently approximately $2,523,000, and have not changed materially since that date, and we consider it unlikely that an alternative source will be required. The proposed reverse stock split will not affect the par value of our common stock. As a result, on the effective date of the reverse stock split, the stated capital on our balance sheet attributable to common stock will be reduced in proportion to the reverse stock split ratio, and the additional paid-in capital account will be credited with the amount by which the stated capital is reduced. No other material impact on our financial statements is expected. 6. Expenses of Transaction. We will pay all of the expenses related to the reverse stock split. We estimate that the expenses of the reverse stock split will be as follows: |
SEC filing fees | $ 15 | ||||
Legal fees | 50,000 | ||||
Accounting fees | 1,250 | ||||
EDGAR filing preparation fees | 3,400 | ||||
Valuation fees | 15,000 | ||||
Printing and mailing costs | 3,400 | ||||
Exchange agent fees | 7,500 | ||||
Other | 4,435 | ||||
Total | $85,000 | ||||
24 |
• | filing with our corporate Clerk, before the vote at the Special Meeting, a written notice of revocation bearing a later date than the proxy; |
• | by executing a subsequent dated proxy relating to the same shares and delivering it to us before the vote at the Special Meeting; or |
• | attending the Special Meeting and voting in person, although attendance at the Special Meeting will not by itself constitute a revocation of the proxy. |
27 |
Nominee for Election as Class I Director | ||||
---|---|---|---|---|
(Term Expiring at the 2006 Annual Meeting) | Age | Principal Occupation | ||
Saul I. Reck | 84 | Mr. Saul I. Reck, the founder of our company, has served as a director since 1960. Mr. Reck also served as our President and Treasurer from 1960 until his retirement in 1998 and as Chairman of the Board from 1960 until March 2002. |
Class III Director (Term Expiring at the 2005 Annual Meeting) | ||||
---|---|---|---|---|
Dr. Jacky Knopp, Jr. | 80 | Dr. Jacky Knopp, Jr. has served as a director since 1972. For more than five years, he has been an account executive at the stock brokerage firm of Moors & Cabot, Inc. and its predecessors. Dr. Knopp is also Professor Emeritus of Canisius College, Buffalo, New York. | ||
Salvatore J. Vinciguerra | 65 | Mr. Salvatore J. Vinciguerra has served as a director, Chief Executive Officer, President and Treasurer of our company since October 19, 1998. Prior to joining us, he served as Chief Executive Officer and director of Ferrofluidics Corporation from June 1996 until June 1998 and as its President from January 1995 until June 1996. From 1990 until 1994, Mr. Vinciguerra served as President and Chief Executive Officer of the Weighing and Systems Group of Staveley Industries, plc., prior to which he was President and Chief Executive Officer of Weightronix, Inc. from 1990 until it was acquired by Staveley Industries in 1991. He was with Instron Corporation from 1968 until 1990, in various senior capacities, including President and Chief Operating Officer from 1985 until 1991. Mr. Vinciguerra is a member of the Board of Directors of Metrisa Corporation and Photran Corporation, a member of the Board of Directors of the Japan Society of Boston, and a Trustee of the Conservatory Lab Charter School of Boston. |
Class II Director (Term Expiring at the 2004 Annual Meeting) | ||||
---|---|---|---|---|
Lyle Wimmergren | 71 | Mr. Lyle Wimmergren has served as a director since 1978. For more than five years he has been Professor, and then Professor Emeritus, of Management at Worcester Polytechnic Institute, Worcester, Massachusetts. | ||
Dr. Robert Humphreys | 60 | Dr. Robert Humphreys has served as a director since 1997. Dr. Humphreys was elected as Chairman of the Board of Directors on March 8, 2002. Since August 1995, Dr. Humphreys has been President of Antigen Express, Inc., a biotech company focused on creating drugs for auto-immune diseases. Prior to August 1995, he was Professor in the Department of Pharmacology at the University of Massachusetts Medical School. |
32 |
In addition to Mr. Vinciguerra, we have the following individuals also serving as executive officers: |
Age | Principal Occupation | |||
---|---|---|---|---|
Kenneth E. Heyman | 60 | Mr. Kenneth E. Heyman joined us as Vice President of Finance and Controller in May 2000. Mr. Heyman was the Corporate Controller of MJ Research, Inc. from 1996 to 2000, affiliated companies that manufacture equipment and supplies for the molecular biology industry. Previously he served as controller of domestic and international manufacturing companies in industrial and biotech environments. | ||
Maxwell C. Chester | 59 | Mr. Maxwell C. Chester is the Managing Director of Mack Valves Pty Ltd, a company which he sold to Goddard Industries, Inc. in November 2000. For over 25 years prior to November 2000, he owned and operated his own businesses involved in the design and erection of industrial water towers. Mr. Chester received a Certificate of Mechanical Engineering from the University of New South Wales (presently the New South Wales Institute of Technology), and is a member of the Australian Institute of Company Directors, a Director of the Xavier College Foundation, Inc, and a Director of the Advisory Council for Children with impaired hearing. |
During the past five years, none of the above named persons has been convicted in a criminal proceeding or has been a party to any judicial or administrative proceeding that resulted in a judgment, decree or final order enjoining him from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. All of the above named persons are citizens of the United States. 33 |
Audit Committee: Dr. Jacky Knopp, Jr. Lyle E. Wimmergren |
34 |
Annual Compensation | Long Term Compensation Awards | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name and Principal Position | Year | Salary ($) | Bonus ($) | Other Annual Compensation ($) | Securities Underlying Options (#) | All Other Compensation ($) | |||||||
Salvatore J. Vinciguerra | 9/28/02 | 130,000 | — | — | 250,000 | (1) | — | ||||||
Chief Executive Officer, | 9/29/01 | 180,000 | — | — | — | — | |||||||
President & Treasurer | 9/30/00 | 180,000 | — | 15,000 | (2) | — | — | ||||||
Kenneth E. Heyman | 9/28/02 | 89,000 | — | 5,000 | (3) | — | — | ||||||
Vice President of | 9/29/01 | 90,000 | — | 5,000 | (3) | — | — | ||||||
Finance & Controller | |||||||||||||
Donald R. Nelson | 9/28/02 | 86,000 | — | 5,000 | (4) | 24,400 | (1) | — | |||||
Vice President of | 9/29/01 | 108,000 | — | — | — | — | |||||||
Engineering | 9/30/00 | 103,000 | 5,000 | 7,000 | (4) | — | — | ||||||
John S. Vandore(5) | 9/28/02 | 132,000 | — | — | 27,200 | (1) | — | ||||||
President, Goddard | |||||||||||||
Cryogenics |
35 |
(1) In May 2002, as part of a program to reduce expenses for the remainder of fiscal 2002 and for fiscal 2003, we granted incentive stock options under our 1998 Equity Incentive Plan to certain senior managers in lieu of pay and fees, to purchase approximately three shares for each annual dollar of pay reduction over a ten month period commencing May 22, 2002 and ending March 21, 2003. The options were granted at an exercise price of $0.525, the mean between the bid and asked price on May 22, 2002. Substantially all of the options vested ratably over the ten month period. (2) Consists of payments we made to Mr. Vinciguerra as a percentage of management fees we received for Mr. Vinciguerra’s services rendered pursuant to the terms of an agreement, which ended in the quarter ended June 29, 2002, between us and Carr Separations, Inc. (3) Consists of cash payments for use of an automobile. (4) Consists of cash payments used for purchase of retirement benefits. (5) Mr. Vandore’s employment with us terminated in January 2003, in connection with the sale of the business of Goddard Valve Corporation. The following table shows information concerning the granting of stock options during fiscal 2002 and the percentage of stock options granted to all employees. 36 |
OPTION GRANTS IN LAST FISCAL YEAR |
Individual Grants | |||||||||
---|---|---|---|---|---|---|---|---|---|
Name | Number of Securities Underlying Options Granted (#) | % of Total Options Granted to Employees in Fiscal Year | Exercise or Base Price Per Share ($/Sh) | Expiration Date | |||||
Salvatore J. Vinciguerra | 250,000 | 82.9 | 0.525 | 5/22/12 | |||||
Donald R. Nelson | 24,400 | 8.1 | 0.525 | 5/22/12 | |||||
John S. Vandore | 27,200 | 9.0 | 0.525 | 5/22/12 |
The following table shows information concerning the exercise of stock options during fiscal 2002 and the fiscal year-end value of unexercised options and stock appreciation rights. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END |
Shares Acquired On | Value | Number of Securities Underlying Unexercised Options at FY-End (#) | Value of Unexercised In-the-Money Options At FY-End ($) | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Exercise | Realized | Exercisable | Unexercisable | Exercisable | Unexercisable | |||||||
Salvatore J. Vinciguerra | — | — | 327,500 | 212,500 | — | — | |||||||
Donald R. Nelson | — | — | 42,260 | 42,140 | — | — | |||||||
Kenneth E. Heyman | — | — | 25,000 | 25,000 | — | — | |||||||
John S. Vandore | — | — | 29,630 | 72,570 | — | — |
In connection with the hiring of Mr. Vinciguerra as Chief Executive Officer, President and Treasurer, we entered into an Employment Agreement with him dated October 19, 1998. Under the Employment Agreement, Mr. Vinciguerra is entitled to an initial base salary of $140,000 per year, plus a bonus of up to 25% of his base salary at the discretion of the Board of Directors. In addition, he was granted stock options as follows: (i) ten year incentive stock options to acquire 200,000 shares of Existing Common Stock on October 19, 1998, which options vested 25% at the end of each of the first four years of employment, with acceleration of vesting upon the happening of certain events; (ii) ten year incentive stock options to acquire 50,000 shares of Existing Common Stock on October 22, 1999, which options vested 25% immediately and 25% on each of the first three anniversaries of the grant of the stock options; and (iii) ten year incentive stock options to acquire 40,000 shares of Existing Common Stock granted on May 16, 2000, which options vested immediately on the date of the grant of the stock options. Mr. Vinciguerra is entitled to six months of severance compensation if we terminate his employment other than for cause. In addition, we entered into a Management Services Deed with Maxwell Chester, the current Managing Director of Mack Valves, and Maxwell Industrial Sales Pty Ltd (“Maxwell Industrial”), an entity controlled by Mr. Chester, dated November 1, 2000. The term of this agreement is three years with an option to extend the term for a period of one year, and for additional periods of one year. Under the agreement, we are to pay Maxwell Industrial a yearly consultancy fee of AUD$150,000 ($82,000 at fiscal 2002 year-end exchange rate). The agreement provides that neither Mr. Chester nor Maxwell Industrial can compete with us in various jurisdictions and for varying time periods. 37 |
Beneficial Ownership Before Reverse Stock Split | Beneficial Ownership After Reverse Stock Split | ||||||||
---|---|---|---|---|---|---|---|---|---|
Name of Beneficial Owner | Shares | Percent Of Class | Shares | Percent Of Class | |||||
Officers and Directors | |||||||||
Salvatore J. Vinciguerra(1) | 1,064,800 | 31.8 | % | 2,129 | 32.7 | % | |||
Dr. Jacky Knopp, Jr. (2) | 143,000 | 5.5 | % | 286 | 5.7 | % | |||
Saul I. Reck (3) | 343,930 | 13.3 | % | 687 | 13.8 | % | |||
Lyle E. Wimmergren(4) | 25,000 | 1.0 | % | 50 | 1.0 | % | |||
Dr. Robert E. Humphreys(5) | 675,950 | 25.2 | % | 1,351 | 26.1 | % | |||
Donald R. Nelson (6) | 143,550 | 5.5 | % | 286 | 5.6 | % | |||
Kenneth E. Heyman (7) | 87,500 | 3.3 | % | 175 | 3.5 | % | |||
Officers and Directors as a Group (8 persons)(8) | 2,493,730 | 67.5 | % | 4,984 | 69.2 | % | |||
5% Beneficial Owner | |||||||||
Joseph A. Lalli (9) | |||||||||
8 Middlemont Way | |||||||||
Stow, MA | 183,550 | 7.2 | % | 367 | 7.4 | % |
(1) | Includes options and warrants exercisable within 60 days to acquire 790,000 shares which were acquired by Mr. Vinciguerra in connection with his original employment agreement, with various substitutions of bonus and salary, and in connection with his acquisitions of shares under the Company’s private placement, as follows: |
41 |
Number of Options/Warrants to purchase Shares | Exercise/Purchase Price | Description | ||
---|---|---|---|---|
200,000 | $1.625 | Options granted in October 1998 in connection with Mr. Vinciguerra’s original employment agreement. | ||
50,000 | $1.375 | Options granted to Mr. Vinciguerra on October 29, 1999 in lieu of a $25,000 bonus paid in connection with the Management Contract then in effect between us and Carr Separations. | ||
40,000 | $1.75 | Options granted to Mr. Vinciguerra on May 16, 2000 in lieu of a $20,000 bonus paid in connection with the Management Contract then in effect between us and Carr Separations. | ||
250,000 | $2.00 | Warrants issued on December 29, 2002 in connection with Mr. Vinciguerra’s acquisition of 250,000 shares in our 2001 private placement | ||
250,000 | $0.525 | Options granted on May 22, 2002 in connection with the salary substitution plan under which Mr. Vinciguerra’s salary was reduced by $80,000 in exchange for options, as described under “Executive Compensation” above. |
(2) | Includes 32,000 shares owned by Dr. Knopp’s wife, as to which he disclaims beneficial ownership, and options and warrants exercisable within 60 days to acquire 45,000 shares held by Dr. Knopp. |
(3) | Included 5,250 shares held in the name of Mr. Reck’s wife, as to which he disclaims beneficial ownership, and options exercisable within 60 days to acquire 20,000 shares held by Mr. Reck. |
(4) | Consists of options exercisable within 60 days to acquire 20,000 shares held by Mr. Wimmergren. |
(5) | Includes 217,650 shares as to which Dr. Humphreys has sole voting and dispositive power and 240,300 shares as to which Dr. Humphreys shares voting and dispositive power by virtue of a power of attorney over the investment accounts of seven persons. Dr. Humphreys and certain other persons, acting as a group, beneficially own an aggregate of 457,950 shares. Also includes options and warrants exercisable within 60 days to acquire 120,000 shares held by Dr. Humphreys. Dr. Humphreys’ address is 64 Alcott St., Acton, MA 01720. |
(6) | Includes 19,900 shares owned jointly with Mr. Nelson’s wife and options exercisable within 60 days to acquire 65,650 shares held by Mr. Nelson. |
(7) | Includes options and warrants exercisable within 60 days to acquire 62,500 shares held by Mr. Heyman. |
(8) | Includes options exercisable within 60 days to acquire 10,000 shares held by an officer not otherwise listed in this table. |
(9) | Based upon information reported in Schedule 13D, Amendment No. 6 filed with the Securities and Exchange Commission, Mr. Lalli has sole voting and dispositive power over 154,050 shares and shared voting and dispositive power with his wife over 29,500 shares. |
42 |
Quarter Ended | High | Low | |||||
---|---|---|---|---|---|---|---|
June 28, 2003 | $1.00 | $.30 | |||||
March 29, 2003 | .60 | .30 | |||||
December 28, 2002 | .25 | .09 | |||||
September 28, 2002 | .39 | .39 | |||||
June 29, 2002 | .52 | .35 | |||||
March 30, 2002 | .80 | .65 | |||||
December 29, 2001 | .60 | .50 | |||||
September 29, 2001 | .91 | .91 |
As of the Record Date, our Existing Common Stock was held by [____] holders of record. Based upon stock holdings on the Record Date and assuming no transfers between then and the Effective Date of the reverse stock split, the reverse stock split would reduce the number of stockholders of record to [____] holders. See “Special Factors—Fairness of the Reverse Stock Split Proposal” for a discussion of the determination of a fair price for fractional shares. We have not paid dividends on our Existing Common Stock in the past two years. 43 |
Selected Financial InformationOur selected historical financial data presented below as of and for the two fiscal years ended September 28, 2002 are derived from our audited consolidated financial statements. Data as of and for the nine months ended June 28, 2003 and June 29, 2002 have been derived from our unaudited consolidated financial statements. Interim operating results are not necessarily indicative of the results that may be achieved for the entire year. This data should be read in conjunction with our most recent Annual Report on Form 10-KSB for the fiscal year ended September 28, 2002 and Quarterly Report on Form 10-QSB for the fiscal quarter ended June 28, 2003, which are incorporated by reference in, and accompany, this proxy statement. The selected historical financial data also includes our ratio of earnings to fixed charges for the two most recent fiscal years and interim periods presented and our book value per share as of the date of our most recent balance sheet presented. Goddard Industries,Inc. |
June 28, 2003 | June 29, 2002 | September 28, 2002 | September 29, 2001 | ||||||
---|---|---|---|---|---|---|---|---|---|
Current assets | $4,505,966 | $4,526,893 | $4,544,270 | $5,331,460 | |||||
Non-current assets | $3,722,942 | $4,771,757 | $4,588,731 | $4,603,641 | |||||
Current liabilities | $2,798,811 | $1,463,768 | $1,253,864 | $3,451,130 | |||||
Non-current liabilities | $ 393,787 | $3,212,920 | $3,384,909 | $1,772,800 |
For the nine months ended | For the year ended | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 28, 2003 | June 29, 2002 | September 28, 2002 | September 29, 2001 | |||||||||||
Net sales | $ | 2,675,451 | $ | 4,666,561 | $ | 6,435,781 | $ | 7,428,520 | ||||||
Gross profit | $ | 1,052,350 | $ | 1,689,494 | $ | 2,150,945 | $ | 2,394,271 | ||||||
Income (Loss) from continuing operations, net of taxes | $ | (286,787 | ) | $ | (452,037 | ) | $ | (540,354 | ) | $ | (469,223 | ) | ||
Net income | $ | 267,336 | $ | (452,037 | ) | $ | (540,354 | ) | $ | (469,223 | ) | |||
Ratio of earnings to fixed charges | (2.62 | ) | (2.11 | ) | (2.92 | ) | (0.79 | ) | ||||||
Book value per share | $ | 1.97 |
44 |
Set forth below is the selected historical financial data for the same periods as above, but treating our Goddard Valve business as discontinued operations for the entire period. The selected historical financial data as of and for the two fiscal years ended September 28, 2002 is derived from our audited consolidated financial statements contained in a Current Report on Form 8-K dated August 28, 2003, and the data as of and for the nine months ended June 28, 2003 and June 29, 2002 is derived from our unaudited consolidated financial statements contained in our Form 10-QSB for the fiscal quarter ended June 28, 2003. Interim operating results are not necessarily indicative of the results that may be achieved for the entire year. This data should be read in conjunction with our Current Report on Form 8-K dated August 28, 2003 and our Quarterly Report on Form 10-QSB for the fiscal quarter ended June 28, 2003, which are incorporated by reference herein, and accompany, this proxy statement. |
June 28, 2003 | June 29, 2002 | September 28, 2002 | September 29, 2001 | ||||||
---|---|---|---|---|---|---|---|---|---|
Current assets | $4,505,966 | $2,367,693 | $2,604,375 | $2,913,558 | |||||
Non-current assets | $3,722,942 | $3,784,452 | $4,399,787 | $4,475,719 | |||||
Current liabilities | $2,798,811 | $ 984,222 | $2,164,363 | $ 905,309 | |||||
Non-current liabilities | $ 393,787 | $1,835,028 | $ 345,571 | $1,772,800 |
For the nine months ended | For the year ended | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 28, 2003 | June 29, 2002 | September 28, 2002 | September 29, 2001 | |||||||||||
Net sales | $ | 2,675,451 | $ | 2,366,530 | $ | 3,218,722 | $ | 3,577,445 | ||||||
Gross profit | $ | 1,052,350 | $ | 943,677 | $ | 1,291,297 | $ | 1,467,817 | ||||||
Income (Loss) from continuing operations, net of taxes | $ | (286,787 | ) | $ | 360,413 | $ | (310,789 | ) | $ | (17,696 | ) | |||
Net income | $ | 267,336 | $ | (452,037 | ) | $ | (540,354 | ) | $ | (469,223 | ) |
• | Our Annual Report on Form 10-KSB for fiscal year 2002, including audited financial information, as amended; |
• | Our Quarterly Report on Form 10-QSB for the quarter ended June 28, 2003, including the unaudited interim financial information; |
• | Our Current Reports on Form 8-K dated February 3, 2003 and Form 8-K/A dated April 7, 2003, relating to the sale of our Goddard Valve business; Ond |
• | Our Current Report on Form 8-K dated August 28, 2003, which includes a restatement of our audited financial statements contained in our Form • 10-KSB for fiscal year 2002, to reflect the discontinued operations of our Mack Valves Pty Ltd business. |
By order of the Board of Directors Joel M. Reck,Clerk |
September __, 2003 46 |
In arriving at its Opinion, Orchard relied upon and assumed the accuracy and completeness of all of the financial and other information that was used without assuming any responsibility for any independent verification of any such information and further relied upon the assurances of Goddard’s management that they were not aware of any facts or circumstances that would make any such information inaccurate or misleading. Management provided Orchard with a pro forma balance sheet as of March 29, 2003 that reflected the following changes to Goddard’s balance sheet since that date: an increase in cash of $982,000; a decrease in refundable taxes on income of $402,000; a decrease in real estate held for sale of $265,000; a decrease in net assets of discontinued operations of $208,000; a decrease in accounts payable of $98,000; a decrease in accrued expenses of $91,000; and an increase in retained earnings of $296,000. These pro forma changes reflected primarily the effects of the sale of the real estate located at 705 Plantation Street, Worcester, MA, the collection of refundable taxes on income and changes in accounts related to the sale of the Goddard Valve Corporation. Orchard has not audited this information as part of its analysis and therefore, does not express an opinion or other form of assurance regarding the information. Orchard assumed that the Transaction will comply, in all respects, with the securities laws, trade regulations and other applicable statutes and regulations of the various foreign jurisdictions under which the Transaction is governed. Orchard’s Opinion was based upon market, economic and other conditions as they existed on, and could be evaluated as of, June 26, 2003. Accordingly, although subsequent developments may affect its Opinion, Orchard does not assume any obligation to update, review or reaffirm its Opinion. In connection with its services, Orchard has previously received a retainer and will receive the balance of its fee for rendering this Opinion. Orchard’s fee for this engagement is in no way contingent upon the results of its analysis. In addition, the Company has agreed to indemnify Orchard for certain liabilities that may arise out of the rendering this Opinion. This Opinion is not intended to be and does not constitute a recommendation to any shareholder of the Company as to how such shareholder should vote, if required to, with respect to the Transaction. Orchard’s Opinion is for the use and benefit of the Board of Directors of the Company and is rendered to the Board of Directors in connection with its consideration of the Transaction and may not be used by the Company for any other purpose or reproduced, disseminated, quoted or referred to by the Company at any time, in any manner or for any purpose, without the prior written consent of Orchard Partners, Inc., except that this Opinion may be reproduced in full in, and references to the Opinion and to Orchard Partners, Inc. and its relationship with the Company may be included in any proxy or information statement relating to the Transaction that the Company files with the U.S. Securities and Exchange Commission and is distributed to holders of the Company’s Common Stock in connection with the Transaction. Based upon and subject to the foregoing, it is Orchard’s opinion that, as of June 26, 2003, a fair value for a minority interest in the Company is $ 0.80 per share, based upon 2.6 million shares outstanding and assuming that the minority interest represents no more than 100,000 shares. Very truly yours, /s/ Joel F. Johnson Joel F. Johnson, ASA President 49 |
GODDARD INDUSTRIES, INC.PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FORTHE SPECIAL MEETING OF STOCKHOLDERS IN LIEU OF ANNUAL MEETING TO BE |
PROPOSAL ONE: | To approve and adopt the Amendment to the Articles of Organization to effect a reverse stock split of the outstanding shares of common stock as set forth in the proxy statement provided to stockholders. |
| |FOR | | |AGAINST | | |ABSTAIN |
PROPOSAL TWO: | To approve and adopt the Amendment to the Articles of Organization to change the name of the Company to “Balkore Industries, Inc.” as set forth in the proxy statement provided to stockholders. |
| |FOR | | |AGAINST | | |ABSTAIN |
PROPOSAL THREE: | The election of Mr. Saul Reck as Class I director. |
| |FOR | | |VOTE WITHHELD |
PROPOSAL FOUR: | To grant management of the Company the discretionary authority to adjourn the Special Meeting to a date or dates not later than __________, 2003, if necessary to enable management to solicit additional proxies in favor of any of Proposal No. 1 and Proposal No. 2. |
| |FOR | | |AGAINST | | |ABSTAIN |
DISCRETIONARY AUTHORITY IS HEREBY CONFERRED AS TO ALL OTHERMATTERS WHICH MAY PROPERLY COME BEFORE THIS SPECIAL MEETING.50 |
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE PROPOSALS TO ADOPT BOTH AMENDMENTS TO THE ARTICLES OF ORGANIZATION, FOR THE ELECTION OF THE NOMINEE FOR DIRECTOR AND FOR THE PROPOSAL TO GRANT MANAGEMENT THE DISCRETIONARY AUTHORITY TO ADJOURN THE SPECIAL MEETING. THE PROXY MAY VOTE IN HIS DISCRETION AS TO OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING. NOTE: Signatures should correspond exactly with the name or names appearing on the stock certificate(s). If shares are registered in more than one name, all holders must sign. A corporation should sign in its full corporate name by a duly authorized officer, stating his or her title. Trustees, guardians, executors and administrators should sign in their official capacity, giving full title as such. If a partnership, please sign in the partnership name by an authorized person. |
Dated: , 2003 ——————————————— Name(s) of Stockholder(s) ——————————————— Signature(s) of Stockholder(s) | ||
Please mark, sign, date and return this proxy promptly, using the enclosed envelope.No postage necessary.Please Return Proxy As Soon As Possible51 |