-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RgDCmjdOu6CvG+KXy134VqilLidf/+IQXamSeix+xxNWTy7Nc3KBBp1mVsovgpe3 SxgzbYUcdUGrdruHHANpOA== 0000910647-00-000016.txt : 20000202 0000910647-00-000016.hdr.sgml : 20000202 ACCESSION NUMBER: 0000910647-00-000016 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991023 FILED AS OF DATE: 20000121 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTERBEKE CORP CENTRAL INDEX KEY: 0000796502 STANDARD INDUSTRIAL CLASSIFICATION: MOTORS & GENERATORS [3621] IRS NUMBER: 041925880 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-15046 FILM NUMBER: 511031 BUSINESS ADDRESS: STREET 1: AVON INDUSTRIAL PARK STREET 2: 41 LEDIN DRIVE CITY: AVON STATE: MA ZIP: 02322 BUSINESS PHONE: 5085887700 MAIL ADDRESS: STREET 1: AVON INDUSTRIAL PARK CITY: AVON STATE: MA ZIP: 02322 10-K 1 BODY OF THE 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended October 23, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ____________ Commission file number 0-15046 ------- WESTERBEKE CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 041925880 - ---------------------------------------- --------------------------- (State or other jurisdiction of Employer (I.R.S. Identification No.) incorporation or organization) Avon Industrial Park Avon, Massachusetts 02322 02322 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (508) 588 - 7700 ---------------- Securities registered pursuant to Section 12 (b) of the Act: Name of each exchange on Title of each class which registered ------------------- ------------------------ None None Securities registered pursuant to Section 12 (g) of the Act: Common Stock, $.01 par value -------------- (Title of class) Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period as the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes__X_____ No__________ ----- ----- Indicate by a check mark if disclosure of delinquent filers, pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] State the aggregate market value of the voting stock held by non- affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. Aggregate market value as of January 11, 2000..............$1,964,000 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 par value, as of January 11, 2000 1,917,812 shares DOCUMENTS INCORPORATED BY REFERENCE None. PART I ITEM 1. BUSINESS. General - ------- The Company is primarily engaged in the business of designing, manufacturing and marketing marine engine and air-conditioning products. The Company was organized in 1932 and was re-incorporated in Delaware in 1986. The Company's marine products consist of diesel and gasoline engine- driven electrical generator sets, inboard propulsion engines, self- contained, reverse-cycle air-conditioners, and associated spare parts and accessories. In addition, the Company manufactures and markets electrical generator sets for use in non-marine applications. The Company markets its products throughout the United States and internationally principally for recreational marine applications. Accordingly, the market for the Company's products is dependent on the market for recreational boats, including auxiliary powered sailboats, powerboats, houseboats and other pleasure boats. The market for recreational boats, and consequently the Company's products, may be adversely affected by general economic conditions. Products - -------- The Company's marine engine product line consists of 23 models of electrical generator sets, 16 models of inboard propulsion engines, and associated spare parts and accessories. The Company also offers 11 models of non-marine generator sets. The Company's diesel and gasoline engine-driven marine generator sets are installed in powerboats, houseboats, large sailboats and other pleasure and commercial boats to provide electricity for communication and navigational equipment, lighting, refrigeration and other galley services, and other safety, operating and convenience needs. The Company's present line of generator sets produce from 4.2 to 65 kilowatts of electricity. A generator set consists of an electrical generator and an attached diesel or gasoline engine used to drive the generator. These engines are water cooled and range from one to eight cylinders. The Company's propulsion engines are inboard engines, generally installed as auxiliary power systems for sailboats. The Company's propulsion engines are fresh water cooled and range from two to six cylinders and from 12 to 108 horsepower. Management believes that more than 90% of the propulsion engines produced by the Company are installed in sailboats of up to 50 feet in length. The Company's higher horsepower propulsion engines are also installed in powerboats of up to approximately 30 feet in length such as fishing boats, cruisers and work boats. The Company's product line also includes marine auxiliary engines and associated spare and replacement parts marketed under the Universal(R) name and marine air-conditioning products marketed under the Rotary Aire(R) name. The Company manufactures and markets two self-contained, reverse-cycle air- conditioning units and accessories under the Rotary Aire(R) name. These units can be installed in powerboats, houseboats, sailboats and other pleasure and commercial boats. The Company's product line includes 11 models of non-marine electrical generator sets which may be installed in fire trucks, rescue vehicles, motor coaches, refrigerated trucks and other specialty vehicles to provide electricity for lighting, refrigeration and other safety, operating and convenience needs. These generators may also be used as stand-by or secondary power sources in the event of power outages or in locations where primary power is not readily available, such as construction sites, rural areas and less developed countries. The Company offers a complete line of spare parts and accessories for its current product lines and for most discontinued models. The Company's line of spare parts includes oil and fuel filters, belts, thermostats, distributor caps, fuses, spark plugs, wiring, alternators, heat exchangers, circuit breakers, water and fuel pumps, starter motors and fuel solenoids. Many basic parts are packaged and sold as spare part kits. Accessories offered by the Company include various control and instrument panels, exhaust silencers and generator sound enclosures. The Company provides its distributors, dealers and final customers with documentation covering operation, maintenance and repair procedures for its products. Management believes that the provision of current and comprehensive documentation enhances the Company's marketing and competitive effectiveness. See "Marketing and Sales" and "Competition" below. Each of the Company's products is covered by a one-year limited warranty covering parts and authorized labor. In addition, the Company offers a five-year limited warranty on certain marine generator sets. Many of the Company's suppliers also warrant their products for parts and labor. Some of the Company's major suppliers warrant their products for the duration of the Company's warranties. The Company believes it has made adequate provisions for probable warranty claims. See Note 1 of Notes to Consolidated Financial Statements included in "Item 8 - Financial Statements and Supplementary Data." The Company's distributors are generally responsible for administering the Company's warranties through the dealer network. See "Marketing and Sales" below. Governmental Regulation - ----------------------- Many of the Company's products are subject to exhaust emission standards pursuant to regulations promulgated by the Environmental Protection Agency (the "EPA"), effective September 1, 1996, and by the State of California, effective August 1, 1995. The emission standards are intended to reduce the emissions of hydrocarbons, nitrogen oxides, carbon monoxide, particulates and smoke. It is anticipated that by January 1, 2005, all of the Company's products will be subject to such regulations. All of the regulations include manufacturer testing requirements, mandated warranties on emissions related components, product labeling and reporting requirements. Additionally, future regulations may include provisions for selective enforcement audits and recall and repair requirements. At this time, all of the Company's products which are subject to these emissions regulations comply with the regulations. Achieving and maintaining this compliance has been accomplished through significant design and development expense. The emission standards established by the regulations will become broader in scope and more stringent regarding emissions levels each year. As a result, research and development expenditures for emissions compliance will continue at a significant level for the foreseeable future. Additionally, if at any time the Company cannot effect the required modifications of its products to meet the required emissions levels within the time frame allowed, the Company could be materially adversely affected. Design and Development - ---------------------- The Company has an ongoing product improvement and development program intended to enhance the reliability, performance and longevity of existing products, and to develop new products. A significant portion of the Company's senior management's time, as well as the efforts of the Company's thirteen person product engineering department, is spent in this area. As part of the Company's ongoing product development program, the Company upgrades its engine products and periodically adds models to its product line. For example, as and when improvements in component parts allow, the Company may manufacture smaller or more light-weight versions of existing models. In fiscal 1999, the product engineering department focused principally on the modernization of the Company's existing product line and modifications which the Company believes will be required as a result of the emissions standards discussed above. In addition, in response to demand, the Company may expand its engine product line by manufacturing generator sets or propulsion engines with different kilowattage or horsepower than its existing models. The Company intends to introduce upgraded and new models as and when developed. The Company's design and engineering focus is on reliability, ease of maintenance, compactness, operating smoothness, safety and longevity, among other technical and performance factors. The Company's technical and performance specifications are utilized by the Company's suppliers in producing certain component parts, metal and nonmetal fabrications and other peripheral equipment that the Company manufactures and assembles into finished products. Generally, the Company retains title to Company- developed drawings, patterns and specifications used by these suppliers. For the three fiscal years ended October 1999, the Company incurred expenses of approximately $3,576,500 for design and development activities as follows: 1999 - $1,365,300, 1998 - $1,180,900 and 1997 - $1,030,300. All these activities were conducted and sponsored by the Company and the major portion of these expenses was applied toward salaries and other expenses of the Company's product design and engineering personnel. Manufacturing and Sources of Supply - ----------------------------------- The Company's manufacturing activities are conducted in an approximately 37,500 square foot facility owned by the Company. See "Item 2 - - Properties" below. The Company has approximately 86 persons employed in various manufacturing and assembly functions. See "Employees" below. The Company's engine products generally contain from 250 to 500 component parts and assemblies purchased from domestic and foreign manufacturers and suppliers. Some of these component parts are manufactured to Company specifications, while others are further machined and assembled by the Company. The basic component of the Company's engine products is a "long block" engine, which is a complete engine block and head assembly without peripheral equipment. Peripheral equipment added by the Company includes subassemblies (generators, transmissions, alternators, carburetors, motors and pumps), machined castings (flywheels, bellhousings, manifolds, mounts, pulleys, brackets and couplings), sheet metal fabrications (control and instrumentation panels), injection-molded plastic and other non-metallic fabrications (belt guards, drip trays, belts, hoses and panels) and various other component parts (mounts, switches and other electrical devices). The Company purchases "long block" engines from five foreign manufacturers. The Company currently purchases all of its requirements of "long block" engines on a purchase order basis rather than pursuant to long- term supply agreements. In certain cases, the Company has an agreement with its "long block" engine manufacturers to supply these component parts exclusively to the Company for marine products of the type produced by the Company. Orders for "long block" engines are dollar-denominated however, final purchase prices are subject to fluctuations in the dollar/yen exchange rate and therefore fluctuations in the dollar/yen exchange rate have had and will continue to have an effect on the cost of the Company's raw materials. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company believes that the purchase of "long block" engines on a purchase order basis has become the more common industry practice. Interruption of the supply of "long block" engines would have a material adverse effect on the Company if the time to develop new sources of supply and replacement products is longer than the time it takes to exhaust the Company's inventory of existing "long block" engines. In addition, the Company does not have long-term supply agreements with other manufacturers of other component parts or peripheral equipment. The Company believes that it can obtain these parts and equipment from a variety of sources on commercially reasonable terms. However, the disruption of its supply of these parts, equipment or "long block" engines would have a material adverse effect on the Company's operations. The lead time between ordering and receipt of component parts varies with the part involved, but generally ranges from a few weeks in the case of unfinished products to three to six months in the case of "long block" engines, generators and transmissions. The Company has not experienced any difficulties in obtaining finished or unfinished components or peripheral equipment on commercially reasonable terms. Most of the Company's purchases of component parts and peripheral equipment from Japanese ("long block" engines), Italian (generators) and other foreign manufacturers are dollar-denominated. Fluctuations in exchange rates have resulted, and may in the future result, in price increases from some of the Company's suppliers. Management believes that to varying degrees the Company's competitors in the engine product markets have been and will be similarly affected since many of its competitors also purchase component parts and peripheral equipment abroad. However, some of the Company's principal competitors are divisions of large and diversified multinational companies with extensive production facilities and sales and marketing staffs and substantially greater financial resources than the Company and therefore may be better situated to accommodate price increases from suppliers due to fluctuations in exchange rates. The engine product markets are price sensitive, and there can be no assurance that the Company will be able to pass on price increases from its suppliers to its customers. The manufacturing of a particular engine product requires the integration of a number of engineering, machining and assembly functions in order to produce high quality components. Prior to final assembly, the Company's manufacturing activities involve machining various metal and nonmetal component parts on computer-controlled and conventional milling machines, lathes, drill presses, welders and other machinery, modification and assembly of electrical and mechanical subassemblies, calibration of electrical devices and components and testing for variances from specifications and operating parameters. The Company has approximately 16 machine operators who satisfy approximately 95% of the Company's machining needs. The remainder of the machining is performed by independent contractors. The Company has a final assembly line for its engine products where component parts, subassemblies and peripheral equipment are assembled onto "long-block" engines. Following final assembly, each generator set and propulsion engine is tested at increasing loads up to full operating capacity to verify performance and safety features. After product testing, the product is pressure hot water washed, primed and painted, unpainted components are attached, and the product is packed and shipped to the customer, generally via common carrier freight collect. The Company's air-conditioning products are produced on a separate assembly line where component parts (compressors, evaporator and condensing coils, fans, electrical components and plastic housings), purchased from manufacturers and suppliers, are assembled into final units. The Company does not have any long-term supply agreements with the manufacturers of these component parts. However, the Company believes it can obtain most of these parts from a variety of sources on commercially reasonable terms. Following assembly, each air-conditioner is painted and tested for performance, leakage and compliance with safety standards. The Company is currently considering the expansion of its manufacturing facility in order to increase its production capability and capacity. Management is exploring various alternatives, including the purchase or lease of an existing facility or building a new facility, to increase its production capabilities. Management believes that this expansion is necessary to meet customer demand for the Company's products and to maintain the Company's competitive position. See "Item 2 - Properties" below. Quality Control and Computerization - ----------------------------------- Management believes that maintaining high quality manufacturing standards is important to its competitive position and also believes that the Company has developed a reputation for high quality products. The Company maintains quality control systems and procedures which it reviews with its manufacturing personnel and which it modifies as appropriate. The Company's quality control systems and procedures include the testing of each fully assembled generator set and propulsion engine at increasing loads up to full operating capacity to verify performance and safety features. The checklist includes testing wiring and electrical systems, all connections and fittings, fuel and oil systems, the fresh water cooling system and safety shutdown features. In the case of the Company's generator sets, output current, voltage and frequency are also tested. The results of the tests are recorded and each product is approved by quality assurance personnel before it leaves the testing area. In line with its policy of updating and improving its manufacturing operations, the Company utilizes a computerized manufacturing management system which integrates the Company's inventory control, sales and financial functions with its manufacturing operations. Marketing and Sales - ------------------- The Company's marine engine and air-conditioning products are marketed through a nationwide and international network of distributors and dealers. The Company markets its non-marine engine products through a sales representative and to distributors. In addition, the Company's sales management and senior management devote a substantial amount of time to the overall coordination of the Company's sales to distributors, as well as to the Company's direct sales to boat and other manufacturers (OEM's). Direct sales by the Company to OEM's accounted for approximately 44%, 40%, and 42% of total sales for the fiscal years ended October 1999, 1998 and 1997, respectively. The Company's marine products are sold to distributors for resale to manufacturers of powerboats, houseboats, sailboats and other pleasure and commercial boats, and to boat dealers and marinas. Boat manufacturers install the Company's products as original equipment. In addition, the Company's distributors resell the Company's marine products to over 400 authorized dealers (including boatyards and marinas) located on or near major navigable waterways throughout the world. These dealers install the Company's generator sets, propulsion engines and air-conditioners as either new or replacement equipment. In addition, many of these dealers maintain inventories of spare parts and accessories in order to maintain and repair the Company's marine products. The Company's distributor network consists of 10 domestic and 54 foreign distributors. The Company's domestic distributors are located along the East, West and Gulf Coasts and in the Great Lakes Region. Two of the Company's foreign distributors are located and operate in Canada, one is located and operates in Mexico, 17 are located and operate in Europe, seven are located and operate in Central and South America, and ten are located and operate in the Far East. The Company also has distributors in 34 other countries throughout the world. Each distributor operates in a specified region under a distribution agreement with the Company which assigns to the distributor the nonexclusive responsibility for sales and service of the Company's products in its territory, including warranty administration, accounts receivable collection and other customer related functions. Each distributor maintains inventories of the Company's marine products, including spare parts and accessories, in order to provide boat manufacturers and dealers with prompt delivery of products. Typically, the Company's distributors and dealers also distribute and sell other marine accessories and products. Generally, however, the Company's distributors do not sell products which compete with the Company's products. Sales to international customers totaled $2,591,600 (8.9% of net sales), $2,305,300 (8.8% of net sales) and $2,843,400 (11.5% of net sales) for the fiscal years ended October 1999, 1998 and 1997, respectively. See Note 2 of Notes to Consolidated Financial Statements included in "Item 8 - Financial Statements and Supplementary Data" for additional information concerning sales to international customers for the Company's three most recent fiscal years. Management is not aware of any special tariffs, importation quotas or any other restrictions imposed by the foreign countries in which the Company sells its products. All of the Company's international sales are dollar-denominated which protects the Company to some extent against foreign currency exchange rate fluctuations, although significant increases in the value of the dollar in relation to foreign currencies may adversely impact the Company's ability to market its products abroad. Management believes that, to varying degrees, the Company's competitors in the marine product market are similarly affected since many of its competitors also sell products abroad. However, some of the Company's principal competitors are divisions of large and diversified multinational companies with extensive production facilities and sales and marketing staffs and substantially greater financial resources than the Company and therefore may be better situated to accommodate fluctuations in exchange rates. Management is not aware of any other unusual or special risks associated with this aspect of the Company's business. The Company considers international customers to be an important market for its marine products. An important aspect of the Company's marketing approach and competitive position is the ability of its technical personnel and its distributors to provide technical assistance to boat manufacturers and dealers with a view to developing specifications and performance parameters for unit or serial production of its marine products. To that end, the Company selects its distributors with great care and continually monitors their technical expertise. In addition, at times the Company conducts seminars in each distribution region. These sessions are conducted by personnel from the Company and from its distributors and are open to boat manufacturers, dealers and individual boat owners. The Company occasionally sponsors service schools at its manufacturing facility designed to upgrade a distributor's technical expertise and to introduce product innovations and new products. See "Competition" below. The Company markets the Westerbeke(R), Universal(R) and Rotary Aire(R) names and its marine products through various methods of advertising. Certain advertising is accomplished under a cooperative system with the Company's distributors. Under this system, the Company pays a portion of the cost of and approves the advertising developed by its distributors. Advertisements are placed in trade publications such as Soundings, Motor Boating and Sailing, Sail, Power & Motor Yacht and Cruising World. In addition, a substantial amount of the Company's advertising is conducted through the distribution of technical and sales literature and pamphlets, direct mailings and sponsorship of exhibits at boat shows. During the fiscal years ended October 1999, 1998 and 1997, the Company incurred advertising and promotional expenses of $647,500, $528,400, and $520,900, respectively. See Note 1 of Notes to Consolidated Financial Statements included in " Item 8 - Financial Statements and Supplementary Data". For the fiscal year ended October 23, 1999, sales to Sea Ray Boats, Inc. and Marysville Marine Distributors, Inc., accounted for approximately 26.2% and 19.8%, respectively, of the Company's total sales. See Note 2 of Notes to Consolidated Financial Statements included in " Item 8 - Financial Statements and Supplementary Data" and "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company believes that, if necessary, it could replace any of its distributors or sell the products presently distributed by them directly to boat manufacturers and dealers. However, the loss of these customers or the inability to replace these distributors could have a material adverse effect on the Company. The market for the Company's products is dependent on the market for recreational boats, including auxiliary powered sailboats, powerboats, houseboats and other pleasure boats. In addition, the recreational marine boat business is seasonal in nature and accordingly, the Company's business generally experiences some fluctuations in its business during the course of the year. See Note 14 of Notes to Consolidated Financial Statements included in "Item 8 - Financial Statements and Supplementary Data." Proprietary Rights - ------------------ Although the Company follows a policy of protecting its proprietary rights to its marine engine products and designs, it does not believe that its business, as a whole, is materially dependent upon such protection. The Company has registered the names Westerbeke(R), Universal(R), Rotary Aire(R) and Atomic Four(R) under Federal trademark law. Backlog and Credit Terms - ------------------------ The Company believes that because its production is based upon cancelable purchase orders rather than long-term agreements, the amount of its backlog is not an important indicator of future sales. The Company extends credit to certain of its customers on terms which it believes are normal and customary in the marine industry. Competition - ----------- The business of manufacturing and supplying marine products is extremely competitive. The Company faces competition from a number of companies, including at least five significant competitors, some of which are divisions of large and diversified multinational companies with extensive production facilities and sales and marketing staffs and substantially greater financial resources than the Company. Such competitors may be better situated to accommodate price increases from suppliers due to fluctuations in exchange rates. In addition, the Company faces competition from similar companies as it expands its product line or seeks other non-marine applications for its product line. Although price is an important competitive factor, the Company believes that its pricing is competitive. The market for the Company's marine products is dependent on the market for recreational boats which may experience contracting sales as a result of general economic conditions. A contracting market may result in additional competition particularly for direct sales to large boat manufacturers. The Company believes that it can compete effectively with all of its present competitors based upon the high quality, reliability, performance and longevity of its products, the comprehensiveness of its line of products, price, the effectiveness of its customer service and the technical expertise of its personnel and that of its distributors. Employees - --------- At December 31, 1999, the Company had 139 full-time employees, including officers and administrative personnel. None of the Company's employees is covered by a collective bargaining agreement and the Company considers its relationship with its employees to be excellent. Directors and Executive Officers of the Company - ----------------------------------------------- The directors and executive officers of the Company are as follows:
Name Position with the Company Age - ---- ------------------------- --- John H. Westerbeke, Jr Chairman, President and 59 Director (Class C) John H. Westerbeke, Sr Director (Class C) 90 Carleton F. Bryant, III Executive Vice President, 54 Treasurer, Chief Operating Officer and Secretary Gerald Bench Director (Class A) 58 Thomas M. Haythe Director (Class B) 60 Nicholas H. Safford Director (Class A) 67 James W. Storey Director (Class B) 65
John H. Westerbeke, Jr. has been President and a director of the Company since 1976. In June 1986, Mr. Westerbeke, Jr. assumed the additional position of Chairman of the Company. Mr. Westerbeke, Jr. has served in various managerial capacities since joining the Company in 1966. John H. Westerbeke, Sr. is the founder of the Company. Mr. Westerbeke, Sr. has served as a director of the Company since 1946 and was Chairman of the Board of Directors of the Company from 1976 until June 1986. Mr. Westerbeke, Sr. is presently employed by the Company in various engineering capacities. Carleton F. Bryant, III has been Executive Vice President, Treasurer, Chief Operating Officer, and Secretary of the Company since May 1993. From October 1987 to May 1993, Mr. Bryant was Director of Business Development for Analysis & Computer Systems, Inc., a developer of computer software and systems. From June 1980 to October 1987, Mr. Bryant held various management positions with Bird-Johnson Company, a manufacturer of ship propellers, bow thrusters and hydraulic actuators. From 1969 to 1980, Mr. Bryant held a variety of management positions with Bath Iron Works Corporation, a shipbuilder. Gerald Bench has been a director of the Company since June 1986. Mr. Bench has been the President of BFT Holdings Co., Inc., a company that invests in emerging growth businesses, since November 1996. Mr. Bench was the President and Chief Executive Officer of Hadley Fruit Orchards, Inc. from November 1996 to June 1999 and was a consultant from March 1995 to November 1996. Mr. Bench was a partner in ICAP Marine Group (consulting firm) from November 1993 to February 1995. Mr. Bench was the Chairman and President of TDG Aerospace, Inc. (manufacturer of aircraft de-icing devices) from October 1991 to November 1993. Mr. Bench was the President of Thermion, Inc. (manufacturer of heaters for aircraft de-icing devices) from April 1990 to September 1991. From July 1989 to March 1990, Mr. Bench was the general manager of Lermer Corporation (manufacturer of airline galley equipment). Mr. Bench is the former Chairman of the Board, President, Chief Executive Officer and director of E&B Marine Inc. (marine supplies and accessories). Mr. Bench had held various executive positions with E&B Marine Inc. for more than 30 years. Thomas M. Haythe has been a director of the Company since June 1986. Mr. Haythe was a partner of the law firm of Torys from 1982 to January 2000. Mr. Haythe is also a director of Novametrix Medical Systems Inc. (manufacturer of electronic medical instruments), Guest Supply, Inc. (provider of hotel guest room amenities, accessories and products) and Ramsay Youth Services, Inc. (provider of youth and educational services). Nicholas H. Safford has been a director of the Company since February 1991. Mr. Safford has been the President of Nicholas H. Safford & Co., Inc. (investment counselor and private trustee) since 1983 and from 1979 to 1981. From 1982 to 1983, Mr. Safford was the President and a director of Wendell, Safford and Co., Inc. (investment counseling firm). Prior to 1978, Mr. Safford was Vice President and a director of David L. Babson & Co., Inc. (investment counseling firm). James W. Storey has been a director of the Company since June 1986. Mr. Storey was the President of Wellingsley Corporation (private investment management company) from December 1986 through December 1992. Mr. Storey is currently an independent consultant. From 1982 to 1986, Mr. Storey was the President and Chief Executive Officer of Codex Corporation, a subsidiary of Motorola, Inc., and was a Vice President of Motorola, Inc. Mr. Storey had held various managerial positions with Codex Corporation since 1966. Mr. Storey is also a director of Progress Software Corporation (software). ITEM 2. PROPERTIES. The Company's executive and administrative offices and manufacturing operations are located in Avon, Massachusetts in an approximately 37, 500 square foot facility owned by the Company. The Company also leases a warehouse of approximately 26,000 square feet. Annual warehouse rent was approximately $145,200 in fiscal 1999 and $141,300 in fiscal 1998. See Note 10 of Notes to Consolidated Financial Statements included in "Item 8 - Financial Statements and Supplementary Data." The Company is currently considering the expansion of its manufacturing facility in order to increase its production capability and capacity. Management is exploring various alternatives, including the purchase or lease of an existing facility or building a new facility, to increase its production capabilities. Management believes that this expansion is necessary to meet customer demand for the Company's products and to maintain the Company's competitive position. ITEM 3. LEGAL PROCEEDINGS. The Company has initiated arbitration with the American Arbitration Association in New York against Daihatsu Motor Company, Ltd. ("Daihatsu") for breach of contract and other claims. The Company is seeking damages based on Daihatsu's breach of a Component Sales Agreement which also granted the Company rights to certain engines including an engine Daihatsu began marketing in 1993 through a joint venture with Briggs & Stratton Corporation. In a separate but related case pending in the Federal District Court for the District of Massachusetts, the Company is seeking damages from Briggs & Stratton Corporation for tortious interference with the Company's Agreement with Daihatsu and other related claims. In addition, from time to time, the Company is party to certain claims, suits and complaints which arise in the ordinary course of business. Currently, there are no such claims, suits or complaints which, in the opinion of management, would have a material adverse effect on the Company's financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded in the over-the-counter market on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") under the symbol WTBK. On January 11, 2000, there were approximately 135 shareholders of record. The following table sets forth the range of high and low sales prices per share of the Company's Common Stock from October 26, 1997 through October 23, 1999, on the NASDAQ.
Common Stock Prices High Low ---- --- FISCAL 1998 First Quarter (October 26, 1997 to January 24, 1998) $4.750 $3.750 Second Quarter (January 25, 1998 to April 25, 1998) 4.250 3.250 Third Quarter (April 26, 1998 to July 25, 1998) 4.000 2.938 Fourth Quarter (July 26, 1998 to October 24, 1998) 3.375 2.625 FISCAL 1999 First Quarter (October 25, 1998 to January 23, 1999) $3.000 $2.500 Second Quarter (January 24, 1999 to April 24, 1999) 3.625 2.188 Third Quarter (April 25, 1999 to July 24, 1999) 3.250 2.125 Fourth Quarter (July 25, 1999 to October 23, 1999) 3.000 2.375
On January 11, 2000, the last high and low sales price for the Company's Common Stock was $2.438. No dividends have been paid or declared on the Common Stock of the Company and the Company does not expect to pay any dividends on its Common Stock in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA. Five Year Comparison of Selected Financial Data
October 23, October 24, October 25, October 26, October 28, 1999 1998 1997 1996 1995 ----------------------------------------------------------------------- For the Year: (In thousands, except for per share amount) Net sales $29,114 $26,202 $24,620 $20,653 $18,794 Gross profit 6,563 5,966 5,556 4,778 4,292 Selling, general and administrative expense 4,359 3,684 3,106 2,672 2,514 Research and development expense 1,365 1,181 1,030 919 679 Income from operations 839 1,100 1,420 1,187 1,099 Interest income (expense) 60 (10) (71) 47 43 Other income 387 - - - - Net income 796 644 799 737 698 Net income per share, diluted* 0.39 0.31 0.37 0.33 0.31 At end of year: Total assets $15,384 $14,670 $14,811 $12,681 $10,999 Working capital 7,616 5,650 5,800 6,315 5,908 Long-term liabilities 647 893 1,069 520 189 Stockholders' equity 11,381 10,719 10,136 9,841 9,091 See Note 1 of Notes to Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Results of Operations: The following table sets forth, for the years indicated, the percentages which the following items in the Consolidated Statements of Operations bear to Net Sales.
Years Ended ------------------------------------------- October 23, October 24, October 25, 1999 1998 1997 ------------------------------------------- Net sales 100.0% 100.0% 100.0% Gross profit 22.5 22.8 22.6 Selling, general and administrative expense 15.0 14.1 12.6 Research and development expense 4.7 4.5 4.2 Income from operations 2.9 4.2 5.8 Interest income (expense), net 0.2 0.0 (0.3) Other income 1.3 0.0 0.0 Provision for income taxes 1.7 1.7 2.2 Net income 2.7 2.5 3.2
Fiscal 1999 compared to Fiscal 1998 - ----------------------------------- Net sales increased $2,911,700 or 11.1% in fiscal 1999 as compared to fiscal 1998. The increase was attributable to higher unit sales of the Company's marine generators and also an increase in the sales of spare parts and accessories, primarily the result of more favorable economic conditions benefiting the pleasure boat industry. International sales were $2,591,600 in 1999, representing 8.9% of net sales, as compared to $2,305,500 in 1998, or 8.8% of net sales. Gross profit increased $597,600 or 10.0% in fiscal 1999 as compared to fiscal 1998. Gross profit as a percentage of sales decreased to 22.5% in fiscal 1999 as compared to 22.8% in fiscal 1998. Selling, general and administrative expense increased $674,700 or 18.3% in fiscal 1999 as compared to fiscal 1998. The increase was primarily the result of higher legal costs associated with the legal proceeding against the Company's former "long block" supplier and also an increase in sales and marketing costs. Research and development expense increased $184,400 or 15.6% in fiscal 1999 as compared to fiscal 1998. The increase is due to the hiring of additional engineering personnel. The Company also experienced increased costs to comply with federal and state exhaust requirements for existing and new engines. See "Business - Governmental Regulation." Other income in the amount of $387,100 is comprised of the realized gains and losses from the sale of marketable securities. Net interest income was $59,700 in fiscal 1999 compared to net interest expense of $9,900 in fiscal 1998. The interest income is primarily due to a decrease in the loan balance used for operating purposes and the increase in cash obtained from the sale of marketable securities during the year. The Company's income tax expense in fiscal 1999 was $489,400 as compared to $446,700 in fiscal 1998. The effective tax rate decreased in fiscal 1999 to 38.1% as compared to 40.9% in fiscal 1998. The Company's net income was $796,000 as compared to $643,500 in fiscal 1998. The increase is mainly attributable to the increase in sales revenues and from the sale of marketable securities. As previously announced the Company has successfully renegotiated its exclusive agreement with its largest customer. Fiscal 1998 compared to Fiscal 1997 - ----------------------------------- Net sales increased $1,581,700 or 6.4% in fiscal 1998 as compared to fiscal 1997. The increase was attributable to higher unit sales of the Company's marine generators, primarily the result of more favorable economic conditions benefiting the pleasure boat industry. International sales were $2,305,500 in 1998, representing 8.8% of net sales, as compared to $2,843,400 in 1997, or 11.5% of net sales. The decrease in 1998 was the result of less than favorable economic conditions in the European countries. Gross profit increased $409,400 or 7.4% in fiscal 1998 as compared to fiscal 1997. Gross profit as a percentage of sales increased to 22.8% in fiscal 1998 as compared to 22.6% in fiscal 1997. Selling, general and administrative expense increased $578,600 or 18.6% in fiscal 1998 as compared to fiscal 1997. The increase was primarily the result of higher legal costs associated with the legal proceeding against the Company's former "long block" supplier and also an increase in the warranty expense during the year. Research and development expense increased $150,600 or 14.6% in fiscal 1998 as compared to fiscal 1997. The increase is due to additional engineering personnel, education and training expenses and costs associated with bringing the replacement "long block" engines into full production. The Company also experienced increased costs to comply with federal and state exhaust requirements for existing and new engines. See "Business - Governmental Regulation." Net interest expense was $9,900 in fiscal 1998 compared to $71,000 in fiscal 1997. The decrease is primarily due to a decrease in the loan balance used for operating purposes during the year. The Company's income tax expense in fiscal 1998 was $446,700 as compared to $550,000 in fiscal 1997. The effective tax rate was relatively constant in fiscal 1998 as compared to fiscal 1997. The Company's net income was $643,500 as compared to $798,900 in fiscal 1997. The decrease is mainly attributable to the increase in selling, general and administrative expenses. Liquidity and Capital Resources - ------------------------------- During fiscal 1999, net cash provided by operations was $859,600 as compared to $1,191,600 in fiscal 1998. During fiscal 1999 and 1998, the Company purchased property, plant and equipment of $312,100 and $444,300, respectively. The Company plans capital spending of approximately $750,000 during fiscal 2000. The Company is currently considering the expansion of its manufacturing facility in order to increase its production capability and capacity. Management is exploring various alternatives, including the purchase or lease of an existing facility or building a new facility, to increase its production capabilities. Management believes that this expansion is necessary to meet customer demand for the Company's products and to maintain the Company's competitive position. At this time the Company cannot estimate the cost of the expansion. During fiscal 1999 the Company generated cash in the amount of $1,465,000 from the sale of marketable securities. The Company has a $4,000,000 Credit Agreement with Citizens Bank of Massachusetts (f/k/a State Street Bank and Trust Company), collateralized by inventory, accounts receivable and general intangibles. The Credit Agreement was renewed on March 31, 1999, and will expire on March 31, 2000. The Company believes that it will be able to continue to extend the term of the Credit Agreement on commercially reasonable terms. As of October 23, 1999, the Company had approximately $3,825,000 in unused borrowing capacity under the Credit Agreement and approximately $175,000 committed to cover the Company's reimbursement obligations under certain open letters of credit and bankers' acceptances. On April 25, 1997, the Company entered into a $300,000 revolving line of credit agreement (the "1997 Revolving Line of Credit") and term loan facility with Citizens Bank of Massachusetts, collateralized by various items of emission testing and product development equipment and subject to working capital and equity covenants. On June 30, 1997, the 1997 Revolving Line of Credit terminated and automatically converted into a five-year term loan bearing a fixed interest rate of 8.11%. At October 23, 1999, the outstanding principal amount was $163,200. On January 23, 1996, the Company entered into a $500,000 revolving line of credit agreement (the "Revolving Line of Credit") and term loan facility with Citizens Bank of Massachusetts, collateralized by various emission testing and product development equipment and subject to working capital and equity covenants. On July 31, 1996, the Revolving Line of Credit terminated and automatically converted into a five year term loan in the principal amount of $491,600 bearing a fixed interest rate of 8.08%. As of October 23, 1999, the outstanding principal amount was $178,500. Management believes cash flow from operations and borrowings available under the Credit Agreement will provide for working capital needs, principal payments on long-term debt, and capital and operating leases through fiscal 2000. Domestic inflation is not expected to have a major impact on the Company's operations. The costs of engine blocks and other components are subject to foreign currency fluctuations (primarily the Japanese yen). The value of the U.S. dollar relative to the yen had no material effect on the cost of the Company's products in fiscal 2000. Year 2000 Compliance - -------------------- In fiscal years 1998 and 1999 the Company had developed a plan to reduce the probability of operational difficulties due to Year 2000 related failures. The components of the Company's plan included an assessment of internal systems for modification and/or replacement, communication with vendors to determine their state of readiness to maintain an uninterrupted supply of goods and services to the Company; an evaluation of the Company's production equipment as to its ability to function properly after the turn of the century; an evaluation of facility related issues; and the development of a contingency plan. As of January 18, 2000 the Company has not experienced any Year 2000 issues. This Annual Report on Form 10-K may contain forward-looking information about the Company. The Company is hereby setting forth statements identifying important factors that may cause the Company's actual results to differ materially from those set forth in any forward-looking statements made by the Company. Some of the most significant factors include: an unanticipated down-turn in the recreational boating industry resulting in lower demand for the Company's products; the unanticipated loss of, or decline in sales to, a major customer; the unanticipated loss of a major supplier; the inability of the Company to effect required modifications of its products to meet governmental regulations with respect to emission standards; and foreign currency fluctuations resulting in cost increases to the Company for its foreign supplied components. Accordingly, there can be no assurances that any anticipated future results will be achieved. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk represents the risk of changes in the value of short-term investments and financial instruments caused by fluctuations in investment prices and interest rates. The Company addresses market risks in accordance with established policies. The Company's risk-management activities involve risk and uncertainties and accordingly, results could differ materially from those projected. Interest Rate Risk - ------------------ Due to the fact that the long-term debt will mature within three years, management has determined that the fair value would not be materially different from the carrying value at October 23, 1999. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. WESTERBEKE CORPORATION AND SUBSIDIARY ------------------------------------- CONSOLIDATED FINANCIAL STATEMENTS For the years ended October 23, 1999, October 24, 1998 and October 25, 1997 KPMG LLP 99 High Street Telephone 617 988 1000 Telefax 617 988 0800 Boston, MA 02110-2371 Independent Auditors' Report ---------------------------- To the Board of Directors and Stockholders of Westerbeke Corporation: We have audited the accompanying consolidated balance sheets of Westerbeke Corporation and subsidiary as of October 23, 1999 and October 24, 1998, and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended October 23, 1999. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in Item 14(a) 2. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Westerbeke Corporation and subsidiary as of October 23, 1999 and October 24, 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended October 23, 1999, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. By /s/ KPMG LLP --------------- Boston, Massachusetts December 17, 1999 WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
October 23, October 24, 1999 1998 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 1,739,300 $ 101,900 Accounts receivable, net of allowance for doubtful accounts of $59,200 (Note 2) 2,502,100 2,292,900 Inventories (Note 3) 5,640,200 5,391,600 Prepaid expenses and other assets 476,900 343,000 Prepaid income taxes 35,600 - Deferred income taxes (Note 9) 577,900 578,600 -------------------------- Total current assets 10,972,000 8,708,000 Property, plant and equipment, net (Notes 4,8 and 10) 2,027,300 2,161,500 Other assets, net (Note 5) 2,199,400 2,002,100 Investments in marketable securities 91,400 1,690,700 Note receivable - related party (Note 6) 93,400 108,000 -------------------------- $15,383,500 $14,670,300 ========================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt (Notes 8 and 10) $ 192,900 $ 189,700 Revolving demand note payable (Note 7) - 200,000 Accounts payable 2,248,700 1,905,900 Accrued expenses and other liabilities 914,000 668,900 Accrued income taxes (Note 9) - 93,900 -------------------------- Total current liabilities 3,355,600 3,058,400 -------------------------- Deferred income taxes (Note 9) 13,600 154,900 Deferred compensation 409,200 320,700 Long-term debt, net of current portion (Notes 8 and 10) 224,500 417,400 -------------------------- Total Liabilities 4,002,900 3,951,400 -------------------------- Commitments and contingencies (Notes 7, 8 and 10) Stockholders' equity (Notes 11 and 12): Common stock, $.01 par value; authorized 5,000,000 shares; issued 2,185,950 shares in 1999 and 1998. 21,900 21,900 Additional paid-in-capital 6,025,300 6,025,300 Accumulated other comprehensive income 16,900 151,200 Retained earnings 6,072,500 5,276,500 -------------------------- 12,136,600 11,474,900 Less - Treasury shares at cost, 268,138 shares in 1999 and 1998 756,000 756,000 -------------------------- Total stockholders' equity 11,380,600 10,718,900 -------------------------- $15,383,500 $14,670,300 ==========================
The accompanying notes are an integral part of the consolidated financial statements. WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended ------------------------------------------ October 23, October 24, October 25, 1999 1998 1997 ----------- ----------- ------------ Net sales (Note 2) $29,113,700 $26,202,000 $24,620,300 Cost of sales 22,550,600 20,236,500 19,064,200 ----------------------------------------- Gross profit 6,563,100 5,965,500 5,556,100 Selling, general and administrative expense 4,359,200 3,684,500 3,105,900 Research and development expense 1,365,300 1,180,900 1,030,300 ----------------------------------------- Income from operations 838,600 1,100,100 1,419,900 Interest income (expense), net 59,700 (9,900) (71,000) Other income, net 387,100 - - ----------------------------------------- Income before income taxes 1,285,400 1,090,200 1,348,900 Provision for income taxes (Note 9) 489,400 446,700 550,000 ----------------------------------------- Net income $ 796,000 $ 643,500 $ 798,900 ========================================= Income per common share, basic $ .42 $ .34 $ .40 ========================================= Income per common share, diluted $ .39 $ .31 $ .37 ========================================= Weighted average common shares - basic 1,917,812 1,914,546 1,995,155 ========================================= Weighted average common shares - diluted 2,055,682 2,077,125 2,159,114 =========================================
The accompanying notes are an integral part of the consolidated financial statements. WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME Three years ended October 23, 1999
Accumulated Common Additional Other Stock Paid-in Comprehensive Retained Treasury Stockholders' Comprehensive Amount Capital Income Earnings Stock Equity Income ---------------------------------------------------------------------------------------------- October 26, 1996 $21,200 $5,959,800 $159,100 $3,834,100 $(133,200) $ 9,841,000 Exercise of stock options 400 36,800 - - - 37,200 Repurchase of 223,738 shares - - - - (622,800) (622,800) Unrealized gains on marketable securities - - 81,600 - - 81,600 $ 81,600 Net Income - - - 798,900 - 798,900 798,900 -------------------------------------------------------------------------------------------- October 25,1997 21,600 5,996,600 240,700 4,633,000 (756,000) 10,135,900 880,500 Exercise of stock options 300 28,700 - - - 29,000 Unrealized gains on marketable securities - - (89,500) - - (89,500) (89,500) Net Income - - - 643,500 - 643,500 643,500 -------------------------------------------------------------------------------------------- October 24, 1998 21,900 6,025,300 151,200 5,276,500 (756,000) 10,718,900 554,000 Unrealized gains on marketable securities, net of reclassification adjustments(see note) - - (134,300) - - (134,300) (134,300) Net Income - - - 796,000 - 796,000 796,000 -------------------------------------------------------------------------------------------- October 23, 1999 $21,900 $6,025,300 $ 16,900 $6,072,500 $(756,000) $11,380,600 $ 661,700 ============================================================================================
Note: (Year ending October 23, 1999) Unrealized holding loss arising during period $ (2,600) Less: reclassification adjustment for gains included in net income (131,700) --------- Net unrealized gains on securities $(134,300) =========
The accompanying notes are an integral part of the consolidated financial statements. WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended ----------------------------------------- October 23, October 24, October 25, 1999 1998 1997 ----------------------------------------- Cash flows from operating activities: Net income $ 796,000 $ 643,500 $ 798,900 Reconciliation of net income to net cash provided by operating activities: Depreciation and amortization 466,800 428,800 417,700 Loss on disposal of fixed assets 1,300 15,000 - Deferred income taxes (140,600) (195,700) 87,500 Changes in operating assets and liabilities: Accounts receivable (209,200) (343,900) 369,500 Inventories (248,600) 862,700 (826,300) Prepaid expenses and other assets (133,900) (41,400) (52,600) Prepaid income taxes (35,600) 212,000 (212,000) Other assets (219,000) (426,700) (414,200) Accounts payable 342,800 (322,000) 597,600 Accrued expenses and other liabilities 245,000 104,300 7,200 Deferred compensation 88,500 161,100 159,600 Accrued income taxes payable (93,900) 93,900 (8,900) ---------------------------------------- Net cash provided by operating activities 859,600 1,191,600 924,000 ---------------------------------------- Cash flows from investing activities: Purchase of property, plant and equipment (312,100) (444,300) (578,000) Proceeds from payment of note receivable 14,600 14,800 13,800 Proceeds from sale of marketable securities 1,465,000 - - Purchase of marketable securities - (234,700) (541,700) ---------------------------------------- Net cash provided (used in) investing activities 1,167,500 (664,200) (1,105,900) ---------------------------------------- Cash flows from financing activities: Exercise of stock options - 29,000 37,200 Net (repayments) borrowings under revolving demand note (200,000) (400,000) 600,000 Purchase of treasury stock - - (622,800) Proceeds from equipment line - - 300,000 Principal payments on long-term debt and capital lease obligations (189,700) (211,400) (176,100) ---------------------------------------- Net cash provided (used) by financing activities (389,700) (582,400) 138,300 ---------------------------------------- Increase(Decrease) in cash and cash equivalents 1,637,400 (55,000) (43,600) Cash and cash equivalents, beginning of year 101,900 156,900 200,500 ---------------------------------------- Cash and cash equivalents, end of year $1,739,300 $ 101,900 $ 156,900 ======================================== Supplemental cash flow disclosures: Interest paid $ 92,500 $ 167,600 $ 136,600 Income taxes paid $ 668,900 $ 266,000 $ 849,000 Supplemental disclosures of non-cash flow items: Equipment purchase under capital lease - - 175,000 Increase (decrease) in unrealized gains on marketable securities, net of income taxes $ (2,600) $ (89,500) $ 81,600 ========================================
The accompanying notes are an integral part of the consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS October 23, 1999, October 24, 1998 and October 25, 1997 1. Summary of Significant Accounting Policies: The Company is primarily engaged in the business of designing, manufacturing and marketing marine engine and air-conditioning products. Principles of Consolidation The consolidated financial statements include the accounts of Westerbeke Corporation (the "Company"), and its wholly owned subsidiary, Westerbeke International, Inc. (a foreign sales corporation). Westerbeke International, Inc. was inactive during fiscal years 1999, 1998, and 1997. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses. Actual results could differ from these estimates. Cash Equivalents All highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. Investments in Marketable Securities Marketable investment securities at October 23, 1999 and October 24, 1998 consist of equity securities in various mutual funds. The Company employs the provisions of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (Statement 115). Under Statement 115, the Company classifies its marketable securities in one of two categories: trading or available-for-sale. Trading and available-for-sale securities are recorded at fair value. Unrealized holding gains and losses on trading securities are included in earnings. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders' equity until realized. Transfers of securities between categories are recorded at fair value at the date of transfer. Unrealized holding gains and losses are recognized in earnings for transfers into trading securities. A decline in the market value of any available-for-sale security below cost that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security. Dividend and interest income are recognized when earned. Realized gains and losses, if any, for securities classified as available-for-sale are included in earnings with cost determined using the specific identification method. Marketable investment securities held in connection with the deferred compensation arrangement are classified as trading securities. All other marketable securities are classified as available-for-sale. Equity securities are stated at the fair market value at October 23, 1999 and at October 24, 1998. The total cost of the marketable securities at October 23, 1999 was $65,300. The total cost of marketable securities at October 24, 1998 was $1,437,500. Unrealized holding gains in investment securities, net of income taxes, which is included in accumulated other comprehensive income at October 23, 1999 and October 24, 1998 were $16,900 and $151,200, respectively. Inventories Inventories are valued at the lower of cost (determined on the last-in, first-out method) or market. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Company accounts for long-lived assets in accordance with the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This Statement requires that long- lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Depreciation and Amortization The Company computes depreciation and amortization expense on a straight- line basis over the following estimated useful lives:
Asset Classification Estimated Useful Lives - -------------------- ---------------------- Building and building improvements 15 - 40 years Machinery and equipment 10 years Patterns 5 years Furniture and fixtures 5 - 10 years Transportation equipment 3 - 5 years Equipment under capital lease 5 - 10 years Intangibles 3 - 17 years
Intangible assets, primarily acquired patents, are classified in other assets. Maintenance and repairs are charged to expense in the period incurred. The cost and accumulated depreciation of assets retired or sold are removed from the accounts and any gain or loss is credited or charged to income. Leasehold improvements are amortized on a straight-line basis over the shorter of the life of the lease or their estimated useful lives. Revenue Recognition The Company recognizes revenue upon shipment of product. Fair Value of Financial Instruments Financial instruments of the Company consist of cash, cash equivalents, accounts receivable, accounts payable and accrued liabilities. The carrying value of these financial instruments approximates their fair value because of the short maturity of these instruments. Based upon borrowing rates currently available to the Company for issuance of similar debt with similar terms and remaining maturities, the estimated fair value of long-term debt approximates their carrying amounts. Product Warranty Cost The anticipated costs related to product warranty are expensed at the time of sale of the product. Accrued warranty expense of $300,000 and $330,000 is included in accrued expenses and other liabilities at October 23, 1999 and October 24, 1998, respectively. Advertising Advertising and promotional expenditures are expensed as incurred. Income Taxes The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rate is recognized in income in the period that includes the enactment date. Net Income Per Share Basic income per common share is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted income per share reflects the maximum dilution that would have resulted from the exercise of stock options. Diluted income per share is computed by dividing net income by the weighted average number of common shares and all dilutive securities.
For the twelve months ended: October 23, 1999 October 24, 1998 October 25, 1997 -------------------------------- -------------------------------- -------------------------------- Income Net Income Net Income Net per share Shares Income per share Shares Income per share Shares Income -------------------------------------------------------------------------------------------------------- Basic $.42 1,917,812 $796,000 $.34 1,914,546 $643,500 $.40 1,995,155 $798,900 Effect of Stock options (.03) 137,870 (.03) 162,579 (.03) 163,959 -------------------------------- -------------------------------- -------------------------------- Diluted $.39 2,055,682 $796,000 $.31 2,077,125 $643,500 $.37 2,159,114 $798,900
2. Business Segment The Company has one business segment; the designing, manufacturing and marketing of marine engines and related products. The profitability of the Company is directly tied to the marine industry. The industry is subject to fluctuations in economic conditions that may adversely affect the Company. Four customers accounted for approximately 64%, 61% and 58% of Company revenues for the fiscal years ended 1999, 1998 and 1997, respectively. The loss of one of these customers could adversely affect the Company's profitability. Net sales include export sales, primarily to customers in the Netherlands, England, Italy, South Africa and Puerto Rico of approximately $2,591,600, $2,305,500 and $2,843,400 for fiscal years ended October 23, 1999, October 24, 1998, and October 25, 1997, respectively. In fiscal 1999, two customers each accounted for sales in excess of 10% of net sales as follows: $7,657,400 and $5,791,000. In fiscal 1998, three customers each accounted for sales in excess of 10% of net sales as follows: $5,878,000, $4,827,900 and $2,788,500. In fiscal 1997, two customers each accounted for sales in excess of 10% of net sales as follows: $5,656,600 and $4,193,700. At October 23, 1999, two customers each accounted for trade accounts receivable in excess of 10% of net accounts receivable as follows: $550,700, and $531,100. At October 24, 1998, three customers each accounted for trade accounts receivable in excess of 10% of net accounts receivable as follows: $537,700, $490,000, and $308,800. The Company performs ongoing credit evaluations of its customers and therefore does not require collateralization of trade receivables. 3. Inventories Inventories consist of the following:
October 23, 1999 October 24, 1998 ---------------- ---------------- Raw materials $4,539,800 $4,416,300 Work-in-process 762,400 530,300 Finished goods 338,000 445,000 ---------- ---------- $5,640,200 $5,391,600 ========== ==========
The Company uses the last-in, first-out (LIFO) method to value inventory. The Company believes the LIFO inventory method results in a better matching of costs and revenues during periods of changing prices. Inventories would have been $1,078,600 and $892,500 higher at October 23, 1999 and October 24, 1998, respectively, if the first-in, first-out (FIFO) method had been used. In 1998, inventory was reduced resulting in liquidation of LIFO inventory layers. The effect of the inventory reductions was to reduce cost of sales by approximately $176,300. Inventory cost determined on the FIFO method approximates replacement or current cost. The basic component of the Company's engine products is a "long block" engine, which is a complete engine block and head assembly without peripheral equipment. The Company purchases "long block" engines from five foreign manufacturers. Interruption of the supply of "long block" engines would have a material adverse effect on the Company if the time to develop new sources of supply and replacement products is longer than the time it takes to exhaust the Company's inventory of existing "long block" engines. 4. Property, Plant and Equipment Property, plant and equipment, at cost, consists of the following:
October 23, 1999 October 24, 1998 ---------------- ---------------- Land $ 48,000 $ 48,000 Building and building improvements 1,386,100 1,352,200 Furniture and fixtures 458,800 447,500 Machinery, patterns and equipment 3,354,100 3,091,800 Transportation equipment 51,500 51,500 Leasehold improvements 20,400 20,400 Equipment under capital lease 769,200 769,200 ---------- ---------- 6,088,100 5,780,600 Less accumulated depreciation 4,060,800 3,619,100 ---------- ---------- $2,027,300 $2,161,500 ========== ==========
The Company incurred depreciation expense of approximately $445,100, $407,100, and $396,000 for fiscal years 1999, 1998, and 1997, respectively. 5. Other Assets The Company has entered into a split-dollar insurance arrangement with John H. Westerbeke, Jr., the chairman, president and chief executive officer of the Company, as part of his employment agreement (see note 10), pursuant to which the Company will pay the premium costs of certain life insurance policies. Upon surrender of the policies or payment of the death benefit, the Company is entitled to repayment of an amount equal to the cumulative premiums previously paid by the Company, with all remaining payments to be made to Mr. Westerbeke Jr. or his beneficiaries. Included in other assets at October 23, 1999 and October 24, 1998 is $1,470,300 and $1,345,000, respectively, which represents the cumulative value of insurance premiums paid to date. 6. Note Receivable-Related Party The Company holds a note receivable from John H. Westerbeke, Jr., the chairman, president and chief executive officer of the Company. The principal amount of the secured loan at October 23, 1999 and October 24, 1998 was $93,400 and $108,000, respectively. The loan was used by Mr. Westerbeke, Jr. to purchase a 40-foot sailboat. The loan bears interest at 7-3/4% per annum, is secured by a security interest in the sailboat and is payable in monthly installments over a ten year period. The Company has leased the sailboat from Mr. Westerbeke, Jr. pursuant to a lease expiring in July 2004 at a rental of $2,793 per month (see Note 10). The Company makes use of the boat to evaluate the performance of its marine engines and products and for other corporate matters. 7. Revolving Demand Note Payable The Company has a $4,000,000 Credit Agreement with Citizens Bank of Massachusetts (f/k/a State Street Bank and Trust Company), collateralized by inventory, accounts receivable and general intangibles. The Credit Agreement was renewed on March 31, 1999 and will expire on March 31, 2000. The Company believes that it will be able to continue to extend the term of the Credit Agreement on commercially reasonable terms. As of October 23, 1999, the Company had approximately $3,825,000 in unused borrowing capacity under the Credit Agreement and approximately $175,000 committed to cover the Company's reimbursement obligations under certain open letters of credit and bankers' acceptances. 8. Long-Term Debt
October 23, 1999 October 24, 1998 ---------------- ---------------- Term Loan with an interest rate of 8.08% in 1999 and 1998, with repayment terms through July 2001. $178,500 $275,900 Capital Lease with an interest rate of 8.75% with repayment terms through September 2001. 75,700 110,400 Term Loan with an interest rate of 8.11% in 1999 and 1998, with repayment terms through June 2002. 163,200 220,800 ---------------------------- 417,400 607,100 Less current portion 192,900 189,700 ---------------------------- Long term debt net of current portion $224,500 $417,400 ============================
Both term loans are collateralized by various emission testing and product development equipment and subject to working capital and equity covenants. Aggregate maturities of long-term debt for each of the ensuing five years are as follows:
Year Amount ---- ------ 2000 192,900 2001 176,500 2002 48,000 -------- $417,400 ========
9. Income Taxes Income tax expense attributable to income from continuing operations consists of:
Years Ended -------------------------------------------------------- October 23, 1999 October 24, 1998 October 25, 1997 ---------------- ---------------- ---------------- Federal: Current $413,700 $444,000 $483,200 Deferred (36,300) (111,500) (59,700) ------------------------------------------------ 377,400 332,500 423,500 ------------------------------------------------ State: Current 123,200 134,800 144,900 Deferred (11,200) (20,600) (18,400) ------------------------------------------------ 112,000 114,200 126,500 ------------------------------------------------ Total $489,400 $446,700 $550,000 ================================================
The Company has no available book or tax net operating loss carryforwards. Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 34 percent to pretax income as a result of the following:
Years Ended -------------------------------------------------------- October 23, 1999 October 24, 1998 October 25, 1997 ---------------- ---------------- ---------------- Provision at statutory rate $437,000 $370,700 $458,600 State tax provision, net of federal tax benefit 74,000 75,400 83,500 Other, net (21,600) 600 7,900 ------------------------------------------------ Total $489,400 $446,700 $550,000 ================================================
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at October 23, 1999 and October 24, 1998 are presented below.
October 23, 1999 October 24, 1998 ---------------- ---------------- Deferred tax assets: Accounts receivable reserve $113,600 $112,400 Inventory reserves and capitalization 343,500 333,300 Accrued bonus 197,000 144,400 Warranty reserve 120,800 132,900 ---------------------------- Total gross deferred tax assets 774,900 723,000 ---------------------------- Deferred tax liabilities: Fixed assets, principally due to accelerated depreciation methods (199,200) (197,300) Unrealized gain on marketable securities (11,400) (102,000) ---------------------------- Total gross deferred tax liabilities (210,600) (299,300) ---------------------------- Net deferred tax assets $564,300 $423,700 ============================
There was no net change in the total valuation allowance for the year ended October 23, 1999. Management believes that the realization of deferred tax assets is more likely than not because future operations of the Company are expected to generate sufficient taxable income. 10. Commitments and Contingencies Lease Obligations The Company has lease agreements for a warehouse and certain equipment (see note 6) expiring at various dates through 2004. Rental expense under operating leases was $173,000, $173,200, and $169,100 for the years ended October 23, 1999, October 24, 1998 and October 25, 1997, respectively. The following capital leases are included in property, plant and equipment:
1999 1998 ---- ---- Property, plant and equipment $769,200 $769,200 Less accumulated amortization 645,000 627,500 -------- -------- $124,200 $141,700 ======== ========
The future minimum lease payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year are as follows:
Year Operating - ---- --------- 2000 $177,800 2001 182,000 2002 132,600 2003 33,500 2004 33,500 -------- Total future minimum lease payments $559,000 ========
Letters of Credit and Bankers' Acceptances Certain foreign vendors require the Company to provide letters of credit at the time purchase orders are placed. As of October 23, 1999, the Company was contingently liable for open letters of credit and bankers' acceptances of approximately $175,000 (see note 7). Employment Agreements In March of 1993, the Company entered into an Employment Agreement (the "Agreement") with John H. Westerbeke, Jr., the chairman of the board, president, and chief executive officer of the Company. The Agreement calls for Mr. Westerbeke, Jr. to be paid an annual salary of $141,750, subject to increases based upon the Consumer Price Index and at the discretion of the Company. The Agreement also provides for payment of a bonus at the discretion of the board of directors of the Company. In September 1996, the Board of Directors established an incentive plan for Mr. Westerbeke pursuant to which Mr. Westerbeke will have an annual bonus opportunity, based on net income and increases in sales, in each of the four years beginning with the 1997 fiscal year. Mr. Westerbeke may elect to have all or any part of his base salary or bonus paid as deferred compensation in five annual installments commencing upon his retirement or other termination of employment, or upon a change of control of the Company, as defined in the Agreement. Amounts deferred by Mr. Westerbeke are contributed by the Company to a trust established to hold and invest these funds until such time as the amounts are payable to Mr. Westerbeke. The Agreement also requires the Company to pay premiums for certain life insurance policies on the life of Mr. Westerbeke, Jr. In addition, in the event of a change in control of the Company, Mr. Westerbeke, Jr. may terminate his employment during the one year period following such change in control, and in such event, the Company is required to pay him a lump sum cash payment in an amount equal to three times his average annual cash compensation during the most recent five taxable years of the Company. In addition, in such circumstances, the Company is required to continue to carry group life and health insurance for Mr. Westerbeke, Jr. for a three year period and is required to pay any premiums payable on the life insurance policies on his life for a three year period. Under an employment agreement between the Company and John H. Westerbeke, Sr., a director of the Company, Mr. Westerbeke, Sr. will be paid $35,000 per year. This agreement provides that following his retirement, Mr. Westerbeke, Sr. will act as consultant to the Company at an annual consulting fee of $30,000. 11. Stockholders' Equity In June 1986, the board of directors and the stockholders of the Company adopted the Company's 1986 Stock Option Plan (the "Option Plan"), under which 300,000 shares of common stock have been made available. The Company has also reserved 250,000 shares of common stock for issuance in connection with a Supplemental Stock Option Plan (the "Supplemental Plan"). The Supplemental Plan permits acceleration of the exercisability of options in the event of a change in control of the Company with the Company retaining the right of first refusal with respect to shares issued under this plan. In March 1996, the board of directors and the stockholders of the Company adopted the Company's 1996 Stock Option Plan (the "1996 Option Plan"), under which 150,000 shares of common stock have been made available. As of October 23, 1999, there has been no activity under the 1996 Option Plan. Options under the plans may be either nonqualified stock options or incentive stock options. Options may be granted to eligible employees of the Company and members of the board of directors. The price at which the shares may be granted may not be less than the lower of fair market value or tangible book value in the case of nonqualified options, or 110% of the fair market value in the case of incentive stock options. The options generally become exercisable in 20% annual increments beginning on the date of the grant and expire at the end of ten years. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No.123 in October 1995, which statement establishes financial accounting and reporting standards for stock based employee compensation plans. The Company has adopted the disclosure requirements of SFAS No.123 and continues to apply the accounting provisions of Opinion No.25 of the Accounting Principles Board. Accordingly, the adoption of SFAS No.123 has not had a material impact on the Company's consolidated financial statements. Information for fiscal years 1997, 1998 and 1999, with respect to the Option Plan, is as follows:
Weighted average exercise price of Shares shares under plan ------ ----------------- Balance outstanding at October 26, 1996 175,000 $1.125 Exercised (25,000) 1.125 ------- Balance outstanding at October 25, 1997 150,000 1.125 ------- Balance outstanding and exercisable at October 24, 1998 and October 23, 1999 150,000 $1.125 =======
The outstanding options expire on various dates through May 2003. Options for 88,100 shares are available for future grant under the Option Plan. The following table summarizes information concerning currently outstanding and exercisable options under the Option Plan as of October 23, 1999:
Weighted average Weighted Range of remaining average Weighted exercise Number contractual outstanding Options average prices outstanding life (years) option price exercisable exercise price - ---------------------------------------------------------------------------------------- $1.125 150,000 4.4 $1.125 150,000 $1.125
Information for fiscal years 1997, 1998, and 1999, with respect to the Supplemental Plan, is as follows:
Weighted average exercise price of Shares shares under plan ------ ----------------- Balance outstanding at October 26, 1996 156,400 $1.478 Exercised (9,000) 1.000 ------- Balance outstanding at October 25, 1997 147,400 1.507 Exercised (29,000) 1.507 ------- Balance outstanding at October 24, 1998 118,400 1.631 ------- Balance outstanding at October 23, 1999 118,400 1.631 ------- Balance exercisable at October 23, 1999 111,740 $1.549 -------
The following table summarizes information concerning currently outstanding and exercisable options under the Supplemental Plan as of October 23, 1999:
Weighted average Weighted Range of remaining average Weighted exercise Number contractual outstanding Options average prices outstanding life (years) option price exercisable exercise price $.875 - $3.000 118,400 4.0 $1.631 111,740 $1.549
The outstanding options expire on various dates through June 2006. Options for 41,300 shares are available for future grant under the Supplemental Plan. Preferred Stock As of October 23, 1999 and October 24, 1998, 1,000,000 shares of $1.00 par value Serial Preferred Stock were authorized; none were issued or outstanding. 12. 1986 Employee Stock Purchase Plan In June 1986, the board of directors and the stockholders of the Company adopted the Company's 1986 Employee Stock Purchase Plan (the "Purchase Plan"). Under the Purchase Plan, an aggregate of 100,000 shares of common stock are available for purchase by eligible employees of the Company, including directors and officers, through payroll deductions over successive six-month offering periods. The Purchase Plan will become effective when so declared by the board of directors. The Purchase Plan is intended to qualify as an "Employee Stock Purchase Plan" within the meaning of Section 423 of the Internal Revenue Code. The purchase price of the common stock under the Purchase Plan will be 85% of the average of the closing high bid and last asked prices per share in the over-the-counter market on either the first or last day of each six-month offering period, whichever is less. As of October 23, 1999, there has been no activity under the Purchase Plan. 13. Employee Benefit Plan In 1994, the Company started an Employee Deferred Compensation Plan that covers all employees over 21 years of age who have completed at least 3 months of service with the Company. Contributions by the Company are discretionary and are determined by the Company's board of directors. The Company's defined contribution plan, available to substantially all salaried employees, contains a matched savings provision that permits both pretax and after-tax employee contributions. Participants can contribute up to 15% of their annual compensation and receive a 25% matching employer contribution on up to 8% of their annual compensation. The Company contributed $41,800, $38,800 and $37,000 for the fiscal years ended October 23, 1999, October 24, 1998 and October 25, 1997, respectively. 14. Quarterly Financial Data (Unaudited) (In thousands, except per share amounts) Selected quarterly financial data for the years ended October 23, 1999 and October 24, 1998 is as follows:
Fiscal Fiscal 1999: First Second Third Fourth Year ----------------------------------------------- Net sales $5,447 $7,602 $7,571 $8,494 $29,114 Gross profit 956 1,896 1,838 1,873 6,563 Income (loss) from operations (190) 506 562 (39) 839 Other income (loss) (31) 504 (65) (21) 387 Net income (loss) (110) 581 319 6 796 Net income (loss) per share, diluted (0.06) 0.28 0.16 0.01 0.39 Fiscal Fiscal 1998: First Second Third Fourth Year ----------------------------------------------- Net sales $4,960 $7,225 $7,622 $6,395 $26,202 Gross profit 885 1,573 1,863 1,645 5,966 Income from operations (142) 348 642 252 1,100 Net income (54) 173 367 158 644 Net income (loss) per share, diluted (0.03) 0.08 0.18 0.08 0.31
New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). The statement requires companies to recognize all derivatives as either assets or liabilities with the instruments measured at fair value. The accounting for changes in fair value gains and losses depends on the intended use of the derivative and its resulting designation. The statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company does not believe the adoption of SFAS 133 will have a material impact on the financial statements. SCHEDULE II WESTERBEKE CORPORATION AND SUBSIDIARY VALUATION AND QUALIFYING ACCOUNT For the years ended October 23, 1999, October 24, 1998 and October 25, 1997
Balance at Charged to Charged Balance Beginning of Costs and To Other at End Period Expenses Accounts Deductions of Year 1997 Allowance for doubtful accounts $60,700 - - (3,200) $63,900 1998 Allowance for doubtful accounts $63,900 - - 4,700 $59,200 1999 Allowance for doubtful accounts $59,200 - - - $59,200
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART I I I ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Certain biographical information concerning the directors of the Company as of January 1, 2000 is set forth below. Such information was furnished by them to the Company.
Certain Name of Director Age Biographical Information - ---------------- --- ------------------------ GERALD BENCH 58 President, BFT Holdings Co., Inc. (investor in emerging growth businesses) since November 1996; President and Chief Executive Officer, Hadley Fruit Orchards, Inc. from November 1996 to June 1999; Consultant, Hadley Fruit Orchards, Inc. from March 1995 to November 1996; Partner, ICAP Marine Group (consulting firm) from November 1993 to February 1995; Chairman and President, TDG Aerospace, Inc. (manufacturer of aircraft de-icing devices) from October 1991 to November 1993; President, Thermion, Inc. (manufacturer of heaters for aircraft de-icing devices) from April 1990 to September 1991; General Manager, Lermer Corporation (manufacturer of airline galley equipment) from June 1989 through March 1990; former Chairman of the Board, President, Chief Executive Officer and Director of E&B Marine Inc. (marine supplies and accessories) from prior to 1988; Director of the Company since June 1986 THOMAS M. HAYTHE 60 Partner, Torys (attorneys) from 1982 to January 2000; Director: Novametrix Medical Systems Inc. (manufacturer of electronic medical instruments), Guest Supply, Inc. (provider of hotel guest room amenities, accessories and products) and Ramsay Youth Services, Inc. (provider of youth and educational services); Director of the Company since June 1986. NICHOLAS H. SAFFORD 67 President, Nicholas H. Safford & Co., Inc. (investment counselor and private trustee) since 1983 and from 1979 to 1981; former president and director of Wendell, Safford & Co., Inc. (investment counseling firm) from 1982 to 1983; former vice president and director of David L. Babson & Co., Inc. (investment counseling firm) prior to 1978; Director of the Company since February 1991. JAMES W. STOREY 65 Consultant since January 1993; President, Wellingsley Corporation (private investment management company) from December 1986 through December 1992; President and Chief Executive Officer of Codex Corporation, a subsidiary of Motorola, Inc. from 1982 to 1986; Vice President of Motorola, Inc. from 1982 to 1986; Director: Progress Software Corporation (software); Director of the Company since June 1986. JOHN H. WESTERBEKE, JR. 59 President of the Company since 1976; Director of the Company since 1976; Chairman of the Board of Directors of the Company since June 1986. JOHN H. WESTERBEKE, SR. 90 Founder of the Company; Presently serving in various engineering capacities with the Company; Chairman of the Board of Directors of the Company from 1946 to June 1986.
For additional information concerning the management of the Company, see "Item 1 - Business - Executive Officers" contained in Part I hereof. The Board of Directors of the Company consists of three classes of directors, Class A, Class B and Class C. Directors in each class are elected for a term of three years. The term of office of the Class B directors will expire at the Annual Meeting of Stockholders to be held in 2000. Class C and Class A directors will be elected at the Annual Meetings to be held in 2001 and 2002, respectively. Mr. Bench and Mr. Safford are Class A directors, Messrs. Haythe and Storey are Class B directors and Messrs. Westerbeke, Jr. and Westerbeke, Sr. are Class C directors. The directors and officers of the Company other than Messrs. Bench, Haythe, Safford and Storey are active in the business on a day-to-day basis. Messrs. Westerbeke, Sr. and Westerbeke, Jr. are father and son. No other family relationships exist between any of the directors and officers of the Company. Section 16 (a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than ten percent of the Company's Common Stock, to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish the Company with copies of all Section 16 (a) reports they file. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and representations that no other reports were required, during the fiscal year ended October 23, 1999 all Section 16 (a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth information for the fiscal years ended October 23, 1999, October 24, 1998 and October 25, 1997 concerning the compensation paid or awarded to the Chief Executive Officer and the other executive officer of the Company. SUMMARY COMPENSATION TABLE
Annual Compensation ------------------------- Fiscal Name and Year Principal Ended All Other Position October Salary Bonus Compensation - ---------------------------------------------------------------------------------------- John H. Westerbeke, Jr. 1999 $226,190(1) $ 84,723(2) $ 33,385(7) President, Chairman of the Board 1998 214,488(3) 53,838(4) 31,622(7) of Directors and Class C Director 1997 206,852(5) 130,447(6) 37,262(7) Carleton F. Bryant, III 1999 $ 94,500 $ 61,115 - Executive Vice President, 1998 94,500 72,998 - Treasurer, Chief Operating Officer 1997 94,500 44,545 - and Secretary - -------------------- Includes $73,100 of salary earned in fiscal year 1999, payment of which has been deferred. Includes a $79,682 bonus earned in fiscal year 1999, payment of which has been deferred. Includes $61,842 of salary earned in fiscal year 1998, payment of which has been deferred. Includes a $49,628 bonus earned in fiscal year 1998, payment of which has been deferred. Includes $53,762 of salary earned in fiscal year 1997, payment of which has been deferred. Includes a $125,571 bonus earned in fiscal year 1997, payment of which has been deferred. Includes amounts ($19,825, $18,062 and $14,750 in fiscal 1999, 1998 and 1997, respectively) reflecting the current dollar value of the benefit to Mr. Westerbeke of premiums paid by the Company with respect to a split-dollar insurance arrangement (see "Employment Agreements" below for a description of such arrangement). Such benefit was determined by calculating the time value of money (using the applicable federal rates) of the premiums paid by the Company in the fiscal years ended October 23, 1999, October 24, 1998 and October 25, 1997 for the period from the date on which each premium was paid until March 31, 2001 (which is the earliest date on which the Company could terminate the agreement and request a refund of premiums paid).
The Company did not grant any stock options to the executive officers named in the Summary Compensation Table during the fiscal year ended October 23, 1999. The following table sets forth the number and value of options held by the executive officers named in the Summary Compensation Table during the fiscal year ended October 23, 1999. OPTION VALUES AT OCTOBER 23, 1999
Number of Value of Unexercised Unexercised In-the-Money(1) Options at Options at October 23, 1999 October 23, 1999 ------------------------------------------------------------ Name Exercisable Unexercisable Exercisable Unexercisable - ----------------------------------------------------------------------------------------- John H. Westerbeke, Jr. 150,000 - $249,000 - Carleton F. Bryant, I I I 75,000 - $122,600 - - -------------------- In-the-money options are those where the fair market value of the underlying Common Stock exceeds the exercise price of the option. The value of in-the-money options is determined in accordance with regulations of the Securities and Exchange Commission by subtracting the aggregate exercise price of the option from the aggregate year-end value of the underlying Common Stock.
Employment Agreements - --------------------- The Company has an Employment Agreement (the "Agreement") with John H. Westerbeke, Jr., the Chairman of the Board, President and Chief Executive Officer of the Company, which provides for his employment by the Company at an annual base salary, subject to increases based upon the Consumer Price Index and at the discretion of the Company. During fiscal 1999, Mr. Westerbeke's salary was $226,190, which included $73,100 of salary which has been deferred. The Agreement also provides for payment of a bonus at the discretion of the Board of Directors of the Company. In September 1996, the Board of Directors established an incentive plan for Mr. Westerbeke pursuant to which Mr. Westerbeke will have an annual bonus opportunity, based on net income and increases in sales, in each of the four years beginning with the 1997 fiscal year. Mr. Westerbeke may elect to have all or any part of his base salary or bonus paid as deferred compensation in five annual installments commencing upon his retirement or other termination of employment, or upon a change of control of the Company, as defined in the Agreement. Amounts deferred by Mr. Westerbeke are contributed by the Company to a trust established to hold and invest these funds until such time as the amounts are payable to Mr. Westerbeke. The Agreement also requires the Company to pay premiums for certain life insurance policies on the life of Mr. Westerbeke as described below. The Agreement may be terminated by the Company upon the disability of Mr. Westerbeke, by the Company with or without cause, and by Mr. Westerbeke in the event there has occurred a constructive termination of employment by the Company. In addition, in the event of a change in control of the Company, as defined in the Agreement, Mr. Westerbeke may terminate his employment during the one year period following such change in control, and in such event, the Company will be required to pay him a lump sum cash payment in an amount equal to three times his annual cash compensation during the most recent five taxable years of the Company, less $1,000. In addition, in such circumstances, the Company is required to continue to carry group life and health insurance for Mr. Westerbeke for a three year period and is required to pay any premiums payable on the split-dollar life insurance policies on his life for a three year period. Under the Agreement, Mr. Westerbeke has agreed not to compete with the Company for a period of one year following termination of his employment. The Company has entered into a split-dollar insurance arrangement with Mr. Westerbeke, Jr., pursuant to which the Company will pay the premium costs of certain life insurance policies that pay a death benefit of not less than $4,889,403 in the aggregate upon the death of Mr. Westerbeke. Upon surrender of the policies or payment of the death benefit thereunder, the Company is entitled to repayment of an amount equal to the cumulative premiums previously paid by the Company, with all remaining payments to be made to Mr. Westerbeke or his beneficiaries. See footnote (6) to the "Summary Compensation Table" above for further information on premium payments made by the Company. The Company has an agreement with Carleton F. Bryant, III, the Executive Vice President, Treasurer and Chief Operating Officer of the Company, which provides for his employment by the Company at an annual salary of $94,500. Under a related agreement Mr. Bryant agrees not to compete with the Company for a period of three years following the termination of his employment. The Company has an agreement with John H. Westerbeke, Sr., a director of the Company, which provides for his employment by the Company at an annual salary of $35,000 until Mr. Westerbeke, Sr. retires. This agreement also provides that following his retirement, Mr. Westerbeke, Sr. will act as consultant to the Company at an annual consulting fee of $30,000. The Company paid Mr. Westerbeke, Sr. $35,000 during fiscal 1999. Compensation Committee Interlocks and Insider Participation - ----------------------------------------------------------- During the Company's past fiscal year, Thomas M. Haythe, a director of the Company and a member of the Compensation Committee, was a partner of the law firm of Torys, which firm acted as legal counsel to the Company during the past fiscal year. It is expected that Torys will continue to render legal services to the Company in the future. Compensation of Directors - ------------------------- The Company currently pays its directors a fee of $2,000 for attending each meeting of the Board of Directors of the Company. Termination of Employment and Change of Control Arrangements - ------------------------------------------------------------ See "Employment Agreements" above for information concerning certain change of control arrangements with respect to John H. Westerbeke, Jr., the Chairman of the Board, President and Chief Executive Officer of the Company. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The shareholders (including any "group" as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) who, to the knowledge of the Board of Directors of the Company, owned beneficially more than five percent of any class of the outstanding voting securities of the Company as of January 1, 2000, each director and each executive officer named in the Summary Compensation Table of the Company who owned beneficially shares of Common Stock and all directors and executive officers of the Company as a group, and their respective shareholding as of such date (according to information furnished by them to the Company), are set forth in the following table. Except as indicated in the footnotes to the table, all of such shares are owned with sole voting and investment power.
Shares of Common Stock Name and Address Owned Beneficially Percent of Class - ------------------------------------------------------------------------------------------ Paul B. Luber 133,255 (1) 6.9% 4201 North Oakland Avenue Shorewood, Wisconsin 53211 Gerald Bench 8,880 (2) * 17 1/2 Passaic Avenue Spring Lake, New Jersey 07762 Thomas M. Haythe 13,880 (3) * Avon Industrial Park Avon, Massachusetts 02322 Nicholas H. Safford 10,100 (4) * 9 Cleaves Street Rockport, Massachusetts 01966 James W. Storey 17,880 (5) * 3 Saddle Ridge Road Dover, Massachusetts 02030 John H. Westerbeke, Jr 1,248,250 (6) 60.4% Avon Industrial Park Avon, Massachusetts 02322 John H. Westerbeke, Sr 0 - Avon Industrial Park Avon, Massachusetts 02322 Carleton F. Bryant, III 75,000 (7) 3.8% Avon Industrial Park Avon, Massachusetts 02322 All Directors and Officers as a Group 1,373,990(2)(3)(4)(5)(6)(7) 63.0% (seven persons) - -------------------- Less than one percent. Information as to these holdings is based upon a report on Schedule 13D filed with the Securities and Exchange Commission by Mr. Paul B. Luber. Such report indicates that Mr. Luber has sole voting and dispositive power with respect to 133,255 shares, of which 53,555 shares are directly owned by Mr. Luber and 79,700 shares are owned by Great Lakes Capital Holdings, LLP, a limited liability partnership of which Mr. Luber is a general partner. Consists of 8,880 shares issuable upon the exercise of presently exercisable stock options held by Mr. Bench. Includes 8,880 shares issuable upon the exercise of presently exercisable stock options held by Mr. Haythe. Consists of 10,100 shares issuable upon the exercise of presently exercisable stock options held by Mr. Safford. Includes 8,880 shares issuable upon the exercise of presently exercisable stock options held by Mr. Storey. Includes 150,000 shares issuable upon the exercise of presently exercisable stock options held by Mr. Westerbeke, Jr. Consists of 75,000 shares issuable upon the exercise of presently exercisable stock options held by Mr. Bryant.
To the Company's knowledge, there have been no significant changes in stock ownership or control of the Company as set forth above since January 1, 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Company leases a 40-foot sailboat from Mr. Westerbeke, Jr. the Chairman of the Board, President and Chief Executive Officer of the Company, pursuant to a lease expiring in July 2004. The Company pays an annual rental to him of $33,500 and also pays approximately $10,000 to $15,000 of annual expenses in connection with the operation and maintenance of the sailboat. The Company makes use of the sailboat to evaluate the performance of its marine engine products and for other corporate purposes. In July 1994, Mr. Westerbeke, Jr. executed a promissory note payable to the Company in the principal amount of $165,000. The proceeds of the loan were used by Mr. Westerbeke, Jr. to purchase the sailboat which is leased to the Company as described above. The loan, which is due June 1, 2004, is payable in equal monthly installments which commenced on July 1, 1994, together with interest at 7.75% per annum and is secured by the sailboat. Management of the Company believes that the terms of the lease and of the secured loan are no less favorable to the Company than it could obtain from an unrelated party. During the Company's past fiscal year, Thomas M. Haythe, a Class B director of the Company, was a partner of the law firm of Torys, which firm has acted as legal counsel to the Company during the past fiscal year. It is expected that Torys will continue to render legal services to the Company in the future. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Financial Statements: Included in PART II of this report: Page Report of KPMG LLP 24 Consolidated Balance Sheets at October 23, 1999 and October 24, 1998 25 Consolidated Statements of Operations for the three years in the period ended October 23, 1999 26 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the three years in the period ended October 23, 1999 27 Consolidated Statements of Cash Flow for the three years in the period ended October 23, 1999 28 Notes to Consolidated Financial Statements 29 2. Financial Statement Schedule: Included in PART II of this report: Schedule II - Valuation and Qualifying Account for the three years in the period ended October 23, 1999 41 Schedules other than those listed above are omitted because they are not applicable, or the required information is shown in the Consolidated Financial Statements or Notes thereto. Columns omitted from schedules filed have been omitted because the information is not applicable. 3. Exhibits: The exhibits required to be filed as part of this Annual Report on Form 10-K are listed in the attached Index to Exhibits. (b) Current Reports on Form 8-K: During the fiscal quarter ended October 23, 1999, the Company did not file any Current Reports on Form 8-K. * * * Copies of the exhibits filed with this Annual Report on Form 10-K or incorporated by reference herein do not accompany copies hereof for distribution to stockholders of the Company. The Company will furnish a copy of any of such exhibits to any stockholder requesting the same for a nominal charge to cover duplicating costs. POWER OF ATTORNEY The registrant and each person whose signature appears below hereby appoint John H. Westerbeke, Jr. and Thomas M. Haythe as attorney-in-fact with full power of substitution, severally, to execute in the name and on behalf of the registrant and each such person, individually and in each capacity stated below, one or more amendments to this Annual Report on Form 10-K, which amendments may make such changes in this Annual Report as the attorney-in-fact acting in the premises deems appropriate and to file any such amendment(s) to this Annual Report with the Securities and Exchange Commission. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: January 21, 2000 WESTERBEKE CORPORATION By /s/ John H. Westerbeke, Jr. --------------------------- John H. Westerbeke, Jr. Chairman of the Board and President Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Dated: January 21, 2000 By /s/ John H. Westerbeke, Jr. --------------------------- John H. Westerbeke, Jr. Chairman of the Board, President and Principal Executive Officer Dated: January 21, 2000 By /s/ Carleton F. Bryant III -------------------------- Carleton F. Bryant III Executive Vice President, Chief Operating Officer and Principal Financial and Accounting Officer Dated: January 21, 2000 By /s/ Gerald Bench ---------------- Gerald Bench Director Dated: January 21, 2000 By /s/ Thomas M. Haythe -------------------- Thomas M. Haythe Director Dated: January 21, 2000 By /s/ Nicholas H. Safford ----------------------- Nicholas H. Safford Director Dated: January 21, 2000 By /s/ James W. Storey -------------------- James W. Storey Director Dated: January 21, 2000 By /s/ John H. Westerbeke , Sr. ---------------------------- John H. Westerbeke, Sr. Director Index to Exhibits ----------------- Exhibit No. Name of Exhibit Page - ------- --------------- ---- 2 Agreement and Plan of Merger between the Company and J.H. Westerbeke Corporation, a Massachusetts corporation (1) 3(a) Certificate of Incorporation of the Company (as amended) (1) 3(b) By-Laws of the Company 10(a) Agreement dated as of June 30, 1986 by and between the Company and John H. Westerbeke, Sr (1) 10(b) 1986 Stock Option Plan of the Company as amended on January 6, 1987 and on May 26, 1988 10(c) 1986 Employee Stock Purchase Plan of the Company (1) 10(d) Supplemental Stock Option Plan of the Company 10(e) 1996 Stock Option Plan of the Company (4) 10(f) Agreement dated as of June 1, 1986 by and among the Company, Ruth A. Westerbeke, John H. Westerbeke, Jr., John H. Westerbeke, Sr. and Ruth A. Westerbeke, as trustees (1) 10(g) Form of Agreement with Distributors - Domestic (2) 10(h) Form of Agreement with Distributors - International (1) 10(i) Supplemental Medical Insurance Policy (1) 10(j) Employment Agreement dated March 24, 1993 between the Company and John H. Westerbeke, Jr., Chairman, President and Chief Executive Officer of the Company 10(k) Employment Agreement dated May 14, 1993 and Confidentiality Agreement dated May 14, 1993 between the Company and Carleton F. Bryant III, Chief Operating Officer of the Company 10(l) Security Agreement dated January 23, 1996 by the Company in favor of State Street Bank and Trust Company (3) 10(m) Note of the Company dated January 23, 1996, due June 30, 2001 in the principal amount of $500,000 payable to the order of State Street Bank and Trust Company (3) 10(n) Note of the Company dated April 25, 1997, due June 30, 2002 in the principal amount of $300,000 payable to the order of State Street Bank and Trust Company (5) 10(o) Loan Facility Agreement dated April 23, 1998 between the Company and State Street Bank and Trust Company (6) 10(p) Letter Agreement dated April 8, 1998 between the Company and State Street Bank and Trust Company (6) 10(q) Note of the Company dated April 3,1998, due March 31, 1999 in the principal amount of $4,000,000 payable to the order of State Street Bank and Trust Company (6) 10(r) Lease dated February 3, 1999 by and between Urban Equities and the Company (7) 21 Subsidiary of the Company 23 Consent of KPMG Peat Marwick LLP 24 Power of Attorney (See Page 54 of Annual Report on Form 10-K) 27 Financial Data Schedule [FN] - -------------------- Incorporated by reference to Exhibits to Registration Statement No. 33-6972 filed with the Securities and Exchange Commission. Incorporated by reference to Exhibits to Annual Report on Form 10-K for fiscal year ended October 28, 1995. Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for fiscal quarter ended January 27, 1996. Incorporated by reference to Exhibits to Annual Report on Form 10-K for fiscal year ended October 26, 1996. Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for fiscal quarter ended April 26, 1997. Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for fiscal quarter ended April 25, 1998. Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for fiscal quarter ended January 23, 1999. EX-3 2 BY-LAWS OF THE COMPANY WESTERBEKE CORPORATION BY-LAWS ARTICLE I Offices ------- The registered office of the Corporation shall be in the City of Dover, County of Kent, State of Delaware. The Corporation may also have offices at such other places, both within and without the State of Delaware, as may from time to time be designated by the Board of Directors. ARTICLE II Books ----- The books and records of the Corporation may be kept (except as otherwise provided by the laws of the State of Delaware) outside of the State of Delaware and at such place or places as may from time to time be designated by the Board of Directors. ARTICLE III Stockholders ------------ Section 1. Annual Meetings. The annual meeting of the stockholders of the Corporation for the election of Directors and the transaction of such other business as may properly come before said meeting shall be held at the principal business office of the Corporation or at such other place or places either within or without the State of Delaware as may be designated by the Board of Directors and stated in the notice of the meeting, on the first Monday of March in each year, if not a legal holiday, and, if a legal holiday, then on the next day not a legal holiday, at 10:00 o'clock in the forenoon, or on such other day as shall be determined by the Board of Directors. Written notice of the place designated for the annual meeting of the stockholders of the Corporation shall be delivered personally or mailed to each stockholder entitled to vote thereat not less than ten (10) and not more than sixty (60) days prior to said meeting, but at any meeting at which all stockholders shall be present, or of which all stockholders not present have waived notice in writing, the giving of notice as above described may be dispensed with. If mailed, said notice shall be directed to each stockholder at his address as the same appears on the stock ledger of the Corporation unless he shall have filed with the Secretary of the Corporation a written request that notices intended for him be mailed to some other address, in which case it shall be mailed to the address designated in such request. Section 2. Special Meetings. Special meetings of the stockholders of the Corporation shall be held whenever called in the manner required by the laws of the State of Delaware for purposes as to which there are special statutory provisions, and for other purposes whenever called by resolution of the Board of Directors, or by the Chairman of the Board and/or President, or, with the prior approval of the Board of Directors, by the holders of a majority of the outstanding shares of capital stock of the Corporation, the holders of which are entitled to vote on matters that are to be voted on at such meeting. The holders of a majority of the outstanding shares of capital stock of the Corporation desiring to seek the approval of the Board of Directors to call a special meeting of the stockholders shall deliver a request for such approval to the Board of Directors at least thirty (30) days prior to the date of the proposed special meeting. Such request shall specify the purpose of the proposed special meeting and the date on which its is proposed to be held and shall be signed by the holders of a majority of the outstanding shares of capital stock of the Corporation. The Board of Directors may approve or disapprove the proposed special meeting of stockholders in its sole discretion and no such meeting shall be called or held unless and until the Board of Directors expressly approves in writing the calling of a special meeting of stockholders in response to a request therefor, submitted in accordance with these By-Laws. Any such special meeting of stockholders may be held at the principal business office of the Corporation or at such other place or places, either within or without the State of Delaware, as may be specified in the notice thereof. Business transacted at any special meeting of stockholders of the Corporation shall be limited to the purposes stated in the notice thereof. Except as otherwise expressly required by the laws of the State of Delaware, written notice of each special meeting, stating the day, hour and place, and in general terms the business to be transacted thereat, shall be delivered personally or mailed to each stockholder entitled to vote thereat not less than ten (10) and not more than sixty (60) days before the meeting. If mailed, said notice shall be directed to each stockholder at his address as the same appears on the stock ledger of the Corporation unless he shall have filed with the Secretary of the Corporation a written request that notices intended for him be mailed to some other address, in which case it shall be mailed to the address designated in said request. At any special meeting at which all stockholders shall be present, or of which all stockholders not present have waived notice in writing, the giving of notice as above described may be dispensed with. Section 3. List of Stockholders. The officer of the Corporation who shall have charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 4. Quorum. At any meeting of the stockholders of the Corporation, except as otherwise expressly provided by the laws of the State of Delaware, the Certificate of Incorporation or these By-Laws, there must be present, either in person or by proxy, in order to constitute a quorum, stockholders owning a majority of the issued and outstanding shares of the capital stock of the Corporation entitled to vote at said meeting. At any meeting of stockholders at which a quorum is not present, the holders of, or proxies for, a majority of the stock which is represented at such meeting, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 5. Organization. The Chairman of the Board of Directors, or in his absence the President, or in the absence of the President, any Executive Vice President, or in the absence of any Executive Vice President, any Senior Vice President, or in the absence of any Senior Vice President, any Vice President, shall call to order meetings of the stockholders and shall act as chairman of such meetings. The Board of Directors or the stockholders may appoint any stockholder or any Director or officer of the Corporation to act as chairman of any meeting in the absence of the Chairman of the Board, the President, all of the Executive Vice Presidents, all of the Senior Vice Presidents and all of the Vice Presidents. The Secretary of the Corporation shall act as secretary of all meetings of the stockholders, but in the absence of the Secretary the presiding officer may appoint any other person to act as secretary of any meeting. Section 6. Voting. Except as otherwise provided in the Certificate of Incorporation or these By-Laws, each stockholder of record of the Corporation shall, at every meeting of the stockholders of the Corporation, be entitled to one (1) vote for each share of stock standing in his name on the books of the Corporation on any matter on which he is entitled to vote, and such votes may be cast either in person or by proxy, appointed by an instrument in writing, subscribed by such stockholder or by his duly authorized attorney, and filed with the Secretary before being voted on, but no proxy shall be voted after three (3) years from its date, unless said proxy provides for a longer period. If the Certificate of Incorporation provides for more or less than one (1) vote for any share of capital stock of the Corporation, on any matter, then any and every reference in these By- Laws to a majority or other proportion of capital stock shall refer to such majority or other proportion of the votes of such stock. The vote on all elections of Directors and on any other questions before the meeting need not be by ballot, except upon demand of any stockholder. When a quorum is present at any meeting of the stockholders of the Corporation, the vote of the holders of a majority of the capital stock entitled to vote at such meeting and present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, under any provision of the laws of the State of Delaware or of the Certificate of Incorporation, a different vote is required in which case such provision shall govern and control the decision of such question. Section 7. Consent. Except as otherwise provided by the Certificate of Incorporation, whenever the vote of the stockholders at a meeting thereof is required or permitted to be taken in connection with any corporate action by any provision of the laws of the State of Delaware or of the Certificate of Incorporation, such corporate action may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding capital stock of the Corporation having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented thereto in writing. Section 8. Judges. At every meeting of the stockholders of the Corporation at which a vote by ballot is taken, the polls shall be opened and closed, the proxies and ballots shall be received and taken in charge, and all questions touching the qualifications of voters, the validity of proxies and the acceptance or rejection of votes shall be decided by, two (2) judges. Said judges shall be appointed by the Board of Directors before the meeting, or, if no such appointment shall have been made, by the presiding officer of the meeting. If for any reason any of the judges previously appointed shall fail to attend or refuse or be unable to serve, judges in place of any so failing to attend, or refusing or unable to serve, shall be appointed in like manner. ARTICLE IV Directors --------- Section 1. Number, Election and Term of Office. The business and affairs of the Corporation shall be managed by the Board of Directors. The number of Directors which shall constitute the whole Board shall be not less than three (3) nor more than eight (8). Within such limits, the number of Directors may be fixed from time to time by vote of the stockholders or of the Board of Directors, at any regular or special meeting, subject to the provisions of the Certificate of Incorporation. Directors need not be stockholders. The directors shall be divided into three classes, each class to contain as near as possible to one-third (1/3) of the total number of directors of the Board of Directors so fixed in the By-laws, and, except as otherwise provided by statute, the case of any increase in the number of directors fixed in the By-laws, such increase shall be apportioned among the classes of directors so as to maintain each class as near as possible to one-third of the total number of directors as so increased. The initial term of office for members of the first class shall expire at the annual meeting of stockholders next following; the initial term for members of the second class shall expire at the annual meeting of stockholders one year thereafter; and the initial term for members of the third class shall expire at the annual meeting of stockholders two years thereafter. At the expiration of the initial term, and of each succeeding term of each class, the directors of each class shall be elected to serve for a term of three years. In addition to the powers by these By-Laws expressly conferred upon them, the Board may exercise all such powers of the Corporation as are not by the laws of the State of Delaware, the Certificate of Incorporation or these By-Laws required to be exercised or done by the stockholders. Section 2. Vacancies and Newly Created Directorships. Except as hereinafter provided, any vacancy in the office of a Director occurring for any reason other than the removal of a Director pursuant to Section 3 of this Article, and any newly created Directorship resulting from any increase in the authorized number of Directors, may be filled by a majority of the Directors then in office or by a sole remaining Director. In the event that any vacancy in the office of a Director occurs as a result of the removal of a Director pursuant to Section 3 of this Article, or in the event that vacancies occur contemporaneously in the offices of all of the Directors, such vacancy or vacancies shall be filled by the stockholders of the Corporation at a meeting of stockholders called for the purpose. Directors chosen or elected as aforesaid shall hold office until the next annual meeting of stockholders and until their respective successors are duly elected and have qualified. Section 3. Removals. At any meeting of stockholders of the Corporation called for the purpose, the holders of a majority of the shares of capital stock of the Corporation entitled to vote at such meeting may remove from office, with or without cause, any or all of the Directors. Section 4. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place, either within or without the State of Delaware, as shall from time to time be determined by resolution of the Board. Section 5. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board and/or the President or any two Directors on notice given to each Director, and such meetings shall be held at the principal business office of the Corporation or at such other place or places, either within or without the State of Delaware, as shall be specified in the notices thereof. Section 6. Annual Meetings. The first meeting of each newly elected Board of Directors shall be held as soon as practicable after each annual election of Directors and on the same day, at the same place at which regular meetings of the Board of Directors are held, or at such other time and place as may be provided by resolution of the Board. Such meeting may be held at any other time or place which shall be specified in a notice given, as hereinafter provided, for special meetings of the Board of Directors. Section 7. Notice. Notice of any meeting of the Board of Directors requiring notice shall be given to each Director by mailing the same at least forty-eight (48) hours, or by telegraphing the same at least twelve (12) hours, before the time fixed for the meeting. Attendance of a Director at a meeting shall constitute waiver of notice of such meeting, except when such Director attends such meeting for the express purpose of objecting, at the beginning of such meeting, to the transaction of any business because such meeting is not lawfully called or convened. Section 8. Quorum. At all meetings of the Board of Directors, the presence of one-third or more of the Directors constituting the entire Board shall constitute a quorum for the transaction of business. Except as may be otherwise specifically provided by the laws of the State of Delaware, the Certificate of Incorporation or these By-Laws, the affirmative vote of a majority of the Directors present at the time of such vote shall be the act of the Board of Directors if a quorum is present. If a quorum shall not be present at any meeting of the Board of Directors the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Consent. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting, if all members of the Board consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board. Section 10. Telephonic Meetings. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, members of the Board of Directors may participate in a meeting of the Board by means of conference telephone or similar communications equipment by means of which all persons participating in such meeting can hear each other, and participation in a meeting pursuant to this Section 10 shall constitute presence in person at such meeting. Section 11. Compensation of Directors. Directors, as such, shall not receive any stated salary for their services, but, by resolution of the Board, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board; provided that nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Section 12. Resignations. Any Director of the Corporation may resign at any time by giving written notice to the Board of Directors or to the Chairman of the Board and/or President or the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time be not specified, upon receipt thereof; and unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective. Section 13. Committees of the Board of Directors. The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, from time to time designate one (1) or more of its members to constitute committees of the Board of Directors, which committees shall each have such powers and duties as the Board of Directors may determine and specify in the respective resolutions effecting such designations. The Board of Directors may, with respect to any committee created pursuant to this Section 13, change members of such committees, fill vacancies thereon and discharge such committee or remove any member thereof. Section 14. Meetings of Committees. Regular meetings of any committee of the Board of Directors may be held without notice at such time and place, either within or without the State of Delaware, as shall from time to time be determined by resolution of such committee. Special meetings of any committee of the Board of Directors may be called by any member thereof on notice given to each other member, and such meetings may be held at such place or places, either within or without the State of Delaware, as may be specified in the notice thereof. Section 15. Notice. Written or oral notice of any meeting of any committee of the Board of Directors requiring notice shall be given to each member thereof not later than the close of business on the day next preceding the date of such meeting, but at any meeting at which all members shall be present, or with respect to which all members not present shall waive notice in writing, any and all business may be transacted even though no notice shall have been given. Section 16. Quorum. Unless otherwise specified in the resolutions creating such committee, at any meeting of a committee of the Board of Directors the presence of one-third or more of the Directors serving on such committee shall constitute a quorum for the transaction of business and the affirmative vote of a majority of Directors present at the time of vote shall be the act of the committee if a quorum is present. Section 17. Consent and Telephone Meetings. Unless otherwise restructed by the Certificate of Incorporation or these By-Laws, any action permitted to be taken at any meeting of any committee of the Board of Directors may be taken without a meeting if all members of the committee consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the committee. The members of any committee may participate in any meeting of the committee by means of conference telephone or similar communications equipment by means of which all persons participating in such meeting can hear each other, and participation in a committee meeting pursuant to this Section 17 shall constitute presence in person at such committee meeting. ARTICLE V Officers -------- Section 1. Number, Election and Term of Office. The officers of the Corporation shall be a Chairman of the Board, a President, one or more Executive Vice Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a Secretary, a Treasurer and a Controller and may at the discretion of the Board of Directors include one or more Assistant Treasurers and Assistant Secretaries. The officers of the Corporation shall be elected annually by the Board of Directors at its meeting held immediately after the annual meeting of the stockholders, and shall hold their respective offices until their successors are duly elected and have qualified. Any number of offices may be held by the same person. The Board of Directors may from time to time appoint such other officers and agents as the interest of the Corporation may require and may fix their duties and terms of office. Section 2. Chairman of the Board. The Chairman of the Board shall be a Director, and shall be the chief executive officer of the Corporation. He shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board are carried out. He shall preside at all meetings of the Board of Directors and at all meetings of the stockholders. He shall cause to be called regular and special meetings of the stockholders and of the Board of Directors in accordance with these By-Laws. In addition to the powers and duties expressly conferred upon him by these By-Laws, he shall, except as otherwise specifically provided by the laws of the State of Delaware, have such other powers and duties as shall from time to time be assigned to him by the Board of Directors. Section 3. President. The President shall be a Director, and shall be the chief operating officer of the Corporation, and, in addition, shall perform such duties as the Board of Directors shall require. In addition to the powers and duties expressly conferred upon him by these By-Laws, he shall, during the absence or incapacity of the Chairman of the Board, assume and perform his duties. Section 4. Executive Vice Presidents. The Executive Vice Presidents shall perform such duties as the Board of Directors, the Chairman of the Board and/or the President may require, or as may be provided in these By-Laws. Any Executive Vice President shall, during the absence or incapacity of the President, assume and perform his duties. Section 5. Senior Vice Presidents. The Senior Vice Presidents shall perform such duties as the Board of Directors, the Chairman of the Board and/or the President may require, or as may be provided in these By- Laws. Any Senior Vice President shall, during the absence or incapacity of any Executive Vice President, assume and perform his duties. Section 6. Vice Presidents. The Vice Presidents shall perform such duties as the Chairman of the Board and/or President or the Board of Directors shall require, or as may be provided in these By-Laws. Any Vice President shall, during the absence or incapacity of any Senior Vice President, assume and perform his duties. Section 7. Secretary. The Secretary may sign all certificates of stock of the Corporation. He shall record all the proceedings of the meetings of the Board of Directors and of the stockholders of the Corporation in books to be kept for that purpose. He shall have custody of the seal of the Corporation and may affix the same to any instrument requiring such seal when authorized by the Board of Directors, and when so affixed he may attest the same by his signature. He shall keep the transfer books, in which all transfers of the capital stock of the Corporation shall be registered, and the stock books, which shall contain the names and addresses of all holders of the capital stock of the Corporation and the number of shares held by each; and he shall keep such stock and transfer books open daily during business hours to the inspection of every stockholder and for transfer of stock. He shall notify the Directors and stockholders of their respective meetings as required by law or by these By- Laws, and shall perform such other duties as may be required by law or by these By-Laws, or which may be assigned to him from time to time by the Board of Directors. Section 8. Assistant Secretaries. The Assistant Secretaries shall, during the absence or incapacity of the Secretary, assume and perform all functions and duties which the Secretary might lawfully do if present and not under any incapacity. Section 9. Treasurer. The Treasurer shall have charge of the funds and securities of the Corporation. He may sign all certificates of stock. He shall keep full and accurate accounts of all receipts and disbursements of the Corporation in books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board, and shall render to the Chairman of the Board, the President or the Directors, whenever they may require it, an account of all his transactions as Treasurer and an account of the business and financial position of the Corporation. Section 10. Controller. The Controller shall be chief accounting officer, reporting to the chief financial officer. Section 11. Assistant Treasurers. The Assistant Treasurers shall, during the absence or incapacity of the Treasurer, assume and perform all functions and duties which the Treasurer might lawfully do if present and not under any incapacity. Section 12. Treasurer's Bond. The Treasurer, Controller and Assistant Treasurers shall, if required so to do by the Board of Directors, each give a bond (which shall be renewed every six (6) years) in such sum and with such surety or sureties as the Board of Directors may require. Section 13. Transfer of Duties. The Board of Directors in its absolute discretion may transfer the power and duties, in whole or in part, of any officer to any other officer, or persons, notwithstanding the provisions of these By-Laws, except as otherwise provided by the laws of the State of Delaware. Section 14. Vacancies. If the office of Chairman of the Board, President, Executive Vice President, Senior Vice President, Vice President, Secretary, Treasurer or Controller or of any other officer or agent becomes vacant for any reason, the Board of Directors may choose a successor to hold office for the unexpired term. Section 15. Removals. At any meeting of the Board of Directors called for the purpose, any officer or agent of the Corporation may be removed from office, with or without cause, by the affirmative vote of a majority of the entire Board of Directors. Section 16. Compensation of Officers. The officers shall receive such salary or compensation as may be determined by the Board of Directors. Section 17. Resignations. Any officer or agent of the Corporation may resign at any time by giving written notice to the Board of Directors or to the Chairman of the Board and/or President or the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein or, if the time be not specified, upon receipt thereof; and unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective. ARTICLE VI Contracts, Checks and Notes --------------------------- Section 1. Contracts. Unless the Board of Directors shall otherwise specifically direct, all contracts of the Corporation shall be executed in the name of the Corporation by the Chairman of the Board, the President, an Executive Vice President, a Senior Vice President or a Vice President. Section 2. Checks and Notes. All checks, drafts, bills of exchange and promissory notes and other negotiable instruments of the Corporation shall be signed by such officers or agents of the Corporation as may be designated by the Board of Directors. ARTICLE VII Stock ----- Section 1. Certificates of Stock. The certificates for shares of the stock of the Corporation shall be in such form, not inconsistent with the Certificate of Incorporation, as shall be prepared or approved by the Board of Directors. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chairman of the Board and/or the President, an Executive Vice President, a Senior Vice President or a Vice President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary certifying the number of shares owned by him and the date of issue; and no certificate shall be valid unless so signed. All certificates shall be consecutively numbered and shall be entered in the books of the Corporation as they are issued. Where a certificate is countersigned (1) by a transfer agent other than the Corporation or its employee, or, (2) by a registrar other than the Corporation or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. All certificates surrendered to the Corporation shall be cancelled and, except in the case of lost or destroyed certificates, no new certificates shall be issued until the former certificates for the same number of shares of the same class of stock shall have been surrendered and cancelled. Section 2. Transfer of Stock. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. ARTICLE VIII Registered Stockholders ----------------------- The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to, or interest in, such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of the State of Delaware. ARTICLE IX Lost Certificates ----------------- Any person claiming a certificate of stock to be lost or destroyed, shall make an affidavit or affirmation of the fact and advertise the same in such manner as the Board of Directors may require, and the Board of Directors may, in its discretion, require the owner of the lost or destroyed certificate, or his legal representative, to give the Corporation a bond in a sum sufficient, in the opinion of the Board of Directors, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss of any such certificate. A new certificate of the same tenor and for the same number of shares as the one alleged to be lost or destroyed may be issued without requiring any bond when, in the judgment of the Directors, it is proper so to do. ARTICLE X Fixing of Record Date --------------------- In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE XI Dividends --------- Subject to the relevant provisions of the Certificate of Incorporation, dividends upon the capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting, pursuant to. Dividends may be paid in cash, in property, or in shares of the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sums as the Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Directors shall think conducive to the interest of the Corporation, and the Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE XII Waiver of Notice ---------------- Whenever any notice whatever is required to be given by statute or under the provisions of the Certificate of Incorporation or these By-Laws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be equivalent thereto. ARTICLE XIII Seal ---- The corporate seal of the Corporation shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware." ARTICLE XIV Amendments ---------- Subject to the provisions of the Certificate of Incorporation, these By-Laws may be altered, amended or repealed or new By-Laws may be adopted by the stockholders or by the Board of Directors, at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment or repeal of the By-Laws or of adoption of new By-Laws be contained in the notice of such special meeting. EX-10 3 1986 STOCK OPTION PLAN WESTERBEKE CORPORATION 1986 STOCK OPTION PLAN AS AMENDED ON JANUARY 6, 1987 AND ON MAY 26, 1988 ------------------------------------------------- 1. Purposes of Plan. The purposes of this Plan, which shall be known as the 1986 Stock Option Plan and is hereinafter referred to as the "Plan", are (i) to provide incentives for key employees of Westerbeke Corporation (the "Company") and its subsidiary or parent corporations (within the respective meanings of Section 425(f ) and 425(e) of the Internal Revenue Code of 1986, as amended (the "Code"), and referred to herein as "Subsidiary" and "Parent", respectively) by encouraging their ownership of the common stock, $.01 par value, of the Company (the "Stock") and (ii) to aid the Company in retaining such key employees, upon whose efforts the Company's success and future growth depends, and attracting other such employees. 2. Administration. The Plan shall be administered by a Stock Option Committee (the "Committee") of the Board of Directors, as hereinafter provided. For purposes of administration, the Committee, subject to the terms of the Plan, shall have plenary authority to establish such rules and regulations, make such determinations and interpretations, and take such other administrative actions as it deems necessary or advisable. All determinations and interpretations made by the Committee shall be final, conclusive and binding on all persons, including Optionees (as hereinafter defined) and their legal representatives and beneficiaries. The Committee shall be appointed from time to time by the Board of Directors and shall consist of not fewer than three of its members. Unless otherwise determined by the Board of Directors, no member of the Board of Directors who serves on the Committee shall be eligible to participate in the Plan. The Board of Directors shall designate one of the members of the Committee as its Chairman. The Committee shall hold its meetings at such times and places as it may determine. A majority of its members shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination reduced to writing and signed by all members shall be as effective as if it had been made by a majority vote at a meeting duly called and held. The Committee may appoint a secretary (who need not be a member of the Committee). No member of the Committee shall be liable for any act or omission with respect to his service on the Committee, if he acts in good faith and in a manner he reasonably believes to be in or not opposed to the best interests of the Company. Service on the Committee shall constitute service as a director of the Company for all purposes. 3. Stock Available for Options. There shall be available for options under the Plan a total of 300,000 shares of Stock, subject to any adjustments which may be made pursuant to Section 5(f ) hereof. Shares of Stock used for purposes of the Plan may be either authorized and unissued shares, or previously issued shares held in the treasury of the Company, or both. Shares of Stock covered by options which have terminated or expired prior to exercise shall be available for further options hereunder. 4. Eligibility. Options under the Plan may be granted to key employees of the Company or any Subsidiary or Parent, including officers or directors of the Company or any Subsidiary or Parent. Options may be granted to eligible employees whether or not they hold or have held options previously granted under the Plan or otherwise granted or assumed by the Company. In selecting employees for options, the Committee may take into consideration any factors it may deem relevant, including its estimate of the employee's present and potential contributions to the success of the Company and its Subsidiaries. Service as a director or officer of the Company or any Parent or Subsidiary shall be considered employment for purposes of the Plan. 5. Terms and Conditions of Options. The Committee shall, in its discretion, prescribe the terms and conditions of the options to be granted hereunder, which terms and conditions need not be the same in each case, subject to the following: (a) Option Price. The price at which each share of Stock covered by an option granted under the Plan may be purchased shall be determined by the Committee and shall not be less than the lesser of (i) the tangible book value per share of Stock, determined in accordance with generally accepted accounting principles, as of the end of the fiscal quarter of the Company immediately preceding the fiscal quarter in which the option is granted, or (ii) the market value per share of Stock on the date of grant of an option as determined pursuant to Section 5(c). The date of the grant of an option shall be the date specified by the Committee in its grant of the option. (b) Option Period. The period for exercise of an option shall in no event be more than ten years from the date of grant, or, in the case of any option intended to be an incentive stock option pursuant to Section 6 granted to an Optionee owning, on the date of grant, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary, more than five years from the date of grant. Options may, in the discretion of the Committee, be made exercisable in installments during the option period. Any shares not purchased on any applicable installment date may be purchased thereafter at any time before the expiration of the option period. (c) Exercise of Options. In order to exercise an option, the holder thereof (the "Optionee") shall deliver to the Company written notice specifying the number of shares of Stock to be purchased, together with cash or a certified or bank cashier's check payable to the order of the Company in the full amount of the purchase price therefor; provided that, for the purpose of assisting an Optionee to exercise an option, the Company may make loans to the Optionee or guarantee loans made by third parties to the Optionee, on such terms and conditions as the Board of Directors may authorize; and provided further that such purchase price may be paid in shares of Stock owned by the Optionee having a market value on the date of exercise equal to the aggregate purchase price, or in a combination of cash and Stock. For purposes of the Plan, the market value per share of Stock shall be the last sale price regular way on the date of reference, or, in case no sale takes place on such day, the average of the closing high bid and low asked prices regular way, in either case on the principal national securities exchange on which the stock is listed or admitted to trading, or if the Stock is not listed or admitted to trading on any national securities exchange, the average of the closing high bid and low asked prices of the Stock in the over-the-counter market on such date, as reported on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), or if there are no such prices reported on NASDAQ on such date, as furnished to the Committee by any New York Stock Exchange member selected from time to time by the Committee for such purpose. If there is no bid or asked price reported on any such date, the market value shall be determined by the Committee in accordance with the regulations promulgated under Section 2031 of the Code, or by any other appropriate method selected by the Committee. If the Optionee so requests, shares of Stock purchased upon exercise of an option may be issued in the name of the Optionee or another person. An Optionee shall have none of the rights of a stockholder until the shares of Stock are issued to him. An option may not be exercised for less than ten shares of Stock, or the number of shares of Stock remaining subject to such option, whichever is smaller. (d) Effect of Termination of Employment. An option may not be exercised after the Optionee has ceased to be in the employ of the Company or any Subsidiary or Parent, except in the following circumstances: (i) If the Optionee's employment is terminated by action of his employer, or by reason of disability or retirement under any retirement plan maintained by the Company or any Subsidiary or Parent, the option may be exercised by the Optionee within three months after such termination, but only as to any shares exercisable on the date the Optionee's employment so terminates; (ii) In the event of the death of the Optionee during the three month period after termination of employment covered by (i) above, the person or persons to whom his rights are transferred by will or the laws of descent and distribution shall have a period of one year from the date of his death to exercise any options which were exercisable by the Optionee at the time of his death; (iii) In the event of the death of the Optionee while employed, the option shall thereupon become exercisable in full, and the person or persons to whom the Optionee's rights are transferred by will or the laws of descent and distribution shall have a period of one year from the date of the Optionee's death to exercise such option. The application of the foregoing sentence to any outstanding options which are incentive stock options shall be limited as required by Section 422A(b)(7) of the Code and such outstanding options in excess of such limitation shall, immediately upon the occurrence of the event described in the foregoing sentence, be treated for all purposes of the plan as nonstatutory stock options. Nothing in the Plan or in any option granted pursuant to the Plan (in the absence of an express provision to the contrary) shall confer on any individual any right to continue in the employ of the Company or any Subsidiary or Parent or interfere in any way with the right of the Company to terminate his employment at any time. (e) Nontransferability of Options. During the lifetime of an Optionee, options held by such Optionee shall be exercisable only by him. No option shall be transferable other than by will or the laws of descent and distribution. (f) Adjustments for Change in Stock Subject to Plan and Other Events. In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, or any other change in the corporate structure or shares of the Company, (i) except as provided in, (ii) below, the Committee shall make such adjustments, if any, as it deems appropriate in the number and kind of shares subject to the Plan, in the number and kind of shares covered by outstanding options, or in the option price per share, or both and (ii) the Board of Directors of the Company shall make such adjustments, if any, as it deems appropriate in the maximum number of shares which may be subject to options granted to all directors of the Company and in the maximum number of shares which may be subject to options granted to each director, in each case pursuant to Section 5(i) hereof, in the number and kind of shares covered by outstanding options, or in the option price per shares, or both, with respect to options held by directors of the Company. In connection with any merger or consolidation in which the Company is not the surviving corporation or any sale or transfer by the Company of all or substantially all its assets or any tender offer or exchange offer for or the acquisition, directly or indirectly, by any person or group of all or a majority of the then outstanding voting securities of the Company, all outstanding options under the Plan shall become exercisable in full, notwithstanding any other provision of the Plan or of any outstanding options granted thereunder, on and after (i) 15 days prior to the effective date of such merger, consolidation, sale, transfer or acquisition or (ii) the date of commencement of such tender offer or exchange offer, as the case may be. The provisions of the foregoing sentence shall apply to any outstanding options which are incentive stock options to the extent permitted by Section 422A(b)(7) of the Code and such outstanding options in excess thereof shall, immediately upon the occurrence of the event described in clause (i) or (ii) of the foregoing sentence, be treated for all purposes of the plan as nonstatutory stock options and shall be immediately exercisable as such as provided in the foregoing sentence. Notwithstanding the foregoing, in no event shall any option be exercisable after the date of termination of the exercise period of such option specified in Sections 5(b) and 5(i)(2) and shall be immediately exercisable as such as provided in the foregoing sentence. (g) Registration, Listing and Qualification of Shares of Stock. Each option shall be subject to the requirement that if at any time the Board of Directors shall determine that the registration, listing or qualification of the shares of Stock covered thereby upon any securities exchange or under any federal or state law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the granting of such option or the purchase of shares of Stock thereunder, no such option may be exercised unless and until such registration, listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board of Directors. The Company may require that any person exercising an option shall make such representations and agreements and furnish such information as it deems appropriate to assure compliance with the foregoing or any other applicable legal requirement. (h) Other Terms and Conditions. The Committee may impose such other terms and conditions, not inconsistent with the terms hereof, on the grant or exercise of options, as it deems advisable. (i) Terms and Conditions of Options Granted to Directors. Notwithstanding any provision contained in this Plan to the contrary, in the event that the Board of Directors shall determine to authorize grants of options to members of the Committee pursuant to Section 2, then, so long as any person serving on the Committee is not a "disinterested person" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, the terms and conditions of options granted under the Plan to any director of the Company shall be as follows: (1) The price at which each share of Stock subject to an option may be purchased shall, subject to any adjustments which may be made pursuant to Section 5(f ), in no event be less than the market value per share of Stock on the date of grant, and provided further that in the event the option is intended to be an incentive stock option pursuant to Section 6 and the Optionee owns on the date of grant stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary, the price per share shall not be less than 110% of the market value per share of Stock on the date of grant. (2) The option may be exercised to purchase shares of Stock covered by the option only in accordance with the following schedule: Cumulative Percentage of Aggregate Number of Shares of Stock Covered by Option Which May be Exercise Period Purchased -------------------------------------------------------------- Within 1st year from date of grant 20% Beginning one year from date of grant 40% Beginning two years from date of grant 60% Beginning three years from date of grant 80% Beginning four years from date of grant 100% less, in the case of each exercise period, the number of shares of Stock, if any, previously purchased under the option. The option shall terminate and no shares of Stock may be purchased thereunder more than ten years after the date of grant, provided that if the option is intended to be an incentive stock option pursuant to Section 6 and the Optionee owns on the date of grant stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary, the Option shall not be exercisable after the fifth anniversary of the date of grant. (3) The maximum number of shares of Stock which may be subject to options granted to all directors pursuant to this Section 5(i) shall be 75,000 shares in the aggregate and the maximum number of shares of Stock which may be subject to options granted to any director (including any options granted under this Plan to a director in his position as an officer or employee of the Company) shall be 75,000 shares. 6. Provisions Applicable to Incentive Stock Options. The Committee may, in its discretion, grant options under the Plan to eligible employees which constitute "incentive stock options" (within the meaning of Section 422A(b) of the code), provided, however, that (a) no such incentive stock options granted before January 1, 1987 shall (i) be exercisable while there is "outstanding" (within the meaning of Section 422A(c)(7) of the Internal Revenue Code of 1954) any incentive stock option previously granted to the holder thereof to purchase stock of the Company, or of any Parent or Subsidiary, or of any predecessor of any of such corporations, or (ii) cover a number of shares in excess of the maximum number of shares permitted to be covered pursuant to the provisions of Section 422(a)(8) of the Internal Revenue Code of 1954, (b) no incentive stock options granted after December 31, 1986 shall cover a number of shares of Stock in excess of the maximum number of shares permitted to be covered pursuant to the provisions of Section 422A(b)(7) of the Code, (c) no incentive stock option shall be granted at an option price which is less than the market value per share of Stock on the date of the grant, and (d) Section 5(d)(ii) hereof' shall not apply to any incentive stock option. 7. Amendment and Termination. Unless the Plan shall theretofore have been terminated as hereinafter provided, the Plan shall terminate on, and no option shall be granted thereunder after, ten years from adoption provided, however, that the Board of Directors may at any time prior to that date terminate the Plan. The Board of Directors may at any time amend the Plan; provided, however, that, except as contemplated in Section 5(f ) hereof, the Board of Directors shall not, without approval by a majority of the votes cast by the stockholders of the Company at a meeting of stockholders at which a proposal to amend the Plan is voted upon, (i) increase the maximum number of shares of Stock for which options may be granted under the Plan, (ii) change the formula as to minimum option prices, (iii) extend the period during which options may be granted or exercised, or (iv) except as otherwise provided in the Plan, amend the requirements as to the class of employees eligible to receive options. No termination or amendment of the Plan may, without the consent of an Optionee, adversely affect the rights of such Optionee under any option held by such Optionee. 8. Effectiveness of Plan. The Plan will not be made effective unless approved by a majority of the votes cast by the stockholders of the Company at a meeting of stockholders duly called and held for such purpose or in lieu thereof, pursuant to a unanimous written consent of stockholders, and no option granted hereunder shall be exercisable prior to such approval. 9. Other Actions. Nothing contained in the Plan shall be construed to limit the authority of the Company to exercise its corporate rights and powers, including but not by way of limitation, the right of the Company to grant or assume options for proper corporate purposes other than under the Plan with respect to any employee or other person, firm, corporation or association. EX-10 4 SUPPLEMENTAL STOCK OPTION PLAN WESTERBEKE CORPORATION SUPPLEMENTAL STOCK OPTION PLAN 1. Purposes of Plan. The purposes of this Plan, which shall be known as the Westerbeke Corporation Supplemental Stock option Plan and is hereinafter referred to as the "Plan", are (i) to provide incentives for key employees of Westerbeke Corporation (the "Company") and its subsidiary or parent corporations (within the respective meanings of Section 425(f) and 425(e) of the Internal Revenue Code of 1986, as amended (the "Code"), and referred to herein as "Subsidiary" and "Parent", respectively) by encouraging their ownership of the common stock, $.01 par value, of the Company (the "Stock") and (ii) to aid the Company in retaining such key employees, upon whose efforts the Company's success and future growth depends, and attracting other such employees. 2. Administration. The Plan shall be administered by a Stock Option Committee (the "Committee") of the Board of Directors, as hereinafter provided. For purposes of administration, the Committee, subject to the terms of the Plan, shall have plenary authority to establish such rules and regulations, make such determinations and interpretations, and take such other administrative actions as it deems necessary or advisable. All determinations and interpretations made by the Committee shall be final, conclusive and binding on all persons, including Optionees (as hereinafter defined) and their legal representatives and beneficiaries. The Committee shall be appointed from time to time by the Board of Directors and shall consist of not fewer than three of its members. Unless otherwise determined by the Board of Directors, no member of the Board of Directors who serves on the Committee shall be eligible to participate in the Plan. The Board of Directors shall designate one of the members of the Committee as its Chairman. The Committee shall hold its meetings at such times and places as it may determine. A majority of its members shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination reduced to writing and signed by all members shall be as effective as if it had been made by a majority vote at a meeting duly called and held. The Committee may appoint a secretary (who need not be a member of the Committee). No member of the Committee shall be liable for any act or omission with respect to his service on the Committee, if he acts in good faith and in a manner he reasonably believes to be in or not opposed to the best interests of the Company. Service on the Committee shall constitute service as a director of the Company for all purposes. 3. Stock Available for Options. There shall be available for options under the Plan a total of 250,000 shares of Stock, subject to any adjustments which may be made pursuant to Section 5(f ) hereof. Shares of Stock used for purposes of the Plan may be either authorized and unissued shares, or previously issued shares held in the treasury of the Company, or both. Shares of Stock covered by options which have terminated or expired prior to exercise shall be available for further options hereunder. 4. Eligibility. Options under the Plan may be granted to key employees of the Company or any Subsidiary or Parent, including officers or directors of the Company or any Subsidiary or Parent. Options may be granted to eligible employees whether or not they hold or have held options previously granted under the Plan or otherwise granted or assumed by the Company. In selecting employees for options, the Committee may take into consideration any factors it may deem relevant, including its estimate of the employee's present and potential contributions to the success of the Company and its Subsidiaries. Service as a director or officer of the Company or any Parent or Subsidiary shall be considered employment for purposes of the Plan. 5. Terms and Conditions of Options. The Committee shall, in its discretion, prescribe the terms and conditions of the options to be granted hereunder, which terms and conditions need not be the same in each case, subject to the following: (a) Option Price. The price at which each share of Stock covered by an option granted under the Plan may be purchased shall be determined by the Committee and shall not be less than the par value per share of Stock. The date of the grant of an option shall be the date specified by the Committee in its grant of the option. (b) Option Period. The period for exercise of an option shall in no event be more than ten years from the date of grant, or, in the case of any option intended to be an incentive stock option pursuant to Section 6 granted to an Optionee owning, on the date of grant, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary, more than five years from the date of grant. Options may, in the discretion of the Committee, be made exercisable in installments during the option period. Any shares not purchased on any applicable installment date may be purchased thereafter at any time before the expiration of the option period. (c) Exercise of Options. In order to exercise an option, the holder thereof (the "Optionee") shall deliver to the Company written notice specifying the number of shares of Stock to be purchased, together with cash or a certified or bank cashier's check payable to the order of the Company in the full amount of the purchase price therefor; provided that, for the purpose of assisting an Optionee to exercise an option, the Company may make loans to the Optionee or guarantee loans made by third parties to the Optionee, on such terms and conditions as the Board of Directors may authorize; and provided further that such purchase price may be paid in shares of Stock owned by the Optionee having a market value on the date of exercise equal to the aggregate purchase price, or in a combination of cash and Stock. For purposes of the Plan, the market value per share of Stock shall be the last sale price regular way on the date of reference, or, in case no sale takes place on such day, the average of the closing high bid and low asked prices regular way, in either case on the principal national securities exchange on which the Stock is listed or admitted to trading, or if the Stock is not listed or admitted to trading on any national securities exchange, the last sale price reported on the National Market System of the National Association of Securities Dealers Automated Quotation System ("NASDAQ") on such date, or the average of the closing high bid and low asked prices of the Stock in the over-the-counter market reported on NASDAQ on such date, whichever is applicable, or if there are no such prices reported on NASDAQ on such date, as furnished to the Committee by any New York Stock Exchange member selected from time to time by the Committee for such purpose. If there is no bid or asked price reported on any such date, the market value shall be determined by the Committee in accordance with the regulations promulgated under Section 2031 of the Code, or by any other appropriate method selected by the Committee. If the Optionee so requests, shares of Stock purchased upon exercise of an option may be issued in the name of the Optionee or another person. An Optionee shall have none of the rights of a stockholder until the shares of Stock are issued to him. An option may not be exercised for less than ten shares of Stock, or the number of shares of Stock remaining subject to such option, whichever is smaller. (d) Effect of Termination of Employment. An option may not be exercised after the Optionee has ceased to be in the employ of the Company or any Subsidiary or Parent, except in the following circumstances: (i) If the Optionee's employment is terminated by action of his employer, or by reason of disability or retirement under any retirement plan maintained by the Company or any Subsidiary or Parent, the option may be exercised by the Optionee within three months after such termination, but only as to any shares exercisable on the date the Optionee's employment so terminates; (ii) In the event of the death of the Optionee during the three month period after termination of employment covered by (i) above, the person or persons to whom his rights are transferred by will or the laws of descent and distribution shall have a period of one year from the date of his death to exercise any options which were exercisable by the Optionee at the time of his death; (iii) In the event of the death of the Optionee while employed, the option shall thereupon become exercisable in full, and the person or persons to whom the Optionee's rights are transferred by will or the laws of descent and distribution shall have a period of one year from the date of the Optionee's death to exercise such option. To the extent that Section 422A(b)(7) of the Code would not permit the provisions of the foregoing sentence to apply to any outstanding options which are incentive stock options, such incentive stock options shall, immediately upon the occurrence of the event described in the foregoing sentence, be treated for all purposes of the plan as nonstatutory stock options and shall be immediately exercisable as such as provided in the foregoing sentence. Nothing in the Plan or in any option granted pursuant to the Plan (in the absence of an express provision to the contrary) shall confer on any individual any right to continue in the employ of the Company or any Subsidiary or Parent or interfere in any way with the right of the Company to terminate his employment at any time. (e) Nontransferability of Options. During the lifetime of an Optionee, options held by such Optionee shall be exercisable only by him. No option shall be transferable other than by will or the laws of descent and distribution. (f) Adjustments for Change in Stock Subject to Plan. In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, or any other change in the corporate structure or shares of the Company, (i) except as provided in (ii) below, the Committee shall make such adjustments, if any, as it deems appropriate in the number and kind of shares subject to the Plan, in the number and kind of shares covered by outstanding options, and/or in the option price per share, and (ii) the Board of Directors of the Company shall make such adjustments, if any, as it deems appropriate in the maximum number of shares which may be subject to options granted to all directors of the Company and in the maximum number of shares which may be subject to options granted to a single director, in each case pursuant to Section 5(i) hereof, and, with respect to options held by directors of the Company, in the number and kind of shares covered by outstanding options, and/or in the option price per share. (g) Registration, Listing and Qualification Shares of Stock. Each option shall be subject to the requirement that if at any time the Board of Directors shall determine that the registration, listing or qualification of the shares of Stock covered thereby upon any securities exchange or under any federal or state law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the granting of such option or the purchase of shares of Stock thereunder, no such option may be exercised unless and until such registration, listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board of Directors. The Company may require that any person exercising an option shall make such representations and agreements and furnish such information as it deems appropriate to assure compliance with the foregoing or any other applicable legal requirement. (h) Other Terms and Conditions. The Committee may, in its discretion, provide, in the case of any option granted under the Plan that, in connection with any merger or consolidation in which the Company is not the surviving corporation or any sale or transfer by the Company of all or substantially all its assets or any tender offer or exchange offer for or the acquisition, directly or indirectly, by any person or group of all or a majority of the then outstanding voting securities of the Company, such option shall become exercisable in full or part, notwithstanding any other provision of the Plan or of any outstanding options granted thereunder, on and after (i) the fifteenth day prior to the effective date of such merger, consolidation, sale, transfer or acquisition or (ii) the date of commencement of such tender offer or exchange offer, as the case may be. To the extent that Section 422A(b)(7) of the Code would not permit the provisions of the foregoing sentence to apply to any outstanding options which are incentive stock options, such incentive stock options shall, immediately upon the occurrence of the event described in clause (i) or (ii) of the foregoing sentence, be treated for all purposes of the plan as nonstatutory stock options and shall be exercisable as such. Notwithstanding the foregoing, in no event shall any option be exercisable after the date of termination of the exercise period of such option specified in Sections 5(b), 5(d) and 5(i)(2). The Committee may impose such other terms and conditions, not inconsistent with the terms of the Plan, on the grant or exercise of options, as it deems advisable. (i) Terms and Conditions of Options Granted to Directors. Notwithstanding any provision contained in this Plan to the contrary, in the event that the Board of Directors shall determine to authorize grants of options to members of the Committee pursuant to Section 2, then, so long as any person serving on the Committee is not a "disinterested person" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, the terms and conditions of options granted under the Plan to any director of the Company shall be as follows: (1) The price at which each share of Stock subject to an option may be purchased shall, subject to any adjustments which may be made pursuant to Section 5(f ), in no event be less than (A) the market value per share of Stock on the date of grant in the case of an option intended to be an incentive stock option pursuant to Section 6 or (B) the par value per share of Stock in the case of an option not intended to be an incentive stock option; and provided further that in the event the option is intended to be an incentive stock option pursuant to Section 6 and the Optionee owns on the date of grant stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary, the price per share shall not be less than 110% of the market value per share of Stock on the date of grant. (2) The option shall be exercisable as of the date of grant to purchase all shares of Stock covered by the option. The option shall terminate and no shares of Stock may be purchased thereunder more than ten years after the date of grant, provided that if the option is intended to be an incentive stock option pursuant to Section 6 and the Optionee owns on the date of grant stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary, the option shall not be exercisable after the fifth anniversary of the date of grant. (3) In connection with any merger or consolidation in which the Company is not the surviving corporation or any sale or transfer by the Company of all or substantially all its assets or any tender offer or exchange offer for or the acquisition, directly or indirectly, by any person or group of all or a majority of the then outstanding voting securities of the Company, the option shall become exercisable in full, notwithstanding any other provision of the Plan or of any outstanding options granted thereunder, on and after (i) the fifteenth day prior to the effective date of such merger, consolidation, sale, transfer or acquisition or (ii) the date of commencement of such tender offer or exchange offer, as the case may be. To the extent that Section 422A(b)(7) of the Code would not permit the provisions of the foregoing sentence to apply to any outstanding options granted to a director which are incentive stock options, such incentive stock options shall, immediately upon the occurrence of the event described in clause (i) or (ii) of the foregoing sentence, be treated for all purposes of the plan as nonstatutory stock options and shall be immediately exercisable as such as provided in the foregoing sentence. Notwithstanding the foregoing, in no event shall any option be exercisable after the date of termination of the exercise period of such option specified in Sections 5(b), 5(d) and 5(i)(2). (4) The maximum number of shares of Stock which may be subject to options granted to all directors pursuant to this Section 5(i) shall be 175,000 shares in the aggregate and the maximum number of shares of Stock which may be subject to options granted to any director (including any options granted under this Plan to a director in his position as an officer or employee of the Company) shall be 100,000 shares. 6. Provisions Applicable to Incentive Stock Options. The Committee may, in its discretion, grant options under the Plan to eligible employees which constitute "incentive stock options" (within the meaning of Section 422A(b) of the code), provided, however, that (a) no incentive stock option shall cover a number of shares of Stock in excess of the maximum number of shares permitted to be covered pursuant to the provisions of Section 422A(b)(7) of the Code, (b) no incentive stock option shall be granted at an option price which is less than the market value per share of Stock on the date of the grant, and (c) Section 5(d)(ii) hereof shall not apply to any incentive stock option. 7. Right of First Refusal. The shares of Stock issued upon the exercise of any option granted under the Plan (referred to in this Section 7 as "Covered Shares") shall be subject to a right of first refusal (the "Right of First Refusal") in favor of the Company, as hereinafter set forth. (a) Offer to Sell. The Optionee shall give telephonic notice (the "Offer Notice") to the President or Chief Financial Officer of the Company of any intended sale of Covered Shares not less than twenty-four (24) hours prior to effecting such sale, which notice shall specify the number of Covered Shares proposed to be sold. Such notice shall constitute an offer by the Optionee to sell to the Company all or any number of the Covered Shares specified in the Offer Notice at a price per share determined in accordance with Section 7(c). (b) Acceptance and Payment. Within twenty-four (24) hours of its receipt of the Offer Notice, the President or Chief Financial Officer of the Company (or other representative of the Company designated by the President of the Company) shall give notice (the "Acceptance Notice") to the Optionee of the number of Covered Shares, if any, specified in the Offer Notice which the Company desires to purchase and the date (not less than five (5) nor more than ten (10) days after the date of the Acceptance Notice) upon which payment of the purchase price for such Covered Shares shall be made. The Optionee shall cause to be delivered to the Company, at the principal office of the Company on the payment date specified in such notice, the certificate or certificates representing the Covered Shares to be purchased, properly endorsed for transfer, against payment of the purchase price therefor. In the event that the Company shall fail to give an Acceptance Notice to the Optionee within the time required by this Section 7(b), the Company shall be deemed to have elected not to purchase the Covered Shares specified in the Offer Notice. Any Covered Shares which the Company shall not elect to purchase (or be deemed to have elected not to purchase) as provided in this Section 7(b) shall cease to be Covered Shares upon the sale of such shares by the Optionee. (c) Purchase Price. The purchase price per share for each share of Stock which the Company elects to purchase pursuant to this Section 7 shall be equal to the market value per share of Stock (as defined in Section 5(c)) on the date of the Offer Notice. (d) Exempt Transfers. Any provision of the Plan to the contrary notwithstanding, the transfer by an optionee of any Covered Shares to (i) any member of his immediate family, (ii) his heirs, executors or legal representatives of his testamentary estate or (iii) the trustee of an intervivos trust or testamentary trust for the benefit of members of his immediate family shall not be subject to the Right of First Refusal; provided, however, that the transfer by any person referred to in clause (i), (ii) or (iii) of this Section 7(d) of Covered Shares shall be subject to the Right of First Refusal to the same extent as a transfer by the Optionee to whom such Covered Shares were originally issued (without regard to this Section 7(d)) and, prior to registration of the transfer pursuant to clause (i), (ii) or (iii) of any Covered Shares on the books of the Company, such person shall agree in writing to be bound by the provisions of this Section 7. Any provision of the Plan to the contrary notwithstanding, the transfer by an Optionee of any Covered Shares to the Company upon the exercise of an option as provided in Section 5(c) shall not be subject to the Right of First Refusal. (e) Legend. Each certificate representing Covered Shares shall be endorsed substantially as follows: The shares of Common Stock represented by this certificate are subject to and may be transferred only in compliance with the Right of First Refusal granted to Westerbeke Corporation (the "Company"), under the Westerbeke Corporation 1987 Stock Option Plan, a copy of which is on file at the principal office of the Company. (f) Confirmation of Telephonic Notice. Any telephonic notice given hereunder shall, within twenty-four (24) hours of the giving of such telephonic notice, be confirmed by written notice delivered personally or by overnight delivery service, if to an Optionee, to his address appearing in the records of the Committee at the time such notice is given and, if to the Company, to Avon Industrial Park, Avon, Massachusetts 02322, Attention: President. 8. Amendment and Termination. Unless the Plan shall theretofore have been terminated as hereinafter provided, the Plan shall terminate on, and no option shall be granted thereunder after, ten years from adoption; provided, however, that the Board of Directors may at any time prior to that date terminate the Plan. The Board of Directors may at any time amend the Plan; provided, however, that, except as contemplated in Section 5(f ) hereof, the Board of Directors shall not, without approval by a majority of the votes cast by the stockholders of the Company at a meeting of stockholders at which a proposal to amend the Plan is voted upon, (i) increase the maximum number of shares of Stock for which options may be granted under the Plan, (ii) change the formula as to minimum option prices, (iii) extend the period during which options may be granted or exercised, or (iv) except as otherwise provided in the Plan, amend the requirements as to the class of employees eligible to receive options. No termination or amendment of the Plan may, without the consent of an Optionee, adversely affect the rights of such Optionee under any option held by such Optionee. 9. Effectiveness of Plan. The Plan will not be made effective unless approved by a majority of the votes cast by the stockholders of the Company at a meeting of stockholders duly called and held for such purpose or in lieu thereof, pursuant to a unanimous written consent of stockholders, and no option granted hereunder shall be exercisable prior to such approval. 10. Other Actions. Nothing contained in the Plan shall be construed to limit the authority of the Company to exercise its corporate rights and powers, including but not by way of limitation, the right of the Company to grant or assume options for proper corporate purposes other than under the Plan with respect to any employee or other person, firm, corporation or association. EX-10 5 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT -------------------- AGREEMENT dated as of the 24th day of March, 1993, by and between WESTERBEKE CORPORATION, a Delaware corporation (the "Company"), and JOHN H. WESTERBEKE, JR. (the "Executive"). W I T N E S S E T H : --------------------- WHEREAS, the Executive has heretofore served in the employ of the Company and the Company wishes to continue to retain the services of the Executive, and the Executive wishes to continue to serve in the employ of the Company, upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and the mutual agreements hereinafter set forth, the parties hereto hereby agree as follows: 1. Employment, Term, Automatic Extension. 1.1 The Company agrees to employ the Executive, and the Executive agrees to serve in the employ of the Company, for the term set forth in Section 1.2, in the position and with the responsibilities, duties and authority set forth in Section 2 and on the other terms and conditions set forth in this Agreement. 1.2 The term of the Executive's employment under this Agreement shall commence on the date hereof and shall terminate on the fifth anniversary of such date, unless extended or sooner terminated in accordance with this Agreement. 1.3 As of each anniversary of the date of this Agreement (each, an "Automatic Renewal Date"), unless either party shall have given a notice of non-extension not less than two (2) months prior to such Automatic Renewal Date, the term of this Agreement shall be extended automatically for a period of one year to the anniversary of the expiration date of the then- current term of this Agreement. Once a notice of non-extension shall have been given by either party, there shall be no further automatic extension of this Agreement. 2. Position, Duties. The Executive shall serve in the position of Chairman of the Board, President and Chief Executive Officer of the Company. The Executive shall perform, faithfully and diligently, such duties, and shall have such responsibilities, appropriate to said positions, as shall be assigned to him from time to time by the Board of Directors of the Company. The Executive shall report directly to the Board of Directors of the Company. The Executive shall devote his time to the performance of his duties and responsibilities hereunder during the normal working hours of executive employees of the Company; provided that the Executive may devote reasonable amounts of time to service as a director, member of an executive or other committee of a board of directors or member of an advisory committee of any organization, to charitable and community activities and to management of his personal investments, provided that such activities do not involve a conflict of interest with the Company or interfere with the performance by the Executive of his duties and responsibilities under this Agreement. 3. Salary, Bonus, Deferral of Compensation. 3.1 Salary. During the term of this Agreement, in consideration of the performance by the Executive of the services set forth in Section 2 and his observance of the other covenants set forth herein, the Company shall pay the Executive, and the Executive shall accept, a base salary at the rate of $141,750 per annum, payable in accordance with the standard payroll practices of the Company. 3.2 Increases in Salary. (A) The base salary set forth in Section 3.1 above shall be adjusted annually (but not decreased) on each anniversary of the date of this Agreement by multiplying such base salary by a fraction, the numerator of which shall be the Consumer Price Index (as herein defined) for the month preceding the month in which such adjustment is to be made, and the denominator of which shall be the Consumer Price Index for February 1993. As used herein, the term "Consumer Price Index" shall refer to the Consumer Price Index for Urban Wage Earners and Clerical Workers - United States - All Items (C.P.I.-W)(1982-1984 = 100) published by The Bureau of Labor Statistics, U.S. Department of Labor. (B) In addition to the increases in base salary set forth above in Section 3.2(A), the Executive shall be entitled to such additional increases in base salary during the term hereof as shall be determined by the Board of Directors of the Company in its sole discretion. 3.3 Bonus. The Board of Directors of the Company, in its sole discretion, may grant the Executive a bonus opportunity in one or more fiscal years during the term of this Agreement. The grant of a bonus opportunity shall take into account such factors as the Board of Directors shall deem appropriate, including performance of the Company and the Executive in the fiscal year most recently ended and total compensation paid to chief executive officers of manufacturing concerns with sales and earnings comparable to that of the Company. 3.4 Deferral of Compensation. (A) The Executive may elect to have all or any part of his base salary and bonus paid as deferred compensation by filing a written notice of election with the Company prior to commencement of the year or other fiscal period with respect to which such compensation is payable. Any such election shall be irrevocable. Any deferred compensation will bear interest at a rate equal to the Prime Rate as published in the Wall Street Journal on the first business day of each calendar quarter, plus four (4) percentage points, commencing on January 2 of the year following the year with respect to which such compensation is earned, compounded quarterly, until paid. The aggregate amount allocable to the Executive as deferred compensation shall be payable to the Executive in five (5) annual installments commencing on the first day of March following the year in which the Executive retires or otherwise ceases to be actively employed by the Company, for whatever cause. If the Executive dies before receiving any or all of the installments of deferred compensation to which he is entitled, any unpaid installments shall be paid as they become due to such person or persons and in such proportions as the Executive may have expressly designated in the last unrevoked written designation of beneficiary or beneficiaries delivered by him to the Company, or if no such unrevoked written designation exists, as the Executive may have expressly designated by his last will and testament, otherwise to the Executive's estate. (B) All payments of deferred compensation shall be paid in cash from the general funds of the Company and no special or separate fund shall be established and no other segregation of assets shall be made to assure the payment of any deferred compensation. The Company may make such investments as it may deem desirable to aid it in meeting its obligations hereunder. The Executive, however, shall have no right, title, or interest whatsoever in or to such investments, if any. Nothing contained in this Section 3.4, and no action taken pursuant to the provisions of this Section 3.4, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and the Executive or any other person. To the extent that any person acquires a right to receive payments from the Company under this Agreement, such right shall be no greater than the right of an unsecured general creditor of the Company. 4. Benefits, Perquisites. 4.1 Expense Reimbursement. During the term of this Agreement, the Company shall reimburse the Executive for all reasonable out-of-pocket expenses incurred by him in connection with the performance of his duties hereunder, upon the presentation of proper accounts therefor in accordance with the Company's policies. Such expenses shall include (i) travel expenses of the Executive's spouse incurred in connection with the Executive's performance of his duties hereunder, (ii) annual membership dues for a yacht club of his choice, (iii) tax advice and preparation and financial counseling and (iv) an annual medical examination. 4.2 Automobile. During the term of this Agreement the Company shall provide the Executive with use of an automobile and shall pay or reimburse the Executive for costs of insurance, gasoline, maintenance and repair of such automobile. A new automobile shall be provided for use by the Executive not less than every three (3) years. 4.3 Benefits. During the term of this Agreement, the Company will reimburse the Executive for the premiums for the long-term disability insurance policy and long-term care insurance policy described in Schedule A. The Executive will be eligible to participate in all employee benefit plans and programs offered by the Company from time to time to its employees of comparable seniority (including any stock option plans and deferred compensation plans), subject to the provisions of such plans and programs as in effect from time to time. 5. Split-Dollar Life Insurance. 5.1 In addition to any other insurance which may now or hereafter be provided by the Company on the life of the Executive under any group contract or otherwise, the Company shall provide and pay premiums for the split-dollar life insurance policies on the life of the Executive described in Schedule A. Such policies shall be owned by the Executive or by a trust for the benefit of the Executive or members of the immediate family of the Executive, and shall be obtained immediately upon the execution of this Agreement. The Company shall be obligated to pay the full annual premiums on the split-dollar life insurance policies as shown on Schedule A. The aggregate amount of premiums paid by the Company shall constitute a non- recourse indebtedness of the Executive to the Company payable only out of the death benefit or cash value of such policies as hereinafter set forth. The Executive or the trust, as the case may be, will execute and deliver to the Company a collateral assignment of the policies on a form approved by the insurance company which is the issuer. The Company will be entitled to satisfy the indebtedness owed to it when and to the extent that the policies are surrendered or the proceeds thereof are paid at death, and shall release the collateral assignment pro tanto upon such satisfaction. 5.2 The Executive agrees that: (i) upon his death, the portion of such death benefit equal to the aggregate amount of premiums paid by the Company prior to his death shall be paid to the Company; (ii) dividends under such policies shall be applied to purchase paid-up additional insurance; (iii) neither the Company, the Executive nor the trust shall terminate or surrender the policies or any part thereof or withdraw from or be loaned any part of the cash value of such policies prior to the Company's receipt of payment of the aggregate amount of premiums paid by the Company for such policies; (iv) neither the Executive nor the trust shall transfer legal or beneficial ownership of the policies or use the policies as security for any loan; (v) the Executive shall, to the extent possible, take such action as is necessary to cause: (a) the terms of the policies to satisfy the requirements of this Section 5.2; (b) the issuer of the policies to pay the amounts in the manner described above; and (c) the trust to satisfy and be bound by the provisions of this Section 5.2. 5.3 Any provision of this Agreement to the contrary notwithstanding, the Company shall have the right to suspend or defer payment of premiums in whole or part, or to require the Executive to permit borrowing against the cash value of the policies for the purpose of paying such premiums in whole or part, if such suspension, deferral or borrowing is essential to the liquidity needs of the Company and is approved by the Board of Directors and the stockholders of the Company. 5.4 The Company, the Executive and the trust shall enter into a Split Dollar Agreement containing the foregoing terms and other standard terms. 6. Termination of Employment. 6.1 Death. In the event of the death of the Executive during the term of this Agreement, the Company shall continue to pay to the estate or other legal representative of the Executive the base salary provided for in Section 3 (at the annual rate then in effect) until the expiration of a period of three (3) months from the date of the Executive's death. The Company shall also pay to the Executive any bonus payable to the Executive in accordance with Section 3.3. Rights and benefits of the estate or other legal representative of the Executive under the benefit plans and programs of the Company shall be determined in accordance with the provisions of such plans and programs. Neither the estate or other legal representative of the Executive nor the Company shall have any further rights or obligations under this Agreement, except as provided in Section 15. 6.2 Disability. If the Executive shall become incapacitated by reason of sickness, accident or other physical or mental disability and shall be unable to perform his normal duties hereunder for a period of six (6) consecutive months, then, at any time following the conclusion of such six (6) month period, the employment of the Executive hereunder may be terminated by the Company or the Executive, upon thirty (30) days notice to the other. In the event of such termination, the Company shall (i) continue to pay to the Executive the base salary provided for in Section 3 (at the annual rate then in effect) until the expiration of a period of six (6) months from the date of such termination and (ii) thereafter, until the first to occur of (A) the expiration of a period of sixty (60) months following the end of the period specified in clause (i), (B) the termination of the Executive's disability or (C) the death of the Executive, in monthly installments on the first day of each month, an amount equal to the excess of (x) fifty percent (50%) of the monthly base salary in effect at the time of the termination of his employment with the Company over (y) the monthly amount, if any, of benefits actually paid to the Executive under any disability plan or policy maintained or paid for by the Company. The Company shall also pay to the Executive any bonus payable to the Executive in accordance with Section 3.3. The Company shall continue to carry group life and health insurance coverage for the Executive from the date of termination of employment through the expiration of the applicable period referred to in clause (ii) of the preceding sentence. Rights and benefits of the Executive under the other benefit plans and programs of the Company shall be determined in accordance with the terms and provisions of such plans and programs. Neither the Executive nor the Company shall have any further rights or obligations under this Agreement, except as provided in Sections 7, 8, 9, and 15. 6.3 Due Cause. The employment of the Executive hereunder may be terminated by the Company at any time for Due Cause (as hereinafter defined). In the event of such termination, the Company shall pay to the Executive the base salary provided for in Section 3 (at the annual rate then in effect) accrued to the date of such termination and not theretofore paid to the Executive. The Company shall also pay to the Executive any bonus payable to the Executive in accordance with Section 3.3. Rights and benefits of the Executive under the benefit plans and programs of the Company shall be determined in accordance with the provisions of such plans and programs. For purposes hereof, "Due Cause" shall mean (i) willful, gross neglect or willful, gross misconduct in the Executive's discharge of his duties and responsibilities under this Agreement, or (ii) the Executive's conviction of a felony; provided, however, with respect to clause (i) that the Executive shall be given written notice by a majority of the Board of Directors of the Company that it intends to terminate the Executive's employment for Due Cause under clause (i), which written notice shall specify the act or acts upon the basis of which the majority of the Board of Directors of the Company intends so to terminate the Executive's employment, and the Executive shall then be given the opportunity, within fifteen (15) days of his receipt of such notice, to have a meeting with the Board of Directors of the Company to discuss such act or acts. The Executive shall be given seven (7) days after such meeting within which to cease or correct the performance (or nonperformance) giving rise to such written notice and, upon failure of the Executive within such seven (7) days to cease or correct such performance (or nonperformance), the Executive's employment by the Company shall automatically be terminated hereunder for Due Cause. Neither the Executive nor the Company shall have any further rights or obligations under this Agreement, except as provided in Sections 7, 8, 9, and 15. 6.4 Other Termination by the Company. The Company may terminate the Executive's employment at any time for whatever reason it deems appropriate; provided, however, that in the event that such termination is not pursuant to Sections 6.1, 6.2, 6.3 or 6.5, the Company shall pay to the Executive, on the date of such termination, a lump sum amount in cash and without discount, equal to the base salary provided for in Section 3 (at the annual rate then in effect) which would have been payable from the date of termination through the last day of the term of this Agreement (as in effect immediately prior to such termination). The Executive shall be under no obligation to seek subsequent employment and upon obtaining subsequent employment shall be under no obligation to offset any amounts earned from such subsequent employment (whether as an employee, a consultant or otherwise) against such lump sum payments. The Company shall also pay to the Executive any bonus payable in accordance with Section 3.3. The Company shall continue to pay any premiums payable on split-dollar life insurance policies on the life of the Executive in accordance with Section 5.1 during the period from the date of termination through the last day of the term of this Agreement (as in effect immediately prior to such termination) and the Company shall continue to carry group life and health insurance coverage for the Executive for the same period. Rights and benefits of the Executive under the other benefit plans and programs of the Company shall be determined in accordance with the provisions of such plans and programs. Neither the Executive nor the Company shall have any further rights or obligations under this Agreement, except as provided in Sections 7, 8, 9 and 15. 6.5 Voluntary Termination. The Executive may terminate his employment with the Company at any time upon thirty (30) days' prior written notice to the Company. In the event of such termination, the Company shall pay to the Executive the base salary provided for in Section 3 (at the annual rate then in effect) accrued to the date of such termination and not theretofore paid to the Executive. The Company shall also pay to the Executive any bonus payable in accordance with Section 3.3. Rights and benefits of the Executive under the benefit plans and programs of the Company shall be determined in accordance with the provisions of such plans and programs. Neither the Executive nor the Company shall have any further rights or obligations under this Agreement, except as provided in Sections 7, 8, 9 and 15. 6.6 Constructive Termination. Anything herein to the contrary notwithstanding, if the Company: (A) demotes the Executive to a lesser position than provided in Section 2; (B) causes a material change in the nature or scope of the authorities, powers, functions, duties or responsibilities attached to the Executive's position as described in Section 2; (C) decreases the Executive's salary or bonus below the level provided for in Section 3.1 (taking into account increases in salary made from time to time in accordance with Section 3.2); (D) fails to obtain the agreement of a successor company to assume the obligations of the Company under this Agreement as required by Section 10.1; (E) relocates the executive offices of the Company to a location more than twenty-five (25) miles from Avon, Massachusetts; or (F) fails to cause the Executive to be elected to the Board of Directors of the Company; then such action (or inaction) by the Company, unless consented to in writing by the Executive, shall constitute a termination of the Executive's employment by the Company pursuant to Section 6.4. Notwithstanding the preceding sentence, within thirty (30) days after learning of the action (or inaction) constituting the basis for this constructive termination of employment, the Executive shall (unless he gives written consent thereto) advise the Company in writing that the action (or inaction) constitutes a termination of his employment pursuant to Section 6.4, in which event the Company shall have thirty (30) days in which to correct such action (or inaction) and if the Company does so correct such action (or inaction) the Executive shall not be entitled to terminate his employment under this Section as a result of such action (or inaction). 6.7 Termination of Employment Following a Change in Control. The Executive may terminate his employment with the Company during the one (1) year period following a Change in Control, and in the event of such termination, the Company shall pay to the Executive, on the date of such termination, a lump sum amount in cash equal to three (3) times the Executive's average annual cash compensation (salary and bonus) during the most recent five (5) taxable years of the Company ending before the date of such termination (or during such portion of such period as the Executive was employed by, or rendered services for, the Company), less $1,000. The Executive shall be under no obligation to seek subsequent employment and upon obtaining subsequent employment shall be under no obligation to offset any amounts earned from such subsequent employment (whether as an employee, a consultant or otherwise) against such lump sum payment. The Company shall continue to carry group life and health insurance coverage for the Executive for a three (3) year period following termination of employment. The Company shall also pay to the Executive any bonus payable to the Executive in accordance with Section 3.3. The Company shall continue to pay any premiums payable on split-dollar life insurance policies on the life of the Executive in accordance with Section 5.1 for a three (3) year period following termination of employment. Rights and benefits of the Executive under the other benefit plans and programs of the Company shall be determined in accordance with the terms and provisions of such plans and programs. Such termination of employment shall be deemed to constitute a termination of the Executive's employment by the Company other than for Due Cause pursuant to Section 6.4. For purposes of this Agreement, a Change in Control of the Company shall be deemed to have occurred if: (A) a "person" (meaning an individual, a partnership, or other group or association as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, other than the Executive or a group including the Executive), acquires more than fifty percent (50%) of the combined voting power of the outstanding securities of the Company having a right to vote in elections of directors and such acquisition shall not have been approved within sixty (60) days following such acquisition by a majority of the Continuing Directors (as hereinafter defined) then in office; or (B) Continuing Directors shall for any reason cease to constitute a majority of the Board of Directors of the Company; or (C) the business of the Company is disposed of by the Company to a party or parties other than a subsidiary or other affiliate of the Company, in which the Company owns less than a majority of the equity, pursuant to a partial or complete liquidation of the Company, sale of assets (including stock of any subsidiary of the Company) or otherwise, and such disposition shall not have been approved in advance by a majority of the Continuing Directors then in office. For purposes of this Agreement, the term "Continuing Director" shall mean a member of the Board of Directors of the Company who either was a member of the Board of Directors on the date hereof or who subsequently became a Director and whose election, or nomination for election, was approved by a vote of at least two-thirds of the Continuing Directors then in office. 7. Confidential Information. 7.1 The Executive shall, during the term of this Agreement and at all times thereafter, treat as confidential and, except as required in the performance of his duties and responsibilities under this Agreement, not disclose, publish or otherwise make available to the public or to any individual, firm or corporation any confidential material (as hereinafter defined). The Executive agrees that all confidential material, together with all notes and records of the Executive relating thereto, and all copies or facsimiles thereof in the possession of the Executive, are the exclusive property of the Company and the Executive agrees to return such material to the Company promptly upon the termination of the Executive's employment with the Company. 7.2 For purposes hereof, the term "confidential material" shall mean all information acquired by the Executive in the course of the Executive's employment with the Company in any way concerning the products, projects, activities, business or affairs of the Company or the Company's customers, including, without limitation, all information concerning trade secrets and the products or projects of the Company and/or any improvements therein, all sales and financial information concerning the Company, all customer and supplier lists, all information concerning projects in research and development or marketing plans for any such products or projects, and all information in any way concerning the products, projects, activities, business or affairs of customers of the Company which is furnished to the Executive by the Company or any of its agents or customers, as such; provided, however, that the term "confidential material" shall not include information which (a) becomes generally available to the public other than as a result of a disclosure by the Executive, (b) was available to the Executive on a non-confidential basis prior to his employment with the Company or (c) becomes available to the Executive on a non-confidential basis from a source other than the Company or any of its agents or customers provided that such source is not bound by a confidentiality agreement with the Company or any of such agents or customers. 8. Interference with the Company. The Executive acknowledges that the services to be rendered by him to the Company are of a special and unique character. The Executive agrees that, in consideration of his employment hereunder, the Executive will not, during the term of this Agreement and thereafter for a period of one (1) year commencing on the date of termination of his employment with the Company, (i) solicit or entice or endeavor to solicit or entice away from the Company any person who was an officer, employee or consultant of the Company, either on his own account or for any person, firm, corporation or other organization, whether or not such person would commit any breach of his contract of employment by reason of leaving the service of the Company, and the Executive agrees not to employ, directly or indirectly, any person who was an officer or employee of the Company or who by reason of such position at any time is or may be likely to be in possession of any confidential information or trade secrets relating to the businesses or products of the Company or (ii) solicit or entice or endeavor to solicit or entice away from the Company any present or prospective customer of the Company. For purposes hereof, "prospective customer" shall refer to a customer with whom the Company has had significant contact regarding the provision of products or services during the three (3) month period preceding the termination of the Executive's employment hereunder. 9. Equitable Relief. In the event of a breach or threatened breach by the Executive of any of the provisions of Sections 7 or 8 of this Agreement, the Executive hereby consents and agrees that the Company shall be entitled to an injunction or similar equitable relief from any court of competent jurisdiction restraining the Executive from committing or continuing any such breach or threatened breach or granting specific performance of any act required to be performed by the Executive under any of such provisions, without the necessity of showing any actual damage or that money damages would not afford an adequate remedy and without the necessity of posting any bond or other security. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies at law or in equity which it may have. 10. Successors and Assigns. 10.1 Assignment by the Company. The Company shall require any successors (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. As used in this Section, the "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law and this Agreement shall be binding upon, and inure to the benefit of, the Company, as so defined. 10.2 Assignment by the Executive. The Executive may not assign this Agreement or any part thereof without the prior written consent of a majority of the Board of Directors of the Company; provided, however, that nothing herein shall preclude one or more beneficiaries of the Executive from receiving any amount that may be payable following the occurrence of his legal incompetency or his death and shall not preclude the legal representative of his estate from receiving such amount or from assigning any right hereunder to the person or persons entitled thereto under his will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to his estate. The term "beneficiaries", as used in this Agreement, shall mean a beneficiary or beneficiaries so designated to receive any such amount or, if no beneficiary has been so designated, the legal representative of the Executive (in the event of his incompetency) or the Executive's estate. 11. Governing Law. This Agreement shall be deemed a contract made under, and for all purposes shall be construed in accordance with, the laws of the Commonwealth of Massachusetts applicable to contracts to be performed entirely within such State. 12. Entire Agreement. This Agreement contains all the understandings and representations between the parties hereto pertaining to the subject matter hereof and supersedes all undertakings and agreements, whether oral or in writing, if any there be, previously entered into by them with respect thereto. 13. Amendment, Modification, Waiver. No provision of this Agreement may be amended or modified unless such amendment or modification is agreed to in writing and signed by the Executive and by a duly authorized representative of the Company other than the Executive. Except as otherwise specifically provided in this Agreement, no waiver by either party hereto of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar provision or condition at the same or any prior or subsequent time, nor shall the failure of or delay by either party hereto in exercising any right, power or privilege hereunder operate as a waiver thereof to preclude any other or further exercise thereof or the exercise of any other such right, power or privilege. 14. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or any breach thereof, shall, except as provided in Section 9, be settled by arbitration in accordance with the rules of the American Arbitration Association then in effect and judgment upon such award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitration shall be held in the area where the Company then has its principal place of business. The arbitration award shall include attorneys' fees and costs to the prevailing party. 15. Advance of Defense Expenses. In the event of any action, proceeding or claim against the Executive arising out of his serving or having served in his capacity as an officer and/or director of the Company, which in the Executive's sole judgment requires him to retain counsel (such choice of counsel to be made in his sole and absolute discretion) or otherwise expend his personal funds for his defense in connection therewith, the Company shall be obligated to advance to the Executive (or pay directly to his counsel) counsel fees and other costs associated with the Executive's defense of such action, proceeding or claim; provided, however, that in such event the Executive shall first agree in writing, without posting bond or collateral, to repay all sums paid or advanced to him pursuant to this Section 15 in the event that the final disposition of such action, proceeding or claim is one for which the Executive would not be entitled to indemnification pursuant to the provisions of the laws of the State of Delaware or the Certificate of Incorporation or By-laws of the Company. 16. Notices. Any notice to be given hereunder shall be in writing and delivered personally or sent by certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or at such other address as such party may subsequently designate by like notice: If to the Company: Westerbeke Corporation 41 Ledin Drive Avon Industrial Park Avon, Massachusetts 02322 If to the Executive: John H. Westerbeke, Jr. 108 Ridgewood Road Milton, Massachusetts 02186 17. Severability. Should any provision of this Agreement be held by a court or arbitration panel of competent jurisdiction to be enforceable only if modified, such holding shall not affect the validity of the remainder of this Agreement, the balance of which shall continue to be binding upon the parties hereto with any such modification to become a part hereof and treated as though originally set forth in this Agreement. The parties further agree that any such court or arbitration panel is expressly authorized to modify any such unenforceable provision of this Agreement in lieu of severing such unenforceable provision from this Agreement in its entirety, whether by rewriting the offending provision, deleting any or all of the offending provision, adding additional language to this Agreement, or by making such other modifications as it deems warranted to carry out the intent and agreement of the parties as embodied herein to the maximum extent permitted by law. The parties expressly agree that this Agreement as so modified by the court or arbitration panel shall be binding upon and enforceable against each of them. In any event, should one or more of the provisions of this Agreement be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions hereof, and if such provision or provisions are not modified as provided above, this Agreement shall be construed as if such invalid, illegal or unenforceable provisions had never been set forth herein. 18. Withholding. Anything to the contrary notwithstanding, all payments required to be made by the Company hereunder to the Executive or his beneficiaries, including his estate, shall be subject to withholding of such amounts relating to taxes as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation. In lieu of withholding such amounts, in whole or in part, the Company, may, in its sole discretion, accept other provision for payment of taxes as permitted by law, provided it is satisfied in its sole discretion that all requirements of law affecting its responsibilities to withhold such taxes have been satisfied. 19. Survivorship. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 20. Titles. Titles of the sections of this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the title of any section. * * * IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. WESTERBEKE CORPORATION By: /s/ John H. Westerbeke, Jr. --------------------------- John H. Westerbeke, Jr. President By: /s/ Thomas M. Haythe -------------------- Thomas M. Haythe Assistant Secretary BY: /s/ John H. Westerbeke, Jr. --------------------------- John H. Westerbeke, Jr. SCHEDULE A ---------- Long-Term Disability Insurance ------------------------------ To Be Agreed Upon Long-Term Care Insurance ------------------------ To Be Agreed Upon Split Dollar Life Insurance --------------------------- Policy Issuer Number - ----------------------------------------------------------- New York Life Insurance Company 44 823 379 Massachusetts Mutual Life Insurance Company 8 858 303 Northwestern Mutual Life Insurance Company 12 445 394 Guardian Life Insurance Company of America 372 8105 12 19456.3 00735-09999 19456.3 00735-09999 EX-10 6 TERMS OF EMPLOYMENT Terms of Employment of Carleton F. Bryant III by Westerbeke Corporation 1. Position is Chief operating Officer (COO) reporting to the Chief Executive officer (CEO). Corporate titles held are Vice President, Treasurer and Secretary, as may be modified. 2. Responsibility is for all operations except research and development/product engineering and for business development and strategy. 3. Salary is $94,500 per year. Annual salary increases are not offered or contemplated. The compensation philosophy for this position is that additional compensation should come from good or better earnings quality accompanied by good or better cash management, thus justifying related incentive payments. 4. Participation in the company-wide quarterly bonus program, which may be modified from time to time or discontinued. 5. An incentive payment to be divided equally among each pay period during the two year period following release of the 10-K each year in accordance with the formula below, but subject to the limits described: Incentive = 94500*(20*(100*earnings/net sales)-60)*(average of 12 months' actual audited ending cash balances) / (average of 12 months' planned ending cash balances) Limits: A) The Chief Executive Officer has the sole and exclusive right to override the above formula and modify the incentive according to his reasonable subjective appraisal. B) This incentive is not earned and is non-vesting. No incentive payments will become due to the executive upon or after date of separation for any reason. C) No annual incentive shall exceed 30% of the increase in earnings between the year of award and the prior year. D) No annual incentive shall exceed $150,000. E) End of period cash balances to be reduced by overdue accounts payable. 6. As soon as practical after starting employment, non-qualified stock options to buy 100,000 shares of Westerbeke Corporation at the then market price will be granted according to the Company's Stock Option Plan (vesting over five years), subject to similar terms and conditions as applicable to other officer employees. 7. Two weeks vacation first year and three weeks thereafter, subject to advance notice to CEO. 8. Valid business expenses to be supported by receipts and approve by CEO. 9. Execution of an agreement in form attached. 10. No other executive perks are offer. 11. Beyond those itemized herein, the only other terms of employment are those stated in the standard employee handbook, which may be modified from time to time. 12. This is an "at will" employee/employer relationship which either party may terminate at any time, for any reason. /s/ Carleton F. Bryant III /s/ John H. Westerbeke - -------------------------- ---------------------- So agreed So Agreed Carleton F. Bryant III John H. Westerbeke Jr. President Westerbeke Corporation May 14, 1993 May 14, 1993 - ------------ ------------ Date Date AGREEMENT dated as of May 14, 1993 by and between Westerbeke Corporation (the "Company"), a corporation organized under the laws of the State of Delaware, and Carleton F. Bryant III (the "Employee"), residing at 4 Arden Road, Wellesley, MA 02181. For all purposes of this Agreement the term "Company" shall include the subsidiary corporations of the Company, except where the context shall otherwise require. In consideration of the employment of the Employee by the company and of the covenants and agreements contained herein, and for the other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Confidentiality. The Employee acknowledges and agrees that certain of the business and affairs of, and certain information of, the Company is of a confidential and proprietary nature. The Employee further acknowledges and agrees that during the course of his employment with the Company he will receive, develop or learn of certain secret, proprietary and confidential information of the Company not previously known to him and not known or used generally, including without limitation, information concerning the technology utilized by and developed by the Company, trade secrets, know- how, and other proprietary information concerning the business affairs; marketing activities (including pricing information), manufacturing methods, techniques for preparation and use of products, designs, styles, customs, methods of sale and distribution of products, suppliers and customers of the Company. The Employee agrees that during his employment with the Company and forever thereafter he will not, without the written consent of the Company or except as required by law in connection with any judicial or administrative proceeding, disclose to any third party, and will keep in strict secrecy and confidence and treat as the property of the Company, any and all such information, knowledge or other data relating to the Company, whether or not such information knowledge or other data is in written form, that the Employee may receive, develop or learn in the course of his employment by or relations with the Company, or which he has received, developed or learned in the past in the course of his employment by or relations with the Company, which has not been unrestrictedly disclosed by the company or is not generally or publicly known (other than as a result of the unauthorized disclosure by the Employee). 2. Inventions, Processes and Other Materials. (a) While the Employee is employed by the Company and whether he shall make or develop them individually or jointly with others or on his own time or on the time of the Company, all inventions which the Employee may make or in which he may participate relating to the affairs and business of the Company and all trade secrets, processes, know-how, practices, designs, technologies, and methods which the Employee may develop or in which he may participate relating to the affairs and business of the Company shall belong to and shall be owned by the Company. At the request of the Company and without further consideration, the Employee agrees that he shall expressly assign to the Company all his right, title and interest in and to each such invention, trade secret, process, know-how, practice, design, technology, and method and shall sign all papers and do all other acts necessary, at the Company's expense, to assist the Company to obtain patents on or otherwise perfect the Company's right, title and interest in and to each such invention, trade secret, process, know-how, practice, design, technology, and method in any and all countries. The Company shall have the exclusive worldwide right to exploit commercially all products embodying such inventions, trade secrets, processes, know-how, practices, designs, technologies or methods and the Employee agrees not to exploit commercially any product embodying any such item or otherwise use any such item in any research or other application. The Employee shall disclose to the Company all inventions, trade secrets, processes, know-how, practices, designs, technologies, and methods relating to the affairs and business of the Company of which he becomes aware during the period of his employment. (b) All papers, reports, notes, test results, other writings and documents and apparatus relating to the affairs and business of the Company, including those prepared or made by the Employee, shall be the exclusive property of the company. (c) All copyrightable material relating to the aforesaid business of the Company which the Employee produces, composes or writes, individually or in collaboration with others while employed by the Company whether made on the Company's time or his own time, shall belong to and shall be owned by the Company. At the request of the Company and without further consideration the Employee agrees that he shall expressly assign to the Company all his right, title and interest in and to such copyrightable material and shall sign all papers and do all other acts necessary, at the expense of the Company, to assist the Company to obtain copyrights on or otherwise perfect the Company's right, title and interest in and to such material in any and all countries. 3. Non-competition. Following the termination of his employment for affiliation with the Company for any reason, the Employee covenants and agrees (i) for a period of three years following such termination, not to engage, directly or indirectly, whether as principal, agent, representative consultant, stockholder (not including an investment of less than five percent in the publicly traded stock of any corporation), partner, employee, or otherwise in the United States (of if the Employee's employment is with a subsidiary of the company located in a foreign jurisdiction, then, in addition, in such foreign jurisdiction), in any activity or business venture which is competitive with the business or businesses conducted by the Company at the time of the termination of his employment or affiliation with the Company, (ii) for a period of three years following such termination, not to solicit or entice or endeavor to solicit or entice anyway from the Company any director, officer or employee of the Company either on his own account or for any person, firm, corporation or other organization, (iii) for a period of three years following such termination, not to employ, directly or indirectly, any person who at the time of termination of his employment or affiliation with the company was a director, officer or employee of the Company and who by reason of such position is or may be likely to be in possession of any confidential information or trade secrets relating to the businesses or activities of the Company, (iv) for a period of three years following such termination, not to solicit business from any person, firm, corporation, or other organization which, to the best of his knowledge at the time of the termination of his employment or affiliation with the company, has contracted for the products or services of the Company or is in the process, of negotiating with the Company concerning such products or services, whether on his own account or for any person, firm, corporation or other organization, and (v) that he shall not take any action intended, directly or indirectly, to impair the good will of the Company or the business reputation or good name of the Company or to be otherwise detrimental to the interests of the Company, including any action intended, directly or indirectly, to benefit a competitor of the Company. 4. Enforceability. It is the intention of the Employee and the Company that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies of each jurisdiction in which enforcement is sought, but that the unenforceability of any provision or provisions of this Agreement shall not render unenforceable, or impair, the remainder of this Agreement. Accordingly, if any provision hereof is determined to be invalid or unenforceable, either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provision and to alter the remainder of this Agreement in order to render it valid and enforceable. 5. Specific Performance. It is recognized and agreed by the Company and the Employee that the remedy at law, including and award of monetary damages, will be inadequate and will not compensate the Company for the harm caused by any breach or nonperformance of this Agreement by the Employee. Accordingly, the Employee consents and agrees that his obligations hereunder shall be enforceable by an order of any court of competent jurisdiction requiring specific performance by the Employee of his duties and obligations hereunder and, further, that the Company shall be entitled to an injunction to be issued by any court of competent jurisdiction, restraining him from continuing or committing any violation of such duties and obligations, all without the necessity of proving irreparable harm of actual damage. 6. Assignment. Upon the sale of all or substantially all the assets, business and good will of the Company, or upon the merger or consolidation of the Company into another corporation, this Agreement shall bind and inure to the benefit of both the Employee and the acquiring, succeeding or surviving corporation, as the case may be. 7. No Entitlement to Employment. The Employee acknowledges that his employment may be terminated by the Company or by the Employee at any time and for any reason. Nothing contained herein shall constitute an agreement on the part of the Company to employ or otherwise retain the services of the Employee for any period of time. In addition, the Employee agrees that nothing herein shall confer upon the Employee any right to continue in the employ of the Company. 8. Return of Materials. Upon the termination of his employment or affiliation with the Company for any reason, the Employee agrees to return to the Company all documents, materials, equipment, credit cards and other items which belong to the Company. If the Employee shall fail to return any such items to the Company, the Company may withhold the reasonable value thereof from any payments that may be due to the Employee, or take other action to recover the property or its value. 9. Notices. Any notice or other communication under or in connection with this Agreement shall be in writing and shall be delivered personally or by certified or registered mail addressed to the respective parties as follows: (a) If to the Company: Avon Industrial Park, Avon, Massachusetts 02322 Attention: President (b) If to the Employee: at the address appearing at the head of this Agreement. Either of the above addresses may be changed at any time on notice given as provided above. 10. Entire Agreement and Amendment. This Agreement sets forth the entire understanding of the parties hereto with, respect to the subject matter hereof, and no modification or amendment to this Agreement shall be binding on the parties unless in writing and signed by the parties. 11. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which, taken together, shall be considered one document. 12. Governing Law. This Agreement shall be governed by an construed in accordance with the laws of the State of Massachusetts applicable to agreements made and to be performed entirely with such State. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. WESTERBEKE CORPORATION By: Chief Operating Officer ----------------------- Title Carleton F. Bryant III ---------------------- Employee EX-21 7 SUBSIDIARY OF WESTERBEKE CORPORATION Exhibit 21 Subsidiary of Westerbeke Corporation ------------------------------------ Westerbeke International, Inc., a U.S. Virgin Islands corporation, which qualifies as a foreign sales corporation. EX-23 8 CONSENT OF INDEPENDENT AUDITORS Exhibit 23 KPMG LLP 99 High Street Telephone 617 988 1000 Telefax 617 988 0800 Boston, MA 02110-2371 Consent of Independent Auditors ------------------------------- The Board of Directors and Stockholders of Westerbeke Corporation: We consent to the incorporation by reference in the Registration Statements (File No. 33-24435 and 333-25687) on Form S-8 of Westerbeke Corporation of our report dated December 17, 1999 relating to the consolidated balance sheets of Westerbeke Corporation and subsidiary as of October 23, 1999 and October 24, 1998, and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended October 23, 1999, and related schedule, which report appears in the October 23, 1999 annual report on Form 10-K of Westerbeke Corporation. By /s/ KPMG LLP --------------- Boston, Massachusetts January 18, 2000 EX-27 9 FINANCIAL DATA SCHEDULE
5 0000796502 WESTERBEKE CORP. 1 12-MOS OCT-23-1999 OCT-23-1999 1,739,300 0 2,502,100 59,200 5,640,200 10,972,000 6,088,100 4,060,800 15,383,500 3,355,600 0 0 0 21,900 11,358,700 15,383,500 29,113,700 29,113,700 22,550,600 22,550,600 5,724,500 0 (59,700) 1,285,400 489,400 796,000 0 0 0 796,000 .42 .39
-----END PRIVACY-ENHANCED MESSAGE-----