UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 2001
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 0-18083
Williams Controls, Inc.
(Exact name of registrant as specified in its charter)
Delaware 84-1099587
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14100 SW 72nd Avenue, Portland, Oregon 97224
- --------------------------------------- ----------
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code:
(503) 684-8600
Indicate by 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 that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the registrant's common stock as of January
31, 2002: 19,928,522
Williams Controls, Inc.
Index
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets, December 31, 2001
(unaudited) and September 30, 2001 1
Unaudited Consolidated Statements of Operations,
three months ended December 31, 2001 and 2000
(as restated) 2
Unaudited Consolidated Statements of Cash Flows,
three months ended December 31, 2001 and 2000
(as restated) 3
Notes to Unaudited Consolidated Financial Statements 4-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8-11
Part II. Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature Page 12
Part I
Item 1.
Williams Controls, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except share and per share information)
December 31,
2001 September 30,
(unaudited) 2001
------------------- ---------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,069 $ -
Trade and other accounts receivable, less allowance of $397 and
$379 at December 31, 2001 and September 30, 2001, respectively 6,520 8,231
Inventories, net 5,011 4,725
Prepaid and other current assets 1,263 1,222
------------------- ---------------------
Total current assets 13,863 14,178
Property plant and equipment, net 11,273 11,729
Investment in and note receivable from affiliate 3,065 3,065
Goodwill and intangible assets, net 36 36
Other assets 459 331
------------------- ---------------------
Total assets $ 28,696 $ 29,339
=================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 8,922 $ 9,434
Accrued expenses 9,419 9,048
Current portion of long-term debt and capital leases 13,372 13,146
Convertible subordinated debt, net 2,092 2,082
------------------- --------------------
Total current liabilities 33,805 33,710
Long-term debt and capital lease obligations 155 205
Other liabilities, Primarily employee benefit obligations 6,350 6,132
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock ($.01 par value, 50,000,000 authorized;
78,200 issued and outstanding at December 31, 2001
and 78,400 at September 30, 2001) 1 1
Common stock ($.01 par value, 50,000,000 authorized;
19,928,522 issued at December 31, 2001 and 19,921,114 at
September 30, 2001 199 199
Additional paid-in capital 23,069 23,069
Accumulated deficit (31,627) (30,721)
Other comprehensive loss - Pension liability adjustment (2,379) (2,379)
Treasury stock (130,200 shares at December 31, 2001
and September 30, 2001) (377) (377)
Note receivable (500) (500)
------------------- --------------------
Total shareholders' equity (deficit) (11,614) (10,708)
------------------- --------------------
Total liabilities and shareholders' equity (deficit) $ 28,696 $ 29,339
=================== ====================
The accompanying notes are an integral part of these balance sheets.
1
Williams Controls, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except share and per share information)
(unaudited)
Three months Three months
Ended Ended
December 31, December 31,
2001 2000
-------------- --------------
Net sales $11,419 $14,979
Cost of sales 8,728 12,624
-------------- --------------
Gross margin 2,691 2,355
Operating expenses:
Research and development 964 945
Selling 242 428
Administration 1,656 2,415
Loss on impairment of assets - PPT - 1,996
-------------- --------------
Total operating expenses 2,862 5,784
-------------- --------------
Loss from operations (171) (3,429)
Other (income) expenses:
Interest expense 940 1,073
Other (income) expense, net (29) (8)
-------------- --------------
Total other expenses 911 1,065
-------------- --------------
Loss from continuing operations before
income tax (1,082) (4,494)
Income tax - -
-------------- --------------
Net loss from continuing operations (1,082) (4,494)
Discontinued operations:
Gain from exchange of building for debt of
the previously discontinued agricultural
equipment segment 417 -
-------------- --------------
Net loss (665) (4,494)
Dividends on preferred stock (241) (147)
-------------- --------------
Net loss allocable to common
shareholders $ (906) $(4,641)
============== ==============
Net loss per common share from continuing
operations - basic $ (0.07) $ (0.23)
Net income per common share from discontinued
operations - basic 0.02 -
-------------- --------------
Net loss per common share - basic $ (0.05) $ (0.23)
============== ==============
Weighted average shares used in per share
calculation - basic 19,926,022 19,790,914
============== ==============
Net loss per common share from continuing
operations - diluted $ (0.07) $ (0.23)
Net income per common share from discontinued
operations - diluted 0.02 -
-------------- --------------
Net loss per common share - diluted $ (0.05) $ (0.23)
============== ==============
Weighted average shares used in per share
calculation - diluted 19,926,022 19,790,914
============== ==============
The accompanying notes are an integral part of these statements.
2
Williams Controls, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Three months Three months
Ended Ended
December 31, December 31,
2001 2000
-------------- ---------------
Cash flows from operating activities:
Net loss $ (665) $ (4,494)
Adjustments to reconcile net loss
to net cash provided by operations:
Depreciation and amortization 1,067 967
Gain from discontinued operations (417) -
Loss from impairment of assets - 1,996
Changes in working capital:
Receivables, net 1,711 626
Inventories (286) 901
Accounts payable and accrued expenses (382) 564
Other (230) 355
-------------- ---------------
Net cash provided by operating activities 798 915
Cash flows from investing activities:
Payments for property, plant and equipment (118) (187)
-------------- ---------------
Net cash used in investing activities (118) (187)
Cash flows from financing activities:
Net borrowings (payments) of debt and lease
obligations 389 (611)
Preferred dividends - (147)
-------------- ---------------
Net cash provided by (used in) financing
activities 389 (758)
Net increase (decrease) in cash and cash
equivalents 1,069 (30)
Cash and cash equivalents at beginning of
period - 30
-------------- ---------------
Cash and cash equivalents at end of period $ 1,069 $ -
-------------- ---------------
-------------- ---------------
Supplemental disclosure of cash flow
information:
Interest paid $ 182 $ 545
-------------- ---------------
Income taxes paid (refund) $ - $ (158)
-------------- ---------------
Supplemental disclosure of non-cash
investing and financing activities:
Dividends accrued not paid $ 241 $ -
-------------- ---------------
The accompanying notes are an integral part of these statements.
3
Williams Controls, Inc.
Notes to Unaudited Consolidated Financial Statements
Three Months ended December 31, 2001 and 2000
(Dollars in thousands, except share and per share amounts)
Cautionary Statement: This report, including these Notes to Unaudited
Consolidated Financial Statements, contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include, without limitation, those statements
relating to development of new products, the financial condition of the
Company, the ability to increase distribution of the Company's products,
integration of businesses the Company acquires, disposition of any current
business of the Company. These forward-looking statements are subject to
the business and economic risks faced by the Company including, its ability
to renegotiate its outstanding debt commitments and its ability to conclude
a proposed equity offering, the ability of the Company to generate or
obtain sufficient working capital to continue its operations. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of the factors described above and
other factors described elsewhere in this report.
1. Organization
Williams Controls, Inc., including its wholly-owned subsidiaries, Williams
Controls Industries, Inc. ("Williams"); Aptek Williams, Inc. ("Aptek");
Premier Plastic Technologies, Inc. ("PPT"); ProActive Acquisition
Corporation ("ProActive"); GeoFocus, Inc. ("GeoFocus"); NESC Williams, Inc.
("NESC"); Williams Technologies, Inc. ("Technologies"); Williams World
Trade, Inc. ("WWT"); Kenco/Williams, Inc. ("Kenco"); Techwood Williams,
Inc. ("TWI"); Agrotec Williams, Inc. ("Agrotec") and its 80% owned
subsidiaries Hardee Williams, Inc. ("Hardee") and Waccamaw Wheel Williams,
Inc. ("Waccamaw") is hereinafter referred to as the "Company" or
"Registrant."
2. Interim Consolidated Financial Statements
The unaudited interim consolidated financial statements have been prepared
by the Company and, in the opinion of management, reflect all material
adjustments which are necessary to a fair statement of results for the
interim periods presented. The interim results are not necessarily
indicative of the results expected for the entire fiscal year. Certain
information and footnote disclosures made in the last annual report on Form
10-K have been condensed or omitted for the interim consolidated
statements. Certain costs are estimated for the full year and allocated to
interim periods based on activity associated with the interim period.
Accordingly, such costs are subject to year-end adjustment. It is the
Company's opinion that, when the interim consolidated statements are read
in conjunction with the September 30, 2001 annual report on Form 10-K, the
disclosures are adequate to make the information presented not misleading.
The interim consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
3. Going Concern Matters
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. At December
31, 2001, essentially all of the Company's $8,922 of trade accounts payable
was significantly past due, the working capital deficit was ($19,942), and
the Company stockholders' equity was a deficit of ($11,614). Additionally,
in February 2001 the Company raised $4,576, net of expenses, from a private
placement of debt in the form of $4,950 of secured subordinated debentures,
which are due March 1, 2002, bearing interest at 12%. The interest was
deferred until the maturity of the underlying notes. The Company does not
anticipate it will be able to make the principal and interest payments when
due on March 1, 2002. The Company also ceased making payments of preferred
stock dividends in the second quarter of fiscal 2001. Also, as described in
Note 7 of Notes to the Unaudited Consolidated Financial Statements, the
Company was not in compliance with the covenants of its credit agreement
with its primary bank at December 31, 2001. The credit agreement matured on
July 11, 2001, and the Company has obtained extensions on this debt through
June 30, 2002. As a result, the Company has classified the $7,028 owed to
its primary bank as a current liability at December 31, 2001.
To improve liquidity, the Company has entered into a letter of intent with
American Industrial Partners (AIP) whereby AIP would invest approximately
$10,000, less fees and expenses, into the Company pursuant to a new Series
B Convertible Preferred Stock offering. See Note 8 of Notes to Unaudited
Consolidated Financial Statements. Completion of the proposed financing
transaction is subject to a number of conditions, including, without
limitation, customary due diligence and consent to the transaction by the
holders of the Company's outstanding convertible subordinated debt, secured
subordinated and Series A preferred stock. Following completion of a
definitive agreement and upon closing of the transaction, AIP will be
entitled to hold a majority of seats on the Company's Board of Directors.
This investment by AIP is expected to improve significantly the Company's
liquidity, however no assurances can be given that this transaction, or any
other transaction, will ultimately be completed. Until the transaction is
completed, the Company will continue to have a significant lack of
liquidity.
The above matters continue to raise doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.
4
4. Comprehensive Income (Loss)
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 130, "Reporting
Comprehensive Income", which requires companies to report a measure of all
changes in equity except those resulting from investments by owners and
distributions to owners. Total comprehensive (loss) for the three months
ended December 31, 2001 and 2000 was ($665) and ($4,494), respectively, and
consisted solely of net loss. As of December 31, 2001, accumulated other
comprehensive loss was ($2,379) and consisted of accumulated benefit
obligations in excess of the plan assets for both the Hourly Employees
Pension plan and the Salaried Employees Pension Plan.
5. Earnings (loss) per Share
Basic earnings per share ("EPS") and diluted EPS are computed using the
methods prescribed by Statement of Financial Accounting Standards No. 128,
"Earnings Per Share". Basic EPS is calculated using the weighted-average
number of common shares outstanding for the period and diluted EPS is
computed using the weighted-average number of common shares and dilutive
common equivalent shares outstanding.
Following is a reconciliation of basic EPS and diluted EPS from continuing
operations:
Three Months Ended Three Months Ended
December 31, 2001 December 31, 2000
-------------------------------- -------------------------------
Per Per
Share Share
Loss Shares Amount Loss Shares Amount
Net loss from continuing
operations $(1,082) $(4,494)
Less-Preferred stock dividends (241) (147)
--------- ---------
Basic EPS-
Net loss allocable to
common shareholders $(1,323) 19,926,022 $ (0.07) $(4,641) 19,790,914 $(0.23)
========= =========
Effect of dilutive securities -
Stock options and warrants - - - -
Convertible preferred stock - - - -
Convertible subordinated debt - - - -
Diluted EPS - --------- ---------- -------- ----------
Net loss allocable to
common shareholders $(1,323) 19,926,022 $ (0.07) $(4,641) 19,790,914 $(0.23)
========= ============ ========= ========= =========== =========
At December 31, 2001 and 2000, the Company had options and warrants
covering 6,188,736 and 3,690,629 shares, respectively of the Company's
common stock outstanding that were not considered in the respective
dilutive EPS calculations since they would have been antidilutive. In both
periods, conversion of the preferred shares and convertible subordinated
debt would have been antidilutive and therefore was not considered in the
computation of diluted earnings per share.
6. Inventories
Inventories consisted of the following:
December 31, September 30,
2001 2001
------------------- ---------------------
Raw material $3,288 $3,056
Work in process 904 932
Finished goods 819 737
=================== =====================
$5,011 $4,725
=================== =====================
Finished goods include component parts and finished product ready for
shipment.
7. Debt
On June 30, 1998, the Company restructured its credit facility with a bank
(the "Bank") to consist of a revolving credit facility of up to $16,500, a
$3,100 term loan (Term Loan I) and a $2,700 real estate loan. In December
1998, the Company borrowed $2,500 under Term Loan II. In July 1999, the
Company borrowed $2,500 under Term Loan III. In February 2000, the Company
borrowed $1,000 as an overadvance of its credit agreement (Term Loan IV).
Under the revolver, the Company can borrow up to $8,500 (pursuant to the
credit agreement, as amended) based upon a borrowing base availability
calculated using specified percentages of eligible accounts receivable and
inventory. The advance under Term Loan II was repaid during 2000. Term
Loans III and IV and a portion of Term Loan I and the Real Estate Loan were
repaid in the Third Quarter of 2001 from sales of the land and building at
the Aptek subisdary and sale of the GeoFocus subsidary. The revolver bears
interest at the Bank's prime rate plus 2.00%, (6.75% at December 31, 2001).
Term Loan I bears interest at the Bank's prime rate plus 2.25%, (7.00% at
December 31, 2001). The loans and the revolving credit facility matured on
July 11, 2001 and were extended through December 31, 2001. Subsequent to
December 31, 2001, the Company obtained an extension of the credit facility
under an amended forbearance agreement until June 30, 2002. Principal
payments on Term Loan I are deferred during the forbearance period unless
the Company does not receive $10 million in gross proceeds from the
issuance of Preferred Stock prior to April 1, 2002, at which time monthly
payments of $50, plus interest, will be required. The Company converted
certain unpaid fees to the Bank to a $397 Bridge Loan, bearing interest at
the Bank's prime rate plus 3.25%. This Bridge Loan is to be repaid with 18
monthly payments of $22, plus interest, beginning April 2002. All loans are
secured by substantially all of the assets of the Company.
5
The loan agreement prohibits payment of dividends by the Company except for
the Series A Preferred dividend, and requires the Company to maintain
minimum working capital of $12,000 and minimum tangible net worth, as
defined, of $11,500. The loan also prohibits additional indebtedness and
common stock repurchases except through the use of proceeds from stock
options exercised, and restricts capital expenditures to an amount not to
exceed $10,500 for the two years ended September 30, 1999 and not to exceed
$2,500 annually thereafter. In addition, the loan limits incremental
operating lease obligations to $600 annually. Fees under the loan agreement
include an unused revolver fee of .25% and a prepayment penalty fee
declining from 3% in 1998 to .5% in the year 2001 and $500 in loan
accommodation fees in connection with the loan extensions granted in 2001.
The prepayment fee is waived if the loan is repaid with proceeds from the
sale of assets or is refinanced with an affiliate of the Bank. At December
31, 2001, the Company was not in compliance with its debt covenants with
the Bank. No waivers have been obtained and the default has not been cured,
however the company has obtained an extension of the forbearance agreement
until June 30, 2002. In connection with this extension, the Company will
pay a $225 fee, which could be reduced to $175 if the Bridge Loan is repaid
before April 1, 2002. Accordingly, all of the debt with the Bank of $7,028
has been classified as current liabilities in the accompanying Consolidated
Balance Sheet at December 31, 2001.
8. Subsequent Events
AIP Letter of Intent
The Company announced it has entered into a letter of intent with American
Industrial Partners (AIP) whereby AIP would invest approximately $10,000,
less fees and expenses, into the Company pursuant to a new Series B
Convertible Preferred Stock offering. Completion of the proposed financing
transaction is subject to a number of conditions, including, without
limitation, customary due diligence and consent to the transaction by the
holders of the Company's outstanding convertible subordinated debt, secured
subordinated and Series A preferred stock. Following completion of a
definitive agreement and upon closing of the transaction, AIP will be
entitled to hold a majority of seats on the Company's Board of Directors.
Gain on Settlement of Debt Obligation
Included in Current portion of long-term debt and capital leases at
December 31, 2001 is $799 related to an obligation of the parent, Williams
Controls, Inc. arising from the discontinued Agricultural Equipment
segment. This obligation is payable to a former owner of the assets of a
portion of the discontinued Agricultural Equipment segment. In January
2002, the Company entered into a letter of intent to transfer to the prior
owner all remaining machinery and inventory for a complete release of the
$799 obligation. The Company's carrying value of the inventory and
machinery and equipment was $0 at December 31, 2001. The Company will
recognize an extraordinary gain (it is estimated that the fair value of the
assets exchanged is insignificant) of $799, or $.04 per share, in the
second quarter of fiscal 2002.
9. Dispositions
PPT
---
In July 2000, the Company entered into an agreement to sell PPT, its
plastic injection-molding subsidiary, subject to certain conditions. This
transaction was not consummated and was terminated. As a result of the
inability to sell PPT and after reviewing PPT's history of operating
problems, workforce levels and profitability, management of PPT terminated
the operations of PPT in the second quarter of fiscal 2001. In the first
fiscal quarter ended December 31, 2000, the Company recorded an impairment
loss on PPT's property, plant, and equipment of $1,996 and established
additional reserves of $100 and $598 for obsolete and excess inventory and
estimated uncollectible accounts receivable, respectively. Net sales and
loss from operations of PPT were $2,200 and $(3,606) for the three months
ended December 31, 2000.
Geofocus
--------
The company sold its GeoFocus subsidiary in the third fiscal quarter of
2001. GeoFocus was consolidated in the accompanying consolidated financial
statements at December 31, 2000. Total assets of GeoFocus at December 31,
2000 were not material to the consolidated financial statements. Net sales
and (loss) of GeoFocus were $128 and $(147) for the three months ended
December 31, 2000.
10. Gain from Discontinued Operations
In December 2001, the Company exchanged a building of its previously
discontinued Agricultural Equipment segment with a carrying value of $0 in
satisfaction of mortgage debt of $417. The resulting gain has been recorded
in discontinued operations on the accompanying statement of operations and
reflected as a gain on sale of buildings, since the fair value of the
building was estimated to equal or exceed the carrying value of the debt.
11. Employee Benefit Plans
In the quarter ended December 31, 2001, the Company recorded $170 as an
estimate of additional liability to participants of the Company's Employee
Stock Ownership Plan. As previously disclosed, the Company's benefit plans
are currently under audit by the Department of Labor (DOL). The Company
continues to cooperate fully with the DOL in regards to the audits but
Management is unable to determine if any additional liability will result
from the audits.
6
12. Segment Information
Three months Three months
Ended Ended
December 31, December 31,
2001 2000
--------------- --------------
Net sales by classes of similar products
Vehicle components $11,296 $14,652
Electrical components and GPS 123 327
--------------- --------------
$11,419 $14,979
=============== ==============
Earnings (loss) from operations
Vehicle components
Before loss on impairment of assets $ 318 $ (241)
Loss on impairment of assets - (1,996)
--------------- -------------
Total vehicle components 318 (2,237)
Electrical components and GPS (489) (1,192)
--------------- --------------
$ (171) $(3,429)
=============== ==============
Identifiable assets
Vehicle components $23,750 $39,033
Electrical components and GPS 1,779 3,726
Corporate 3,167 1,885
--------------- --------------
Total assets - continuing operations 28,696 44,644
=============== ==============
Capital expenditures
Vehicle components $ 118 $ 182
Electrical components and GPS - 5
--------------- --------------
Total capital expenditures $ 118 $ 187
=============== ==============
Depreciation and amortization
Vehicle components $1,002 $ 903
Electrical components and GPS 65 64
--------------- --------------
Total depreciation and amortization $ 1,067 $ 967
=============== ==============
13. Reclassifications
Certain amounts previously reported in the financial statements for the
three months ended December 31, 2000 have been reclassified to conform to
current fiscal year presentation.
7
Item 2.
Williams Controls, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Dollars in thousands, except per share amounts)
Critical Accounting Policies
- ----------------------------
In response to the SEC's Release No. 33-8040, "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies, the Company identified the most
critical accounting principles upon which our financial status depends. The
Company determined the critical principles by considering accounting policies
that involve the most complex or subjective decisions or assessments. The
Company identified the most critical accounting policies to be those related to
impairment of long-lived assets, investments in affiliates, warranty and product
recall, and pensions and post-retirement benefit obligations.
Impairment of Long-Lived Assets
- -------------------------------
We account for the impairment of long-lived assets in accordance with Financial
Accounting Standards Board (FASB) Statement No. 121 and, beginning in fiscal
year 2003, will account for it in accordance with FASB Statement No. 144. The
Company tests for impairment using undiscounted cash flows and calculates the
amount of impairment using discounted cash flows. Estimates of future cash flows
require judgment and may change based on, among other things, the market for our
products, technology advances, and customer relationships.
Investments in Affiliates
- -------------------------
The Company has investments in and notes receivables from Ajay of $3,065 at
December 31, 2001. We account for the investment using the equity method and in
accordance with Emerging Issues Task Force 99-10. We review the valuation and
recoverability of investments in equity affiliates in accordance with Accounting
Principles Board (APB) Opinion 18. The measurement of impairment is based on the
estimated fair value of our investment. The value of our investment and notes
receivable in Ajay could decline if Ajay's financial results worsen and we are
not able to collect on the guarantee of Tom Itin which supports this investment.
Warranty and Product Recall
- ---------------------------
The Company provides a warranty covering defects arising from products sold. The
Company has established a warranty reserve based on historical return rates of
products. In addition, the Company issued a product recall in late fiscal year
2001. The Company recorded a reserve for this product recall based on estimates
of number of units to be returned and the estimated costs to repair. While
management believes the estimates used are reasonable, they are subject to
change and such change could be material.
Pensions and Post-retirement Benefit Obligations
- ------------------------------------------------
The Company accounts for pensions and post-retirement benefits in accordance
with FASB Statement No. 87 and FASB Statement No. 106. FASB Statement No. 87
requires us to calculate our pension expense and liabilities using actuarial
assumptions, including a discount rate assumption and a long-term asset rate
return assumption. Changes in interest rates and market performance can have a
significant impact on our pension expense and future payments. FASB Statement
No. 106 requires the Company to accrue the cost of post-retirement benefit
obligations. The accruals are based on interest rates and the costs of health
care. Changes in interest rates and health care costs could impact
post-retirement expenses and future payments.
Financial Position and Capital Resources
Financial Condition, Liquidity and Capital Resources
At December 31, 2001, essentially all of the Company's $8,922 of trade accounts
payable was significantly past due, the working capital deficit was ($19,942),
and the Company stockholders' equity was a deficit of ($11,614). Additionally,
in February 2001 the Company raised $4,576, net of expenses, from a private
placement of debt in the form of $4,950 of secured subordinated debentures,
which are due March 1, 2002, bearing interest at 12%. The interest was deferred
until the maturity of the underlying notes. The Company does not anticipate it
will be able to make the principal and interest payments when due on March 1,
2002. The Company also ceased paying of preferred stock dividends in the second
quarter of fiscal 2001. Also, as described in Note 7 of Notes to the Unaudited
Consolidated Financial Statements, the Company was not in compliance with the
covenants of its credit agreement with its primary bank at December 31, 2001.
The credit agreement matured on July 11, 2001, and the Company has obtained
extensions on this debt through June 30, 2002. As a result, the Company has
classified the $7,028 owed to its primary bank as a current liability at
December 31, 2001.
The Company has outstanding past due payables with essentially all of its
suppliers of raw materials, components and services and is currently on C.O.D.
or prepayment status with essentially all of its vendors. Although the Company
has not experienced any significant supply disruptions in the past several
months, and is not anticipating any, these vendors could decide, as a result of
the past due payables, to discontinue or delay the Company's supply of raw
materials, components and services which could cause a disruption in the
Company's production and operations. Such disruption or delay could materially
adversely affect the Company's business, prospects, financial condition and
results of operation.
At December 31, 2001, the Company's contractual obligations consisted of bank
debt of $7,028, capital leases of $819, debt of discontinued operations of $799,
Secured Subordinated debt and Convertible Subordinated debt, excluding debt
discount, of $4,950 and $2,140, respectively. All of this debt except for $155
of capital leases is shown as a current liability because the debt is due within
the next twelve months or is in default. The Company also has operating lease
commitments which at December 31, 2001 are due $530 in 2002, $287 in 2003, and
$93 in 2004. The Company does not have any material letters of credit, purchase
commitments, or debt guarantee outstanding as of December 31, 2001.
To improve liquidity, the Company has entered into a letter of intent with
American Industrial Partners (AIP) whereby AIP would invest approximately
$10,000, less fees and expenses, into the Company pursuant to a new Series B
Convertible Preferred Stock offering. See Note 8 of Notes to Unaudited
Consolidated Financial Statements. Completion of the proposed financing
transaction is subject to a number of conditions, including, without limitation,
customary due diligence and consent to the transaction by the holders of the
Company's outstanding convertible subordinated debt, secured subordinated and
Series A preferred stock. Following completion of a definitive agreement and
upon closing of the transaction, AIP will be entitled to hold a majority of
seats on the Company's Board of Directors.
An investment such as that currently under consideration by AIP would
significantly improve the liquidity of the corporation, however no assurances
can be given that this transaction, or any other investment transaction, will
ultimately be completed. Until the transaction is completed, or another
alternative becomes available, the Company will continue to have a significant
lack of liquidity.
The above matters continue to raise a substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.
Cash increased $1,069 at December 31, 2001 compared to September 30, 2001
because of cash flow from operations and as a result of borrowing an additional
$1,000 at December 31, 2001, under the Company's revolving bank agreement to use
for normal operating requirements while the Company finalized the second
amendment to the forbearance agreement with its primary bank. The second
amendment to the forbearance agreement was finalized on January 8, 2002.
Cash flow from operations remained positive in the quarter ended December 31,
2001 at $798, but declined from $915 for the quarter ended December 31, 2000.
Cash from operations improved through a reduction in the loss in the quarter
ended December 31, 2001 over the corresponding prior year's quarter. The overall
reduction in cash generated from operations was a result of a reduction in the
cash generated from net changes in working capital. The Company generated cash
of $2,446 from net changes in working capital in the quarter ended December 31,
2000, compared to a cash generation of $813 from net changes in working capital
in the quarter ended December 31, 2001. The positive cash flow from operations
for the first fiscal quarter of 2002 differs from the net loss from operations
primarily because of non cash operating expenses of $1,067 for deprecation and
amortization, a decrease in receivables of $1,711, offset by the extraordinary
gain from discontinued operations of $417, an increase in inventory of $286, and
a decrease in accounts payable and accrued expenses of $382.
Cash flow from financing activities was $389 for the quarter ended December 31,
2001 compared to a use of $758 for the quarter ended December 31, 2000. The net
source of funds was primarily due to the borrowing of $1,000 at December 31,
2001 under the revolving loan agreement discussed above offset by payments
against borrowings during the quarter.
8
Williams Controls, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Dollars in thousands, except per share amounts)
Financial Position and Capital Resources
Financial Condition, Liquidity and Capital Resources
Market Risk
- -----------
The Company may be exposed to future interest rate changes on its debt. The
Company does not believe that a hypothetical 10 percent change in end of period
interest rates would have a material effect on the Company's cash flow.
Recent FASB Pronouncements
- --------------------------
In June 2000 the FASB issued Statement of Financial Accounting Standards No.
138, "Accounting for Certain Derivative Instruments and Hedging Activities an
amendment of FASB Statement No. 133" ("SFAS 138"). In June 1999 the FASB issued
Statement of Financial Accounting Standards No. 137, Accounting for Derivative
Instruments and Hedging Activities." ("SFAS 137") SFAS 137 is an amendment to
SFAS 133, "Accounting for Derivative Instruments and hedging Activities." SFAS
133, as amended by SFAS 137 and 138 establishes accounting and reporting
standards for all derivative instruments. SFAS 133 and 138 are effective for
fiscal years beginning after June 15, 2000. The Company adopted SFAS 138 in 2001
and it did not have any material impact on the Company's financial position or
results of operations.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method will be prohibited on a prospective basis only. SFAS
142 changes the accounting for goodwill from an amortization method to an
impairment-only approach. Thus, amortization of goodwill, including goodwill
recorded in past business combinations, will cease upon adoption of that
Statement, which for the Company was October 1, 2001. As of October 1, 2001, the
Company did not have any significant remaining goodwill. The adoption of SFAS
141 and SFAS 142 did not have a significant impact on the financial condition or
results of operations of the Company. Goodwill amortization, was $0, and $10 as
of December 31, 2001 and 2000, respectively.
In June and August 2001, the FASB issued SFAS No.'s 143 and 144, "Accounting for
Asset Retirement Obligations" and "Accounting for the Impairment or Disposal of
long-lived Assets." Under SFAS 143, the fair value of a liability for an asset
retirement obligation must be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS 144 retains SFAS 121's ("Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of") fundamental
provisions for the: 1) recognition and measurement of impairment of long-lived
assets to be held and used; and 2) measurement of long-lived assets to be
disposed of by sale. These statements are effective for the Company's fiscal
year ended 2003. The Company has not performed an analysis of the effect of SFAS
143 or 144.
9
Williams Controls, Inc.
Management's Discussion and Analysis of Results of Operations
(Dollars in thousands, except per share amounts)
Results of Operations
Three months ended December 31, 2001 compared to the three months ended December
31, 2000.
Sales
- -----
Total net sales decreased $3,560 to $11,419 in the first quarter of fiscal 2002
from $14,979 in the first quarter of fiscal 2001. Excluding the sales in the
first fiscal quarter of 2001 of the PPT subsidiary, which was shut down in the
second quarter of fiscal 2001, and the sales of the GeoFocus subsidiary, which
was sold in the third quarter of fiscal 2001, (See Note 9 of Notes to
Consolidated Unaudited Financial Statements) net sales decreased $1,232 or 9.7%
primarily due to lower unit sales volumes in the Company's vehicle components
business segment and phasing out a number of the traditional electrical
component products in the electrical components and GPS business segment in the
second half of fiscal 2001.
Net sales in the Vehicle Components segment decreased $3,356, to $11,296 in the
first quarter of fiscal 2002 over the first quarter of fiscal 2001 while the
Electrical Components and GPS business segment experienced a decrease in sales
of $204 to $123 in the first quarter of fiscal 2002.
Excluding the sales volumes of PPT in the first quarter of fiscal 2001, Vehicle
Component segment sales decreased $1,156, or 9.2%. Excluding the sales volumes
of GeoFocus in the first quarter of fiscal 2001, Electrical Components and GPS
segment sales decreased $76, or 38.2%. In the Vehicle Components segment,
approximately half of the decline was due to sales reductions in the Company's
natural gas conversion kit subsidiary, NESC. The remainder of the sales decline
was comprised of lower sales volumes of electronic throttle controls (ETC's) in
the heavy truck and automotive markets as a result of a general slowdown in all
of the major markets the Company's serves. In the Electrical Components and GPS
segment, decreased sales resulted from phasing out a number of its traditional
electrical component products in the second half of fiscal 2001. The Company is
committed to the development and production of sensors and sensor related
products, however, sales from this segment may be significantly lower during
fiscal 2002 as a result of the phase out of the traditional electrical component
products in fiscal 2001.
Gross margin and Impairment Loss
- --------------------------------
Gross margins were $2,691, or 23.5% of net sales, in the first quarter of 2002,
compared to $2,355, or 15.7% of net sales, in the comparable fiscal 2001 period.
Included in the gross margin for the first quarter of fiscal 2001 were negative
gross margins of $776 related to PPT and GeoFocus.
Excluding PPT and GeoFocus, gross margins decreased $440 in the first quarter of
fiscal 2002 over the first quarter of fiscal 2001. As a percent of net sales,
the gross margin of 23.5% of sales in the first fiscal quarter of 2002 was lower
than the 21% of sales, excluding PPT and GeoFocus, in fiscal 2001.
The Company's plastic injection molding and tooling subsidiary (PPT), the
operating results of which are included in the Vehicle Components business unit,
was shut down in the second fiscal quarter of 2001. Net sales, gross margin
(loss) and operating loss for the quarter ended December 31, 2000 were $2,200,
$(853), and $(3,606), respectively. During the first quarter of fiscal 2001
management evaluated the realizability of the assets of PPT based on the
closure. Accordingly, the Company recorded an impairment loss on PPT's property,
plant, and equipment of $1,996 in the quarter ended December 31, 2000. It also
established reserves of $100 and $598 for obsolete and excess inventory and
estimated uncollectible accounts receivable, respectively.
Operating expenses
- ------------------
Operating expenses were $2,862 for the three months ended December 31, 2001
compared to $3,788, excluding the Loss on Impairment of assets at PPT, for the
comparable fiscal 2001 period. Excluding the operating expenses related to PPT
and Geofocus and the PPT impairment loss, operating expenses for the three
months ended December 31, 2000 were $2,807. The higher operating expenses in
fiscal 2002 were due to higher expenses related to the Company's ESOP Plan (See
Note 11 of notes to unaudited Consolidated Financial Statements).
10
Williams Controls, Inc.
Management's Discussion and Analysis of Results of Operations
(Dollars in thousands, except per share amounts)
Results of Operations
Three months ended December 31, 2001 compared to the three months ended December
31, 2000.
Interest and Other Expenses
- ---------------------------
Interest expense decreased $133 to $940 in the first quarter of fiscal 2002 from
$1,073 in the first quarter of fiscal 2001. Lower interest on reduced debt
levels and lower interest rates were partially offset by increased costs of
amortization of the Secured Subordinated Debenture warrant discounts and
providing interest on certain operating liabilities.
The Company recognized no share of equity income (loss) in its affiliate, Ajay,
for the quarters ended December 31, 2001 or 2000 due to unavailability of
information. For the fiscal quarter ended December 31, 2001, the Company's share
of any loss is not expected to be material based on Ajay's previously reported
results for continuing operations for the period ended March 31, 2001 and the
Company's percentage to be used for recording its equity interest in results of
affiliate.
Discontinued Operations-Agricultural Segment
- --------------------------------------------
Included in Current portion of long-term debt and capital leases at September
30, 2001 is $417 related to the discontinued Agricultural Equipment segment. The
$417 related to a mortgage payable on a building of the Agricultural Equipment
segment. The building's carrying value was $0 at September 30, 2001. During the
first quarter of fiscal 2002 the mortgage holder sold the building at auction
for approximately the mortgage value and completely and fully released the
Company from the mortgage. The Company recognized a gain from discontinued
operations of $417 related to the satisfaction of the mortgage. Since the
estimated fair value of the building was equal to or greater than the debt, the
gain was recorded as a gain on sale of building from discontinued operations.
Net earnings available to common shareholders
- ---------------------------------------------
Net loss allocable to common shareholders declined to $(906) in the quarter
ended December 31, 2001 compared to $(4,641) in the comparative prior year
period primarily due to losses included in fiscal 2001 that were not incurred in
the first quarter of fiscal 2002. These losses included losses on impartment of
assets at PPT, other operating losses attributable to PPT and GeoFocus in fiscal
2001.
The effective income tax rate was 0.00% for the quarters ended December 31, 2001
and 2000. The Company is in a net operating loss carryforward position and is
providing a 100% valuation allowance on all deferred tax assets due to going
concern issues.
11
Part II
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
On November 15, 2000, the Company defaulted under the terms of its
credit agreement with the Bank when it failed to repay Term Loans III
and IV in the remaining principal amounts of $694 and $1,000,
respectively, both due on November 15, 2000. As of December 31, 2001,
no waivers have been obtained and the default has not been cured.
Forebearance agreements have been reached with the Bank, most recently
on January 8, 2002 to extend the loans to June 30, 2002. All the debt
with the Bank of $7,028 has been classified as current liabilities in
the accompanying Consolidated Balance Sheet at December 31, 2001.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1(a) Form of Indemnification Agreement for Douglas E.
Hailey
10.1(b) Form of Indemnification Agreement for David S. Eberly
(b) Reports on Form 8-K
None
Exhibit 10.1 (a)
INDEMNITY AGREEMENT
This Agreement is entered into as of this 13th day of March, 2001 by and
between Williams Controls, Inc., a Delaware corporation (hereinafter the
"Company") and Douglas Hailey (hereinafter "Indemnitee").
RECITALS
A. Indemnitee is a director and/or officer of the Company performing
valuable services for it, and the Company is desirous of having Indemnitee
continue to serve in that capacity.
B. The Company, through its Bylaws and Certificate of Incorporation, has
provided for the indemnification of its directors and off icers to the
maximum extent authorized by law.
C. Such Bylaws, the Certificate of Incorporation and the law are not
exclusive, and thereby contemplate that contracts may be entered into
between the Company and its officers and directors with respect to
indemnification.
D. The Company has been unable to obtain Directors' and Officers' Liability
Insurance ("D&O Insurance") for the purpose of protecting its directors and
officers in connection with the services performed by them as directors and
officers with acceptable coverage's at a reasonable cost and it is
uncertain -whether such insurance will be available in the future.
E. Indemnitee has expressed concern that the indemnities available under
the Company's Bylaws, Certificate of Incorporation and D&O Insurance, if
any, may be inadequate to protect him against risks associated with his
service to the Company. The Company and Indemnitee both recognize that the
Bylaws and Certificate of Incorporation are subject to change and that any
D&O Insurance that the Company may obtain likewise would be subject to
change or cancellation. Indemnitee may not be willing to continue in office
in the absence of the benefits to be accorded to Indemnitee under this
Agreement.
F. In order to induce Indemnitee to continue to serve as a director and/or
officer of the Company and in consideration of his continued service, the
Company has determined and agreed to enter into this Agreement to indemnify
Indemnitee as provided herein.
AGREEMENT
1. Indemnification. Subject only to the exclusions set forth in Section 3,
the Company hereby agrees to hold harmless and indemnify Indemnitee:
(a) Against any and all expenses (including attorneys' fees), judgements,
fines, penalties and amounts paid in settlement (including all interest,
assessments and other charges paid or payable in connection with or in
respect of such expenses, judgments, fines, penalties or amounts paid in
settlement) actually and reasonably incurred by Indemnitee in connection
with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (including an
action by or in the right of the Company), to which Indemnitee is, was at
the date hereof or at any time becomes a party or witness, or is threatened
to be made a party or witness, by reason of the fact that Indemnitee is,
was or at any time becomes a director, officer, employee or agent of the
Company (or is or was serving or at any time serves at the request of the
Company as a director, officer, employee, trustee, agent or fiduciary of
another corporation, partnership, joint venture, employee benefit plan,
trust or other enterprise) or by reason of anything done or not done by
that Indemnitee, except with respect to actions instituted by the
Indemnitee unless approved by the board; and
02/20/02 Indemnity Agreement -1-
Exhibit 10.1 (a)
(b) For recovery under any D&O Insurance maintained by the Company,
regardless of whether Indemnitee ultimately is determined to be entitled to
such indemnification, expense advance or insurance recovery, as the case
may be;
(c) Otherwise, to the full extent provided by (i) the Delaware General
Corporation Law or any amendment thereof or any other statutory provision
authorizing or permitting such indemnification that is adopted after the
date of this Agreement and (ii) the Company's Bylaws and Certificate of
Incorporation.
(d) To the extent permitted by law, the term "expenses" as used in this
Agreement shall mean attorneys' fees and all other costs, expenses and
obligations paid or incurred in connection with investigating, defending,
being a witness in or participating in (including an appeal), or preparing
to defend, be a witness in or participate in any event to which the
Indemnitee is entitled to indemnification under this Agreement.
2. Partial Indemnity, Etc. If Indemnitee is entitled under any provision of
this Agreement to indemnification by the Company for some of the expenses,
or a portion of the judgments, fines, penalties and amounts paid in
settlement of an action or claim, but not for the total amount thereof, the
Company nevertheless shall Indemnify Indemnitee for the portion thereof to
which Indemnitee is entitled. Notwithstanding any other provision of this
Agreement, if Indemnitee is successful on the merits or otherwise in
defense of any or all actions or claims, relating in whole or in part to an
indemnifiable event or in defense of any issue or matter therein, including
dismissal without prejudice, Indemnitee shall be indemnified against all
expenses incurred in connection therewith.
3. Exclusions. No indemnity shall be paid by the Company pursuant to this
Agreement:
(a) If a final decision by a Court having jurisdiction in the matter shall
determine that such indemnification is not lawful;
(b) If payment is made to Indemnitee under any D&O Insurance purchased and
maintained by the Company;
(c) For compensation paid to Indemnitee, if it shall be determined by a
final judgment or other final adjudication that such compensation was in
violation of law;
(d) If Indemnitee's conduct is finally adjudged to have been knowingly
fraudulent or deliberately dishonest, which conduct was material to the
cause of action 'so adjudicated;
(e) For any suit in which judgment is rendered against Indemnitee for an
accounting of profits made from the purchase or sale by Indemnitee of
securities of the company under Section 16(b) of the Securities Exchange
Act of 1934 and amendments thereto or similar provisions of any other
statutory or common law; or
(f) For any suit in which the Indemnitee is finally adjudged to have
obtained a personal profit or advantage to which he was not legally
entitled.
4. No Presumption. For purposes of this Agreement, to the fullest extent
permitted by law, the termination of any action, suit or proceeding, by
judgment, order, settlement (whether with or without court approval) or
conviction, or upon a plea of nolo contendere, or its equivalent, shall not
create a presumption that Indemnitee did not meet any particular standard
of conduct or have any particular belief or that a court has determined
that indemnification is not permitted by applicable law.
02/20/02 Indemnity Agreement -2-
Exhibit 10.1 (a)
5. Settlement and Costs. The Company shall not be liable to indemnify
Indemnitee under this Agreement for any costs, or charges or expenses
incurred or amounts paid in settlement of any action or claim effected
without its written consent. The Company shall not settle any action or
claim in any manner, which would impose any penalty or limitation on
Indemnitee without Indemnitee's written consent. Neither the Company nor
Indemnitee will unreasonably withhold their consent.
6. D&O Insurance. The Company agrees that it shall use reasonable efforts
to obtain and maintain in effect for the benefit of Indemnitee a binding
and enforceable policy of D&O Insurance; provided, however, that the
Company shall not be required to obtain or maintain such D&O Insurance if
said insurance is not reasonably available or if in the reasonable business
judgment of the then directors of the Company, either (i) the premium cost
of such insurance is substantially disproportionate to the amount of
coverage, or (ii) the coverage provided by such insurance is so limited by
exclusions that there is insufficient benefit from such insurance.
7. Continuation of Indemnity. All agreements and obligations of the Company
contained herein shall continue during the period Indemnitee is a director,
officer, employee or agent of the Company (or is, or was serving at the
request of the Company as a director, officer, trustee, employee or agent
for another corporation, partnership, joint venture, trust or other
enterprise or any employee benefit plan) and shall continue thereafter so
long as Indemnitee shall be subject to any possible claim or threatened,
pending or completed action, suit or proceeding, whether civil, criminal or
investigative, by reason of the fact that Indemnitee was a director and/or
officer of the Company or serving in any other capacity referred to herein.
8. Payment of Claims. If an obligation under this Agreement is not paid by
the Company, or on its behalf, within 90 days after written notice has been
received by the Company, Indemnitee may at any time thereafter bring suit
against the Company to recover the unpaid amount of the obligation.
9. Subrogation. In the event of payment by or on behalf of the Company
under this Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of recovery of the Indemnitee, who shall
execute all papers required and shall do everything that may be necessary
to secure such rights including the execution of such documents necessary
to enable the Company effectively to bring suit to enforce such rights.
10. Notice. Indemnitee, as a condition precedent to the right to be
indemnified under this Agreement, shall give to the Company notice in
writing as soon as practicable of any claim made for which indemnity will
or could be sought under this Agreement. Notice to the Company shall be
directed to the company, Williams Controls, Inc., 14100 SW 72nd Avenue,
Portland, Oregon 97224, Attention: President (or such other address as the
Company shall designate in writing to Indemnitee); notice shall be deemed
received if sent by prepaid mail properly addressed, the date of such
notice being the date postmarked. In addition, the Indemnitee shall give
the Company such information and cooperation as it may reasonably require
and as shall be within Indemnitee's power.
11. Defense of Claims. With respect to any action, suit or proceeding as to
which Indemnitee is seeking indemnification under this Agreement and as to
'which Indemnitee notifies the Company pursuant to the provisions hereof:
(a) The Company will be entitled to participate therein at its own expense;
and
02/20/02 Indemnity Agreement -3-
Exhibit 10.1 (a)
(b) Except as otherwise provided below, to the extent that it may wish, the
Company, jointly with any othe3r indemnifying party similarly notified will
be entitled to assume the defense thereof, with counsel satisfactory to
Indemnitee. After notice from the Company to Indemnitee of its election so
to assume the defense thereof, the Company will not be liable to Indemnitee
under this Agreement for any legal or other expenses subsequently incurred
by Indemnitee in connection with the defense thereof other than reasonable
costs of. investigation or as otherwise provided below. Indemnitee shall
have the right to employ his counsel in such action, suit or proceeding but
the fees and expenses of such counsel incurred after notice from the
Company of its assumption of the defense thereof shall be at the expense of
Indemnitee unless (i) the employment of counsel by Indemnitee has been
authorized by the Company, (ii) Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and Indemnitee
in the conduct of the defense of such action or (iii) the Company shall not
in fact have employed counsel to assume the defense of such action, in each
of which cases the fees and expenses of counsel shall be at the expense of
the Company. The Company shall not be entitled to assume the defense of any
action, suit or proceeding brought by or on behalf of the Company or as to
which Indemnitee shall have made the reasonable conclusion that there may
be a conflict of interest between the Company and Indemnitee in the conduct
of the defense of such action.
12. Advances and Repayment of Expenses. All reasonable expenses incurred by
Indemnitee in defending or investigating any civil, criminal,
administrative or investigative action, suit. or proceeding shall be paid
in advance of the final disposition of such action, suit, proceeding or
investigation. In addition, the Company may advance expenses incurred by
Indemnitee in connection with the recovery under any D&O Insurance
maintained by the Company, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, expense advance or
insurance recovery, as the case may be. Indemnitee agrees that Indemnitee
will reimburse the Company for all such expense so advanced by the Company
in defending any civil, criminal, administrative or investigative action,
suit or proceeding against Indemnitee in the event and only to the extent
that it shall be ultimately determined that Indemnitee is not entitled to
be indemnified by the Company for such expenses under the provisions of
applicable law, the Bylaws, the Certificate of Incorporation, on this
Agreement or otherwise.
13. Separability. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for reason,
either generally or only in particular circumstances, such invalidity or
unenforceability shall not affect the validity or enforceability of the
other provisions hereof, and any provision held to be invalid or
unenforceable in a particular circumstance shall be valid and enforceable
in all other circumstances to the extent permitted by law.
14. Enforcement. The Company expressly confirms and agrees that it has
entered into this Agreement and has assumed the obligations imposed on it
hereunder in order to induce Indemnitee to continue as a director and/or
officer of the Company, and acknowledges that Indemnitee is relying upon
this Agreement in continuing in such capacity. In any action between the
parties seeking enforcement of any of the terms and provisions of this
Agreement, the prevailing party in that action shall be entitled to its
reasonable costs and expenses, including court costs and reasonable
attorneys' fees in addition to such other relief as may be granted.
15. Non-Exclusivity. Nothing in this Agreement shall diminish or otherwise
restrict any right of Indemnitee to be indemnified under any provision of
the Certificate of Incorporation or Bylaws of the Company or any of its
subsidiaries, any insurance policy, any applicable law, any other agreement
or otherwise.
02/20/02 Indemnity Agreement -4-
Exhibit 10.1 (a)
16. Governing Law: Binding Effect; Amendment and Termination, Etc.
(a) This Agreement shall be interpreted and enforced in accordance with the
laws of the State of Delaware.
(b) This Agreement shall be binding upon Indemnitee and upon the Company,
its successors and assigns, and shall inure to the benefit of Indemnitee,
his heirs, personal representatives and assigns and to the benefit of the
Company, its successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties
hereto.
(d) The Company shall require and cause any successor (whether direct or
indirect by purchase, merger, consolidation or otherwise) to all,
substantially all or a substantial part, of the business and/or assets of
the Company, by written agreement in form and substance satisfactory to the
Indemnitee, expressly 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
WILLIAMS CONTROLS, INC.
By: ________________________________________
Thomas K. Ziegler
President and Chief Executive Officer
INDEMNITEE
By: ________________________________________
Douglas Hailey
Director
02/20/02 Indemnity Agreement -5-
Exhibit 10.1 (a)
AMENDMENT NO. 1
TO INDEMNITY AGREEMENT
This Amendment is entered into between Williams Controls, Inc. (the
"Company") and Douglas Hailey ("Indemnitee") effective the 13th day of
March, 2001, to supplement and amend that certain Indemnity Agreement (the
"Agreement") dated May 18, 1989 between the Company and Indemnitee.
1. The Agreement hereby is amended to delete Section 12 in its entirety and
insert the following in replacement thereof.
12. Advances and Repayment of Expenses: All reasonable expenses incurred by
Indemnitee in defending or investigating any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid in
advance of the final disposition of such action, suit, proceeding or
investigation. In addition, the Company may advance expenses incurred by
Indemnitee in connection with the recovery under any D&O Insurance
maintained by the Company, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, expense advance or
insurance recovery, as the case may be. Indemnitee agrees that Indemnitee
will reimburse the Company for all such expense so advanced by the Company
in defending any civil, criminal, administrative or investigative action,
suit or proceeding against Indemnitee in the event and only to the extent
that it shall be ultimately determined that Indemnitee is not entitled to
be indemnified by the Company for such expenses under the provisions of
applicable law, the Bylaws, the Certificate of Incorporation, this
Agreement or otherwise.
2. All terms and provisions of the Agreement, except as specifically
amended herein, remain in full force and effect and are incorporated herein
by reference.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
WILLIAMS CONTROLS, INC.
By: _________________________________________
Thomas K. Ziegler
President and Chief Executive Officer
INDEMNITEE
By: _________________________________________
Douglas Hailey
Director
02/20/02 Indemnity Agreement -6-
Exhibit 10.1 (b)
INDEMNITY AGREEMENT
This Agreement is entered into as of this 24th day of January, 2002 by and
between Williams Controls, Inc., a Delaware corporation (hereinafter the
"Company") and David S. Eberly (hereinafter "Indemnitee").
RECITALS
A. Indemnitee is a director and/or officer of the Company performing
valuable services for it, and the Company is desirous of having Indemnitee
continue to serve in that capacity.
B. The Company, through its Bylaws and Certificate of Incorporation, has
provided for the indemnification of its directors and off icers to the
maximum extent authorized by law.
C. Such Bylaws, the Certificate of Incorporation and the law are not
exclusive, and thereby contemplate that contracts may be entered into
between the Company and its officers and directors with respect to
indemnification.
D. The Company has been unable to obtain Directors' and Officers' Liability
Insurance ("D&O Insurance") for the purpose of protecting its directors and
officers in connection with the services performed by them as directors and
officers with acceptable coverage's at a reasonable cost and it is
uncertain -whether such insurance will be available in the future.
E. Indemnitee has expressed concern that the indemnities available under
the Company's Bylaws, Certificate of Incorporation and D&O Insurance, if
any, may be inadequate to protect him against risks associated with his
service to the Company. The Company and Indemnitee both recognize that the
Bylaws and Certificate of Incorporation are subject to change and that any
D&O Insurance that the Company may obtain likewise would be subject to
change or cancellation. Indemnitee may not be willing to continue in office
in the absence of the benefits to be accorded to Indemnitee under this
Agreement.
F. In order to induce Indemnitee to continue to serve as a director and/or
officer of the Company and in consideration of his continued service, the
Company has determined and agreed to enter into this Agreement to indemnify
Indemnitee as provided herein.
AGREEMENT
1. Indemnification. Subject only to the exclusions set forth in Section 3,
the Company hereby agrees to hold harmless and indemnify Indemnitee:
(a) Against any and all expenses (including attorneys' fees), judgements,
fines, penalties and amounts paid in settlement (including all interest,
assessments and other charges paid or payable in connection with or in
respect of such expenses, judgments, fines, penalties or amounts paid in
settlement) actually and reasonably incurred by Indemnitee in connection
with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (including an
action by or in the right of the Company), to which Indemnitee is, was at
the date hereof or at any time becomes a party or witness, or is threatened
to be made a party or witness, by reason of the fact that Indemnitee is,
was or at any time becomes a director, officer, employee or agent of the
Company (or is or was serving or at any time serves at the request of the
Company as a director, officer, employee, trustee, agent or fiduciary of
another corporation, partnership, joint venture, employee benefit plan,
trust or other enterprise) or by reason of anything done or not done by
that Indemnitee, except with respect to actions instituted by the
Indemnitee unless approved by the board; and
02/20/02 Indemnity Agreement -1-
Exhibit 10.1 (b)
(b) For recovery under any D&O Insurance maintained by the Company,
regardless of whether Indemnitee ultimately is determined to be entitled to
such indemnification, expense advance or insurance recovery, as the case
may be;
(c) Otherwise, to the full extent provided by (i) the Delaware General
Corporation Law or any amendment thereof or any other statutory provision
authorizing or permitting such indemnification that is adopted after the
date of this Agreement and (ii) the Company's Bylaws and Certificate of
Incorporation.
(d) To the extent permitted by law, the term "expenses" as used in this
Agreement shall mean attorneys' fees and all other costs, expenses and
obligations paid or incurred in connection with investigating, defending,
being a witness in or participating in (including an appeal), or preparing
to defend, be a witness in or participate in any event to which the
Indemnitee is entitled to indemnification under this Agreement.
2. Partial Indemnity, Etc. If Indemnitee is entitled under any provision of
this Agreement to indemnification by the Company for some of the expenses,
or a portion of the judgments, fines, penalties and amounts paid in
settlement of an action or claim, but not for the total amount thereof, the
Company nevertheless shall Indemnify Indemnitee for the portion thereof to
which Indemnitee is entitled. Notwithstanding any other provision of this
Agreement, if Indemnitee is successful on the merits or otherwise in
defense of any or all actions or claims, relating in whole or in part to an
indemnifiable event or in defense of any issue or matter therein, including
dismissal without prejudice, Indemnitee shall be indemnified against all
expenses incurred in connection therewith.
3. Exclusions. No indemnity shall be paid by the Company pursuant to this
Agreement:
(a) If a final decision by a Court having jurisdiction in the matter shall
determine that such indemnification is not lawful;
(b) If payment is made to Indemnitee under any D&O Insurance purchased and
maintained by the Company;
(c) For compensation paid to Indemnitee, if it shall be determined by a
final judgment or other final adjudication that such compensation was in
violation of law;
(d) If Indemnitee's conduct is finally adjudged to have been knowingly
fraudulent or deliberately dishonest, which conduct was material to the
cause of action 'so adjudicated;
(e) For any suit in which judgment is rendered against Indemnitee for an
accounting of profits made from the purchase or sale by Indemnitee of
securities of the company under Section 16(b) of the Securities Exchange
Act of 1934 and amendments thereto or similar provisions of any other
statutory or common law; or
(f) For any suit in which the Indemnitee is finally adjudged to have
obtained a personal profit or advantage to which he was not legally
entitled.
4. No Presumption. For purposes of this Agreement, to the fullest extent
permitted by law, the termination of any action, suit or proceeding, by
judgment, order, settlement (whether with or without court approval) or
conviction, or upon a plea of nolo contendere, or its equivalent, shall not
create a presumption that Indemnitee did not meet any particular standard
of conduct or have any particular belief or that a court has determined
that indemnification is not permitted by applicable law.
02/20/02 Indemnity Agreement -2-
Exhibit 10.1 (b)
5. Settlement and Costs. The Company shall not be liable to indemnify
Indemnitee under this Agreement for any costs, or charges or expenses
incurred or amounts paid in settlement of any action or claim effected
without its written consent. The Company shall not settle any action or
claim in any manner, which would impose any penalty or limitation on
Indemnitee without Indemnitee's written consent. Neither the Company nor
Indemnitee will unreasonably withhold their consent.
6. D&O Insurance. The Company agrees that it shall use reasonable efforts
to obtain and maintain in effect for the benefit of Indemnitee a binding
and enforceable policy of D&O Insurance; provided, however, that the
Company shall not be required to obtain or maintain such D&O Insurance if
said insurance is not reasonably available or if in the reasonable business
judgment of the then directors of the Company, either (i) the premium cost
of such insurance is substantially disproportionate to the amount of
coverage, or (ii) the coverage provided by such insurance is so limited by
exclusions that there is insufficient benefit from such insurance.
7. Continuation of Indemnity. All agreements and obligations of the Company
contained herein shall continue during the period Indemnitee is a director,
officer, employee or agent of the Company (or is, or was serving at the
request of the Company as a director, officer, trustee, employee or agent
for another corporation, partnership, joint venture, trust or other
enterprise or any employee benefit plan) and shall continue thereafter so
long as Indemnitee shall be subject to any possible claim or threatened,
pending or completed action, suit or proceeding, whether civil, criminal or
investigative, by reason of the fact that Indemnitee was a director and/or
officer of the Company or serving in any other capacity referred to herein.
8. Payment of Claims. If an obligation under this Agreement is not paid by
the Company, or on its behalf, within 90 days after written notice has been
received by the Company, Indemnitee may at any time thereafter bring suit
against the Company to recover the unpaid amount of the obligation.
9. Subrogation. In the event of payment by or on behalf of the Company
under this Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of recovery of the Indemnitee, who shall
execute all papers required and shall do everything that may be necessary
to secure such rights including the execution of such documents necessary
to enable the Company effectively to bring suit to enforce such rights.
10. Notice. Indemnitee, as a condition precedent to the right to be
indemnified under this Agreement, shall give to the Company notice in
writing as soon as practicable of any claim made for which indemnity will
or could be sought under this Agreement. Notice to the Company shall be
directed to the company, Williams Controls, Inc., 14100 SW 72nd Avenue,
Portland, Oregon 97224, Attention: President (or such other address as the
Company shall designate in writing to Indemnitee); notice shall be deemed
received if sent by prepaid mail properly addressed, the date of such
notice being the date postmarked. In addition, the Indemnitee shall give
the Company such information and cooperation as it may reasonably require
and as shall be within Indemnitee's power.
11. Defense of Claims. With respect to any action, suit or proceeding as to
which Indemnitee is seeking indemnification under this Agreement and as to
'which Indemnitee notifies the Company pursuant to the provisions hereof:
(a) The Company will be entitled to participate therein at its own expense;
and
02/20/02 Indemnity Agreement -3-
Exhibit 10.1 (b)
(b) Except as otherwise provided below, to the extent that it may wish, the
Company, jointly with any othe3r indemnifying party similarly notified will
be entitled to assume the defense thereof, with counsel satisfactory to
Indemnitee. After notice from the Company to Indemnitee of its election so
to assume the defense thereof, the Company will not be liable to Indemnitee
under this Agreement for any legal or other expenses subsequently incurred
by Indemnitee in connection with the defense thereof other than reasonable
costs of. investigation or as otherwise provided below. Indemnitee shall
have the right to employ his counsel in such action, suit or proceeding but
the fees and expenses of such counsel incurred after notice from the
Company of its assumption of the defense thereof shall be at the expense of
Indemnitee unless (i) the employment of counsel by Indemnitee has been
authorized by the Company, (ii) Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and Indemnitee
in the conduct of the defense of such action or (iii) the Company shall not
in fact have employed counsel to assume the defense of such action, in each
of which cases the fees and expenses of counsel shall be at the expense of
the Company. The Company shall not be entitled to assume the defense of any
action, suit or proceeding brought by or on behalf of the Company or as to
which Indemnitee shall have made the reasonable conclusion that there may
be a conflict of interest between the Company and Indemnitee in the conduct
of the defense of such action.
12. Advances and Repayment of Expenses. All reasonable expenses incurred by
Indemnitee in defending or investigating any civil, criminal,
administrative or investigative action, suit. or proceeding shall be paid
in advance of the final disposition of such action, suit, proceeding or
investigation. In addition, the Company may advance expenses incurred by
Indemnitee in connection with the recovery under any D&O Insurance
maintained by the Company, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, expense advance or
insurance recovery, as the case may be. Indemnitee agrees that Indemnitee
will reimburse the Company for all such expense so advanced by the Company
in defending any civil, criminal, administrative or investigative action,
suit or proceeding against Indemnitee in the event and only to the extent
that it shall be ultimately determined that Indemnitee is not entitled to
be indemnified by the Company for such expenses under the provisions of
applicable law, the Bylaws, the Certificate of Incorporation, on this
Agreement or otherwise.
13. Separability. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for reason,
either generally or only in particular circumstances, such invalidity or
unenforceability shall not affect the validity or enforceability of the
other provisions hereof, and any provision held to be invalid or
unenforceable in a particular circumstance shall be valid and enforceable
in all other circumstances to the extent permitted by law.
14. Enforcement. The Company expressly confirms and agrees that it has
entered into this Agreement and has assumed the obligations imposed on it
hereunder in order to induce Indemnitee to continue as a director and/or
officer of the Company, and acknowledges that Indemnitee is relying upon
this Agreement in continuing in such capacity. In any action between the
parties seeking enforcement of any of the terms and provisions of this
Agreement, the prevailing party in that action shall be entitled to its
reasonable costs and expenses, including court costs and reasonable
attorneys' fees in addition to such other relief as may be granted.
15. Non-Exclusivity. Nothing in this Agreement shall diminish or otherwise
restrict any right of Indemnitee to be indemnified under any provision of
the Certificate of Incorporation or Bylaws of the Company or any of its
subsidiaries, any insurance policy, any applicable law, any other agreement
or otherwise.
02/20/02 Indemnity Agreement -4-
Exhibit 10.1 (b)
16. Governing Law: Binding Effect; Amendment and Termination, Etc.
(a) This Agreement shall be interpreted and enforced in accordance with the
laws of the State of Delaware.
(b) This Agreement shall be binding upon Indemnitee and upon the Company,
its successors and assigns, and shall inure to the benefit of Indemnitee,
his heirs, personal representatives and assigns and to the benefit of the
Company, its successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties
hereto.
(d) The Company shall require and cause any successor (whether direct or
indirect by purchase, merger, consolidation or otherwise) to all,
substantially all or a substantial part, of the business and/or assets of
the Company, by written agreement in form and substance satisfactory to the
Indemnitee, expressly 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
WILLIAMS CONTROLS, INC.
By: ________________________________________
Thomas K. Ziegler
President and Chief Executive Officer
INDEMNITEE
By: ________________________________________
David S. Eberly
Director
02/20/02 Indemnity Agreement -5-
Exhibit 10.1 (b)
AMENDMENT NO. 1
TO INDEMNITY AGREEMENT
This Amendment is entered into between Williams Controls, Inc. (the
"Company") and David S. Eberly ("Indemnitee") effective the 24th day of
January, 2002, to supplement and amend that certain Indemnity Agreement
(the "Agreement") dated May 18, 1989 between the Company and Indemnitee.
1. The Agreement hereby is amended to delete Section 12 in its entirety and
insert the following in replacement thereof.
12. Advances and Repayment of Expenses: All reasonable expenses incurred by
Indemnitee in defending or investigating any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid in
advance of the final disposition of such action, suit, proceeding or
investigation. In addition, the Company may advance expenses incurred by
Indemnitee in connection with the recovery under any D&O Insurance
maintained by the Company, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, expense advance or
insurance recovery, as the case may be. Indemnitee agrees that Indemnitee
will reimburse the Company for all such expense so advanced by the Company
in defending any civil, criminal, administrative or investigative action,
suit or proceeding against Indemnitee in the event and only to the extent
that it shall be ultimately determined that Indemnitee is not entitled to
be indemnified by the Company for such expenses under the provisions of
applicable law, the Bylaws, the Certificate of Incorporation, this
Agreement or otherwise.
2. All terms and provisions of the Agreement, except as specifically
amended herein, remain in full force and effect and are incorporated herein
by reference.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
WILLIAMS CONTROLS, INC.
By: _________________________________________
Thomas K. Ziegler
President and Chief Executive Officer
INDEMNITEE
By: _________________________________________
David S. Eberly
Director
02/20/02 Indemnity Agreement -6-
Williams Controls, Inc.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILLIAMS CONTROLS, INC.
By: /s/ Thomas K. Ziegler
----------------------------
Thomas K. Ziegler
President and
Chief Executive Officer
By: /s/ Dennis E. Bunday
----------------------------
Dennis E. Bunday,
Chief Financial Officer
Date: March 4, 2002
13
Williams Controls, Inc.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILLIAMS CONTROLS, INC.
----------------------------
Thomas K. Ziegler
Presidend and
Chief Executive Officer
----------------------------
Dennis E. Bunday,
Chief Financial Officer
Date: March 4, 2002
14