WILLIAMS CONTROLS, INC.
14100 SW 72nd Avenue
Portland, Oregon 97224
(503) 670-3307
--------------------------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14f-1 PROMULGATED THEREUNDER
--------------------------------
NO VOTE OR OTHER ACTION OF THE SECURITY HOLDERS IS REQUIRED IN
CONNECTION WITH THIS INFORMATION STATEMENT. NO PROXIES ARE BEING
SOLICITED AND YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.
This Information Statement is being mailed on or about June 25, 2002 by Williams
Controls, Inc. ("we," "us" or the "Company"), to holders of record of our Series
A Preferred Stock, 7 1/2% Redeemable Convertible Series, par value $0.01 per
share (the "Series A Stock") and holders of record of our Common Stock. As
described in our Tender Offer Statement on Schedule TO, filed with the
Securities and Exchange Commission on June 11, 2002 (see "Where You Can Get More
Information" below) we have entered into an agreement to sell shares of a newly
designated class of preferred stock, the Series B Preferred Stock (the "Series B
Stock") pursuant to a Stock Purchase Agreement dated May 31, 2002 (the "Stock
Purchase Agreement"), with American Industrial Partners Capital Fund III, L.P.
("AIP"). Under the terms and subject to the conditions of the Stock Purchase
Agreement, AIP has agreed to purchase at least 100,000 shares of Series B Stock
for $100 per share. In addition to the sale of the Series B Stock to AIP, we are
required under the terms of the Stock Purchase Agreement to sell to other
persons at least 25,000 but not more than 50,000 additional shares of our Series
B Stock. We currently do not have any binding commitments from any other persons
to purchase our Series B Stock. The sale of the Series B Stock to AIP and the
other persons who agree to purchase shares of our Series B Stock under the Stock
Purchase Agreement (collectively the "Series B Investors") is subject to
conditions that are described more fully in our Schedule TO, the Offering
Memorandum attached to the Schedule TO as Exhibit 12(a)(1)(i) and the Stock
Purchase Agreement, a copy of which is attached to the Schedule TO as Exhibit
12(d)(1).
If the Series B Investors complete their purchase of shares of Series B Stock,
those investors will be entitled to elect a majority of our board of directors.
We expect that our board of directors will be increased to seven members prior
to the closing of the sale of the Series B Stock; therefore, the Series B
Investors will initially be entitled to elect four of the seven seats on our
board of directors (the "Series B Directors"). The Series B Investors have
informed us that, if their purchase of our Series B Stock closes, they intend to
nominate four persons (the "Nominees") to fill the seats on our board of
directors that have been designated to be filled by Series B Directors. We are
sending you this Information Statement to provide you with certain information
about the Nominees. Unless otherwise defined herein, capitalized terms used in
this Information Statement have the meanings assigned in the Schedule TO and the
exhibits thereto.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14f-1 promulgated
thereunder. References herein to the Schedule TO are to the Schedule TO filed on
June 11, 2002, as amended on June 11, 2002 and as amended from time to time in
the future. We urge you to read this Information Statement carefully. YOU ARE
NOT, HOWEVER, REQUIRED TO TAKE ANY ACTION, AND WE ARE NOT SOLICITING YOUR PROXY.
The information contained in this Information Statement about the Series B
Investors and the Nominees has been furnished to the Company by the Series B
Investors. We assume no responsibility for the accuracy or completeness of that
information.
NOTE REGARDING FORWARD LOOKING STATEMENTS
We are providing the information contained in this Information Statement in part
to discuss with shareholders our expectations about future events that may
affect Williams Controls, Inc. As a result, this Information Statement contains
statements about future expectations that are subject to various risks and
uncertainties. These statements include, among other things, statements about
our expected financial condition, the likelihood that the sale of the Series B
Stock will be consummated and the results if it is concluded successfully, and
various other statements that may affect our operating results and financial
condition. As statements that predict future events, these statements are
inherently uncertain, and we cannot assure you that our actual performance or
the actual outcomes of these future events will be in line with our
expectations. Various events could affect our future performance, and some of
those events are discussed in the Offering Memorandum under the heading entitled
"Risk Factors." Those risk factors are incorporated herein by reference, and you
should read them carefully when considering the information presented in this
Information Statement.
INFORMATION ABOUT THE COMPANY
As of May 31, 2002 our voting securities consisted of 78,200 shares of Series A
Stock and 19,928,522 shares of Common Stock. Each share of Common Stock is
entitled to one vote, and under certain circumstances described in greater
detail in the Offering Memorandum, the holders of the Series A Stock have, and
following the Closing (if it occurs) the holders of the Series A-1 Stock and the
Series B Stock would have, the right to vote on certain matters together with
the holders of the Common Stock on an as-converted basis. As of June 9, 2002, we
also had outstanding 12% Secured Subordinated Debentures, due March 1, 2002, in
the original principal amount of $5,000,000. These debentures are secured by
mortgages on certain real property owned by the Company, subordinate to other
senior indebtedness. In addition, we issued to each purchaser of debentures a
three year warrant to purchase Common Stock at $1.375 per share for each $2.00
of principal amount of debentures purchased. We also issued the placement agent
a three year warrant to purchase shares of Common Stock equal to 7.0% of the
number of warrants issued to the purchasers. The exercise price of the placement
agent warrants is $1.375 per share. Last, as of June 9, 2002, we had outstanding
7.5% Convertible Subordinated Debentures, due March 31, 2003, in an aggregate
principal amount of $2,149,000. These debentures are unsecured obligations,
subordinate to all senior indebtedness. The debentures are convertible into
shares of Common Stock at a conversion price of $2.00 per share. In addition, we
issued to each purchaser of debentures a three year warrant to purchase Common
Stock equal to 20% of the
shares of common stock into which such purchaser's debenture is convertible. The
exercise price of the warrants is $2.375 per share. We issued the placement
agent a five year warrant to purchase shares of the Company's common stock equal
to 7.0% of the total shares of Common Stock issuable upon the conversion of the
debentures. The exercise price of the placement agent warrants is $2.40 per
share.
SECURITIES OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information as of the most recent practicable date,
about the beneficial ownership of our Common Stock and our Series A Preferred
Stock by certain of our directors, executive officers and controlling
shareholders. To the best of our knowledge, each such stockholder has sole
voting and investment power with respect to their holdings unless otherwise
noted.
Common Stock Series A Preferred Stock
Amount Amount
Beneficially Percentage of Beneficially Percentage of
Name & Address of Beneficial Owner Owned Class Owned* Owned Class Owned**
- ---------------------------------- ------------ ----------- ------------ -------------
Thomas W. Itin (1) 5,967,280 30 -0- -0-
7001 Orchard Lake Rd., Suite 424
West Bloomfield, MI 48322-3608
Acrodyne Corporation (2) 1,200,000 6.0 -0- -0-
7001 Orchard Lake Rd., Suite 424
West Bloomfield, MI 48322-3608
H. Samuel Greenawalt (3) (4) 402,500 2.0 -0- -0-
7001 Orchard Lake Rd., Suite 424
West Bloomfield, MI 48322-3608
Douglas E. Hailey (5) 223,961 1.1 250 ***
1171 Maggies Way
Waterbury Center, VT 05677
Timothy S. Itin (6) 77,500 *** -0- -0-
1 Montgomery Street, Suite 3700
San Francisco, CA 94104
David S. Eberly -0- -0- -0- -0-
GMA Capital
32330 West 12 Mile Road
Farmington Hills, MI 48334
Gary P. Arnold (7) 186,860 1.0 500 ***
13940 Atlanta National Drive
Alpharetta, GA 30004
Dennis E. Bunday -0- -0- -0- -0-
14100 Southwest 72nd Ave.
Portland, Oregon 97224
Mark E. Brady (8) 2,379,108 12 15,000 19.2
Robert J. Suttman, II
Ronald L. Eubel
7777 Washington Village Drive
Suite 210
Dayton, OH 45459
Dolphin Offshore Partners, L.P. (9) 2,626,287 13.2 12,750 16.3
c/o Dolphin Management Inc.
129 East 17th Street
New York, NY 10007
All executive officers and directors 6,858,101 34.4 750 1
as a group (7 persons)
- ----------
* Based upon 19,928,522 shares outstanding at May 31, 2002.
** Based upon 78,200 shares outstanding at May 31, 2002.
*** Less than one percent.
(1) Information is based on the Schedule 13G, filed by Mr. Itin with the SEC
on February 14, 2002. Includes: (i) 1,050,000 shares issuable to Mr. Itin
upon exercise of stock options exercisable within 60 days; (ii) 1,200,000
shares owned of record by Acrodyne, a corporation that is indirectly
owned or controlled by Mr. Itin; (iii) 156,719 shares owned by Ajay
Sports, Inc., which Mr. Itin is the chairman, chief executive officer and
an approximately 45.75% shareholder; (iv) 568,000 shares owned of record
by SICO, a Michigan co-partnership, of which Mr. Itin is a partner, and
1,974,000 shares owned of record by TICO, a Michigan co-partnership, of
which Mr. Itin is a partner (400,000 of the shares are held for the
benefit of the Acrodyne Profit Sharing Plan); and (iv) 1,121,751 shares
owned by Williams Controls, Inc., employee benefit plans of which Mr.
Itin is trustee. Mr. Itin disclaims beneficial ownership of shares owned
by Ajay Sports, and of shares held in the Company's employee benefit
plans, other than 13,278 shares in the Company's employee stock ownership
plan and 30,128.614 shares in the Non-Union 401(k) plan allocated for his
benefit.
(2) Acrodyne is a wholly owned subsidiary of TWO International, Inc., which
is partially owned by Mr. Itin. Mr. Itin may be deemed to be a beneficial
owner of the shares of Common Stock owned by Acrodyne Corporation and its
affiliates, and, therefore, these shares are included in the ownership
reported for Mr. Itin in this table. Mr. Itin disclaims beneficial
ownership of these shares.
(3) Includes 62,500 shares of Common Stock issuable upon exercise of
presently exercisable stock options held by Mr. Greenawalt.
(4) Includes 187,500 shares of Common Stock issuable upon exercise of
presently exercisable stock options and 12,500 shares of Common Stock
issuable upon exercise of stock options that are exercisable within 60
days held by Enercorp, Inc., of which Mr Greenawalt is a Director. Mr.
Greenawalt disclaims beneficial ownership of these options.
(5) Includes 9,091 shares issuable upon conversion of the 250 shares of
Series A Stock; 33,810 shares issuable upon exercise of the Debenture
Warrants; 21,810 shares issuable upon exercise of warrants relating to
the Company's Secured Subordinated Debt; and 75,787 shares issuable upon
the exercise of warrants issued in connection with the Company's July
1999 common stock offering.
(6) Includes 62,500 shares issuable upon exercise the exercise of stock
options exercisable within 60 days.
(7) Includes 19,685 shares issuable upon conversion of the 500 shares of
Series A Stock; 51,813 shares issuable upon exercise of the Debenture
Warrants; and 10,362 shares issuable upon the exercise of warrants.
(8) Information is based on the Form 4 filed with the SEC by these
individuals on June 7, 2002. Common stock ownership includes 554,455
shares issuable upon conversion of the 15,000 shares of Series A Stock;
38,181 shares issuable upon the exercise of warrants issued in connection
with the Company's sale of Series A Stock,; 916,000 shares issuable upon
the exercise of warrants issued in connection with the Company's Secured
Subordinated Debt; 140,000 shares issuable upon the exercise of Debenture
Warrants; and, solely in the case of Mr. Suttman, 7,330 shares owned
individually.
(8) Information is based on the Form 3 dated February 23,2001 filed with the
SEC by these individuals. Common stock ownership includes 490,385 shares
issuable upon conversion of the 13,485 shares of Series A Stock;
1,282,091 shares issuable upon the exercise of warrants issued in
connection with the Company's Secured Subordinated Debt; and 61,538
shares issuable upon the exercise of the Debenture Warrants.
Our directors, executive officers and controlling shareholders may participate
in the Exchange Offer and the related Proxy Solicitation on the same basis as
our other holders of Series A Stock. As of the date of this Offering Memorandum,
Mr. Hailey has told us that he intends to tender his shares in the Exchange
Offer and to grant proxies to the Company to vote in favor of the proposal to
consummate that transaction. Mr. Arnold and the controlling shareholders have
not informed us whether they intend to tender their shares in the Exchange Offer
or grant proxies to vote in favor of the proposal.
CHANGES IN CONTROL
We have not experienced a change in control as of the date of this filing.
The sale of the Series B Stock and the related Exchange Offer are described in
the Current Report on Form 8-K filed by the Company with the Commission on June
12, 2002 and in the Schedule TO filed by the registrant with the Commission as
of June 11, 2002 and the respective exhibits incorporated into those filings.
The Schedule TO is being made available to the holders of the Series A Stock by
mail and is otherwise available to shareholders on request from the offices of
the registrant or the Series B Investors. Copies also may be obtained from the
SEC via its EDGAR website at http://www.sec.gov.
If the sale of the Series B Stock is consummated as described in the Stock
Purchase Agreement and the Regulatory Filings, a change in control of the
registrant will occur as described therein. The persons acquiring control; the
amount of consideration used by those persons; the basis of control; the
percentage of voting securities of the registrant to be acquired by the persons
acquiring control; and the identity of the persons from whom control would be
assumed, are described in the Regulatory Filings. The source of funds used for
the acquisition of control is the cash reserves of the Series B Investors.
DIRECTORS AND EXECUTIVE OFFICERS
NOMINEES
The Stock Purchase Agreement provides that the following persons have been
designated as the Nominees. The following sets forth certain information with
respect to the Nominees based on information supplied to the Company by the
Series B Investors, including their names, ages, principal occupations for the
past five years, and their directorships with other corporations.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME AGE FIVE-YEAR EMPLOYMENT HISTORY
---- --- ----------------------------------------------
W. Richard Bingham 67 Mr. Bingham is a Director, the President, the
Treasurer and the Assistant Secretary of
American Industrial Partners Corporation, an
affiliate of AIP. He co-founded AIP Management
Co. and has been a director and an officer of
that entity since 1989. Mr. Bingham is also a
director of Great Lakes Carbon Corp., Bucyrus
International, Inc., Dearfield Associates, RBX
Corporation, Stanadyne Automotive Corp. and
Sweetheart Holdings, Inc.
R. Eugene Goodson, Ph.D. 66 Dr. Goodson has been an Adjunct Professor at
the University of Michigan's School of
Business since September 1998. From October
1997 to September 1998, he was a consultant
with Oshkosh Truck Corporation, a manufacturer
of specialized trucks and transport equipment.
From 1990 until his retirement in October
1997, he was Chairman of the board of
directors and Chief Executive Officer of
Oskosh Truck Corporation.
Kirk R. Ferguson 34 Mr. Ferguson joined the New York office of AIP
in 2001 and serves as a Managing Director of
that firm. Mr. Ferguson was previously a
principal of Saratoga Partners, a private
equity investment firm where he had been
employed from 1997 to 2001. Mr. Ferguson
earned his AB in Quantitative Economics from
Stanford University and his MBA from Harvard
Business School. Mr. Ferguson is a member of
the Investment Committee of AIP. Mr. Ferguson
also is a director of Stanadyne Automotive
Corp.
Nathan L. Belden 32 Mr. Belden joined the San Francisco office of
AIP in 1995 and serves as a Managing Director
and the Chief Financial Officer of that firm.
Mr. Belden previously worked in the Mergers
and Acquisitions Department of Kidder, Peabody
& Co., Inc. in New York. Mr. Belden graduated
summa cum laude from the University of
Colorado, Boulder with a Bachelor of Science
degree in Finance.
CURRENT DIRECTORS
The following table sets forth, as of June 9, 2002, the ages and certain other
information with respect to the current directors of the Company.
NAME AGE DIRECTOR SINCE
---- --- --------------
Thomas W. Itin 66 1988
H. Samuel Greenwalt* 72 1994
Timothy S. Itin 42 1994
Douglas E. Hailey 39 2001
David Eberly* 38 2001
Gary Arnold* 61 2001
* Messrs. Greenwalt, Eberly and Arnold will resign as a director at
closing if the sale of the Series B Stock is consummated.
THOMAS W. ITIN
Mr. Itin was Chairman of the Board, and Chief Executive Officer of the Company
since March 1989 and a Director since inception of the Company in November 1988.
In addition, Mr. Itin was elected President and Treasurer of the Company in June
1993. Mr. Itin retired as President, Chief Executive Officer and Treasurer of
the Company in January 2001. Mr. Itin continues to be the Chairman of the Board
of the Company. Mr. Itin serves on the Cornell University Council and is
Chairman of the Technology Transfer Committee of the Council. Mr. Itin has been
Chairman, President and owner of TWI International, Inc. ("TWI") since he
founded that entity in 1967. TWI acts as consultant for mergers, acquisitions,
financial structuring, new ventures and asset management. Mr. Itin also is the
owner and principal officer of Acrodyne Corporation. In addition, Mr. Itin is
Chairman of the Board and President of LBO Capital Corp. and Ajay Sports, Inc..
Mr. Itin was awarded a Masters of Business Administration degree from New York
University and received a Bachelor of Science degree from Cornell University.
Mr. Itin's term as director expired in 2001; however he continues to serve as
the Company did not hold an annual meeting in 2001. Mr. Thomas Itin will remain
as a director if the sale of the Series B Stock is consummated.
H. SAMUEL GREENAWALT
Mr. Greenawalt has served as a director of the Company and a member of the Audit
Committee of the Board since March 1994. From 1987 until his retirement in June
1994, Mr. Greenawalt served as Senior Vice President, Business Development, for
Michigan National Bank in Detroit, Michigan. Since June 1993, Mr. Greenawalt has
served as a director of Enercorp, Inc., a publicly traded business development
company that owns approximately ten percent of our Common Stock. Mr. Greenawalt
received a Bachelor of Science degree from the Wharton School of the University
of Pennsylvania, and is a graduate of the University of Wisconsin Banking
School. Mr. Greenawalt's term as director expired in 2001; however he continues
to serve as the Company did not hold an annual meeting in 2001 and no successor
has been elected or appointed. Messrs. Greenwalt, Arnold and Eberle will resign
as directors at closing if the sale of the Series B Stock is consummated.
DOUGLAS E. HAILEY
Mr. Hailey has served as a director of the Company and a member of the Audit and
Compensation Committees of the Board since March 2001. Mr. Hailey has been Vice
President of the Investment Banking Division of Taglich Brothers, Inc., a New
York-based full service brokerage firm that specializes in private equity
placements for small public companies. Prior to joining Taglich Brothers, Mr.
Hailey spent five years with Weatherly Financial Group, a small private equity
firm that specialized in sponsoring leveraged buyouts. Prior to Weatherly, Mr.
Hailey spent three years in structured finance lending at Heller Financial and
the Bank of New York, where he completed the Professional Bank Officer Training
Program in 1987. Mr. Hailey received a Bachelors degree in Business
Administration from Eastern New Mexico University and an MBA in Finance from the
University of Texas. Mr. Hailey's term expires in 2002. Mr. Hailey will remain
as a director if the sale of the Series B Stock is consummated.
TIMOTHY S. ITIN
Mr. Itin has served as a director of the Company and a member of the Audit and
Compensation Committees of the Board since March 1994. Since January 1999, he
has been a partner in the investment-banking firm of Thomas Weisel Partners in
San Francisco, California. From July 1998 to December 1998, he was a Principal
in the investment banking firm NationsBank Montgomery Securities, LLC, located
in San Francisco, California. From January 1996 to June 1998, Mr. Itin was a
Managing Director of the investment-banking firm of Volpe Brown Whelan &
Company, LLC, in San Francisco. From 1991 through 1995, Mr. Itin was a Managing
Director of Jensen Securities, an institutional brokerage firm located in
Portland, Oregon, where he served on Jensen's management committee. From 1989 to
1991, he was employed by Laurel Management Partners, a money management
affiliate of Montgomery Securities. From 1983 to 1989, Mr. Itin was a Limited
Partner at Montgomery Securities and worked in the field of investment banking,
institutional trading and full service brokerage in San Francisco. Mr. Itin has
earned the designation of Chartered Financial Analyst (CFA) and received a
Bachelor of Arts degree in economics from Dartmouth College. Mr. Timothy Itin
will remain as a director if the sale of the Series B Stock is consummated.
DAVID S. EBERLY
Mr. Eberly is a Managing Director and co-founder of GMA Capital, Inc., an
investment banking firm that advises closely held businesses in conjunction with
corporate acquisitions, divestitures, joint ventures and private financing.
Since he co-founded GMA Capital in 1988, Mr. Eberly has developed an expertise
in providing financial and strategic advice for cross-border transactions.
Before founding GMA Capital, Mr. Eberly was a vice president for corporate
finance with J.W. Korth & Company, a Michigan-based broker-dealer firm. Mr.
Eberly is a founding shareholder and former director of European Gateway
Acquisition Corp. Mr. Eberly holds a Bachelor of Science degree in Finance and
Management from Miami University (Ohio).
GARY P. ARNOLD
Mr. Arnold retired in 2000 as president, chief executive officer and chairman of
Analogy, Inc., a publicly traded electronics company that was acquired by Avant!
Corporation in March of that year. Mr. Arnold joined Analogy as president, chief
executive officer and chairman in January 1993. Mr. Arnold has extensive
experience in the electronics industry in the areas of finance, strategic
planning and operations, both in domestic and international markets. Mr. Arnold
is a member of the boards of directors of National Semiconductor Corporation and
Axonn Corporation. He holds a J.D. degree from the University of Tennessee
College of Law and a bachelor's degree in Accounting from East Tennessee State
University.
Timothy S. Itin is the son of Thomas W. Itin. There are no other family
relationships among the directors and executive officers of the Company.
MEETINGS OF THE BOARD; COMMITTEES
Our board of directors has designated an Audit Committee and a Compensation
Committee. The Board also created a Special Review Committee in 2001 to manage
the collection of the amounts owed to the Company by Ajay and guaranteed by the
Company's Chairman of the Board, Thomas Itin.
Audit Committee. The Committee monitors the preparation of quarterly, annual and
other financial reports; is responsible for other maters concerning the
relationship between the Company and its independent accountants; and oversees
management's implementation of effective systems of internal controls. The Audit
Committee held four meetings during our 2001 fiscal year. During fiscal 2001 the
Audit Committee members were Mr. Greenawalt, Mr. Timothy Itin, Mr. Hailey, and
Mr. Arnold.
Compensation Committee. The Compensation Committee primarily reviews and sets
compensation paid to the Company's executive officers and directors and makes
recommendations to the Board regarding awards under the Company's Stock Option
Plans. The Compensation Committee held one meeting during fiscal 2001. During
fiscal 2001 the Compensation Committee members were Mr. Hailey, Mr. Timothy Itin
and Mr. Eberle.
Nominating Committee. The Nominating Committee is responsible for determining
the most appropriate persons to be nominated for election by the shareholders to
serve on the Company's board of directors. The Nominating Committee currently
consists of Messrs. Greenwalt, Timothy Itin and Hailey.
Special Review Committee. The Special Review Committee was created in fiscal
2001 to manage the collection of the amounts owed to the Company by Ajay and
guaranteed by the Company's Chairman of the Board, Thomas Itin. The Special
Review Committee held one meeting during fiscal 2001. The Special Review
Committee members were Mr. Greenawalt, Mr. Timothy Itin and Mr. Hailey.
MEETING ATTENDANCE
Each director attended more than 75% of the meetings of the board of directors,
the Audit, Compensation, Nominating and Special Review Committees of which he
was a member during the period in which he served.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
At September 30, 2001 the Company had notes and accounts receivable from Ajay
Sports, Inc. ("Ajay") with a carrying value of $3,565,000 including a $500,000
note receivable, reflected as a reduction in the Company's shareholders' equity,
relating to the issuance of 206,719 shares of the Company's common stock to
Ajay. Ajay's current activity consists of ownership of ProGolf Discount ("Pro
Golf"), a franchiser of golf equipment and accessories retail stores. During
2000 and 2001, Ajay has closed its Delavan, Wisconsin operations (Ajay Leisure
Products, Inc., Palm Springs Golf Inc., and Prestige Golf Inc.), its Baxter,
Tennessee operation (Leisure Life, Inc.) and its Mexicali, Mexico facility.
The Company's note and accounts receivable from affiliate at September 30, 2001
is comprised of a secured note receivable with a carrying amount of $2,470,000
and accounts receivable of $595,000. The Company had a guaranty obligation to
advance up to $1,515,000 to Ajay under the terms of an inter-creditor agreement.
The agreement was secured by the Company's Deerfield Beach property and the
guaranty was satisfied from the proceeds of the sale of the property. The
payment by the Company of the guaranty to US Bank was $1,450,000, and included
unpaid interest and penalties, and is reflected as an increase in Investment in
and notes receivable from affiliate in fiscal 2001.
Prior to July 11, 1997, the Company had guaranteed Ajay's $13,500,000 credit
facility and charged Ajay a fee of 1/2 of 1% per annum on the outstanding loan
amount for providing this guaranty. From July 11, 1997 through June 30, 1998,
the Company and Ajay had a joint and several loan obligation to a bank. On June
30, 1998, the Company restructured its investment in Ajay (the "Ajay
Restructuring"). The objective of the Ajay Restructuring was to separate the
Company's and Ajay's financing, eliminate Ajay's dependency on the Company for
capital and provide Ajay with adequate working capital to grow its operations
and improve shareholder
value, which would benefit the Company. The restructuring provided Ajay three
years to improve shareholder value at which time the notes receivable became due
and payable. No dividends were accrued and payable on the preferred stock
through July 31, 2001. The preferred stock dividend rate increased to an annual
rate of 17% beginning August 1, 2001 and will increase to 24% effective August
1, 2002, rates which the Company intended would require Ajay to raise capital
from new sources to redeem the preferred stock. The Company has not recognized
any preferred dividend income from Ajay.
As a result of the Ajay Restructuring, the bank provided separate loan
facilities to the Company and Ajay. As consideration to the bank for the
separate loan facilities, the Company provided Ajay $2,000 in additional capital
during 1998 which included the purchase of Ajay notes payable of $-948
previously provided by affiliated parties of the Company, and agreed to convert
$5,000,000 of advances to Ajay into a new cumulative convertible preferred
stock. The preferred stock is convertible into 3,333,333 shares of Ajay common
stock.
The secured promissory notes bear an annual interest rate of 16% payable
monthly, subject to increase based upon a calculation provided for in the
agreement. In addition, Ajay agreed to pay the Company annual administrative
fees of $90,000 and a management fee for sourcing products overseas in the
amount of $80,000 annually for 3 years beginning July 1998. As a result of poor
cash flow, Ajay has been unable to make any payments on any of these obligations
to the Company since 1999.
The Company owns 686,274 shares of common stock in Ajay, which represents
approximately 16% of Ajay's outstanding common stock. In addition, the company
has options to purchase 1,851,813 shares of common stock at an exercise price of
$1.08. The investment is recorded on the equity method of accounting due to the
common ownership of Ajay and the Company by the chairman of the Company, who is
also the chairman of Ajay. For the two years ended September 30, 2000 and 1999,
the Company reported losses on its investment in Ajay in the amount of $5,044
and $488 respectively. Ajay has not issued any financial statements since March
31, 2001. The Company has not recognized an equity interest in gain (loss) of
affiliate in fiscal 2001 because current financial information of Ajay is not
available.
During the year ended September 30, 2000, the Company applied the provisions of
Emerging Issues Task Force 99-10 "Percentage Used to Determine the Amount of
Equity Method Losses" ("EITF 99-10") in the calculation of Equity Interest in
Loss of Affiliate in the Consolidated Financial Statements. This pronouncement
provides for the percentage of ownership to be determined by the liquidation
order of the investment held to the total of each particular level of investment
held by the investor contained in the financial statements of the investee. For
the year ended September 30, 1999 , the Equity Interest in Loss of Affiliate was
computed utilizing the percentage of common stock ownership held by the Company
in Ajay. The effect of EITF 99-10 in 2000 was to substantially increase the
Company's equity interest in loss of affiliate from amounts that would have been
recorded using only the percentage of common stock ownership. During 1999, the
investment in Ajay common stock was reduced to zero in the Consolidated Balance
Sheet as a result of the Company's equity interest in Ajay's losses since
acquisition. During the year ended September 30, 2000 and 1999, the Company's
investment in Ajay's preferred stock was reduced by $4,565 and $435,
respectively, as a result of continuing recognition of the Company's equity
interest in Ajay's losses
Based upon the closing bid price, the market value of the investment in Ajay
common shares was approximately $14 at September 30, 2001.
At March 31, 2001, Ajay had approximately 4,120,000 common shares outstanding.
In addition to the company's options and convertible preferred stock at
September 30, 2001, Ajay had outstanding preferred stock that is convertible to
approximately 1,686,000 shares of Ajay common stock and outstanding options and
warrants to purchase approximately 834,000 shares of Ajay common stock at prices
ranging from $1.08 to $6.00 per share (unaudited).
The Company's former chief executive officer and current Chairman of the Board,
Thomas W. Itin, who is an officer and shareholder of Ajay, has guaranteed
certain loans and investments made by the Company to and in Ajay. Mr. Itin has
taken the position that, as a result of his retirement as President and Chief
Executive officer of the Company, his guarantees of certain loans and investment
in and to Ajay are no longer in effect. The Company disagrees with the position
taken by Mr. Itin. Mr. Itin has filed suit in the Circuit Court for Oakland
County, Michigan seeking a determination as to the enforceability of these
guarantees. The Company has filed suit against Ajay and Mr. Itin in the
Multnomah Circuit Court for the State of Oregon seeking payment of all amounts
due from Ajay and Mr. Itin.
In addition, we engaged Taglich Brothers, Inc. ("Taglich") pursuant to a
retainer agreement dated August 14, 2001 as placement agent with respect to
various financings, including private equity financings. Taglich has since
requested, and we have agreed to pay, a separate fee of $200,000 for assisting
us in (a) obtaining commitments from persons to purchase additional shares of
Series B Stock from investors other than AIP and its affiliates; (b) obtaining
tenders from the holders of at least 90% of the Series A Stock in the Exchange
Offer; and (c) obtaining commitments from at least 90% of the holders of our
7.5% Convertible Subordinated Debentures to extend the maturity date of such
debentures to 24 months from the closing of the purchase of the Series B Stock
under the Stock Purchase Agreement. Douglas E. Hailey, who is a director of the
Company, is affiliated with Taglich.
Members of the board of directors have discussed with Mr. Ziegler, our chief
executive officer the possibility of a bonus payment to Mr. Ziegler relating to
his contribution to the Company's agreement with AIP and overall capital
restructure. No specific agreement has been reached or submitted to the board
for approval.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Officers, directors and greater than ten-percent shareholders are
required by the SEC regulation to furnish the Company with copies of Section
16(a) forms they file. Based solely on review of the copies of such forms
furnished to the Company, or written representations of the reporting persons,
we have determined that all required reports were timely filed during the year
except that one executive officer and two directors filed late reports on Form
3.
EXECUTIVE OFFICERS
The following table identifies the current executive officers of the Company,
the positions in which they serve, and the year in which they began serving in
their respective capacities. Officers of the Company are elected by the Board at
the meeting of the board of directors immediately following the annual meeting
of the stockholders to hold office until their successors are elected and
qualified.
Position Held
Name Age Current Position Since
- ---- --- ---------------- -----
Thomas K. Ziegler 57 President and Chief Executive Officer 2001
Dennis E. Bunday 51 Chief Financial Officer 2001
EXECUTIVE COMPENSATION
The table below sets forth the compensation received by the Chief Executive
Officer of the Company and other executive officers of the Company, for the past
three fiscal years, who received compensation in excess of $100,000 during the
fiscal year ended September 30, 2001. The Company has no restricted stock award
or long-term incentive plans.
Executive Compensation
Securities
Other Annual Underlying All Other
Bonus ($) Compensation Options Compensation
Name and Principal Position Year Salary ($) (5) ($) (#) ($)
- -------------------------------- ---- ---------- --------- ------------ ------------ -------------
Dennis E. Bunday 2001 193,500 (4) -
Chief Financial Officer 2000 - -
1999 - -
Thomas W. Itin 2001 50,000 (1) -
Former Chief Executive Officer 2000 200,000 -
1999 200,000 300,000
Gerard A Herlihy 2001 39,750 (2) 172,158 (2)
Chief Financial Officer 2000 106,260
1999 139,402 75,000
Timothy J. Marker 2001 135,000
VP-Sales and Marketing 2000 135,000
1999 133,605 50,000
Thomas K. Ziegler 2001 128,340 (3)
Chief Executive Officer 2000 127,000
1999 125,250 20,000
- ---------------------------------
(1) Mr. Itin retired from the positions of Chief Executive Officer, President
and Treasurer of Williams Controls effective January 8, 2001, however continued
as Chairman of the Board. Mr. Itin's continued base salary subsequent to January
8, 2001 is reflected under "Compensation of Directors."
(2) Mr. Herlihy resigned as Chief Financial Officer of Williams Controls
effective November 8, 2000. His compensation included severance and various
benefits.
(3) Mr. Ziegler was appointed President and Chief Executive Officer of Williams
Controls on January 8, 2001. Prior to that. Prior to that, Mr. Zigler was Vice
President and General Counsel.
(4) Mr. Bunday was named Chief Financial Officer of Williams Controls effective
January 22, 2001. Mr. Bunday has provided services to the Company under an
independent employment agreement.
STOCK OPTION GRANTS
The Company did not grant any stock options during the fiscal year ended
September 30, 2001 or during the fiscal year ended September 30, 2000.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The Table below summarizes fiscal year-end option values of the executive
officers named in the Summary Compensation Table. No named executive officer
acquired any shares on exercise during the fiscal year ended September 30, 2001
or during the fiscal year ended September 30, 2000.
Name # Shares Acquired $ Value Realized Securities Underlying Value of In-the Money
on Exercise Unexercised Options at Options at Year-End
Year-End (#)
Thomas W. Itin -- -- 1,100,000 90,000 -- --
Timothy J. Marker -- -- 137,500 12,500 -- --
Thomas K. Ziegler -- -- 105,000 5,000 -- --
Dennis Bunday -- -- -- -- -- --
PENSION PLAN
Under the Company's Pension Plan, the Company is required to contribute amounts
sufficient to fund specified retirement benefits for covered employees. Benefits
are calculated on the basis of an employee's final average pay and length of
service. Final average pay generally means the average of the employee's three
highest annual compensation amounts during the last ten calendar years of
employment. Compensation means taxable compensation plus any salary deferrals
allowable under the Internal Revenue Code Sections 125 or 402. Compensation is
limited in accordance with Internal Revenue Code Section 401(a)(17). For the
2001 calendar year, compensation considered under the plan may not exceed
$170,000. Benefits are payable under normal (age 65), early (age 55 with 10
years of service) or deferred (over age 65) retirement or death. Employees who
are officers or directors of the Company participate in the Pension Plan on the
same basis as other employees. As a result, the only officers of the Company who
is eligible for the plan is Thomas Itin and Thomas Ziegler. In general, an
employee retiring under the plan will receive an annuity payable for life
without any offsets. The following table sets forth estimated annual benefits as
retirement under the Pension Plan for covered employees of the Company at
various assumed years of service and levels of final average pay. The
calculations are shown for an employee retiring at age 65 in the form of a level
single life annuity to the employee. The years of credited service as computed
by William Mercer, the Company's actuary, for Pension Plan purposes as of
September 30, 2001 for Mr. Itin is 9.0 years. Mr. Itin contends he should
receive credited years for the period November 1988 through September 1992.
During that time, Mr. Itin served as the Chairman of the Board and Chief
Executive Officer, but received no compensation and was not reflected on the
Company's records as an employee. This additional service time would increase
Mr. Itin's credited years of service to 12.92 years. Mr. Itin's final average
pay was $166,668. Mr. Ziegler's years of credited service is 7.1 years and his
final average pay is $138,663.
COMPENSATION OF DIRECTORS
The non-employee directors of the Company are paid an annual retainer of $2,500,
$1,500 for each regular Board meeting attended in person, $500 for each
telephonic Board meeting attended and $500 for each committee meeting attended,
whether in person or telephonic. No fees are paid when action is taken by
unanimous written consent. The Company reimburses its directors for reasonable
costs incurred to attend board and committee meetings. Additionally, during
fiscal 2001, the Company continued Mr. Itin's base salary at an annual rate of
$200,000 per year subsequent to his retirement.
The Company has a Stock Option Plan for the non-employee directors. No grants
were made under this Plan for the fiscal year ended September 30, 2001. For the
fiscal year ended September 30, 2000, H. Samuel Greenawalt and Timothy S. Itin,
then the only non-employee directors of the Company, received non-statutory
stock options exercisable for ten years to purchase up to 10,000 shares of
Common Stock for $2.125 per share. These stock options were granted at 100% of
the fair market value of our common stock on the date of grant, based on the
reported trading information from the NASD Over-the-Counter Bulletin Board
System.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for reviewing and approving the
Company's compensation policies and the compensation paid to executive officers.
The Company's compensation philosophy is designed to achieve long-term growth in
stockholder value. The Company's compensation policies are intended to attract,
retain and motivate highly qualified executives who support a
performance-oriented environment that rewards achievement based upon the
Company's performance and the individual's contribution and performance. There
are three main components in the Company's executive compensation program: base
salary, annual bonus incentive and long-term incentive.
Base Salary. The base salary of each executive officer of the Company is
measured against the median base pay level for positions with comparable
functional responsibilities at companies with sales that are comparable in size
to the Company's sales. Executive salaries are reviewed but not necessarily
increased annually. Salary adjustments may be made by the Committee to recognize
individual contribution and performance or to reflect an increased scope of
responsibilities.
Annual Incentive. Annual incentive bonuses for executive officers are intended
to reflect the Committee's belief that a significant portion of the annual
compensation of each executive officer should be contingent upon the performance
of the Company, as well as the individual contribution of each officer.
The Company has implemented an annual incentive bonus, which provides executive
officers and other key management employees the opportunity to earn annual
incentive bonuses. As a pay-for-performance plan, the annual incentive bonus is
intended to motivate and reward executive officers and other key employees by
directly linking the amount of any cash bonus to two performance components: (1)
corporate and/or operating unit financial performance (specific measurements are
defined each year and threshold and payout levels are established to reflect the
Company's objectives); (2) management's overall assessment of the executive
officer/key employee performance. These criteria are reviewed and approved by
the Committee. Under the guidelines adopted by the Committee, executive officers
are eligible to receive up to 100% of their salary as an annual bonus, depending
on actual earnings performance compared to target earnings goals.
Long-Term Incentive. The Company utilizes stock options as a long-term incentive
to reward and retain employees. The Committee believes that these programs serve
to link management and stockholder interest and to motivate executive officers
to make long-term decisions that are in the best interest of the Company and the
stockholders. The Committee also believes that executive officers and other key
employees should have significant ownership of the Company stock. As a group,
executive officers and directors beneficially own approximately 40.3% of the
outstanding common stock. In particular, Mr. Itin, the Company's Chairman
beneficially owns approximately 35.4% of the outstanding shares.
The Committee believes that stock option grants provide an incentive that
focuses the executive's attention on managing the Company from the perspective
of an equity owner in the business. Stock options are granted from time-to-time,
generally on an annual basis, based upon recommendations from management and the
Committee. In general, stock options vest over ten years and employees must be
employed by the Company in order to continue to accrue time towards the Plan's
three year vesting schedule. As the stock options are granted at the fair market
value on the date of grant, the Company's stock options are tied to the future
performance of the Company's stock and will provide value to the recipient only
when the price of the Company's stock increases above the option grant price.
It is the opinion of the Committee that the aforementioned compensation program
provides features, which appropriately align the Company's executive
compensation with corporate performance and the interest of its stockholders.
Mr. Ziegler assumed the position of President and Chief Executive Officer in
January 2001. For the fiscal year ended September 30, 2001, Mr. Ziegler was paid
a base annual salary of $128,340. Subsequent to September 30, 2001, Mr.
Ziegler's salary was adjusted retroactively to an annual rate of $200,000, which
was the same salary as the previous Chief Executive Officer, Thomas Itin. No
bonus was paid to Mr. Ziegler based on the financial performance of the Company
for the 2001 fiscal year and no stock options were granted
Timothy S. Itin, Chairman
Douglas E. Hailey
WHERE YOU CAN GET MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange Act
of 1934, as amended ("Exchange Act"), and in accordance therewith we file
reports, proxy statements, and other information with the Securities and
Exchange Commission ("SEC"). Specifically, we have filed this Information
Statement on Schedule 14f-1with the SEC in compliance with our Exchange Act
reporting requirements. Statements contained herein concerning the provisions of
any documents are not necessarily complete, and, in each instance, reference is
made to the copy of any such documents filed as an exhibit to the Schedule TO or
other documents filed with the SEC. Each such statement is qualified in its
entirety by such reference. Our proxy statements, annual reports, and other
information filed with the SEC under the Exchange Act may be inspected and
copied at prescribed rates at the public reference facilities maintained by the
SEC at Room 1204, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549,
and at the regional offices of the SEC located at 7 World Trade Center,
Thirteenth Floor, Chicago, Illinois 60661. Copies of such material may also be
obtained at prescribed rates from the Public Reference Section of the SEC at 450
Fifth Street, NW, Washington, DC 20549 or from the SEC website at
http://www.sec.gov.