SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE TO
Tender Offer Statement Under Section 14(d)(1) or 13(e)(1)
of the Securities Exchange Act of 1934
(AMENDMENT NO. 2)
WILLIAMS CONTROLS, INC.
(Name of Subject Company (Issuer))
WILLIAMS CONTROLS, INC.
(Name of Filing Person, the Issuer)
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Series A Preferred Stock, 7 1 / 2 % Redeemable Convertible Series,
$0.01 Par Value Per Share
(Title of Class of Securities)
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969465103
(underlying common stock)
(CUSIP Number of Class of Securities)
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Dennis Bunday
Chief Financial Officer
Williams Controls, Inc.
14100 SW 72 nd Avenue
Portland, Oregon 97224
(503) 670-3307
(Name, address and telephone number of person authorized to receive
notices and communications on behalf of filing persons)
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with a copy to:
Broady R. Hodder
Davis Wright Tremaine LLP
1300 SW 5th Avenue, Suite 2300
Portland, Oregon 97201
(503) 241-2300
1
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CALCULATION OF FILING FEE
Transaction Valuation(1) Amount of Filing Fee(2)
-------------------------------------- -------------------------------------
7,820,000 719.44
(1)
Estimated for purposes of calculating the amount of the filing fee
only. The amount assumes the exchange of all of the outstanding shares
of Series A Preferred Stock, 7 1 / 2 % Redeemable Convertible Series,
$0.01 par value.
(2)
Previously paid.
|X|
Check the box if any part of the fee is offset as provided by Rule 011
(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number or the Form or Schedule and the date of its filing.
Amount Previously Paid: $719.44 Form or Registration Number:
Schedule TO-I (File No. 5-41058)
Filing Party: William Controls, Date Filed: June 10, 2002
Inc.
|_| Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
Check the appropriate boxes below to designate any transactions to which the
statement relates:
|_| third party tender offer subject to Rule 14d-1.
|X| issuer tender offer subject to Rule 13e-4.
|_| going private transaction subject to Rule 13e-3.
|_| amendment to Schedule 13D under Rule 13d-2.
|_| Check the box if the filing is a final amendment reporting the
results of a tender offer.
INTRODUCTORY STATEMENT
This Amendment No. 2 (the "Second Amendment") amends and supplements the
Tender Offer Statement to Schedule TO filed with the Securities and Exchange
Commission on June 11, 2002 (the "Original Statement") and Amendment No. 1 to
Schedule TO filed with the Securities and Exchange Commission on June 11, 2002
(the "First Amendment") relating to the Exchange Offer (as defined in the
Original Statement) by Williams Controls, Inc. to exchange one share of its
Series A-1 Preferred Stock, Non-Redeemable Convertible Series, $0.01 par value
("Series A-1 Preferred"), for each outstanding share of its Series A Preferred
Stock, 7 1 / 2 % Redeemable Convertible Series, $0.01 par value ("Series A
Preferred"), upon the terms and subject to the conditions contained in the
Offering Memorandum dated June 10, 2002 (the "Offering Memorandum") and the
related Letters of Transmittal. The Exchange Offer is being made upon the terms
and subject to the conditions contained in the Offering Memorandum and the
related Letter of Transmittal, along with the Offering Memorandum Supplement
dated July 5, 2002 (the "Supplement"). Neither Section 21E of the Securities
Exchange Act of 1934, as amended, nor Section 27A of the Securities Act of 1933,
as amended, as enacted by the Private Securities Litigation Reform Act of 1995,
apply to statements made in connection with the Exchange Offer.
Except as provided in the Second Amendment, the terms and conditions
previously set forth in the Exchange Offer remain unaltered by the Second
Amendment. Capitalized terms used and not defined in the Second Amendment have
the meaning given to such terms in the Original Statement, the First Amendment
and their respective exhibits.
ITEM 1. SUMMARY TERM SHEET.
Item 1 of the Schedule TO is hereby amended and supplemented by
incorporating by reference the information contained in the Supplement.
ITEM 4. TERMS OF THE TRANSACTION.
Item 4 of the Schedule TO is hereby amended and supplemented by
incorporating by reference the information contained in the Supplement.
ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS, AND AGREEMENTS.
(e) Taglich Brothers, Inc., a New York corporation ("Taglich"), has
entered into a Voting Agreement, dated July 1, 2002, set forth as Exhibit
12(d)(x) of this Second Amendment, in favor of American Industrial Partners
Capital Fund III, L.P. ("AIP"), whereby Taglich agreed to vote 66,180 shares of
the Series A Preferred Stock, 71/2% Redeemable Convertible Series of the Company
and 20,000 shares of Series B Preferred Stock, 15% Redeemable Convertible Series
of the Company controlled by Taglich in favor of an amendment to the Company's
Certificate of Incorporation whereby the Company will elect not to be covered by
the provisions of Section 203 of the Delaware General Corporation Law which
prohibits a "business combination" between the Company and an "interested
stockholder" within three years of the stockholder becoming an "interested
stockholder."
Item 5 of the Schedule TO is hereby amended and supplemented by
incorporating by reference the information contained in the Supplement, the
Company's Current Reports on Form 8-K filed with the SEC on June 14, 2002, July
5, 2002, and the Company's Information Statement on Schedule 14f-1 filed with
the SEC on June 26, 2002.
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ITEM 6. PURPOSES OF THE TRANSACTIONS AND PLANS OR PROPOSALS.
Item 6 of the Schedule TO is hereby amended and supplemented by
incorporating by reference the information contained in the Supplement.
ITEM 7. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
Item 7 of the Schedule TO is hereby amended and supplemented by
incorporating by reference the information contained in the Supplement.
ITEM 11. ADDITIONAL INFORMATION.
Item 11(a)(1) of the Schedule TO is hereby amended and supplemented by
incorporating by reference the information contained in the Supplement, the
Company's Current Reports on Form 8-K filed with the SEC on June 14, 2002 and
July 5, 2002 and the Company's Information Statement on Schedule 14f-1 filed
with the SEC on June 26, 2002.
On July 5, 2002, the Company further extended the Exchange Offer
until 12:00 midnight, Eastern Standard Time, on July 12, 2002.
ITEM 12. EXHIBITS.
Item 12 of the TO is hereby amended and supplemented by adding the
following exhibits.
(a)(1)(i) Offering Memorandum dated June 10, 2002 *
(a)(1)(ii) Form of Letter of Transmittal *
(a)(1)(iii) Form of Proxy *
(a)(1)(iv) Cover Letter to Offering Memorandum *
(a)(1)(v) Notice of Shareholder's Meeting dated May 31, 2002 *
(a)(1)(vi) Offering Memorandum Supplement dated July 5, 2002
(a)(2) Not applicable
(a)(3) Not applicable.
(a)(4) Not applicable.
(a)(5) None.
(b) Not applicable.
(d)(i) Series B Preferred Stock Purchase Agreement, dated May 31, 2002. *
(ii) Preferred Stock Placement Agreement, dated April 17, 1998. *
(iii) Form of warrant *
(iv) Certificate to Provide for the Designation, Preferences, Rights,
Qualifications, Limitations or Restrictions Thereof, to the Series
A-1 Preferred Stock, Non-Redeemable Convertible Series
(v) Certificate to Provide for the Designation, Preferences, Rights,
Qualifications, Limitations or Restrictions Thereof, to the Series
B Preferred Stock 15% Redeemable Convertible Series
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ITEM 12. EXHIBITS - continued
(vi) Certificate of Elimination for 10% Mandatory Convertible Preferred
Stock
(vii) Series B Preferred Registration Rights Agreement, dated as of July
1, 2002, by and among the Company, American Industrial Partners
Capital Fund III, L.P., and Dolphin Offshore Partners L.P.
(viii) Series B Preferred Shareholder Agreement, by and among the Company,
American Industrial Partners Capital Fund III, L.P., Dolphin
Offshore Partners L.P. and Eubel, Brady & Suttman Asset Management
Inc.
(ix) Management Services Agreement, dated as of July 1, 2002, by and
among American Industrial Partners, a Delaware general partnership,
and the Company
(x) Voting Agreement, dated as of July 1, 2002, by and among Taglich
Brothers, Inc., in favor of American Industrial Partners Capital
Fund III, L.P.
(xi) Dolphin Side Letter, dated as of July 1, 2002
(xii) Form of Amended and Restated Subordinated Debenture Due July 1,
2004
(xiii) Amended and Restated Credit Agreement, dated July 1, 2002, by and
among the Company, Agrotec Williams, Inc., Aptek-Williams, Inc.,
WMCO-GEO, Inc., Hardee-Williams, Inc., Kenco/Williams, Inc., NESC
Williams, Inc., Premier Plastic Technologies, Inc., Proactive
Acquisition Corp., Waccamaw Wheel Williams, Inc., Williams Controls
Industries, Inc., Williams Technologies, Inc., Williams World
Trade, Inc., Williams Automotive, Inc., Techwood Williams, Inc, and
Wells Fargo Credit, Inc.
(g) None.
(h) None.
* Previously Filed on June 11, 2002.
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
/s/ DENNIS BUNDAY
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Dennis Bunday
Chief Financial Officer
Dated: July 5, 2002
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EXHIBIT INDEX
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Exhibit No. Description
- ---------- -----------
12(a)(1)(vi) Offering Memorandum Supplement dated July 5, 2002
12(d)(iv) Certificate to Provide for the Designation, Preferences,
Rights, Qualifications, Limitations or Restrictions Thereof,
to the Series A-1 Preferred Stock, Non-Redeemable Convertible
Series
12(d)(v) Certificate to Provide for the Designation, Preferences,
Rights, Qualifications, Limitations or Restrictions Thereof,
to the Series B Preferred Stock 15% Redeemable Convertible
Series
12(d)(vi) Certificate of Elimination for 10% Mandatory Convertible
Preferred Stock
12(d)(vii) Series B Preferred Registration Rights Agreement, dated as of
July 1, 2002, by and among the Company, American Industrial
Partners Capital Fund III, L.P., and Dolphin Offshore
Partners L.P.
12(d)(viii) Series B Preferred Shareholder Agreement, by and among the
Company, American Industrial Partners Capital Fund III, L.P.,
Dolphin Offshore Partners L.P. and Eubel, Brady & Suttman
Asset Management Inc.
12(d)(ix) Management Services Agreement, dated as of July 1, 2002, by
and among American Industrial Partners, a Delaware general
partnership, and the Company
12(d)(x) Voting Agreement, dated as of July 1, 2002, by and among
Taglich Brothers, Inc., in favor of American Industrial
Partners Capital Fund III, L.P.
12(d)(xi) Dolphin Side Letter, dated as of July 1, 2002
12(d)(xii) Form of Amended and Restated Subordinated Debenture Due July
1, 2004
12(d)(xiii) Amended and Restated Credit Agreement, dated July 1, 2002, by
and among the Company, Agrotec Williams, Inc.,
Aptek-Williams, Inc., WMCO-GEO, Inc., Hardee-Williams, Inc.,
Kenco/Williams, Inc., NESC Williams, Inc., Premier Plastic
Technologies, Inc., Proactive Acquisition Corp., Waccamaw
Wheel Williams, Inc., Williams Controls Industries, Inc.,
Williams Technologies, Inc., Williams World Trade, Inc.,
Williams Automotive, Inc., Techwood Williams, Inc, and Wells
Fargo Credit, Inc.
6
EXHIBIT 12(a)(1)(vi)
WILLIAMS CONTROLS, INC.
EXCHANGE OFFER AND PROXY SOLICITATION
OFFERING MEMORANDUM
SUPPLEMENT
IN RESPECT OF ALL OUTSTANDING
SERIES A PREFERRED STOCK,
7 1/2% CONVERTIBLE REDEEMABLE SERIES
- --------------------------------------------------------------------------------
This Offering Memorandum Supplement ("Supplement") amends our Offering
Memorandum dated June 10, 2002 (the "Offering Memorandum"). The date of this
Supplement is July 5, 2002. All capitalized terms not otherwise defined in this
Supplement have the meanings given to them in the Offering Memorandum. This
Supplement should be read in conjunction with the Offering Memorandum.
RECENT DEVELOPMENTS
-------------------
SALE OF OUR SERIES B PREFERRED
The Closing
The sale of shares of our Series B Preferred to the Purchaser closed on July 1,
2002. The Purchaser waived the condition that at least 90% of the Series A
Preferred must be tendered in the Exchange Offer prior to the closing of the
sale of the Series B Shares.
The Purchaser purchased a total of 130,000 shares of Series B Preferred. The
Purchaser paid the Company a total of $13,000,000 for the Series B Preferred
shares. The amount of the proceeds from the sale to the Purchaser was reduced by
an amount equal to the fees and expenses incurred by the Purchaser in completing
the acquisition, which the Company was obligated to reimburse to the Purchaser
under the terms of the Stock Purchase Agreement. Concurrently with the closing
of the purchase of the shares of Series B Preferred by the Purchaser, the
Company paid American Industrial Partners III, L.P., a Delaware limited
partnership and an affiliate of AIP ("Advisor") an advisory fee of $850,000
under the terms of the Management Services Agreement, dated as of July 1, 2002
(the "Management Services Agreement"), entered into by the Company and Advisor
as a condition to the closing of the purchase of the Series B Preferred by the
Purchaser. See "Recent Developments - Management Services Agreement" for more
information about the Company's obligations under the Management Services
Agreement.
At the closing of the sale of the Series B Preferred to the Purchaser, another
20,000 shares of Series B Preferred were purchased by Dolphin Offshore Partners,
L.P. ("Dolphin"). Dolphin paid for its shares with proceeds from the repayment
of $2,000,000 in outstanding principal under a 12% Secured Subordinated
Debenture, due March 1, 2002, issued by the Company to Dolphin. As a condition
to Dolphin agreeing to purchase shares of the Series B Preferred, the Company
agreed to pay a transaction fee of $67,000 to Dolphin Management, Inc., an
affiliate of Dolphin.
The proceeds from the sale of the Series B Preferred will be used to pay off the
outstanding principal and interest on our 12% Secured Subordinated Debentures,
due March 1, 2002 and for general working capital purposes.
The closing of the sale of shares of Series B Preferred to the Purchaser and to
Dolphin does not mean that the Exchange Offer has been terminated. We are still
offering to exchange each of our outstanding shares of Series A Preferred for
one share of our Series A-1 Preferred, which is described in more detail in the
Offering Memorandum. Therefore, the Exchange Offer will remain open until the
Exchange Offer Expiration Date and will remain subject to all of the terms and
conditions set forth in the Offering Memorandum and this Supplement.
Management Services Agreement
As a condition to the closing of the sale of our Series B Preferred to the
Purchaser, we entered into the Management Services Agreement with AIP, an
affiliate of the Purchaser, at the closing. Under the terms of the Management
Services Agreement, AIP has agreed that it will provide advisory and management
services to the Company and our subsidiaries as we may request and as AIP agrees
to provide from time to time. AIP has the right, but not the obligation, to
elect to act as sole advisor to the Company and its subsidiaries with respect to
these significant business transactions.
In exchange for the services provided by AIP under the Management Services
Agreement, we have agreed to pay to AIP the following: (a) an advisory fee of
$850,000, which was paid at the closing of the purchase by the Purchaser of
shares of our Series B Preferred; (b) when billed by AIP, an annual management
fee equal to $400,000, plus 3% of any debt outstanding (including accrued
interest thereon) of the Company or its subsidiaries as of the first day of the
applicable quarterly payment period which is owned or guaranteed by the
Purchaser or any of its affiliates (the "Annual Fee") , payable in advance
quarterly installments on January 1, April 1, July 1 and October 1 of each year,
commencing July 1, 2002 (each, a "Payment Date"); and (c) advisory and/or
structuring fees in connection with significant business transactions of the
Company (including, without limitation, acquisitions, investments and
financings) in amounts comparable for similarly situated companies. The Annual
Fee will be reduced by 50% beginning the first day of any quarterly period
following the conversion of all shares of the Purchaser's Series B Preferred
into our Common Stock. In addition, AIP and its affiliates will be entitled to
reimbursement of all of its out-of-pocket expenses incurred in performing
services under the Management Services Agreement.
The Management Services Agreement may be terminated by AIP at any time by
written notice to the Company. In addition, the Management Services Agreement
will terminate automatically as of the earlier of (a) the seventh (7th)
anniversary of the date of the agreement and (b) the end of the fiscal year in
which Purchaser and its affiliates own, directly or indirectly, less than
5,000,000 shares of the Common Stock of the Company on a fully diluted basis.
Shareholders Agreement
At the closing of the sale of the Series B Preferred, the Company, the
Purchaser, Dolphin and Eubel, Brady & Suttman Asset Management, Inc., as an
entity with voting control over the shares of certain of our holders of Series A
Preferred ("Brady"), entered into a Shareholders Agreement (the "Shareholders
Agreement"). The Shareholders Agreement provides, among other things, that the
Purchaser will have the right to require the other parties to the Shareholders
Agreement to participate in any sale of the Series B Preferred by the Purchaser,
that the other purchasers will have the right to require the Purchaser to
include a pro-rata portion of their shares of Series B Preferred in any sale of
the Purchaser's shares of Series B Preferred, that the other purchasers and
Brady will vote the shares of Series B Preferred (and in certain circumstances
the shares of Series A-1 Preferred) over which they have voting control as
directed by the Purchaser in any matter which is subject to a vote of our
shareholders and that the Purchaser shall have a right of first offer to
purchase any shares of Series B Preferred to be sold by any other party.
2
Registration Rights Agreement
Concurrently with entering into the Shareholders Agreement, the Company, the
Purchaser and Dolphin entered into a Registration Rights Agreement (the
"Registration Rights Agreement") which, among other things, requires the
Company, as soon as possible but in no event later than 180 days after July 1,
2002, to file a registration statement with the Commission to register the
shares of Common Stock issuable upon conversion of the Series B Preferred. The
Company will be required to use its reasonable best efforts to cause the
registration statement to be declared effective under the Securities Act as soon
as practical after filing (but in no event later than the first-year anniversary
of the closing) and, once effective, to cause the registration of the shares to
remain effective until the earlier to occur of (i) the date on which all shares
of Common Stock issuable upon conversion of the Series B Preferred have been
sold and (ii) the date as of which there are no longer any shares of Common
Stock issuable upon conversion of the Series B Preferred in existence. The
Company may also be obligated, upon request of the holders, to include shares of
Common Stock issuable upon conversion of the Series B Preferred in any
registration of securities by the Company.
CHANGES IN OUR BOARD OF DIRECTORS
Effective as of the closing of the sale of the Series B Preferred to the
Purchaser, David Eberly, Sam Greenawalt and Gary Arnold resigned from our Board.
W. Richard Bingham, R. Eugene Goodson, Ph.D. and Kirk R. Ferguson were appointed
to the Board to fill the vacancies created by these resignations.
The size of the Board was increased to seven directors. There is currently one
vacancy on the Board. The holders of our Series B Preferred have the right under
the Series B Designation to fill this vacancy. It is expected that Nathan L.
Belden will be elected by the holders of the Series B Preferred to fill the
vacancy.
For more information regarding these changes to our Board, please review our
Schedule 14f-1 filed with the Commission on June 26, 2002, which is incorporated
into this Supplement by reference. See "Documents Incorporated by Reference" to
find out how to obtain copies of the Schedule 14f-1.
CHANGES IN OUR OFFICERS
R. Eugene Goodson, Ph.D. has been elected by our Board as our Chairman of the
Board. More information about Dr. Goodson is set forth in our Schedule 14f-1.
See "Documents Incorporated by Reference"
Thomas Ziegler, President and Chief Executive Officer of the Company, has
indicated that he intends to imminently terminate his employment with the
Company.
Dennis E. Bunday, our Chief Financial Officer, was elected as our Treasurer and
Secretary at a meeting of our Board on June 28, 2002.
AMENDMENTS TO SUBORDINATED DEBENTURES
Concurrently with the closing of the sale of the Series B Preferred to the
Purchaser and Dolphin, we and the holders of our outstanding 7.5% Convertible
Subordinated Debentures Due March 31, 2003 (the "Debentures") agreed to certain
amendments to the Debentures. The material amendments to the Debentures are
summarized in the table set forth below.
3
Term Scope of Amendment
---- ------------------
Interest Rate The interest rate will increase from 7.5% to 12%
per annum for the first year following the first
anniversary of the effective date of the
amendments (the "Effective Date") and 15% after
the first anniversary of the Effective Date.
Maturity Date The maturity date will be extended from March 31,
2003 to July 1, 2004.
Conversion Rights The conversion provisions set forth in the
Debentures will be deleted, and the Debentures
will no longer be convertible into the Company's
capital stock.
Prepayment Provision The Company will be entitled to prepay the
principal and interest outstanding under the
Debentures, as amended, at any time without
paying any premium or penalty, unless there then
exists an event of default.
Subordination Provision Our obligations under the Debentures, as amended,
will be subordinate to our existing secured debt,
any future secured debt, and up to $5,000,000 of
principal amount of any unsecured debt
outstanding at any time which we may incur in the
future and which we classify as "senior" to the
Debentures, as amended.
Registration Rights The registration rights provisions set forth in
the Debentures are being terminated.
As a result of the amendments to the Debentures, the holders of each of the
Debentures will be issued an amended and restated form of debenture to replace
the Debentures. These amended and restated debentures will contain the foregoing
amendments as well as other minor changes.
LOAN AGREEMENT WITH WELLS FARGO
The Company has entered into a new five-year revolving credit and term loan
agreement (the "Loan Agreement") with its existing primary lender, Wells Fargo
Credit, Inc. ("Wells Fargo"). The Company's prior loan agreement with Wells
Fargo expired in July 2001 and the Company had been operating under a series of
forbearance agreements with Wells Fargo since that time. Under the terms of the
new loan agreement, Wells Fargo has agreed to loan the Company an aggregate
principal amount of up to $12,200,000, consisting of a revolving credit line of
up to $10,000,000 and two term loans in the aggregate principal amount of
$2,200,000. This does not represent any increase in the amounts available under
the Company's prior loan agreement with Wells Fargo. The proceeds from the
revolving credit line may be used for ongoing working capital purposes. As of
the date of this supplement, the Company has approximately $8,000,000 available
to it under the revolving credit line. The proceeds from the term loans are to
be used to restructure existing loans with Wells Fargo. Our obligations to Wells
Fargo under the Loan Agreement are secured by a first priority lien on all of
our business assets.
4
AMENDMENT TO OUR CERTIFICATE OF INCORPORATION
On July 2, 2002, the Company received an executed written consent from certain
holders of our Series A Preferred and Series B Preferred approving an amendment
to our Certificate of Incorporation proposed by our Board. The amendment would
cause the Company to expressly elect not to be covered by the provisions of
Section 203 of the Delaware General Corporation Law ("DGCL").
Section 203 of the DGCL prohibits a "business combination" between the Company
and an "interested stockholder" within three years of the stockholder becoming
an "interested stockholder." Generally, an "interested stockholder" is a person
or group that directly or indirectly controls or has the right to acquire or
control the voting or disposition of 15% or more of the outstanding voting stock
of or is an affiliate or associate of the corporation and became the owner of
15% or more of such voting stock at any time within the previous three years. A
"business combination" is defined broadly to include, among other things, (i)
mergers and sales or other dispositions of 10% or more of the assets of a
corporation with or to an interested stockholder; (ii) certain transactions
resulting in the issuance or transfer to the interested stockholder of any stock
of the corporation or its subsidiaries; (iii) certain transactions which would
result in increasing the proportionate share of the stock of a corporation or
its subsidiaries owned by the interested stockholder; and (iv) receipt by the
interested stockholder of the benefit (except proportionately as a stockholder)
of any loans, advances, guarantees, pledges or other financial benefits.
Under Section 203 of the DGCL, a business combination between a corporation and
an interested stockholder is prohibited unless (i) prior to the date the person
became an interested stockholder, the board of directors approves either the
business combination or the transaction which results in the person becoming an
interested stockholder; (ii) upon consummation of the transaction that resulted
in the person becoming an interested stockholder, that person owns at least 85%
of the corporation's voting stock outstanding at the time the transaction is
commenced (excluding shares owned by persons who are both directors and officers
and shares owned by employee stock plans in which participants do not have the
right to determine confidentially whether shares will be tendered in a tender or
exchange offer); or (iii) the business combination is approved by the board of
directors and authorized by the affirmative vote (at an annual or special
meeting and not by written consent) of at least 66 2 /3 % of the outstanding
voting stock not owned by the interested stockholder.
These restrictions placed on interested stockholders by Section 203 of the DGCL
do not apply if a corporation, by action of its stockholders, adopts an
amendment to its bylaws or certificate of incorporation expressly electing not
to be governed by Section 203 of the DGCL, provided that such an amendment is
approved by the affirmative vote of not less than a majority of the outstanding
shares entitled to vote. Such an amendment, however, generally will not be
effective until 12 months after its adoption and will not apply to any business
combination with a person who became an interested stockholder at or prior to
such adoption.
As of the date of this Supplement, the proposed amendment has not received the
necessary number of votes for approval as the written consents delivered to the
Company represent less than 50% of the shares entitled to vote on the matter.
However, the Purchaser has informed the Company that it intends to deliver a
written consent approving the amendment. Upon receipt of the Purchaser's written
consent, the amendment will have the necessary votes and a certificate setting
forth the amendment will be filed with the Secretary of State of the State of
Delaware. Prior to filing the amendment, we are required under the Exchange Act
to distribute an information statement setting forth certain information about
the proposed amendment to all of our shareholders.
5
MODIFICATIONS TO THE OFFERING MEMORANDUM
----------------------------------------
AMENDMENT TO DESCRIPTION OF APPLICABLE SECURITIES LAW EXEMPTION.
The disclosure in the second full paragraph on page ii of the Offering
Memorandum and in the first paragraph under the heading "Will the Series A-1
Preferred shares or shares of Common Stock issued upon conversion of the Series
A-1 be freely transferable?" is replaced by the following:
The Series A-1 Preferred issued pursuant to the Exchange Offer will not be
registered under the Securities Act of 1933, as amended (the "Securities Act").
The Exchange Offer is being made by the Company in reliance on the exemption
under Rule 506 of Regulation D promulgated by the Securities and Exchange
Commission under Section 4(2) of the Securities Act. Accordingly, the shares of
Series A-1 Preferred, like the Series A Preferred, will be subject to
restrictions on transfer. Each certificate representing shares of Series A-1
Preferred shall bear restrictive legends referring to the restrictions on
transfer imposed by the Securities Act, and any applicable state securities
laws. There is currently no established trading market for the Series A-1
Preferred, and we do not expect one to develop in the foreseeable future if at
all.
CLARIFICATION OF THE EXCHANGE OFFER EXPIRATION DATE.
The fourth paragraph on page I of the Offering Memorandum is replaced by the
following:
The Exchange Offer will expire at 12:00 midnight, Eastern time on July 12, 2002
(the "Exchange Offer Expiration Date"), unless we extend or terminate the
Exchange Offer. If we extend the Exchange Offer, the Exchange Offer Expiration
Date also will be accordingly extended. It is expected that the exchange will be
completed immediately following the Exchange Offer Expiration Date. Promptly
following the completion of the Exchange Offer, we will send certificates
representing shares of Series A-1 Preferred to holders participating in the
Exchange Offer.
AMENDMENTS TO SUMMARY OF TERMS OF EXCHANGE OFFER
The summary of "Expiration Date" under "Summary of Terms of the Exchange Offer"
on page 1 of the Offering Memorandum is replaced by the following:
o Expiration Date 12:00 midnight, Eastern time, on July 12, 2002,
unless extended or terminated by us. See "The
Exchange Offer - How long will the Exchange Offer
be open, and can it be amended or withdrawn by
us?"
The summary of "Conditions of the Exchange Offer" under "Summary of Terms of the
Exchange Offer" on page 3 of the Offering Memorandum is replaced by the
following:
o Conditions of the Exchange The completion of the Exchange Offer is
Offer conditioned upon, among other things, (a) the
approval of the Proposal by the holders of at
least 2/3 of the outstanding shares of Series A
Preferred, (b) the closing of the sale of the
Series B Shares as contemplated in the Stock
Purchase Agreement and (c) the qualification of
the issuance of the Series A-1 Preferred for the
exemption provided by Rule 506 of Regulation D.
Unless the conditions to the Exchange Offer are
satisfied or waived by us prior to the Exchange
Offer Expiration Date, we will not be required to
accept for exchange, or issue Series A-1
Preferred shares in exchange for, any Series A
Preferred shares tendered. If the
6
conditions are not satisfied or waived, we may
terminate the Exchange Offer and return all
tendered Series A Preferred to tendering holders,
extend the Exchange Offer Expiration Date and
retain all Series A Preferred tendered (subject
to withdrawal rights of tendering holders of
Series A Preferred), or amend any unsatisfied
conditions at any time on or after the date of
this Offering Memorandum and before the Exchange
Offer Expiration Date.
See "The Exchange Offer--Are there any conditions
to the Exchange Offer?"
Addendum. The set forth in paragraph (a) and (b)
were satisfied prior to the date of this
Supplement.
FORWARD LOOKING STATEMENTS
The disclosure in the first paragraph under the heading "Forward Looking
Statements" on page 5 of the Offering Memorandum is replaced by the following:
Certain statements in this Offering Memorandum, regarding, among other things,
expected future revenues or earnings, projections, plans, future performance,
product development and commercialization, and other estimates relating to our
future operations, constitute forward-looking statements. To the extent that
such statements are not recitations of historical fact, such statements may
constitute forward-looking statements which, by definition, involve risks and
uncertainties. Where we express, in any forward-looking statement, an
expectation or belief as to future results or events, this expectation or belief
is expressed in good faith and on a basis that we believe to be reasonable.
There can be no assurance, however, that the statement of expectation or belief
will result or be achieved or accomplished. The safe harbors provided under
Section 21E of the Exchange Act and Section 27A of the Securities Act, as
amended by the Private Securities Litigation Reform Act of 1995, do not apply to
any forward looking statements made by us in connection with the Exchange Offer.
HOW LONG WILL THE EXCHANGE OFFER BE OPEN, AND CAN IT BE AMENDED OR WITHDRAWN?
The disclosures under the heading "How long will the Exchange Offer be open, and
can it be amended or withdrawn?" beginning on page 11 of the Offering Memorandum
are replaced by the following:
The Exchange Offer will expire at 12:00 midnight, Eastern time, on July 12,
2002, subject to extension by us, in which event the Exchange Offer Expiration
Date will be the time and date to which the Exchange Offer has been extended. We
will make a public announcement of any extension of the Exchange Offer
Expiration Date by press release prior to 9:00 a.m., Eastern time, on the next
business day after the previously scheduled Exchange Offer Expiration Date. Such
announcement may state that we are extending the Exchange Offer for a specified
period or on a daily basis.
In addition, we reserve the right to:
o take any of the actions described under the heading "Are there any
conditions to the Exchange Offer?" if any conditions to the Exchange
Offer are not satisfied or waived prior to the Exchange Offer
Expiration Date; or
o amend the terms of the Exchange Offer in any manner, including altering
the exchange ratio or the Series A-1 Preferred conversion ratio,
postponing the effective date of the exchange or
7
otherwise changing the consideration offered in exchange for the Series
A Preferred in the Exchange Offer (provided that any such changed
consideration must be paid with regard to all Series A Preferred
accepted in the Exchange Offer).
If the Exchange Offer is amended in a manner determined by us to constitute a
material change, we will promptly disclose such amendment in a manner reasonably
calculated to inform the holders of Series A Preferred of the amendment in
accordance with Rules 13e-4(d)(2) and 13e-4(e)(1) under the Exchange Act.
Depending upon the significance of the amendment and the manner of disclosure to
the holders of the Series A Preferred, we may extend the Exchange Offer
Expiration Date for a period of time. Generally, we are required to keep the
Exchange Offer open for at least five business days following an announcement of
a material change in the terms of the Exchange Offer or information concerning
the Exchange Offer (other than a change in price, a change in the amount of
securities sought, or a change in certain fees in which a longer mandatory
period may apply).
The rights reserved by us in this paragraph are in addition to our rights set
forth below under the caption "Are there any conditions to the Exchange Offer?"
ARE THERE ANY CONDITIONS TO THE EXCHANGE OFFER?
The disclosures under the heading "Are there any conditions to the Exchange
Offer?" beginning on page 12 of the Offering Memorandum are replaced by the
following:
Notwithstanding any other provisions of the Exchange Offer, the exchange of any
shares of Series A Preferred for shares of Series A-1 Preferred is subject to
each of the following conditions:
(a) the Proposal shall have been approved by the holders of at least 2/3
of the outstanding shares of Series A Preferred as of the Exchange Offer
Expiration Date;
(b) no action, suit, or proceeding shall be pending before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent consummation of the
Exchange Offer or (B) cause any of the transactions contemplated by Exchange
Offer to be rescinded following consummation (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect);
(c) there shall not have occurred any change, condition, event or
development that is or is reasonably likely to be materially adverse to the
business, operations, properties, condition (financial or otherwise), assets or
liabilities or prospects of the company and its subsidiaries taken as a whole;
(d) the sale of the Series B Shares to the Purchaser shall have closed;
and
(e) the issuance of the Series A-1 Preferred shall qualify for the
exemption from the registration requirements of the Securities Act under Rule
506 of Regulation D.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to such condition, or may be waived
by us in whole or in part, at any time on or before the Exchange Offer
Expiration Date in our sole discretion.
If any of the conditions set forth above are not satisfied or waived, we may
elect, at any time on or before the Exchange Offer Expiration Date, to: (i)
terminate the Exchange Offer and return all tendered Series A Preferred to
tendering holders; (ii) extend the Exchange Offer Expiration Date and retain all
Series A
8
Preferred tendered, subject to withdrawal rights of tendering holders of Series
A Preferred described herein; or (iii) amend certain of such unsatisfied
conditions with respect to the Exchange Offer. If any amendment of an
unsatisfied condition constitutes a material change to the Exchange Offer, the
Company will promptly disclose such amendment in a manner reasonably calculated
to inform holders of Series A Preferred of such waiver or amendment. In
addition, the Company will extend the Exchange Offer for a period which the
Company, in its discretion, deems appropriate; provided, that, at a minimum, the
Company will extend the Exchange Offer so that the Exchange Offer remains open
for at least five business days following disclosure of such amendment. Our
failure at any time to take any of the foregoing actions shall not be deemed a
waiver of our right to take such actions, and our waiver of any such right with
respect to particular facts and circumstances shall not be deemed a waiver with
respect to any other facts and circumstances.
Addendum: The condition set forth in paragraph (a) above was satisfied when the
Proposal passed with the requisite number of votes at a meeting of the holders
of the Series A Preferred held on June 12, 2002, and the condition set forth in
paragraph (d) was satisfied as the sale of the Series B Shares to the Purchaser
closed on July 1, 2002.
WILL THE SERIES A-1 PREFERRED SHARES OR SHARES OF COMMON STOCK ISSUED UPON
CONVERSION OF THE SERIES A-1 BE FREELY TRANSFERABLE?
The disclosure under the heading "Will the Series A-1 Preferred shares or shares
of Common Stock issued upon conversion of the Series A-1 be freely
transferable?" beginning on page 16 of the Offering Memorandum is amended by
adding the following:
The registration rights agreement will be in substantially the same form as the
draft attached to this Supplement as Annex A.
WHAT IF I DO NOT EXCHANGE MY SERIES A PREFERRED FOR SERIES A-1 PREFERRED?
The disclosure under the heading "What if I do not exchange my Series A
Preferred for Series A-1 Preferred?" on page 18 of the Offering Memorandum is
replaced by the following:
If you do not tender your shares of Series A Preferred in the Exchange Offer,
but the exchange is completed by the Company, you will continue to hold your
shares of Series A Preferred. Additionally, your right to receive accrued but
unpaid dividends on the Series A Preferred will not be forfeited.
The closing of the sale of the Series B Shares caused the conversion price for
the Series A Preferred to be decreased as the conversion price of the Series B
Preferred of $0.85 per share (which is also subject to future adjustment) is
less than the previous conversion price for the Series A Preferred of
approximately $2.54 per share. The conversion price for the Series A Preferred
will also decrease upon the closing of the exchange of the Series A Preferred
for Series A-1 Preferred as the conversion price of the Series A-1 Preferred is
$0.66 per share (which is also subject to future adjustment). The Company will
not be able to calculate the new conversion price for the Series A Preferred
until after the Exchange Offer Expiration Date because the new conversion price
will be based on the number of holders of Series A Preferred tendering their
shares in the Exchange Offer.
See "Risk Factors--Risks Relating to Not Accepting the Exchange Offer."
9
WHEN WILL SERIES A PREFERRED BE ACCEPTED FOR EXCHANGE, AND WHEN WILL SHARES OF
SERIES A-1 PREFERRED BE DELIVERED?
The disclosure in the first paragraph under the heading "When will Series A
Preferred be accepted for exchange, and when will shares of Series A-1 Preferred
be delivered?" on page 19 of the Offering Memorandum is replaced by the
following:
Upon the satisfaction or waiver of all of the conditions of the Exchange Offer,
we will accept all Series A Preferred properly tendered and not withdrawn prior
to 12:00 midnight, Eastern time, on the Exchange Offer Expiration Date. We will
deliver shares of Series A-1 Preferred issued pursuant to the Exchange Offer
promptly after the satisfaction or waiver of all of the conditions of the
Exchange Offer. Under no circumstances will interest be paid by us by reason of
any delay in delivering such shares of Series A-1 Preferred.
WHAT ARE MY RIGHTS TO WITHDRAW MY TENDER OF SERIES A PREFERRED?
The disclosures under the heading "What are my rights to withdraw my tender of
Series A Preferred?" beginning on page 19 of the Offering Memorandum are
replaced by the following:
You may withdraw your tender of any Series A Preferred, in whole or in part, at
any time prior to 12:00 midnight, Eastern time, on the Exchange Offer Expiration
Date, by delivery of a written notice of withdrawal to the company at the
address set forth in the Letter of Transmittal. You also have the right to
withdraw your tender of any Series A Preferred, in whole or in part, at any time
after August 6, 2002, which is the 40 th business day following the commencement
of the Exchange Offer, if we have not by that date closed the Exchange Offer and
accepted your tender.
To be effective, a written notice of withdrawal (sent by hand delivery,
overnight courier, mail or facsimile transmission) must:
o be timely received by the company at the address set forth in the
Letter of Transmittal;
o specify the name of the person having tendered the Series A Preferred
to be withdrawn;
o indicate the certificate number or numbers of the shares of Series A
Preferred to which the withdrawal relates;
o specify the number of shares of Series A Preferred so withdrawn; and
o either be (i) signed by the holder in the same manner as the original
signature on the Letter of Transmittal (including a guarantee of
signature, if required) or (ii) accompanied by evidence satisfactory to
us that the holder withdrawing such tender has succeeded to registered
ownership of such Series A Preferred.
Withdrawals of tenders of Series A Preferred may not be rescinded, and any
Series A Preferred withdrawn will thereafter be deemed not validly tendered for
purposes of the Exchange Offer. You may re-tender any withdrawn Series A
Preferred by again following one of the tender procedures described in this
Offering Memorandum at any time prior to the Exchange Offer Expiration Date.
All questions as to the validity (including time of receipt) of any notices of
withdrawal will be determined by us and our determination will be final and
binding. Neither we nor any other person will be under any
10
duty to give you any notification of any defects or irregularities in any notice
of withdrawal or incur any liability for failure to give any such notification.
FINANCIAL INFORMATION - HISTORICAL FINANCIAL INFORMATION
The disclosure in the first paragraph under the heading "Historical Financial
Information" beginning on page 20 of the Offering Memorandum is replaced by the
following:
Attached as Annex B to this Supplement are the Company's audited financial
statements for the two fiscal years, which were included in the Annual Report of
the Company on Form 10-K (File No. 0-18083) for its fiscal year ending September
30, 2001. Attached as Annex C to this Supplement are unaudited balance sheets,
comparative year-to-date income statements and related earnings per share data,
statements of cash flows, and comprehensive income, which were included in the
Company's Quarterly Report on Form 10-Q as filed with the Commission for the
quarter ended March 31, 2002.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The disclosure in the third paragraph under the heading "Certain Federal Income
Tax Considerations" beginning on page 21 of the Offering Memorandum is replaced
by the following:
The summary reflects the Company's understanding as to certain tax consequences
and is not based upon a legal opinion of tax counsel. The federal income tax
consequences of the Exchange Offer are complex. Each holder of Series A
Preferred should consult their own tax advisor as to the specific tax
consequences to such holder of the Exchange Offer, including the application and
effect of state, local, foreign and other tax laws.
MAJOR TERMS AND CONDITIONS OF SALE OF SERIES B SHARES
The fifth full paragraph under the heading "Major Terms and Conditions of Sale
of Series B Shares" beginning on page 27 of the Offering Memorandum is replaced
by the following:
Any of the terms and conditions set forth in the Stock Purchase Agreement may be
modified, amended or waived by the Company and/or the Purchaser. Accordingly,
the sale of the Series B Shares may be closed prior to the completion of the
Exchange Offer if the condition that 90% of the Series A Preferred be tendered
in the Exchange Offer is waived by the Purchaser. We have asked the Purchaser to
waive this condition and close its purchase of the Series B Shares prior to the
Exchange Offer Expiration Date.
DOCUMENTS INCORPORATED BY REFERENCE
The disclosure under the heading "Documents Incorporated by Reference" beginning
on page 21 of the Offering Memorandum is replaced by the following:
The Commission allows us to "incorporate by reference" information into this
Offering Memorandum, which means that we can disclose important information to
you by referring you to another document filed separately with the Commission.
The information incorporated by reference is deemed to be part of this Offering
Memorandum and Supplement, except for any information superseded by information
in this Offering Memorandum or Supplement. This Offering Memorandum and
Supplement incorporates by reference the documents set forth below, including
the exhibits that these documents specifically incorporate by reference, that we
have previously filed with the Commission. These documents contain important
information about us and our financial performance.
11
(1) The Annual Report of the Company on Form 10-K (File No. 0-18083) for
its fiscal year ending September 30, 2001;
(2) The Company's Current Reports on Form 8-K filed with the Commission on
November 29, 2001, February 11, 2002, May 8, 2002, June 14, 2002 and July 5,
2002;
(3) The Company's Quarterly Reports on Form 10-Q filed with the Commission
for the quarter ended December 31, 2001 and the quarter ended March 31, 2002, as
amended;
(4) The Company's Schedule TO filed with the Commission on June 11, 2002,
Amendment No. 1 to the Schedule TO filed with the Commission on June 11, 2002,
and Amendment No. 2 to the Schedule TO filed with the Commission on July 5,
2002; and
(5) The Company's Schedule 14f-1 filed with the Commission on June 26,
2002, and distributed to our shareholders.
You can obtain any of these documents from us or from the Commission's Public
Reference Room or web site at the addresses described above. These documents are
available from us without charge, excluding any exhibits to those documents. You
can obtain any of these documents by requesting them in writing or by telephone
from us at Williams Controls, Inc., 14100 SW 72nd avenue, Portland, OR 97224,
Attn: Dennis Bunday (phone: 503-670-3307). In order to ensure timely delivery of
the documents, any request should be made by the date which is five business
days prior to the Exchange Offer Expiration Date.
JULY 5, 2002, WILLIAMS CONTROLS, INC.
12
Annex A
-------
WILLIAMS CONTROLS, INC.
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT ("Agreement") made as of this ___
day of _________, 2002 between WILLIAMS CONTROLS, INC., a Delaware corporation,
with its principal offices at 14100 SW 72nd Avenue, Portland, Oregon 97224 (the
"Company") and the undersigned holders (each, a "Holder" and collectively, the
"Holders") of Series A-1 Preferred Stock ("Series A-1 Preferred Stock") set
forth on Exhibit A hereto.
RECITALS
1. Each Holder has previously purchased shares of the Company's
Series A 7 1/2% convertible redeemable preferred stock (the "Series A Preferred
Stock") at $100.00 per share pursuant to the terms of a Preferred Stock Purchase
Agreement between the Company and such Holder.
2. The Company has offered to exchange its Series A Preferred
Stock for Series A-1 Preferred Stock (the "Exchange") pursuant to the terms of
the Exchange Offer and Proxy Solicitation Offering Memorandum, dated June 10,
2002 (the "Information Statement").
3. Each share of Series A-1 Preferred Stock is convertible into
shares of the Company's Common Stock, $.01 par value (the "Common Stock") per
share, at $0.66 per share, subject to adjustment (the "Conversion Price").
4. Simultaneously herewith, each Holder is delivering a Letter of
Transmittal to the Company providing for the exchange of Series A Preferred
Stock owned by such Holder for Series A-1 Preferred Stock.
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants hereinafter set forth, the parties hereto do hereby agree as
follows:
Section 1. REGISTRATION RIGHTS.
1.1 As soon as possible after the completion of the exchange pursuant to the
Exchange Offer (as defined in the Information Statement) (the "Effective Date"),
but in no event later than 180 days after the Effective Date, the Company shall,
at its sole cost and expense, file a registration statement on the appropriate
form under the Securities Act of 1933 ("1933 Act") with the Securities and
Exchange Commission ("SEC") covering all of the shares of Common Stock issuable
upon conversion of the Series A-1 Preferred Stock (the "Conversion Shares") and
such additional shares of Common Stock that may be issued pursuant to the
anti-dilution rights contained in the Series A-1 Preferred Stock and as set
forth below (collectively, the "Registrable Securities") for all holders of the
Series A-1 Preferred Stock and Registrable Securities (collectively, the
"Registered Holders"), time being of the essence. The Company will use its
reasonable best efforts to have such registration statement declared effective
as soon as
possible after filing, and shall keep such registration statement current and
effective for at least three (3) years from the effective date thereof or until
such earlier date as all of the Registrable Securities registered pursuant to
such registration statement shall have been sold or otherwise transferred.
1.2 In the event the Company effects any registration under
the 1933 Act of any Registrable Securities pursuant to Section 1.1 above, the
Company shall indemnify, to the extent permitted by law, and hold harmless any
person or entity whose Registrable Securities are included in such registration
statement (each, a "Seller"), any underwriter, any officer, director, employee
or agent of any Seller or underwriter, and each other person, if any, who
controls any Seller or underwriter within the meaning of Section 15 of the 1933
Act, against any losses, claims, damages, liabilities, judgment, fines,
penalties, costs and expenses, joint or several, or actions in respect thereof
(collectively, the "Claims"), to which each such indemnified party becomes
subject, under the 1933 Act or otherwise, insofar as such Claims arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the registration statement or prospectus or any amendment or
supplement thereto or any document filed under a state securities or blue sky
law (collectively, the "Registration Documents") or insofar as such Claims arise
out of or are based upon the omission or alleged omission to state in any
Registration Document a material fact required to be stated therein or necessary
to make the statements made therein not misleading, and will reimburse any such
indemnified party for any legal or other expenses reasonably incurred by such
indemnified party in investigating or defending any such Claim; provided that
the Company shall not be liable in any such case to a particular indemnified
party to the extent such Claim is based upon an untrue statement or alleged
untrue statement of a material fact or omission or alleged omission of a
material fact made in any Registration Document in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such indemnified party specifically for use in the preparation of such
Registration Document.
1.3 In connection with any registration statement in which any
Seller is participating, each Seller, severally and not jointly, shall
indemnify, to the extent permitted by law, and hold harmless the Company, each
of its directors, each of its officers who have signed the registration
statement, each other person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act, each other Seller and each underwriter,
any officer, director, employee or agent of any such other Seller or underwriter
and each other person, if any, who controls such other Seller or underwriter
within the meaning of Section 15 of the 1933 Act against any Claims to which
each such indemnified party may become subject under the 1933 Act or otherwise,
insofar as such Claims (or actions in respect thereof) are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
Registration Document, or insofar as any Claims are based upon the omission or
alleged omission to state in any Registration Document a material fact required
to be stated therein or necessary to make the statements made therein not
misleading, and will reimburse any such indemnified party for any legal or other
expenses reasonably incurred by such indemnified party in investigating or
defending any such claim; provided, however, that such indemnification or
reimbursement shall be payable only if, and to the extent that, any such Claim
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any Registration Document in reliance
upon and in conformity with written information furnished to the Company by the
Seller specifically for use in the preparation thereof.
1.4 Any person entitled to indemnification under Section 1.2
or 1.3 above shall notify promptly the indemnifying party in writing of the
commencement of any Claim if a claim for indemnification in respect thereof is
to be made against an indemnifying party under this Section 1.4, but the
omission of such notice shall not relieve the indemnifying party from any
liability which it may have to any indemnified party otherwise than under
Section 1.2 or 1.3 above, except to the extent that such failure shall
materially adversely affect any indemnifying party or its rights hereunder. In
case any action is brought against the indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it chooses, to assume the
defense thereof with counsel reasonably satisfactory to the indemnified party;
and, after notice from the indemnifying party to the indemnified party that it
so chooses, the indemnifying party shall not be liable for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that (i) if the indemnifying party fails to take reasonable steps necessary to
defend diligently the Claim within twenty (20) days after receiving notice from
the indemnified party that the indemnified party believes it has failed to do
so; (ii) if the indemnified party who is a defendant in any action or proceeding
which is also brought against the indemnifying party reasonably shall have
concluded that there are legal defenses available to the indemnified party which
are not available to the indemnifying party; or (iii) if representation of both
parties by the same counsel is otherwise inappropriate under applicable
standards of professional conduct, the indemnified party shall have the right to
assume or continue its own defense as set forth above (but with no more than one
firm of counsel for all indemnified parties in each jurisdiction, except to the
extent any indemnified party or parties reasonably shall have concluded that
there are legal defenses available to such party or parties which are not
available to the other indemnified parties or to the extent representation of
all indemnified parties by the same counsel is otherwise inappropriate under
applicable standards of professional conduct) and the indemnifying party shall
be liable for any reasonable expenses therefor; provided, that no indemnifying
party shall be subject to any liability for any settlement of a Claim made
without its consent (which may not be unreasonably withheld, delayed or
conditioned). If the indemnifying party assumes the defense of any Claim
hereunder, such indemnifying party shall not enter into any settlement without
the consent of the indemnified party if such settlement attributes liability to
the indemnified party.
1.5 If for any reason the indemnity provided in Section 1.2 or
1.3 above is unavailable, or is insufficient to hold harmless, an indemnified
party, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of any Claim in such proportion as
is appropriate to reflect the relative benefits received by the indemnifying
party on the one hand and the indemnified party on the other from the
transactions contemplated by this Agreement. If, however, the allocation
provided in the immediately preceding sentence is not permitted by applicable
law, or if the indemnified party failed to give the notice required by Section
1.4 above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable in respect of any Claim shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such Claim. Notwithstanding the
foregoing, no underwriter or controlling person thereof, if any, shall be
required to contribute, in respect of such underwriter's participation as an
underwriter in the offering, any amount in excess of the amount by which the
total price at which the Registrable Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The obligation of any
underwriters to contribute pursuant to this Section 1.5 shall be several in
proportion to their respective underwriting commitments and not joint.
1.6 The provisions of Section 1.2 through 1.5 of this
Agreement shall be in addition to any other rights to indemnification or
contribution which any indemnified party may have pursuant to law or contract
and shall remain operative and in full force and effect regardless of any
investigation made or omitted by or on behalf of any indemnified party and shall
survive the transfer of the Registrable Securities by any such party.
1.7 The Registered Holders shall have certain "piggy-back"
registration rights with respect to the Registrable Securities as hereinafter
provided:
1.7.1 If at any time after the Effective Date, the
Company shall file with the SEC a registration statement under the 1933 Act
registering any shares of Common Stock, the Company shall give written notice to
each Registered Holder thereof prior to such filing.
1.7.2 Within fifteen (15) days after such notice from the
Company, each Registered Holder shall give written notice to the Company whether
or not the Registered Holder desires to have all of the Registered Holder's
Registrable Securities included in the registration statement. If a Registered
Holder fails to give such notice within such period, such Registered Holder
shall not have the right to have such Registered Holder's Registrable Securities
registered pursuant to such registration statement. If a Registered Holder gives
such notice, then the Company shall include such Registered Holder's Registrable
Securities in the registration statement, at the Company's sole cost and expense
(except for any underwriter's commissions and discounts which shall be payable
by the Registered Holder), subject to the remaining terms of this Section 1.7.
1.7.3 If the registration statement relates to an
underwritten primary offering on behalf of the Company, and the underwriter
shall determine in writing that the total number of shares of Common Stock to be
included in the offering, including the Registrable Securities, shall exceed the
amount which the underwriter deems to be appropriate for the offering, the
Company will include in such registration (i) first, the shares the Company
proposes to sell, (ii) second, shares (including Registrable Securities)
requested to be included in such registration by holders of registration rights
pro rata among such holders on the basis of the
number of shares which are subject to registration rights owned by each such
holder, and (iii) third, other securities, if any, requested to be included in
such registration. For this purpose, if other securities in the registration
statement are derivative securities, their underlying shares shall be included
in the computation. The Registered Holders shall enter into such agreements as
may be reasonably required by the underwriters and the Registered Holders shall
pay to the underwriters commissions relating to the sale of their respective
Registrable Securities.
1.7.4 If the registration statement relates to an
underwritten secondary offering on behalf of holders of the Company's
securities, and the underwriter shall determine in writing that the total number
of shares of Common Stock to be included in the offering (including Registrable
Securities) shall exceed the amount which the underwriter deems to be
appropriate for the offering, the Company will include in such registration (i)
first, shares other than Registrable Securities which are subject to
registration rights and are requested to be included in such registration by
holders thereof, and (ii) second, other shares (including Registrable
Securities) requested to be included in such registration by holders having the
right under an agreement with the Company or the Company's prior approval pro
rata among such holders on the basis of the number of shares owned by each such
holder.
1.7.5 The Registered Holders shall have two (2)
opportunities to have the Registrable Securities registered under this Section
1.7.
1.7.6 The Registered Holder shall furnish in writing to
the Company such information as the Company shall reasonably require in
connection with a registration statement.
Section 2. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
No Registered Holders may participate in any registration hereunder
which is underwritten unless such Registered Holder (a) agrees to sell such
Registered Holder's securities on the basis provided in the underwriting
arrangements approved by the Company and (b) completes and executes all
customary questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements; provided, that no holder of Registrable Securities
included in any underwritten registration shall be required to make any
representations and warranties to the Company or the underwriters other than
representations and warranties regarding such holder, such holder's Registrable
Securities and such holder's intended method of distribution.
Section 3. OBLIGATIONS OF THE HOLDERS OF REGISTRABLE SECURITIES.
3.1 At least five business days prior to the first anticipated
filing date of any registration in which the Registered Holders have rights
hereunder, the Company shall notify each Registered Holder in writing of the
information the Company requires from each such holder if such holder elects to
have any of such holder's Registrable Securities included in such registration.
It shall be a condition precedent to the obligations of the Company to complete
any registration pursuant to this Agreement with respect to the Registrable
Securities of a particular Registered Holder that each such Registered Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of
disposition of the Registrable Securities held by it, and any changes in any
such information that would require an amendment or supplement to any such
registration, as shall be reasonably required to effect and maintain the
effectiveness of the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request. To the extent that any holder of Registrable Securities
fails to timely provide such information, the Company shall not be subject to
any penalties hereunder for the period of time that such holder has failed to
timely provide such information.
3.2 Each Registered Holder, by such holder's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of any
registration hereunder, unless such holder has notified the Company in writing
of such holder's election to exclude all of such holder's Registrable Securities
from such registration.
3.3 Each Registered Holder agrees that, upon request of the
Company, such holder will immediately discontinue disposition of the Registrable
Securities pursuant to any registration covering such Registrable Securities
during any period not to exceed one 90-day period within any one 12-month period
the Company requires in connection with an underwritten public offering. In
addition, each holder of Registrable Securities agrees that such holder will
enter into a standstill or lock-up agreement with respect to any underwritten
public offering so long as (i) such agreement is required by the managing
underwriter in connection with such underwritten public offering, (ii) the term
of such agreement does not exceed 90 days, (iii) all of the Company's executive
officers, directors and 5% stockholders (other than institutional stockholders)
are required by such managing underwriter to enter into identical standstill or
lockup agreements, and (iv) the continued effectiveness of such agreement is
conditioned upon the continued effectiveness of all of the agreements described
in the preceding clause (iii).
Section 4. MISCELLANEOUS.
All notices, demands or other communications to be given or delivered
under or by reason of the provisions of this Agreement will be in writing and
will be deemed to have been given when delivered personally, mailed by certified
or registered mail, return receipt requested and postage prepaid, or sent via a
nationally recognized overnight courier, or sent via facsimile to the recipient.
Such notices, demands and other communications will be sent to the address
indicated below:
To the Company, to:
Williams Controls, Inc.
14100 SW 72nd Avenue
Portland, OR 97224
Attention: Dennis Bunday
Facsimile: 503-624-3812
with a copy, which shall not constitute notice, to:
Davis Wright Tremaine, LLP
1300 SW Fifth Avenue, Suite 2300
Portland, OR 97201
Attention: James Waggoner
Facsimile: (503) 778-5399
To a Holder, to: the address set forth on the books and records
of the Company or, in each case, to such other address or to the attention of
such other person as the recipient party shall have specified by prior written
notice to the sending party.
4.1 This Agreement shall not be changed, modified or amended
except by a writing signed by the parties to be charged, and this Agreement may
not be discharged except by performance in accordance with its terms or by a
writing signed by the party to be charged.
4.2 This Agreement shall be binding upon and inure to the
benefit of the parties hereto and to their respective heirs, legal
representatives, successors and assigns. This Agreement sets forth the entire
agreement and understanding between the parties as to the subject matter thereof
and merges and supersedes all prior discussions, agreements and understandings
of any and every nature among them.
4.3 Notwithstanding the place where this Agreement may be
executed by any of the parties hereto, the parties expressly agree that all the
terms and provisions hereof shall be construed in accordance with and governed
by the laws of the State of New York. The parties hereby agree that any dispute
which may arise between them arising out of or in connection with this Agreement
shall be adjudicated before a court located in New York and they hereby submit
to the exclusive jurisdiction of the courts of the State of New York and of the
federal courts in New York with respect to any action or legal proceeding
commenced by any party, and irrevocably waive any objection they now or
hereafter may have respecting the venue of any such action or proceeding brought
in such a court or respecting the fact that such court is an inconvenient forum,
relating to or arising out of this Agreement or any acts or omissions relating
to the sale of the securities hereunder, and consent to the service of process
in any such action or legal proceeding by means of registered or certified mail,
return receipt requested, in case of the address set forth below or such other
address as the undersigned shall furnish in writing to the other.
4.4 This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered will be deemed to be
an original and all of which counterparts taken together will constitute but one
and the same instrument.
4.5 The holding of any provision of this Agreement to be
invalid or unenforceable by a court of competent jurisdiction shall not affect
any other provision of this Agreement, which shall remain in full force and
effect.
4.6 It is agreed that a waiver by either party of a breach of
any provision of this Agreement shall not operate, or be construed, as a waiver
of any subsequent breach by that same party.
4.7 The parties agree to execute and deliver all such further
documents, agreements and instruments and take such other and further action as
may be necessary or appropriate to carry out the purposes and intent of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the day and year first written above.
Signature for Individual Holder Signature for Holder Other than Individual
_____________________________ By:_______________________________________
Signature Name:
Title:
WILLIAMS CONTROLS, INC.
By:_______________________________________
Name:
Title:
Annex B
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Audited Financial Statements included in the
--------------------------------------------
Annual Report of the Company on Form 10-K
-----------------------------------------
For the Period ended September 30, 2001
---------------------------------------
Williams Controls, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except share and per share information)
September 30, September 30,
2001 2000
ASSETS
Current Assets:
Cash and cash equivalents $ -- $ 30
Trade and other accounts receivable, less allowance of $379 8,231 11,357
and $508 in 2001 and 2000, respectively
Inventories, net 4,725 8,016
Prepaid and other current assets 1,222 1,158
Total current assets 14,178 20,561
Property plant and equipment, net 11,729 21,486
Investment in and note and accounts receivable from affiliate 3,065 1,615
Goodwill and intangible assets, net 36 5,165
Other assets 331 322
Total assets $ 29,339 $ 49,149
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 9,434 $ 11,363
Accrued expenses 9,048 4,574
Non-refundable deposit -- 500
Current portion of long-term debt and capital leases 13,146 21,802
Convertible subordinated debt, net 2,082 2,040
Total current liabilities 33,710 40,279
Long-term debt and capital lease obligations 205 4,567
Other liabilities, primarily employee benefit obligations 6,132 3,259
Commitments and contingencies (Note 22)
Shareholders' Equity (Deficit):
Preferred stock ($.01 par value, 50,000,000 authorized; 78,400 1 1
issued and outstanding at September 30, 2001 and 2000)
Common stock ($.01 par value, 50,000,000 authorized; 199 199
19,921,114 issued and outstanding at September 30, 2001 and
2000)
Additional paid-in capital 23,069 21,744
Accumulated deficit (30,721) (20,023)
Other comprehensive loss-Pension liability adjustment (2,379) --
Treasury stock (130,200 shares at September 30, 2001 and 2000) (377) (377)
Note Receivable (500) (500)
Total shareholders' equity (deficit) (10,708) 1,044
Total liabilities and $ 29,339 $ 49,149
shareholders' equity (deficit)
The accompanying notes are an integral part of these balance sheets.
Williams Controls, Inc.
Consolidated Statements of Shareholders' Equity (Deficit)
(Dollars in thousands)
Issued Retained
Preferred Issued Additional Earnings Unearned Treasury Note Pension Shareholders'
Stock Common Stock Paid-in (Accumulated ESOP Stock Receivable Liability Equity
Shares Amount Shares Amount Capital Deficit) Shares Adjustment (Deficit)
Balance, September 80,000 $ 1 18,311,288 $ 183 $ 17,917 $ 7,444 $ (73) $ (37) $ (500) $ (184) $ 24,411
30, 1998
Net loss -- -- -- -- -- (9,539) -- -- -- -- (9,539)
Dividends on -- -- -- -- -- (596) -- -- -- -- (596)
preferred stock
Common stock issueed -- -- 1,331,149 13 4,539 -- -- -- -- -- 4,552
private placement
Equity issuance coasts -- -- -- -- (1,17) -- -- -- -- -- (1,173)
Issuance of stock upon -- -- 201,750 2 167 -- -- -- -- -- 169
exercise of stock options
Common stock issued (1,500) -- 54,541 1 (1) -- -- -- -- -- --
from conversion of
preferrestock
Change in pension -- -- -- -- -- -- -- -- -- 184 184
liability adjustment
Reduction of unallocated -- -- -- -- 7 -- 73 -- -- -- 80
ESOP shares
Income tax benefit of -- -- -- -- 118 -- -- -- -- -- 118
non-qualified stock
option exercise
Balance, September 78,500 1 19,898,728 199 21,574 (2,691) -- (37) (500) -- 18,206
30, 1999
Net loss -- -- -- -- -- (16,74) -- -- -- -- (16,74)
Dividends on preferred -- -- -- -- -- (588) -- -- -- -- (588)
stock
Equity issuance costs -- -- -- -- (33) -- -- -- -- -- (33)
Warrants issued in -- -- -- -- 166 -- -- -- -- -- 166
connection with Convertible
Subordinated debt
Issuance of stock upon -- -- 18,750 -- 37 -- -- -- -- -- 37
exercise of stock options
Common stock issued -- -- -- -- -- -- -- -- -- -- --
issued from (100) -- 3,636 -- -- -- -- -- -- -- --
conversion of
preferred stock
Balance, September 78,400 1 19,921,114 199 21,744 (20,02) -- (37) ( (500) -- 1,044
30, 2000
Net loss -- -- -- -- -- (9,602) -- -- -- -- (9,602)
Dividends on -- -- -- -- -- (1,096) -- -- -- -- (1,096)
preferred stock
Warrants issued in -- -- -- -- 870 -- -- -- -- -- 870
connection with
Subordinated debt
Adjustment for change -- -- -- -- 455 -- -- -- -- -- 455
in conversion price
of preferred stock
Change in pension -- -- -- -- -- -- -- -- -- (2,37) (2,379)
liability adjustment
Balance, Septemder 78,400 $ 1 19,921,114 $ 19 $ 23,069 $ (30,72)$ -- $ (37) $ (500)$ (2,37)$ (10,70)
30, 2001
The accompanying notes are an integral part of these statements.
Williams Controls, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except share and per share information)
For the year ended September 30,
2001 2000 1999
Net sales $ 55,082 $ 67,725 $ 61,422
Cost of sales 44,837 51,746 44,338
Gross margin 10,245 15,979 17,084
Operating expenses (income)
Research and development 4,005 6,713 3,424
Selling 1,312 1,876 1,997
Administration 8,261 8,938 7,666
Gain on Sale of land and building--Aptek (1,837) -- --
Gain on sale of GeoFocus (2,486) -- --
Loss on impairment of assets--PPT, net 1,796 -- --
Loss on impairment of assets--ProActive 4,366 -- --
Loss on impairment of assets--Automotive -- -- 5,278
Accessories
Acquired-in process research and development -- -- 1,750
Total operating expenses 15,417 17,527 20,115
Loss from continuing operations (5,172) (1,548) (3,031)
Other (income) expenses:
Interest income (3) (231) (343)
Interest expense 4,510 3,010 2,154
Other (income) expense (77) (154) 85
Equity interest in loss of affiliate -- 5,044 488
Total other expenses 4,430 7,669 2,384
Loss from continuing operations before income taxes (9,602) (9,217) (5,415)
Income tax (benefit) expense -- 7,527 (1,487)
Net loss from continuing operations (9,602) (16,744) (3,928)
Discontinued operations:
Net loss on disposal of the agricultural -- -- (5,611)
equipment segment, including $638 for operating
losses during phase-out period
Net loss from discontinued operations -- -- (5,611)
Net loss (9,602) (16,744) (9,539)
Dividends on preferred stock (1,096) (588) (596)
Net loss allocable to common shareholders $ (10,698) $ (17,332) $ (10,135)
Loss per common share from continuing $ (0.54) $ (0.88) $ (0.24)
operations--basic
Loss per common share from discontinued -- -- (0.30)
operations--basic
Net loss per common share--basic $ (0.54) $ (0.88) $ (0.54)
Weighted average shares used in per share 19,921,114 19,788,031 18,603,057
calculation--basic
Loss per common share from continuing $ (0.54) $ (0.88) $ (0.24)
operations--diluted
Loss per common share from discontinued -- -- (0.30)
operations--diluted
Net loss per common share--diluted $ (0.54) $ (0.88) $ (0.54)
Weighted average shares used in per share 19,921,114 19,788,031 18,603,057
calculation--diluted
The accompanying notes are an integral part of these statements.
Williams Controls, Inc.
Consolidated Statements of Comprehensive Loss
(Dollars in thousands)
For the year ended September 30,
2001 2000 1999
Net loss $ (9,602) $ (16,744) $ (9,539)
Change in pension liability adjustment (2,379) -- 184
Comprehensive loss $ (11,981) $ (16,744) $ (9,355)
The accompanying notes are an integral part of these statements.
Williams Controls, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
For the year ended September 30,
2001 2000 1999
Cash flows from operating activities:
Net loss $ (9,602) $ (16,74) $ (9,539)
Adjustments to reconcile net loss to net cash provided by continuing operations:
Loss from discontinued operations -- -- 5,611
Depreciation and amortization 3,993 3,189 2,056
Gain on sale of land and building--Aptek (1,837) -- --
Gain on sale of GeoFocus (2,486) -- --
Equity interest in loss of affiliate -- 5,044 488
Loss on impairment of assets--PPT, net 1,796 -- --
Loss on impairment of assets--ProActive 4,366 -- --
Loss on impairment of assets--Automotive Accessories -- -- 5,278
Loss on disposition of assets 122 -- --
Deferred income taxes -- 6,896 (2,565)
Acquired in-process research and development -- -- 1,750
Changes in working capital of continuing operations, net of
acquisition:
Receivables 2,859 (458) (141)
Inventories 3,231 1,819 974
Accounts payable and accrued expenses 924 2,696 3,277
Other 587 494 475
Net cash provided by operating activities of continuing 3,953 2,936 7,664
operations
Cash flows from investing activities:
Investment in and loans to affiliate (1,450) -- (500)
Proceeds from sale of land and building 5,750 -- 1,192
Proceeds from sale of GeoFocus 3,150 -- --
Investment in note receivable -- -- (575)
Payment for acquisition of ProActive -- -- (6,350)
Payments for property, plant and equipment (1,583) (2,343) (2,948)
Other, net 200 43 --
Net cash provided by (used in) investing activities of continuing operations 6,067 (2,300) (9,181)
Cash flows from financing activities:
Proceeds from long-term debt -- 1,800 5,592
Repayments of long-term debt and capital lease obligations (14,47) (5,898) (3,987)
Net proceeds from subordinated debt 4,576 -- --
Net proceeds from issuance of convertible subordinated debt -- 1,965 --
Net proceeds from issuance of common stock for -- 3 3,548
private placement and upon exercise of stock options
Preferred dividends (147) (588) (596)
Net cash provided by (used in) financing activities of continuing operations (10,05) (2,718) 4,557
Cash flows from discontinued operations:
Proceeds from sale of Agricultural Equipment -- 1,460 --
segment
Net cash used in operations -- (1,671) (1,998)
Net cash used in discontinued operations -- (211) (1,998)
Net increase (decrease) in cash and cash equivalents (30) (2,293) 1,042
Cash and cash equivalents at beginning of period 30 2,323 1,281
Cash and cash equivalents at end of period $ -- $ 30 $ 2,323
Supplemental disclosure of cash flow information:
Interest paid $ 3,556 $ 2,677 $ 1,993
Income taxes paid $ -- $ 122 $ 503
Williams Controls, Inc.
Consolidated Statements of Cash Flows (Continued)
(Dollars in thousands)
For the year ended September 30,
2001 2000 1999
Supplemental disclosure of non-cash investing and financing objectives:
Capital lease for equipment $ -- $ 458 $ 1,819
Dividends accrued not paid 494 -- --
Dividends for implied return on preferred stock 455 -- --
Debt issuance cost from warrants issued 57 56 --
Debt discount from warrants issued 813 110 --
Debt issued in lieu of underwriting fee -- 140 --
Debt modification fee accrued 300 -- --
Settlement of PPT capital leases and 2,832 -- --
reduction in related equipment
Additional pension liability 2,588 -- --
Assumption of debt related to ProActive -- -- 286
Pedal acquisition
Equity issuance costs from warrants issued -- -- 1,118
Extinquishment of Note Receivable related to -- -- 3,200
building/land re-purchase
Extinquishment of capital lease obligations -- -- 4,600
related to building/land re-purchase
Income tax benefit of stock options -- -- 118
The accompanying notes are an integral part of these statements.
Notes to Consolidated Financial Statements
Years Ended September 30, 2001, 2000 and 1999
(Dollars in thousands, except share and per share amounts)
Note 1. Summary of Operations and Current Events
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
herein referred to as the "Company" or "Registrant". The subsidiaries are
detailed as follows:
Vehicle Components
Williams Controls Industries, Inc.: Manufactures vehicle components sold
primarily in the commercial vehicle industry.
ProActive Acquisition Corporation: Manufactures electronic throttle controls
and adjustable pedal systems for passenger vehicles.
Premier Plastic Technologies, Inc.: Manufactures plastic components for the
automotive industry. This operation was closed in March, 2001. See Note 12 of
Notes to Consolidated Financial Statements.
NESC Williams, Inc.: Installs conversion kits to allow vehicles to use
compressed natural gas and provides natural gas well metering services.
Williams Technologies, Inc.: Supports all subsidiaries of the Company by
providing research and development and developing strategic business
relationships to promote "technology partnering".
Williams World Trade, Inc.: Located in Kuala Lumpur, Malaysia, WWT managed
foreign sourcing for subsidiaries of the Company, affiliates and third party
customers. Significant portions of WWT's revenues were derived from Ajay Sports,
Inc., an affiliate. This subsidiary ceased operations in fiscal 2000.
Electrical Components and GPS
Aptek Williams, Inc.: Develops and produces sensors, microcircuits, cable
assemblies and other electronic products for the telecommunications and the
transportation industry, and conducts research and development activities to
develop commercial applications of sensor related products for the electronics
and automotive markets.
GeoFocus, Inc.: Developed train tracking and cyber-farming systems using
global positioning systems ("GPS") and geographical information systems ("GIS").
This operation was sold in June 2001. See Note 12 of Notes to Consolidated
Financial Statements.
Agricultural Equipment
The operations of the subsidiaries comprising the Agricultural Equipment
segment were sold in May 2000 and had previously been reported as discontinued
operations.
Agrotec Williams, Inc.: Manufactured spraying equipment for the professional
lawn care, nursery and pest control industries.
Hardee Williams, Inc.: Manufactured equipment used in farming, highway and
park maintenance.
Waccamaw Wheel Williams, Inc.: Manufactured solid rubber tail wheels and
other rubber products used on agricultural equipment, from recycled truck and
bus tires.
Automotive Accessories
Kenco/Williams, Inc.: Manufactured, assembled, packaged and distributed truck
and auto accessories for the after market parts industries. Substantially all of
the assets of Kenco were sold in fiscal 1998.
Current Events
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. As shown in the
consolidated financial statements during the years ended September 30, 2001,
2000 and 1999, the Company incurred (losses) of ($9,602), ($16,744) and
($9,539), respectively. In addition, at September 30, 2001, essentially all of
the Company's $9,434 of trade accounts payable is significantly past due, the
working capital deficit was ($19,532), and the Company stockholders' equity was
a deficit of $(10,708). The Company also ceased making payments of preferred
stock dividends in the second quarter of fiscal 2001. Also, as described in Note
6 of Notes to Consolidated Financial Statements, the Company was not in
compliance with the covenants of its credit agreement at September 30, 2001. The
credit agreement with the Company's primary bank 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 $6,542 owed to its primary bank as a
current liability at September 30, 2001.
During the second quarter of fiscal 2001, the Company raised $4,576, net of
expenses, from a private placement of debt in February 2001. The $4,576 raised
was in the form of $4,950 of secured subordinated debentures which are due March
1, 2002, bearing interest at 12% and include warrants to purchase the Company's
common stock at $1.375 per share for each $2.00 of principal amounts of the
debentures purchased. The Private Placement funds were used to pay down bank
debt, including an over-advance from the Company's primary bank and to support
the operations of the Company.
During fiscal 2001, the Company has taken several actions to improve the
financial condition of the Company, including the sale of its Deerfield Beach
facility, sale of its GeoFocus operations, shutdown of non-profitable,
non-essential operations, including PPT, and reductions in working capital
requirements at its remaining operations. These actions together with raising
$4,576 through the issuance of the $4,950 of secured subordinated debentures
have reduced the Company's amount owing its primary secured lender by $13,820
and improved borrowing capacity under its credit facility over the amount
available at September 30, 2000. However, due to the Company's continued working
capital deficit, the Company's debts, including accounts payable and the secured
subordinated debentures due March 1, 2002, and other factors as outlined herein,
the Company continues to have a significant lack of liquidity. Accordingly, the
Company's continuation as a going concern is dependent upon, among other things,
its ability to generate sufficient cash flow to meet its obligations on a timely
basis, to comply with the terms of its credit agreement, to obtain additional
financing or refinancing as may be required, and ultimately to attain
profitability.
Management is pursuing alternatives to raise capital, both equity and debt
and is continuing to pursue all alternatives available to it, including selling
all or part of the Company to a third party.
There is no assurance that the Company will be able to obtain adequate
working capital in the amounts needed to sustain its operations or sell its
business or parts of it in a timely fashion.
The above matters 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.
Note 2. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include all of the accounts of Williams
Controls, Inc. and its majority owned subsidiaries. All significant
inter-company accounts and transactions have been eliminated.
Cash and Cash Equivalents
All short-term highly liquid investments purchased with maturity at purchase
of three months or less are considered to be cash equivalents.
Inventories
Inventories are valued at the lower of standard cost, which approximates
actual cost, or market.
Property, Plant and Equipment
Land, buildings, equipment and improvements to existing facilities are
recorded at cost. Maintenance and repairs are expensed as incurred. Depreciation
has been computed using the straight-line method over the estimated useful lives
of property and equipment as follows: buildings 31.5 years, furniture, machinery
and equipment 3 to 12 years. Capitalized leases are amortized using the same
method over the shorter of the estimated useful lives or the lease term.
In accordance with Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", management reviews long-lived assets for impairment
whenever events or changes in circumstances indicate the carrying amount of such
assets may not be recoverable. Recoverability of these assets is determined by
comparing the forecasted non-discounted net cash flows of the operation to which
the assets relate, to the carrying amount of such assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less cost to
sell.
Goodwill and Intangible Assets
Goodwill, which represents the excess of cost over net assets of acquired
companies, is being amortized using the straight-line method over periods from
15 to 40 years. At each balance sheet date, management assesses whether there
has been an impairment in the carrying value of cost in excess of net assets of
businesses acquired, primarily by comparing current and projected sales,
operating income and annual cash flows, on an un-discounted basis, with the
related annual amortization expenses as well as considering the equity of such
companies. Other intangible assets includes developed technology which is being
amortized on a straight-line basis over the estimated useful life of the asset,
or seven years. In addition, intangible assets include the cost of a patent
license agreement, which is being amortized on a straight-line basis over the
shorter of the legal or estimated useful life of the asset, which is eleven
years. In fiscal 2001, the Company recorded an impairment charge of $4,366
related to the remaining carrying value of ProActive Pedals' goodwill and
intangible assets. See Note 10 of Notes to Consolidated Financial Statements.
Concentration of Risk
In the event excess cash would become available, the Company would invest a
portion of its excess cash in debt instruments of financial institutions with
strong credit ratings and has established guidelines relative to diversification
and maturities that maintain safety and liquidity. The Company has not
experienced any losses on its cash equivalents.
The Company sells its products to customers in diversified industries
worldwide; however, approximately 95% of its sales from continuing operations
are to customers in the Vehicle Components segment. Approximately 59% of the
Company's sales from continuing operations are electronic throttle controls
("ETC").
Sales by Customer
For the years ended September 30, 2001, 2000 and 1999, Freightliner accounted
for 18%, 23% and 27%, Navistar accounted for 12%, 12% and 15%, Volvo accounted
for 9%, 6% and 8%, Evart Corporation accounted for 4%, 9% and 1%, General Motors
accounted for 7%, 6% and 5% and Ford accounted for 5%, 0% and 0% of net sales
from continuing operations, respectively. Approximately 16%, 15% and 20% of net
sales in fiscal 2001, 2000 and 1999 respectively, were to customers outside of
the United States, primarily in Canada, Mexico and Sweden, and, to a lesser
extent, in Europe, South America and Australia.
Debt Issuance Costs
Costs incurred in the issuance of debt financing are amortized over the term
of the debt agreement, approximating the effective interest method.
Revenue Recognition
The Company recognizes revenue upon shipment, when title passes to the
customer.
Product Warranty
The Company provides a warranty covering defects arising from products sold.
The warranty is limited to a specified time period, mileage or hours of use, and
varies by product and application. The Company has provided a reserve, which in
the opinion of management is adequate to cover such warranty costs. During
fiscal 2001, the Company had one product recall related to weld failures on
certain ETC's produced for the heavy truck markets. The Company has made all
required disclosures to the National Highway Traffic Safety Administration
(NHTSA) and are testing, repairing or replacing the defective parts as
necessary. Management estimates that the total potential units involved are no
more than 15,000 units, and has recorded an accrual of $674, which represents
the low end of an estimated range to complete the recall of $674 to $1,230. The
Company is also seeking potential recovery of certain of these costs from one of
its vendors. However, no amounts have been recorded for this potential recovery.
Research and Development Costs
Research and development costs are expensed as incurred.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the
consolidated statement of operations in the period that includes the enactment
date.
Post-retirement Benefits
Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers'
Accounting for Post Retirement Benefits Other than Pensions" requires the
Company to accrue retiree insurance benefits over the period in which employees
become eligible for such benefits. The Company implemented SFAS No. 106 by
amortizing the transition obligation over twenty years.
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:
Year Ended Year Ended
September 30, 2001 September 30, 2000
Loss Shares Per Share Loss Shares Per Share
Amount Amount
Loss from continuing $ (9,602) $ (16,744)
operations
Less--Preferred stock dividends (1,096) (588)
Basic EPS--
Loss allocable to (10,698) 19,921,114 $ (0.54) (17,332) 19,788,031 $ (0.88)
common shareholders
Effect of dilutive securities--
Stock options and -- -- -- --
warrants
Convertible -- -- -- --
preferred stock
Convertible -- -- -- --
subordinated debt
Diluted EPS--
Loss allocable to $ (10,698) 19,921,114 $ (0.54)$ (17,332) 19,788,031 $ (0.88)
common shareholders
Year ended
September 30, 1999
Loss Shares Per Share
Amount
Loss from continuing $ (3,928)
operations
Less--Preferred stock dividends (596)
Basic EPS--
Loss allocable to (4,524) 18,603,057 $ (0.24)
common shareholders
Effect of dilutive securities--
Stock options and -- --
warrants
Convertible -- --
preferred stock
Diluted EPS--
Loss allocable to $ (4,524) 18,603,057 $ (0.24)
common
shareholders
At September 30, 2001, 2000 and 1999, the Company had options and warrants
covering 6,188,736, 3,690,629 and 3,548,797 shares, respectively of the
Company's common stock outstanding that were not considered in the respective
diluted EPS calculations since they would have been anti-dilutive. In 2001, 2000
and 1999, conversion of the preferred shares, and in 2001 and 2000, conversion
of the convertible subordinated debt, would have been anti-dilutive and,
therefore, was not considered in the computation of diluted earnings per share.
Fair Value of Financial Instruments
The carrying values of the Company's current assets and liabilities
approximate fair values primarily because of the short maturity of these
instruments. The fair values of the Company's long-term debt approximated its
carrying values because the debt is primarily variable rate debt. The fair value
of preferred stock and receivables from an affiliate is not practicable to
estimate due to the related party nature of the underlying transaction. The
carrying value of the convertible subordinated debt, excluding the value of
warrants recorded as debt discount, and approximates fair value due to its
recent issuance.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") allows
companies to choose whether to account for stock-based compensation on a fair
value method, or to continue accounting for such compensation under the method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). The Company has chosen to continue to account
for stock-based compensation using APB 25 (see Note 13 of Notes to Consolidated
Financial Statements).
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 will be fiscal year 2002. As of September 30,
2001, the Company does not have any significant remaining goodwill. Accordingly,
the Company does not expect that the adoption of either SFAS 141 or SFAS 142 to
have a significant impact on the financial condition or results of operations of
the Company. Goodwill and other intangible amortization, including write-off's,
was $4,739, $599 and $173 in 2001, 2000 and 1999, 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.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods.
Management makes these estimates using the best information available at the
time the estimates that are made; however, actual results could differ
materially from these estimates.
Reclassifications
Certain amounts previously reported in the 2000 and 1999 financial statements
have been reclassified to conform to 2001 financial statement classifications.
Note 3. Inventories
Inventories consist of the following at September 30:
2001 2000
Raw material $ 3,056$ 6,108
Work in process 932 1,088
Finished goods 737 820
$ 4,725$ 8,016
Finished goods include finished product ready for shipment. The lower overall
inventory levels are due to reduced inventory levels at the Company's Portland
facility and the closure of the Company's plastic injection molding business.
Note 4. Investment in and Receivables from Affiliate
At September 30, 2001 the Company had notes and accounts receivable from Ajay
Sports, Inc. ("Ajay") with a carrying value of $3,565, including a $500 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 includes a secured note receivable with a carrying amount of $2,470 and
accounts receivable of $595. The Company had a guaranty obligation to advance up
to $1,515 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, 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 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 51, 2001. The preferred stock
dividend rate increased to an annual rate of 17% beginning August 1, 2001 and
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 fiscal 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 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 and a management fee for sourcing products overseas in the amount of
$80 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 income (loss) of
affiliate in fiscal 2001 since current financial information of Ajay is not
available. Based on Ajay's financials through March 31, 2001, management would
not expect any income (loss) to be material.
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 Williams 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.
Following is a summary of condensed unaudited financial information of Ajay
for the twelve months ended September 30, 2000 and 1999. No current financial
statements are available for the twelve months ended September 30, 2001.
2000 1999
(unaudited) (unaudited)
Current assets $ 2,539 $ 9,193
Other assets 29,093 15,243
$ 31,632 $ 24,436
Current liabilities $ 2,276 $ 4,949
Other liabilities 25,796 18,128
Common and preferred shareholders' equity 3,560 1,359
$ 31,632 $ 24,436
Loss, including discontinued operations, $ (9,956) $ (2,713)
before income tax expense (benefit)
At March 31, 2001, Ajay had approximately 4,120,000 common shares
outstanding. In addition to the company's options and convertible preferred
stock, 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. The Company believes the guarantees of Mr. Itin are
enforceable and if the Company is unable to collect amounts owed it by Ajay it
will seek collection on the guarantees. Accordingly, management believes the
carrying value of its investment in and receivable from Ajay of $3,565 is
collectible.
Note 5. Goodwill and Intangible Assets
At September 30, goodwill and intangible assets consist of the following:
2001 2000
Goodwill $ 2,467 $ 2,955
Developed technology 1,820 1,820
Patent and patent license agreement 1,439 1,439
Less impairment charge on ProActive (4,366) --
Less accumulated amortization (1,324) (1,049)
$ 36 $ 5,165
Amortization expense on intangible assets was $373, $599 and $173 for the
years ended September 30, 2001, 2000 and 1999, respectively.
During the third quarter of 2001, the Company recorded an impairment charge
of $4,366 related to the remaining carrying value of ProActive Pedals' goodwill
and intangible assets. See Note 10 of Notes to Consolidated Financial
Statements.
Note 6. Financing Arrangements
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 Aptek land and building and GeoFocus. See Note 12 of Notes to
Consolidated Financial Statements. The revolver bears interest at the Bank's
prime rate plus 2.00% (8.00% at September 30, 2001). Term Loan I bears interest
at the Bank's prime rate plus 2.25% (8.25% at September 30, 2001). The loans and
the revolving credit facility matured on July 11, 2001, however subsequent to
the Company's fiscal year end, the Company has obtained an extension of the
credit agreement under an amended forbearance agreement until June 30, 2002.
Term Loan I was being amortized over seven years with all remaining principal
outstanding due at July 11, 2001; however under the amended forbearance
agreement, all scheduled principal payments due subsequent to June 30, 2001 have
been deferred with the due date of Term Loan I. Term Loan I plus the revolver
will be due on June 30, 2002, unless extended. In connection with the amended
forbearance agreement, 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.
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 September 30, 2001, the Company was not in compliance with its debt covenants
with either the original loan or the amended forbearance agreement in effect at
September 30, 2001 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 $6,542 has been classified as current liabilities in the accompanying
Consolidated Balance Sheet at September 30, 2001.
From July 11, 1997 through June 30, 1998, the Company and Ajay had a joint
and several loan with the Bank. Under the restructured facility, all joint and
several liability, cross collateral agreements and guarantees of the Company
with respect to the Ajay portion of the credit facility prior to the
restructuring have been terminated. In consideration to the Bank for the
restructured facility, the Company agreed to invest $2,000 in Ajay and convert
$5,000 of advances to Ajay into preferred stock.
Prior to July 11, 1997, the Company had guaranteed the bank debt of Ajay with
a previous lender, debt that was in default under Ajay's loan agreement. The
Company and Ajay refinanced their bank debt on July 11, 1997 with the Bank under
a $34,088 three-year revolving joint and several liability credit and term loan
agreement. As a result of a shortfall in Ajay's available collateral, the
previous lender provided bridge financing of $2,340 to Ajay under an
inter-creditor agreement. The bridge loan is to be repaid from any proceeds from
the sale of Kenco, the sale of other assets, including the Company's Deerfield
Beach, Florida facility, from a specified percentage of future Ajay and Company
cash flow and from monthly principal payments by Ajay. During the third quarter
fiscal 2001, the Company repaid the final amount of the bridge loan outstanding
of $1,450 from the sale of the Company's Deerfield Beach, Florida Facility. See
Note 12 of Notes to Consolidated Financial Statements.
The Company's long-term debt consists of the following at September 30: 2001 2000
Bank revolving credit facility originally due July 11, 2001, extended to June 30, 2002, $ 4,548 $ 12,547
balance bearing interest at a variable rate. (8.00% at September 30, 2001)
Bank Term Loan I, originally due July 11, 2001, extended to June 30, 2002 balance- 1,994 3,595
bearing interest at a variable interest rate. (8.25% at September 30, 2001)
Bank Term Loan III, balance paid in February 2001 -- 972
Bank Term Loan IV, balance paid June, 2001 -- 1,000
Bank Real Estate loan, balance paid May, 2001 -- 2,248
Unsecured debt, defaulted and judgment against Company granted July 12, 2001, 799 700
balance currently due, judgement interest at 14%. (See Note 23 of Notes to Consolidated
Financial Statements)
Real Estate loan, due October 15, 2001, Default judgement against Company granted 417 467
November 2001. (See Note 23 of Notes to Consolidated
Financial Statements)
7,758 21,529
Less current portion 7,758 20,462
$ -- $ 1,067
Maturities of long-term debt at September 30, 2001, reflecting debt in
default as current, are as follows:
2002 $ 7,758
2003 --
2004 --
2005 --
2006 --
Thereafter --
$ 7,758
Capital Leases
The Company has acquired certain assets, primarily machinery and equipment,
through capital leases. The leases have terms ranging from three to seven years,
and are payable in monthly and quarterly installments with interest (at
rates ranging from 7.5% to 10.5%).
Future minimum lease payments under capital leases are as follows for the
years ending September 30:
2002 $ 772
2003 86
2004 60
2005 59
Thereafter 35
Total future minimum lease payments 1,012
Less--Amount representing interest 97
Present value of future minimum lease payments 915
Less--Current portion 710
$ 205
The Company's plastic injection molding operation, Premier Plastics
Technology (PPT), was closed in 2001. PPT had capital and operating leases that
were guaranteed by the parent, Williams Controls, Inc. As part of the closure,
the Company negotiated settlements at amounts less than the original lease
amounts with the lessors for complete settlement of the lease guarantees. Total
amounts owing under these guarantees is $1,047, which are reflected in Accrued
expenses on the accompanying balance sheet, and are due in the first and second
quarters of fiscal 2002.
During 2001, the Company incurred no additional capital leases. During 2000
and 1999, the Company incurred additional capital leases of $458 and $1,819.
Capital lease obligations, including capital lease obligations at PPT, which
were settled in fiscal 2001, totaled $4,840 at September 30, 2000. The current
portion of capital lease obligation totaled $1,340 at September 30, 2000.
Secured Subordinated Debt
In February 2001, the Company issued 12% secured subordinated debentures
totaling $4,950, due March 1, 2002. Net proceeds to the Company after expenses
were $4,576 and were used for the payment of bank debt obligations and general
operating purposes. The debentures are secured by mortgages on certain real
property owned by the Company, subordinate to other senior indebtedness (as
defined). In addition, the Company issued to each purchaser of debentures a
three year warrant to purchase common stock of the Company, par value $0.01 per
share at $1.375 per share for each $2.00 of principal amount of debentures
purchased. The Company also issued the placement agent a three year warrant to
purchase shares of the Company's 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. The fair value of the warrants issued, totaling
$870, is included as "Additional Paid in Capital" within Shareholders' equity
with an offset of $813 against the "Secured Subordinated Debt" for the warrants
issued to debenture holders and an increase of $57 in other assets for the
placement agent warrants in the accompanying Consolidated Balance Sheet. The
fair value of the warrants has been allocated using relative fair value. The
discount of the debentures and the debt issuance costs are being amortized using
the effective interest method over the lives of the debt, which is one year. The
carrying value of the subordinated debt was $4,678 at September 30, 2001 and is
included in Current portion of long-term debt and capital leases on the
Accompanying Consolidated Balance Sheet.
The conversion price for the warrants issued in connection with the secured
subordinated debt shall be adjusted if the Company sells or distributes common
stock, options or warrants to purchase common stock of securities convertible
into common stock at a price below the conversion price of the warrants issued
in connection with the secured subordinated debt, subject to certain exceptions
defined in the agreement. The formula for adjustment is as defined in the
agreement.
Convertible Subordinated Debt
In April 2000, the Company issued 7.5% convertible subordinated debentures in
an aggregate principal amount of $2,140, due March 31, 2003 including $140
issued in lieu of the underwriting fee. Net proceeds to the Company after
expenses, excluding the value of warrants issued, were $1,965 and were used for
general working capital
purposes. The debentures are unsecured obligations, subordinate to all senior
indebtedness (as defined). The debentures are convertible into shares of the
Company's common stock, par value $.01 per share, at a conversion price of $2.00
per share. In addition, the Company issued to each purchaser of debentures a
three year warrant to purchase common stock of the Company 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. The Company 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. The fair value of warrants issued, totaling $166, is
included as "Warrants issued in connection with convertible subordinated debt"
in the accompanying Consolidated Statements of Shareholders' Equity with an
offset of $110 against the "Convertible Subordinated Debt" for the warrants
issued to debenture holders and an increase of $56 in other assets for the
placement agent warrants in the accompanying Consolidated Balance Sheet. The
discount of the debentures and the debt issuance costs are being amortized using
the effective interest method over the lives of the debentures.
The conversion price for the convertible subordinated debt shall be adjusted
if the Company sells or distributes common stock, options or warrants to
purchase common stock or securities convertible into common stock at a price
below the conversion price of the convertible subordinated debt, subject to
certain exceptions defined in the agreement. The formula for adjustment is as
defined in the agreement. As a result of the issuance of the secured
subordinated debt in February 2001, the conversion prices of the convertible
subordinated debt and the warrants were adjusted to approximately $1.93 and
$2.28, respectively. The revised conversion price does not represent a
beneficial conversion feature to the holders of the convertible subordinated
debt.
Upon a change in control, each holder of convertible subordinated debt,
within 15 days of the change in control, may elect to accelerate the maturity
date of the convertible subordinated debt held by such holder to a date not less
than 30 but not more than 45 days after the date of notice by the Company of the
change in control.
In the event of default by the Company on any debt agreement in excess of
$250,000, a holder or holders owning 15% or more of the convertible subordinated
debt may, at their option, declare the principal and accrued interest due and
payable immediately. No individual holder of the convertible subordinated debt
owns 15% or more of the convertible subordinated debt. However, because holders
of at least 15% of the convertible subordinated debt could declare a default
under the convertible subordinated debt because of the default by the Company on
certain of its debt payments with its primary Bank, this subordinated debt is
reflected as a current liability on the accompanying Consolidated Balance Sheet.
Note 7. Patent License Agreement
In conjunction with the acquisition in 1999 of the ProActive Pedals division
of Active Tool & Manufacturing Co., Inc., (Note 18) the Company entered into a
patent license agreement with a private inventor, under which the Company holds
an exclusive, worldwide license for three patents covering adjustable foot
pedals. The license agreement remains in effect for the life of the patents. The
Company paid an initial license fee of $600 and the agreement requires yearly
minimum payments of $95 to the inventor for a period of approximately ten years.
The Company did not pay the required minimum payments in 2001. Accrued minimum
royalties consist of the following at September 30:
2001 2000
Minimum future royalties $ 950 $ 950
Less imputed interest (389) (389)
Present value of payments 561 561
Less current portion included in accrued expenses (68) (34)
Long-term portion included in other liabilities $ 493 $ 527
Note 8. Pension Plans
The Company maintains two pension plans; one plan covers salaried employees
and the other plan covers the Company's hourly employees. Annual net periodic
pension costs under the pension plans are determined on an actuarial basis. The
Company's policy is to fund these costs accrued over 15 years and obligations
arising due to
plan amendments over the period benefited. The assets and liabilities are
adjusted annually based on actuarial results.
Salaried Employees Hourly Employees
Plan Plan
2001 2000 2001 2000
September 30,
Change in benefit obligation:
Benefit obligation at beginning of year $ 3,258 $ 3,546 $ 3,814 $ 3,732
Service cost 119 147 168 159
Interest cost 254 269 299 283
Actuarial (gain) loss 661 (560) 308 (221)
Benefits paid (159) (144) (131) (139)
Plan Amendments 51 -- -- --
Benefit obligation at end of year $ 4,184 $ 3,258 $ 4,458 $ 3,814
Salaried Employees Hourly Employees
Plan Plan
2001 2000 2001 2000
September 30,
Change in plan assets:
Fair value of plan assets at beginning of year $ 3,355 $ 3,191 $ 3,713 $ 3,608
Actual return on plan assets (821) 308 (886) 244
Benefits paid (159) (144) (131) (139)
Fair value of plan assets at end of year $ 2,375 $ 3,355 $ 2,696 $ 3,713
Funded status (1,809) 97 (1,762) (101)
Unrecognized actuarial (gain) loss 1,395 (381) 1244 (272)
Unrecognized prior service cost (37) (102) 209 250
Net amount recognized $ (451) $ (386)$ (309) $ (123)
Amounts recognized in the Balance Sheet consist of:
Prepaid benefit cost $ -- $ -- $ -- $ --
Accrued benefit liability (1,600) (386) (1,748) (123)
Intangible asset -- -- 209 --
Accumulated other comprehensive 1,149 1,230
loss
Net amount recognized $ (451) $ (386)$ (309) $ (123)
Weighted-average assumptions as of 2001 2000 2001 2000
September 30,
Discount rate 7.50% 8.00% 7.50% 8.00%
Expected return on plan assets 9.00% 9.00% 9.00% 9.00%
Rate of compensation increase 4.00% 4.00% -- --
Salaried Employees Hourly Employees
Plan Plan
2001 2000 1999 2001 2000 1999
Components of net periodic benefit cost for the years ended
September 30:
Service Cost $ 119 $ 147 $ 103 $ 168 $ 159 $ 133
Interest Cost 254 269 219 299 283 251
Expected return on plan assets (290) (278) (257) (323) (315) (280)
Amortization of prior service cost (12) (12) (12) 41 41 41
Amortization of (gain) loss (5) -- -- -- -- 7
Net periodic benefit cost $ 66 $ 126 $ 53 $ 185 $ 168 $ 152
At September 30, 2001 the accumulated benefit obligation was in excess of the
plan assets for both the Salaried Employees Plan and the Hourly Employees Plan.
Accordingly, an additional minimum liability was recorded with an increase in
other assets of $209 and other comprehensive loss of $2,379.
The total liability of $3,348 at September 30, 2001 is included in the
Consolidated Balance Sheet as follows: $317 in accrued expenses and $3,031 in
other long-term liabilities. The total liability of $509 at September 30, 2000
is included in other long-term liabilities.
The projected benefit obligation, accumulated benefit obligation and the fair
value of plan assets are as follows:
Salaried Employee Hourly Employee
Plan Plan
Projected benefit obligation $ 4,184 $ 4,458
Accumulated benefit obligation 3,975 4,444
Fair value of plan assets 2,375 2,696
Due to the decline in Fair value of plan assets and declining discount rate,
the Company expects to recognize $764 in expense in fiscal 2002 related to the
plans and make payments of $487 (including $317 from fiscal year 2001).
Note 9. Property, Plant and Equipment
At September 30, 2001 and 2000 , property, plant and equipment consist of the
following:
2001 2000
Land and land improvements $ 895 $ 2,545
Buildings 4,498 7,953
Machinery and equipment 13,995 16,791
Office furniture and equipment 4,903 5,109
Construction in process 1,620 3,407
25,911 35,805
Less accumulated depreciation (14,182) (14,319)
$ 11,729 $ 21,486
Capital leases for machinery and equipment and office furniture and equipment
included above were $2,497 and $5,257 at September 30, 2001 and 2000,
respectively. Accumulated depreciation on capital leases was $897 and $1,092 at
September 30, 2001 and 2000, respectively.
Note 10. Impairment of Assets-ProActive Adjustable Pedals and Kenco
ProActive Adjustable Pedals
In July 1999, the Company purchased the ProActive Pedals (ProActive) division
of Active Tools Manufacturing Co., Inc. ProActive is a designer and developer of
patented adjustable foot pedal systems and modular pedal systems. The
acquisition was accounted for using the purchase method of accounting and
resulted in $1,820 being allocated to developed technology, $1,439 to a patent
and patent license agreement acquired and $2,162 to goodwill, representing the
excess of the purchase price over the fair value of the assets acquired and
liabilities assumed.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" (SFAS 121), long-lived assets held and used by the Company are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. For purposes of
evaluating the recoverability of long-lived assets, the recoverability test is
performed using estimated future un-discounted net cash flows of the assets.
ProActive's current sales volumes of adjustable and modular foot pedal
systems are limited to one contract that ProActive has with a third party.
Additionally, as a result of the Company's overall capital constraints, the
Company
does not possess the financial resources to further develop additional sales
volumes or to achieve the sales volumes originally projected for ProActive.
Further, as a result of the recent efforts for the sale of the Company or its
operating units, limited interest in ProActive has been expressed by potential
buyers.
As a result of the above factors, management performed an analysis to measure
the impairment of the long-lived assets of ProActive in accordance with SFAS 121
as of March 31, 2001. Based on management's analysis it was concluded that the
un-discounted value of the projected cash flows of ProActive's current business
was less than the carrying value of the assets of ProActive as of March 31,
2001. As a result of this conclusion, the Company recorded an impairment charge
related to ProActive's remaining carrying value of the goodwill and intangible
assets, totaling $4,366. This amount has been reflected as a separate line item
within the operating expenses of the Consolidated Statements of Operations for
the year ended September 30, 2001.
Kenco Automotive Accessories
During the year ended September 30, 1999 the Company recognized a $5,278 loss
from the impairment of assets related to Kenco, the Company's former Automotive
Accessories segment, consisting of the following items:
Impairment of non-voting preferred stock and notes and accounts receivable $ 4,655
Impairment of property 623
Total loss from impairment of assets $ 5,278
At the date the impairment loss was taken, the Company had non-voting
preferred stock and notes and accounts receivable related to Kenco of $797 and
$3,858. Since the sale of the operating assets of Kenco to Kenco Products, Inc.
("KPI") in 1998, KPI has reported operating losses and experienced cash flow and
other financing difficulties. In addition, KPI has not made any payments on its
notes and accounts payable to the Company. In 1999, KPI filed for bankruptcy in
consideration of this and after evaluation of the business prospects of KPI and
its need for additional capital, the Company determined it was not probable that
it would recover the value of the preferred stock and notes and accounts
receivable, and an impairment loss totaling $4,655 was recorded for the year
ended September 30, 1999.
In addition, the Company recorded an impairment loss related to certain
property retained from the Kenco sale. The majority of the impairment loss for
property related to the sale in July 1999 of a building and land that were being
leased by KPI from the Company. This property was sold, and after retiring $891
of debt secured by the property, resulted in cash proceeds of $1,192. The
proceeds to the Company, after deducting approximately $692 of expenses to
assist in the relocation of KPI and to ready the building for sale were paid to
a previous lender, on behalf of an affiliated company, under the terms of an
intercreditor agreement. The loss on the sale of land and building, which has
been recorded in loss from impairment of assets, is $528.
Note 11. Income Tax Expense (Benefit)
The provision for income tax expense (benefit) is as follows for the years
ended September 30:
2001 2000 1999
Continuing operations:
Current $--$ 631$ 1,078
Deferred -- 6,896 (2,565)
-- 7,527 (1,487)
Discontinued operations -- -- (3,189)
$--$ 7,527$ (4,676)
The reconciliation between the effective tax rate and the statutory federal
tax rate on loss from continuing operations as a percent is as follows:
2001 2000 1999
(Benefit) Provision
Statutory federal income tax rate (34.0) (34.0) (34.0)
State taxes, net of federal income tax benefit (4.0) (4.0) (4.0)
Effect of change in valuation allowance 38.0 119.7 8.8
Other -- -- 1.7
-- 81.7 (27.5)
At September 30, 2001 and 2000 the Company has recorded a full valuation
allowance on all of its net deferred tax assets due to the uncertainty regarding
their realization.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at September
30, 2001 and 2000 are as follows:
2001 2000
Deferred tax assets:
Inventories, due to obsolescence reserve and additional costs inventoried for tax $ 428 $ 394
purposes pursuant to the Tax Reform Act of 1986
Warranty reserves 589 307
Accrual for compensated absences 240 177
Accrual for retiree medical benefits 1,000 856
Accounts receivable reserves 443 361
Estimated loss from writedown of assets of PPT and ProActive 2,064 --
Estimated loss on disposal of agriculture equipment segment 151 2,522
Equity interest in loss on affiliate 2,642 2,642
Tax gain on sale/leaseback 628 628
In-process research and development 582 627
Accrued other reserves 537 263
Pension plan comprehensive loss adjustment 913 --
Federal net operating loss carryforwards 5,591 2,280
State net operating loss carryforwards 1,565 2,245
Total deferred tax assets 17,373 13,302
Less valuation allowance (15,195) (11,356)
Deferred tax assets, net of valuation allowance 2,178 1,946
Deferred tax liabilities:
Plant and equipment, principally due 2,178 1,946
to differences in depreciation and
amortization
Net deferred income tax assets $ -- $ --
Current deferred income tax assets $ 2,352 $ 4,024
Long-term deferred income tax assets 15,021 9,278
Long-term deferred income tax liabilities (2,178) (1,946)
Valuation allowance (15,195) (11,356)
$ -- $ --
At September 30, 2001, the Company has approximately $14,600 of federal net
operating loss carryforwards, which are available to the Company and expire
through 2020. At September 30, 2001, the Company has approximately $31,800 of
state net operating loss carryforwards, which are available to the Company in
certain state tax jurisdictions and expire in 2007 through 2015.
Note 12. 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, PPT operations were terminated in the second quarter of fiscal
2001. PPT's assets have been liquidated and a $1,796 loss on the disposition of
the PPT assets, net of a $200 gain on the sale of certain leased assets, has
been recorded in fiscal 2001. Net sales and loss from operations of PPT,
excluding the loss on disposition of assets, were $4,029 and $(3,101),
respectively, for fiscal 2001 and $10,146 and $(3,638), respectively, in fiscal
2000.
GeoFocus
The Company sold its GPS equipment subsidiary, Geofocus, in the quarter ended
June 30, 2001. The sale price was $3,500, including net cash proceeds of $3,150.
Proceeds from the sale were used to pay down secured bank debt. The gain
recognized on the sale of Geofocus was $2,486. Excluding the gain on the sale,
net sales and loss of GeoFocus were $807 and $(859), respectively, for fiscal
2001 and $737 and $(688), respectively, for fiscal 2000.
Sale of Aptek Land and Building and Guarantee of Affiliate Debt
The Company sold its manufacturing facility in Deerfield Beach, Florida
during the third quarter 2001 for cash proceeds of $5,750. Proceeds were used to
pay off the real estate term loan with the Bank, and pay down other Bank debt in
accordance with the terms of the agreement. Additionally, the Company had an
obligation under an inter-creditor agreement with Ajay to advance, or to
guaranty a loan from United States National Bank (US Bank) to Ajay up to $1,515.
The guaranty obligation was secured by the Company's Deerfield Beach, Florida
property. Upon the sale of the Deerfield Beach property, US Bank exercised its
rights under the Company's guaranty of the debt of Ajay. The guaranty was fully
satisfied from the proceeds of the sale of the Deerfield Beach property. The
payment by the Company of the guaranty to US Bank was $1,450, including unpaid
interest and penalties, and is reflected as an increase in the investment in
notes receivable from affiliate. The gain on the sale was $1,837.
The Company is currently in the process of consolidating its Aptek operations
in Sarasota, Florida. Currently, these operations are located in Deerfield
Beach, Florida and Sarasota, Florida. As part of the consolidation process, the
Company sold its Deerfield Beach facility in fiscal 2001 and is leasing the
existing space until the consolidation is completed, which is expected in
January, 2002.
Note 13. Shareholders' Equity
Common Stock
In July 1999, the Company completed a private placement of 1,244,065 shares
of common stock of the Company and received net proceeds of $3,379. In addition,
87,084 shares of the Company's common stock were issued in lieu of the
underwriting fee, for a total of 1,331,149 shares issued in conjunction with the
offering. For every share issued in the private placement, the purchasing
shareholders received warrants to purchase .35 common shares or 465,902
additional shares of common stock, at $3.125 per share. In addition, the
placement agent received warrants for 7% of the 1,244,065 shares issued, or
87,084 warrants at $3.125 per common share plus for every share issued to the
placement agent, the placement agent received warrants to purchase .35 common
shares, or 30,480 additional shares of common stock, at $3.30 per share. The
warrants issued may be exercised at any time through July, 2004. The fair value
of such warrants and the shares in lieu of the underwriting fee, totaling
$1,118, is included in "Common stock issued in private placement" with a
corresponding charge to "Equity issuance costs" in the accompanying Consolidated
Statements of Shareholders' Equity.
Preferred Stock
In April 1998, the Company completed a private placement of 80,000 shares of
Series A convertible redeemable preferred stock at $100 per share, or $8,000 in
gross proceeds and received net proceeds of $7,337. The preferred stock bears a
dividend rate of 7.5%, which is payable quarterly, and was convertible at the
option of the holder into 2,909,091 shares of the Company's common stock.
Dividends are cumulative and have preference over other equity
distributions. The preferred stock conversion price shall be adjusted if the
Company sells or distributes common stock, options or warrants to purchase
common stock or securities convertible into common stock at a price below the
preferred stock conversion price. The formula for adjustment is as defined in
the agreement. As a result of the issuance of the convertible subordinated debt
in April 2000, the preferred stock conversion price was adjusted to
approximately $2.70. As a result of the issuance of the secured subordinated
debt in February 2001, the preferred stock conversion price was adjusted to
approximately $2.54. The revised 2001 conversion price represented a beneficial
conversion feature to the holders of the preferred stock. Accordingly, the
Company recorded a non-cash charge of approximately $455 for additional
preferred dividends to account for the implied value of the beneficial
conversion feature.
The preferred stock is redeemable at the Company's option anytime after April
21, 2001. The preferred stock is not mandatorily redeemable. In addition, the
Company can force conversion of the preferred stock into common shares if the
Company's common stock trades at or above $4.125 for twenty out of thirty
consecutive trading days. Holders of the Series A preferred stock are entitled
to a number of votes equal to those they would have assuming conversion into
common stock, without taking into account fractional shares. The preferred stock
has priority over other classes of capital stock upon liquidation.
The preferred stock also has change of control provisions that allow the
holders to, upon the occurrence of certain events, maintain the value of the
preferred stock or convert at the lower of the conversion price at the time of a
transaction or the price per share of common stock payable in the change of
control transaction.
Commencing with the quarterly period beginning July 1, 2001, the annual
dividend rate will increase each quarter by 2.5% up to a maximum dividend of 24%
per annum. The Company used the proceeds of the offering to provide $3,200 of
debt financing to the purchaser of the Portland, Oregon manufacturing facility,
repayment of a bank term loan of $667 and an investment of $1,500 in Ajay. The
remaining balance was used for general working capital purposes.
Stock Options and Warrants
The Company had issued stock options and warrants at exercise prices ranging
from $.41--$3.63 per share, the market value at the date of issuance. All
remaining unexercised options and warrants under this plan expired in fiscal
2000. The stock option activity during the periods indicated is as follows:
Shares Option Prices
Subject to
Options
Outstanding at September 30, 1998 190,000 $ 0.41-3.63
Exercised (150,000) 0.41
Cancelled (10,000) --
Outstanding at September 30, 1999 30,000 3.63
Cancelled (30,000) 3.63
Outstanding at September 30, 2000 and 2001 -- $ --
The Company currently has two qualified stock option plans. The Company
adopted the 1993 Stock Option Plan ("the 1993 Plan") which reserves an aggregate
of 1,500,000 shares of the Company's common stock for the issuance of stock
options which may be granted to employees, officers and directors of and
consultants to the Company. Under the terms of the 1993 Plan, the Company may
grant "incentive stock options" or "non-qualified options" at not less than the
fair market value on the date of grant. Options granted under the 1993 Plan are
exercisable as to 25 percent of the shares covered thereby commencing six months
after the earlier of the date of grant or the date of employment, and as to an
additional 25%, cumulatively, on the first, second and third anniversaries of
the date of grant, and expire ten years after the date of grant. In each of
January, 1998 and in February, 1999, the Company reserved an additional
1,500,000 shares of the Company's common stock for the issuance of stock options
under the 1993 Plan. At September 30, 2001 and 2000, the Company had 2,250,280
and 1,984,393 shares, respectively, available for future grants.
Stock option activity during the periods indicated under the 1993 Plan is as
follows:
Shares Shares Option Prices
Available for Subject to
Grant Options
Outstanding at September 30, 1998 822,213 2,177,787 $1.94-3.63
Additional shares reserved 1,500,000 -- --
Granted (744,000) 744,000 2.06-3.00
Exercised -- (51,750) 1.94-2.50
Canceled 137,862 (137,862) 1.94-3.63
Outstanding at September 30, 1999 1,716,075 2,732,175 1.94-3.00
Granted (64,000) 64,000 1.50-2.50
Exercised -- (18,750) 1.94
Canceled 332,318 (332,318) 1.94-3.00
Outstanding at September 30, 2000 1,984,393 2,445,107 1.50-3.00
Granted -- --
Exercised -- --
Canceled 265,887 (265,887) 1.50-3.23
Outstanding at September 30, 2001 2,250,280 2,179,220 $1.94-3.00
During 1996 the shareholders of the Company approved a stock option plan
which reserves an aggregate of 200,000 shares of the Company's stock for
non-employee Directors of the Company (the "1995 Plan"). The 1995 Plan provides
for automatic granting of 10,000 options to each non-employee director of the
Company at a price equal to the market value on the date of grant which is the
date of the annual shareholders' meeting each year, exercisable for 10 years
after the date of the grant. These options are exercisable as to 25% of the
shares thereby on the date of grant and as to an additional 25%, cumulatively on
the first, second and third anniversaries of the date of grant. In March 2000,
the company reserved an additional 200,000 shares of the Company's common stock
for the issuance of stock options under the 1995 plan. The Company made no share
grants in 2001 as the Company did not hold an annual shareholders' meeting in
2001. At September 30, 2001 there were 200,000 shares available for grant under
the 1995 Plan.
Stock option activity during the periods indicated under the 1995 Plan is as
follows:
Shares Shares Option Prices
Available for Subject to
Grant Options
Outstanding at September 30, 1998 80,000 120,000 $2.44-3.66
Granted (50,000) 50,000 2.68
Outstanding at September 30, 1999 30,000 170,000 2.44-3.66
Additional shares reserved 200,000
Granted (30,000) 30,000 2.125
Outstanding at September 30, 2000 and 2001 200,000 200,000 $2.125-3.66
Statement of Financial Accounting Standards No. 123
During 1995, the Financial Accounting Standards Board issued SFAS 123 which
defines a fair value based method of accounting for employee stock options and
similar equity instruments and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However, it also
allows an entity to continue to measure compensation cost for those plans using
the method of accounting prescribed by APB 25. Entities electing to continue to
use the accounting treatment in APB 25 must make pro forma disclosures of net
earnings (loss) and, if presented, earnings per share, as if the fair value
based method of accounting defined in SFAS 123 had been adopted.
The Company has elected to account for its stock-based compensation plans
under APB 25; however, the company has computed, for pro forma disclosure
purposes, the value of all options granted during the years ended September 30,
2000 and 1999, using the Black-Scholes option pricing model as prescribed by
SFAS 123 using the following weighted average assumptions for grants. There were
no option grants during the year ended September 30, 2001:
2000 1999
Risk-free interest rate 6.40% 5.13%
Expected dividend yield 0% 0%
Expected lives 7 years 7 years
Expected volatility 53.6% 55.5%
Using the Black-Scholes methodology, the total value of options granted
during the years ended September 30, 2000 and 1999, was $133 and $1,064,
respectively, which would be amortized on a pro forma basis over the vesting
period of the options (typically three years). The weighted average per share
fair value of options granted during the years ended September 30, 2000 and
1999, was $1.28 and $1.36, respectively. If the Company had accounted for its
stock-based compensation plans in accordance with SFAS 123, the Company's net
earnings (loss) and net earnings (loss) per share would approximate the pro
forma disclosures below:
Year Ended Year Ended Year Ended
September 30, 2001 September 30, 2000 September 30, 1999
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
Net loss $ (10,698) $ (11,361) $ (17,332) $ (18,335)$ (10,135) $ (10,799)
allocable to
common
shareholders
Basic net loss (0.54) (0.57) (0.88) (0.93) (0.54) (0.58)
per share
Diluted net loss (0.54) (0.57) (0.88) (0.93) (0.54) (0.58)
per share
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to the
year ended September 30, 1996, and additional awards are anticipated in future
years.
The following table summarizes information about stock options outstanding at
September 30, 2001:
Options Outstanding Options Exercisable
Range of Number Weighted Weighted Number of Weighted
Exercise Outstanding Average Average shares Average
Prices at Remaining Exercise Exercisable at Exercise
September 30, Contractual Price September 30, Price
2001 Life - Years 2001
Years
$1.94-2.80 2,275,620 4.0$ 2.28 2,088,870 $ 2.28
2.81-3.66 103,600 3.5 3.18 102,850 3.18
$1.94-3.66 2,379,220 4.0$ 2.32 2,191,720 $ 2.32
At September 30, 2000 and 1999, 2,026,995 and 1,653,987 options,
respectively, were exercisable at weighted average exercise prices of $2.33 and
$2.38 per share, respectively.
Note 14. Discontinued Operations
Agriculture Equipment Segment-- On May 3, 2000, the Company completed the
sale of the previously discontinued Agriculture Equipment Segment operation.
Proceeds at closing were $1,760 in cash and a note plus the assumption by the
buyer of $200 of liabilities. In conjunction with the sale the Company has
received notes for $300 at 8% interest, payable April 30, 2003. No amounts have
been recorded for the notes due to the uncertainty of their collectibility. No
loss in excess of that previously provided was realized as a result of the sale
of the discontinued Agriculture Equipment Segment.
In December 1998, the Company announced its intention to divest its
Agriculture Equipment segment. The
operations are reflected as discontinued operations for all periods prior to
2000 presented in the Company's Statements of Operations. During 1999, the
Company recorded an estimated net loss on disposal of $5,611, net of tax benefit
of $3,189, or $(0.30) per common share, associated with the divestiture of the
Agriculture Equipment segment. The loss was based upon events and information
that resulted in management's revised estimate of the net realizable value of
the Agriculture Equipment segment. The revised estimate was based upon contract
negotiations and lower than anticipated bids for portions of the segment which
resulted in a write-down of certain assets and a provision for associated costs.
The summarized results for the Agriculture Equipment segment for the years
ended September 30 are as follows:
2000 1999
Net sales $ 3,915 $ 7,225
Loss from operations before allocated interest expense and income tax benefits $ -- $ --
Allocated interest expense -- --
Loss from operations before income tax benefit -- --
Income tax benefit -- --
Loss allocable to minority interest -- --
Loss from operations -- --
Loss on disposal before interest and income taxes -- (8,700)
Allocated interest expense -- (100)
Loss on disposal before income tax benefit -- (8,800)
Income tax benefit -- 3,189
Loss allocable to minority interest -- --
Loss on disposal -- (5,611)
Total loss on discontinued operations $ -- $ (5,611)
The Company elected to allocate interest expense to discontinued operations
based upon the net assets of the segment being disposed of.
Note 15. Business Segment Information
The Company accounts for its segments under the same policies as described in
the principal accounting policies footnote and in accordance with SFAS 131
"Disclosures about Segments of an Enterprise and Related Information."
Inter-segment revenues and related earnings are not material. Management
evaluates segment performance primarily based on revenue and operating income;
therefore, other items included in pretax income, consisting primarily of
interest income or expense, are not reported in segment results. Operating
income is net of all corporate expenses, which are allocated based on measurable
services provided to each segment or for general corporate expenses, which are
allocated on a revenue and capital basis.
2001 2000 1999
Net sales by classes of similar products from continuing operations
Vehicle Components $ 52,188 $ 65,263 $ 58,136
Electrical Components and GPS 2,894 2,462 3,286
$ 55,082 $ 67,725 $ 61,422
Earnings (loss) from continuing operations Vehicle Components:
Before loss from impairment of assets, acquired $ (212) $ 1,572 $ 6,632
in-process research and development expense and
gain on sale of assets
Gain on Sale of Aptek land and building 1,837 -- --
Loss from impairment of assets (6,162) -- (5,278)
Acquired in-process research and development -- -- (1,750)
expense
Total Vehicle Components (4,537) 1,572 (396)
Electrical Components and GPS
Before Gain on sale of assets (3,121) (3,120) (2,635)
Gain on sale of Geofocus 2,486 -- --
Total Electrical Components and GPS (635) (3,120) (2,635)
Total loss from continuing operations $ (5,172) $ (1,548) $ (3,031)
Identifiable assets
Vehicle Components $ 24,100 $ 37,999 $ 41,358
Electrical Components and GPS 2,052 9,081 8,992
Corporate 3,187 2,069 13,294
Total assets--continuing operations 29,339 49,149 63,644
Agricultural equipment--discontinued operations -- -- 860
Total assets $ 29,339 $ 49,149 $ 64,504
Capital expenditures
Vehicle Components $ 1,483 $ 1,094 $ 3,721
Electrical Components and GPS 100 1,707 1,046
Total capital expenditures--continuing operations 1,583 2,801 4,767
Agricultural equipment--discontinued operations -- -- 92
Total capital expenditures $ 1,583 $ 2,801 $ 4,859
Depreciation and amortization
Vehicle Components $ 3,230 $ 2,823 $ 1,652
Electrical Components and GPS 763 366 404
Total depreciation and amortization--continuing operations 3,993 3,189 2,056
Agricultural equipment--discontinued operations -- -- 92
Total depreciation and amortization $ 3,993 $ 3,189 $ 2,148
Identifiable corporate assets consist primarily of investment in an
affiliated company and other assets including assets retained from the
previously discontinued Agricultural Equipment segment in 2000, and deferred
taxes.
For geographic information, revenues are allocated between the United States
and International, depending on whether the shipments are to customers within
the United States or located outside the United States. Long-lived assets
outside the United States were immaterial for all periods presented. Net sales
were allocated as follows:
Year ended September 30,
2001 2000 1999
Canada $ 2,253 $ 3,536 $ 5,493
Sweden 4,579 1,895 1,868
Mexico 1,295 1,284 2,276
Other 949 3,231 2,947
Net Sales--export 9,076 9,946 12,584
United States 46,006 57,779 48,838
$ 55,082 $ 67,725 $ 61,422
Note 16. Other Benefit Plans
The Company maintains an Employee Stock Ownership Plan (ESOP) for non-union
employees. The ESOP may buy shares of the Company's stock from time to time on
the open market or directly from the Company. The ESOP has been authorized to
borrow up to $1,000 from the Company or financial institutions to finance its
purchases. At September 30, 2000 all shares had been allocated under the plan
and there were no amounts under the loan outstanding.
The Company sponsors salaried employees and union employees matching 401(k)
plans, in which eligible employees may elect to contribute a portion of their
compensation.
Note 17. Post Retirement Benefits other than Pensions
The Company provides health care and life insurance benefits for certain of
its retired employees ("Post
Retirement Plan"). These benefits are subject to deductibles, co-payment
provisions and other limitations. The Company may amend or change the Post
Retirement Plan periodically.
Effective October 1, 1993 the Company adopted SFAS No. 106, "Employers'
Accounting for Post Retirement Benefits other than Pensions" ("SFAS 106"). SFAS
106 requires companies to accrue the cost of post retirement health care and
life insurance benefits within employees' active service period rather than
recognizing these costs on a cash basis as had been prior practice. The Company
elected to amortize the Accumulated Post Retirement Benefit obligation at
October 1, 1993 over twenty years as a component of post retirement benefits
expense.
The following table provides information on the post retirement plan status
at September 30:
Accumulated Post Retirement Benefit Obligation: 2001 2000
Retirees $ 1,235 $ 1,185
Fully eligible active participants 1,215 778
Other active Plan participants 1,592 1,194
4,042 3,157
Plan assets -- --
Accumulated post retirement benefit obligation in excess of plan assets 4,042 3,157
Unrecognized gain 373 1,068
Unrecognized prior service cost (431) (504)
Unrecognized transition obligation (1,376) (1,491)
Accrued post retirement benefit cost included in other long-term $ 2,608 $ 2,230
liabilities in the consolidated balance sheet
Change in Benefit Obligation: 2001 2000
Benefit obligation at beginning of year $ 3,157 $ 3,477
Service Cost 87 89
Interest Cost 248 264
Actuarial (gain) loss 647 (577)
Benefit payments (97) (96)
Benefit obligation at end of year $ 4,042 $ 3,157
Post retirement benefits expense included the following Components for
the years ended September 30:
2001 2000 1999
Service cost $ 87$ 89$ 92
Interest cost 248 264 239
Amortization of unrecognized net obligation at transition 140 178 190
Post retirement benefits expense $ 475$ 531$ 521
The assumed health care cost trend rate used in measuring the accumulated
post retirement benefit obligation (APBO) ranged between 4.5%-10% in the first
year, declining to 4.5%-5.0% after 8 years. The discount rate used in
determining the APBO was 7.50%, 8.00% and 7.75% for the years ended September
30, 2001, 2000 and 1999, respectively.
If the assumed medical costs trends were increased by 1%, the APBO as of
September 30, 2001 would increase by $244, and the aggregate of the services and
interest cost components of the net annual post retirement benefit cost would be
increased by $21. If the assumed medical costs trends were decreased by 1%, the
APBO as of September 30, 2001 would decrease by $390, and the aggregate of the
services and interest cost components of the net annual post retirement benefit
cost would be decreased by $36.
Note 18. Acquisition
In July, 1999, the Company purchased the ProActive Pedals division of Active
Tools Manufacturing Co., Inc. ProActive Pedal is a designer and developer of
patented adjustable foot pedal systems and modular pedal systems. The purchase
price included $5,750 in cash, plus the assumption of approximately $286 in
liabilities. In addition, the Company entered into a patent license with the
patent holder who required an initial payment of $600 and minimum annual royalty
payments of $95 per year for ten years. Assets acquired include tooling designs,
technology and patent rights on adjustable foot pedal systems, as well as
designs of modular foot pedal systems. The acquisition was accounted for using
the purchase method of accounting and the results of operations of ProActive
have been included in the consolidated results of operations of the Company from
the acquisition date. The purchase price allocation resulted in a $1,750 charge
to operations for acquired in-process research and development, for the year
ended September 30, 1999. The technological feasibility of the acquired
technology, which has no alternative future use, had not been established prior
to the purchase. The significant projects in process at the acquisition date
were for the development of commercially viable designs and concepts for
adjustable pedal systems. The value was determined by estimating the resulting
net cash flows from such products, and discounting the net cash flows back to
their present value. The discount rate included a factor that took into account
the uncertainty surrounding the successful development of the acquired
in-process technology. At the time of the acquisition, the in-process technology
under development was expected to be commercially viable in 2001. Expenditures
to complete these products were expected to total approximately $3.5 million.
The allocation of the purchase price also resulted in $1,820 being allocated to
developed technology, which was being amortized over a seven-year period. The
excess of the purchase price over the fair value of the assets acquired and
liabilities assumed of $2,162 was recorded as goodwill and was being amortized
on a straight line basis over a 15 year period.
The following unaudited proforma results of operations for the Company, for
the year ended 1999 includes the results of ProActive Pedals assuming such
acquisition occurred as of October 1, 1997 and includes the acquired in-process
research and development charge in the period where incurred:
1999
Net sales $ 63,059
Operating loss (5,401)
Loss from continuing operations (11,137)
Net loss per share--basic (0.63)
Net loss per share--diluted (0.63)
The purchase was financed through the private placement of 1,331,149 shares
of the Company's common stock with net proceeds of approximately $3,379. In
addition, the Company borrowed $2,500 from its bank under a new term loan
facility ("Term Loan III").
As a result of capital limitations and other factors within the market, the
Company has modified its strategy in the adjustable foot pedal market to focus
on being a supplier of components to adjustable pedal manufacturers as opposed
to an original strategy of providing complete adjustable pedal assemblies to the
automotive manufacturers. As a result, during fiscal 2001, the Company
recognized an impairment loss of $4,366 for the remaining Goodwill, Developed
Technology and Patent License Agreements related to the Adjustable Pedal
business.
Note 19. Sale Leaseback
In April 1997 the Company sold its Portland, Oregon manufacturing facility in
a sale-leaseback transaction for approximately $4,600. The transaction was
accounted for as a financing and the capitalized lease obligations of
approximately $4,600 were recorded as long-term liabilities. In April 1998,
under the terms of the agreement, the Company provided a mortgage note to the
purchaser in the amount of $3,200, which was reported as a note receivable at
September 30, 1998. In December 1998, the Company exercised an option to
repurchase the building for $4,700, consisting of cash of $1,500 and the note
receivable of $3,200. Accordingly, the note receivable of $3,200 and the capital
lease obligation of $4,600 were eliminated from the balance sheet at September
30, 1999. The costs associated with the building repurchase are reported in
other expenses during the year ended September 30, 1999.
The Company borrowed $2,500 from its bank under amended term loans to finance
the repurchase transaction and for working capital purposes. Approximately
$1,222 of the additional financing was borrowed under an amendment to the
Company's existing Term Loan I, which increased the Term Loan I balance to
$4,105. Term Loan I is payable in equal monthly installments of $60 with the
remaining balance of $3,150 due at maturity on July 1, 2001. This term loan has
been extended until June 30, 2002. Approximately $1,278 of the additional
financing was provided under an amended Term Loan II payable in 18 equal monthly
installments of $71, plus variable interest. Term Loan II was paid off in July
2000.
Note 20. Quarterly Data (unaudited)
2001 First Second Third Fourth Annual
Quarter Quarter Quarter Quarter
Continuing operations:
Net sales $ 14,979 $ 15,030 $ 12,601 $ 12,472 $ 55,082
Cost of sales 12,624 12,207 10,533 9,473 44,837
Gross margin $ 2,355 $ 2,823 $ 2,068 $ 2,999 $ 10,245
Operating expenses (excluding $ 3,788 $ 3,723 $ 3,475 $ 2,592 $ 13,578
losses & gains)
Loss on impairment of assets--PPT $ 1,996 $ -- $ -- $ (200) $ 1,796
Loss on impairment of assets--ProActive $ -- $ 4,366 $ -- $ -- $ 4,366
Gain on sale of land and building--Aptek $ -- $ -- $ (1,837) $ -- $ (1,837)
Gain on sale of GeoFocus $ -- $ -- $ (2,486) $ -- $ (2,486)
Net earnings (loss) $ (4,494) $ (6,317) $ 1,784 $ (575) $ (9,602)
Earnings (loss) per common share--basic $ (0.23) $ (0.35) $ 0.08 $ (0.04) $ (0.54)
Earnings (loss) per common share--diluted $ (0.23) $ (0.35) $ 0.07 $ (0.04) $ (0.54)
2000 First Second Third Fourth Annual
Quarter Quarter Quarter Quarter(1)
Continuing operations:
Net sales $ 15,877 $ 17,596 $ 18,022 $ 16,230 $ 67,725
Cost of sales 11,386 13,089 13,368 13,903 51,746
Gross margin $ 4,491 $ 4,507 $ 4,654 $ 2,327 $ 15,979
Operating expenses $ 3,989 $ 4,303 $ 4,892 $ 4,343 $ 17,527
Net earnings (loss) $ (1,312) $ (988)$ (1,173) $ (13,271) $ (16,744)
Earnings (loss) per common share--basic $ (0.07) $ (0.06)$ (0.07) $ (0.68) $ (0.88)
Earnings (loss) per common share-- $ (0.07) $ (0.06)$ (0.07) $ (0.68) $ (0.88)
diluted
(1) The fourth quarter of 2000 net loss includes a $6,896 expense for a
valuation allowance for previously recognized deferred income tax assets which
may no longer be realizable due to management's assessment of their ultimate
realizability, $633 for the elimination of previously provided income tax
benefits in the first three quarters for the year ended September 30, 2000 and
changes in estimated amounts for warranty reserves.
Note 21. Related Parties
In addition to related party transactions discussed elsewhere in the notes to
the consolidated financial statements, during the year ended September 30, 2000,
$94 was paid to an affiliated company, for website development and e-commerce
designs. The chairman of the Company is a controlling shareholder of the
affiliated company.
Note 22. Contingencies and Commitments
The Company and its subsidiaries are involved in various lawsuits incidental
to their businesses. It is the opinion of management that the ultimate outcome
of these actions will not have a material effect on the Company's financial
position or results of operations. See Note 4 of Notes to Consolidated Financial
Statements for discussion of litigation regarding the Company's investment in
Ajay.
The Company has identified certain contaminants in the soil and groundwater
of a manufacturing facility located in an industrial area, which the Company
believes, was disposed of on the property by a previous property owner. The
Company's environmental consulting firm has conducted tests to determine the
levels of contaminants. The Company has been advised by counsel that the
contamination is not a reportable condition under current statutes. In the event
that remediation was required in the future, the Company would seek
indemnification from the prior property owner under the terms of the asset
purchase agreement. The prior property owner has advised the Company that it
would dispute any liability for remediation costs. The Company believes it can
enforce available claims against the prior property owner for any costs of
investigation and remediation.
All of the Company's benefit plans are currently under audit by the
Department of Labor (DOL). Management is unable to determine if any liability to
the Company will result from these audits. The Company is cooperating fully with
the DOL in regards to these audits.
The Company's employees engaged in manufacturing vehicle components in the
Portland, Oregon facility are represented by the International Union, United
Automobile Workers of America and Amalgamated Local 492. The Company's contract
with its union expires in September 2002.
The Company had a product recall in 2001. See Note 2 of Notes to Consolidated
Financial Statements for further discussion of this recall.
The Company leases certain facilities under non-cancelable operating leases.
In addition, the Company leases certain equipment used in their operations.
Future minimum lease payments under all non-cancelable operating leases are
approximately as follows (years ending September 30):
2002 $ 709
2003 287
2004 93
2005 3
2006 --
Total $ 1,092
Rent expense under operating leases was $830, $749 and $463 for the
years-ended September 30, 2001, 2000 and 1999, respectively.
Note 23. Subsequent Events
Included in Current portion of long term debt and capital leases at September
30, 2001 is $1,216 related to obligations of the parent, Williams Controls,
related to the discontinued Agricultural Equipment segment. See Note 14 of Notes
to Consolidated Financial Statements. The $1,216 is comprised of a $417 mortgage
payable on a building of the Agricultural Equipment segment and an additional
obligation to a former owner of $799.
The building's carrying value was $0 at September 30, 2001. Subsequent to
year-end 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 will recognize a gain of $417, or $.02 per share, in the first
quarter of fiscal 2002.
Additionally, subsequent to year-end, 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 September 30, 2001. The Company
will recognize a gain of $799, or $.04 per share, in the second quarter of
fiscal 2002.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Williams Controls, Inc.:
We have audited the accompanying consolidated balance sheets of Williams
Controls, Inc. and subsidiaries as of September 30, 2001 and 2000, and the
related consolidated statements of shareholders' equity (deficit), operations,
comprehensive loss, and cash flows for each of the three years in the period
ended September 30, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Williams
Controls, Inc. and subsidiaries as of September 30, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 2001, in conformity with accounting principles
generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 of Notes to
Consolidated Financial Statements, the Company has suffered recurring losses
from operations, is out of compliance with its debt covenants, is in default on
payment of certain debt and has significant negative working capital. These
matters raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. 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.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Portland, Oregon,
January 11, 2002
Annex C
-------
Unaudited Financial Statements included in the
----------------------------------------------
Quarterly Report of the Company on Form 10-Q
--------------------------------------------
For the period ended March 31, 2002
-----------------------------------
Williams Controls, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except share and per share information)
(Unaudited)
March 31,
2002 September 30,
(unaudited) 2001
----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 38 $ -
Trade and other accounts receivable, less allowance of $448 and
$379 at March 31, 2002 and September 30, 2001, respectively 8,714 8,231
Inventories, net 4,174 4,725
Prepaid and other current assets 1,389 1,222
----------- -----------
Total current assets 14,315 14,178
Property plant and equipment, net 11,280 11,729
Investment in and note receivable from affiliate - 3,065
Goodwill, net 36 36
Other assets 340 331
----------- -----------
Total assets $ 25,971 $ 29,339
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 8,556 $ 9,434
Accrued expenses 9,244 9,048
Current portion of long-term debt and capital leases 14,091 13,146
Convertible subordinated debt, net 2,102 2,082
----------- -----------
Total current liabilities 33,993 33,710
Long-term debt and capital lease obligations 152 205
Other liabilities, Primarily employee benefit obligations 6,616 6,132
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock ($.01 par value, 50,000,000 authorized;
78,200 issued and outstanding at March 31, 2002
and 78,400 at September 30, 2001) 1 1
Common stock ($.01 par value, 50,000,000 authorized;
19,928,522 issued at March 31, 2002 and 19,921,114 at
September 30, 2001) 199 199
Additional paid-in capital 23,069 23,069
Accumulated deficit (35,303) (30,721)
Other comprehensive loss - Pension liability adjustment (2,379) (2,379)
Treasury stock (130,200 shares at March 31, 2002
and September 30, 2001) (377) (377)
Note receivable - (500)
----------- -----------
Total shareholders' equity (deficit) (14,790) (10,708)
----------- -----------
Total liabilities and shareholders' equity (deficit) $ 25,971 $ 29,339
=========== ===========
The accompanying notes are an integral part of these balance sheets.
Consolidated Statements of Operations
(Dollars in thousands, except share and per share information)
(unaudited)
Three months Three months Six months Six months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2002 2001 2002 2001
-------------- -------------- -------------- --------------
Sales $12,848 $15,030 $24,267 $30,009
Cost of sales 9,358 12,207 18,086 24,831
-------------- -------------- -------------- --------------
Gross margin 3,490 2,823 6,181 5,178
Operating expenses:
Research and development 695 1,022 1,659 1,967
Selling 360 339 602 767
Administration 1,636 2,362 3,292 4,777
Loss on impairment of investment - Ajay 3,565 - 3,565 -
Loss on impairment of assets - PPT - - - 1,996
Loss on impairment of assets - ProActive - 4,366 - 4,366
-------------- -------------- -------------- --------------
Total operating expenses 6,256 8,089 9,118 13,873
-------------- -------------- -------------- --------------
Loss from operations (2.766) (5,266) (2,937) (8,695)
Other (income) expenses:
Interest expense 632 1,067 1,572 2,140
Other (income) expense, net ( 15) (16) (44) (24)
-------------- -------------- -------------- --------------
Total other expenses 617 1,051 1,528 2,116
-------------- -------------- -------------- --------------
Loss from operations before
income tax (3,383) (6,317) (4,465) (10,811)
Income tax - - - -
-------------- -------------- -------------- --------------
Net loss from continuing operations (3,383) (6,317) (4,465) (10,811)
Discontinued operations:
Gain from exchange of building for debt of
the previously discontinued agricultural
equipment segment - - 417 -
-------------- -------------- -------------- --------------
Net loss (3,383) (6,317) (4,048) (10,811)
Dividends on preferred stock (293) (602) (534) (749)
Net loss allocable to common
shareholders $(3,676) $(6,919) $ (4,582) $(11,560)
============== ============== ============== ==============
Net loss per common share from
continuing operations - basic $ (0.18) $ (0.35) $ (0.25) $ (0.58)
Net income per common share from discontinued
operations - basic - - 0.02 -
-------------- -------------- -------------- --------------
Net loss per common share - basic $ (0.18) $ (0.35) $ (0.23) $ (0.58)
============== ============== ============== ==============
Weighted average shares used in per share
calculation - basic 19,928,522 19,790,914 19,926,935 19,790,914
============== ============== ============== ==============
Net loss per common share from
continuing operations - diluted $ (0.18) $ (0.35) $ (0.25) $ (0.58)
Net income per common share from discontinued
operations - diluted - - 0.02 -
-------------- -------------- -------------- -------------
Net loss per common share - diluted $ (0.18) $ (0.35) $ (0.23) $(0.58)
============== ============== ============== =============
Weighted average shares used in per share
calculation - diluted 19,928,522 19,790,914 19,926,935 19,790,914
============== ============== ============== =============
The accompanying notes are an integral part of these statements.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Six months Six months
Ended Ended
March 31, March 31,
2002 2001
-------------- ---------------
Cash flows from operating activities:
Net loss $ (4,048) $(10,811)
Adjustments to reconcile net loss
to net cash (used) provided by operations:
Depreciation and amortization 1,631 2,193
Gain from discontinued operations (417) -
Gain from sale of assets ( 45) -
Loss from impairment of investment - Ajay 3,565 -
Loss from impairment of assets - PPT - 1,996
Loss from impairment of assets - Proactive - 4,366
Changes in working capital:
Receivables, net (483) 2,005
Inventories 551 3,325
Accounts payable and accrued expenses (1,044) 662
Other 88 787
-------------- ---------------
Net cash provided (used)by operating activities ( 202) 4,523
Cash flows from investing activities:
Payments for property, plant and equipment (445) (671)
Proceeds from sale of assets 45 -
-------------- ---------------
Net cash used in investing activities (400) (671)
Cash flows from financing activities:
Net borrowings (payments) of debt and lease
obligations 640 (7,376)
Net proceeds from secured subordinated debt - 4,576
Preferred dividends - (147)
-------------- ---------------
Net cash provided by (used in) financing
activities 640 (2,947)
Net increase in cash and cash
equivalents 38 905
Cash and cash equivalents at beginning of
period - 30
-------------- ---------------
Cash and cash equivalents at end of period $ 38 $ 935
============== ===============
Supplemental disclosure of cash flow information:
Interest paid $ 324 $ 1,066
-------------- ---------------
Income taxes paid (refund) $ - $ (158)
-------------- ---------------
Supplemental disclosure of non-cash investing and financing activities:
Dividends accrued not paid $ 534 $ 147
Debt modification fee accrued, not paid $ 225 $ -
Accrued fees/interest converted to debt $ 397 $ -
Dividends for implied returns on $ - $ 455
preferred stock
Secured subordinated debt issuance costs $ - $ 57
Secured subordinated debt discount $ - $ 813
The accompanying notes are an integral part of these statements.
Notes to Unaudited Consolidated Financial Statements
Three and Six Months ended March 31, 2002 and 2001
(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"); Waaco-Geo, 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 March 31, 2002, essentially
all of the Company's $8,556 of trade accounts payable was significantly past
due, the working capital deficit was ($19,678), and the Company stockholders'
equity was a deficit of ($14,790). 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 were due March 1, 2002, bearing
interest at 12%. The interest was deferred until the maturity of the underlying
notes. The Company did not make the principal and interest payments when due on
March 1, 2002, and discussions are ongoing with the debenture holders regarding
the ultimate satisfaction of this debt. 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 March 31, 2002. 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 $7,946 owed to its primary
bank as a current liability at March 31, 2002. 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 debt 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. 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 March 31, 2002 and 2001
was ($3,383) and ($6,317), respectively, and for the six months ended March 31,
2002 and 2001 was ($4,048) and ($10,811) respectively, and consisted solely of
net loss. As of March 31, 2002, 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
March 31, 2002 March 31, 2001
-------------------------------- -------------------------------
Per Per
Share Share
Loss Shares Amount Loss Shares Amount
Net Loss from
continuing operations $(3,383) $(6,317)
Less-Preferred stock dividends (293) (602)
--------- ---------
Basic EPS-
Net loss allocable to
common shareholders (3,676) 19,928,522 $ (0.18) (6,919) 19,790,914 $(0.35)
Effect of dilutive securities -
Stock options and warrants - - - -
Convertible preferred stock - - - -
Convertible subordinated debt - - - -
Diluted EPS - --------- ---------- -------- ----------
Net loss allocable to
common shareholders $(3,676) 19,928,522 $ (0.18) $(6,919) 19,790,914 $(0.35)
========= ============ ========= ========= =========== =========
Six Months Ended Six Months Ended
March 31, 2002 March 31, 2001
-------------------------------- -------------------------------
Per Per
Share Share
Loss Shares Amount Loss Shares Amount
Net loss from continuing
operations $ (4,465) $(10,811)
Less-Preferred stock dividends (534) (749)
--------- ---------
Basic EPS-
Net loss allocable to
common shareholders (4,999) 19,926,935 $ (0.25) (11,560) 19,790,914 $(0.58)
Effect of dilutive securities -
Stock options and warrants - - - -
Convertible preferred stock - - - -
Convertible subordinated debt - - - -
Diluted EPS - --------- ---------- -------- ----------
Net loss allocable to
common shareholders $(4,999) 19,926,935 $ (0.25) $(11,560) 19,790,914 $(0.58)
========= ============ ========= ========= =========== =========
At March 31, 2002 and 2001, the Company had options and warrants covering
6,188,736 and 6,236,879 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:
March 31, September 30,
2002 2001
------------------- ---------------------
Raw material $2,718 $3,056
Work in process 975 932
Finished goods 481 737
=================== =====================
$4,174 $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 March 31,
2002). Term Loan I bears interest at the Bank's prime rate plus 2.25%, (7.00% at
March 31, 2002). 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. In addition to interest payments,
which have been paid monthly, principle payments of $50 will commence on April
1, 2002. As part of the extention through June 30, 2002, 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.
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%
currently and $500 in loan accommodation fees in connection with the loan
extensions granted in 2001. At March 31, 2002, 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. Accordingly, all of the debt with the Bank of
$7,946 has been classified as current liabilities in the accompanying
Consolidated Balance Sheet at March 31, 2002.
8. 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 debt 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.
9. Loss on Impairment of Assets - ProActive and PPT
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" (SFAS 121), long-lived assets held and used by the Company are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. For purposes of
evaluating the recoverability of long-lived assets, the recoverability test is
performed using undiscounted net cash flows of the assets.
In July 1999, the Company purchased the ProActive Pedals (ProActive) division of
Active Tools Manufacturing Co., Inc. ProActive is a designer and developer of
patented adjustable food pedal systems and modular pedal systems. The
acquisition was accounted for using the purchase method of accounting and
resulted in $1,820 being allocated to developed technology, $1,439 to a patent
and patent license agreement acquired and $2,162 to goodwill, representing the
excess of the purchase price over the fair value of the assets acquired and
liabilities assumed. At March 31, 2001, the carrying value of the goodwill and
intangible assets of ProActive was $4,366.
ProActive's sales volumes of adjustable and modular foot pedal systems are
limited to one contract that ProActive has with a third party. Additionally, as
a result of the Company's overall capital constraints, the Company did not
possess the financial resources to further develop additional sales volumes or
to achieve the sales volumes originally projected for ProActive.
As a result of the above factors, management performed an analysis to measure
the impairment of the long-lived assets of ProActive in accordance with SFAS 121
as of March 31, 2001. Based on management's analysis it was concluded that the
undiscounted value of the projected cash flows of ProActive's current business
was less than the carrying value of the assets of ProActive as of March 31,
2001. As a result of this conclusion, the Company recorded an impairment charge
related to ProActive's remaining carrying value of the goodwill and intangible
assets, totaling $4,366. This amount has been reflected as a separate line item
within the operating expenses of the consolidated statements of operations for
the three and six month periods ended March 31, 2001.
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. As a result of the inability to sell PPT and after
reviewing PPT's history of operating problems, workforce levels and
profitability, PPT operations were terminated,effective March,2001. Prior to the
termination of operations, management of PPT evaluated the realizability of the
assets of PPT and the Company recorded an impairment charge on PPT's property,
plant, and equipment of $1,996 in the first quarter of fiscal year 2001. This
amount has been reflected as a separate line item within the operating expenses
of the consolidated statements of operations for the six month period ended
March 31, 2001. Management also established additional reserves of $100 and $598
for obsolete and excess inventory and estimated un-collectible accounts
receivable, respectively. Net sales and loss from operations of PPT were $1,827,
$(1,227) for the three months ended March 31, 2001 and were $4,026 and
$(4,833)for the six months ended March 31, 2001.
10. Disposition of Geofocus
The company sold its GeoFocus subsidiary in the third fiscal quarter of 2001.
GeoFocus was consolidated in the accompanying consolidated financial statements
at March 31, 2001. Total assets of GeoFocus at March 31, 2001 were not material
to the consolidated financial statements. Net sales and (loss) of GeoFocus were
$204 and $(194) for the three months ended March 31, 2001 and were $332 and
$(380) for the six months ended March 31, 2001.
11. 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. For the six months ended March 31, 2002
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.
12. Potential Gain on Settlement of Debt Obligation
Included in Current portion of long-term debt and capital leases at March 31,
2002 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 March 31, 2002. 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,when
the transaction is completed. Although it is anticipated that this transaction
will be completed, the Company can provide no assurance that such a transaction
will ultimately be completed.
13. Employee Benefit Plans
In the six months ended March 31, 2002, 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.
14. Segment Information
Three months Three Months Six months Six months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2002 2001 2002 2001
--------------- -------------- --------------- --------------
Sales by classes of similar products
Vehicle components $12,696 $14,457 $23,992 $29,109
Electrical components and GPS 152 573 275 900
--------------- -------------- -------------- --------------
$12,848 $15,030 $24,267 $30,009
=============== =============== ============== ==============
Earnings (loss) from operations
Vehicle components
Before loss on impairment of assets $ 1,153 $ (473) $1,471 $ (714)
Loss on impairment of assets - (4,366) - (6,362)
--------------- -------------- --------------- --------------
Total vehicle components 1,153 (4,839) 1,471 (7,076)
Electrical components and GPS (354) (427) (843) (1,619)
Loss on impairment of investment - Ajay Sports (3,565) - (3,565) -
--------------- -------------- --------------- --------------
$(2,766) $(5,266) $(2,937) $(8,695)
=============== ============== =============== ==============
Identifiable assets
Vehicle components $23,370 $31,329
Electrical components and GPS 2,470 3,566
Corporate 131 2,165
--------------- --------------
Total assets $25,971 $37,060
=============== ==============
Capital expenditures
Vehicle components $ 327 $ 476 $ 445 $ 658
Electrical components and GPS - 8 - 13
--------------- -------------- --------------- --------------
Total capital expenditures $ 327 $ 484 $ 445 $ 671
=============== ============== =============== ==============
Depreciation and amortization
Vehicle components $ 524 $ 1,131 $1,526 $ 2,034
Electrical components and GPS 40 95 105 159
--------------- -------------- --------------- --------------
Total depreciation and amortization $ 564 $ 1,226 $1,631 $ 2,193
=============== ============== =============== ==============
15. Investment in and notes Receivable from Affiliate
At December 31, 2001, the Company had notes and accounts receivable from Ajay
Sports, Inc. (Ajay) with a carrying value of $3,565, including a $500 note
receivable reflected as a reduction in the Company's shareholders' equity. The
$500 note receivable related to the issuance of 206,719 shares of the Company's
common stock to Ajay.
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
investments 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. The Company believes the guarantees of Mr. Itin are
enforceable and if the Company is unable to collect amounts owed it by Ajay it
will seek collections on the guarantees.
The Company had previously accounted for its investment in Ajay using the equity
method of accounting. As a result of various changes within both the Company and
Ajay, the Company feels it no longer has influence over the operations of Ajay
and accordingly has changed to the cost method of accounting for its investments
in and note receivable from Ajay. Accordingly, in accordance with the Company's
accounting policy for the impairment of long lived assets, the Company has
evaluated the realization of its investment in and note receivable from Ajay.
Based on the Company's current assessment and collection efforts against Ajay
and Mr. Itin's guarantee, the Company believes the investment in and note
receivable from Ajay have been impaired and accordingly an impairment loss for
the entire carrying value of $3,565 has been provided in the second quarter of
fiscal 2002, reflected on the Consolidated Statements of Operations as "Loss on
impairment of Investment-Ajay".
The Company has, however, been pursuing, and will continue to pursue collection
efforts against both Ajay and the guarantees of Mr. Itin. Any recoveries from
Ajay or Mr. Itin will be reflected in the financial statements at the time of
collection. During the second quarter of fiscal 2002 the Company obtained a
judgement against Ajay in the amount of $ 500 for a portion of the amounts owed
by Ajay to the Company.
16. Reclassifications
Certain amounts previously reported in the financial statements for the six
months ended March 31, 2001 have been reclassified to conform to current fiscal
year presentation.
Item 2.
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, 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.
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 March 31, 2002, essentially all of the Company's $8,556 of trade accounts
payable was significantly past due, the working capital deficit was ($19,678),
and the Company stockholders' equity was a deficit of ($14,790). 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 were due March 1, 2002, bearing interest at 12%. The interest was deferred
until the maturity of the underlying notes. The Company did not make the
principal and interest payments when due on March 1, 2002, and is in current
discussions with the debenture holders regarding the ultimate satisfaction of
this debt. 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 March 31,
2002. 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 $7,946 owed to its primary bank as a current liability at
March 31, 2002.
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 March 31, 2002, the Company's contractual obligations consisted of bank debt
of $7,946, capital leases of $549, debt of discontinued operations of $799,
Secured Subordinated debt and Convertible Subordinated debt, excluding debt
discount, of $4,950 and $2,102, respectively. All of this debt except for $152
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 March 31, 2002 are due $354 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 March 31, 2002.
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 debt
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 flow from operations was negative for the six months ended March 31, 2002
at $202, compared to a source of $4,523 for the six months ended March 31, 2001.
Cash from operations improved through a reduction in the loss for the six months
ended March 31, 2002 over the corresponding prior year's six month period. The
large improvement in the net loss from 2001 to 2002 was more than offset by
changes in working capital. On a cash basis, the 2001 loss of $10,811 included a
$6,362 non-cash loss from the impairment of assets. Additionally in fiscal 2001
reductions of receivables and inventory and increases in Accounts Payable
improved cash flow. The negative cash flow from changes in working capital in
2002 of $888 differs from the net working capital gain in 2001 of $6,779 mainly
in the areas of inventory and receivable reduction.
Cash flow from investing was negative for the six months ended March 31, 2002 at
$400, wholly from purchase and sale of property, plant and equipment. This
compares with $671 negative cash flow for the six months ended March 31, 2001,
also from the result of purchases of property, plant and equipment.
Cash flow from financing activities was $640 for the six months ended March 31,
2002 compared to a use of $2,947 for the six months ended March 31, 2001. The
net source of funds for the six months ended March 31, 2002 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. The net use of funds from
financing activities for the six months ended March 31, 2001 was primarily due
to repayment of debt and lease obligations of $7,376 offset by new borrowings of
$4,576.
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 $30 as
of March 31, 2002 and 2001, 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.
Results of Operations
Three months ended March 31, 2002 compared to the three months ended March 31,
2001.
Sales
Total net sales decreased $2,182 to $12,848 in the second quarter of fiscal 2002
from $15,030 in the second quarter of fiscal 2001. Excluding the sales in the
second 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 and Note 10 of Notes
to Consolidated Unaudited Financial Statements) net sales decreased $152 or
1.2%.
Net sales in the Vehicle Components segment decreased $1,761, to $12,696 in the
second quarter of fiscal 2002 over the second quarter of fiscal 2001 while the
Electrical Components and GPS business segment experienced a decrease in sales
of $421 to $152 in the second quarter of fiscal 2002.
Excluding the sales volumes of PPT in the second quarter of fiscal 2002, Vehicle
Component segment sales increased $65 or 0.5%.Increased sales in the Portland
division more than offset sales reductions in the Company's natural gas
conversion kit subsidiary, NESC. Excluding the sales volumes of GeoFocus in the
second quarter of fiscal 2001, Electrical Components and GPS segment sales
decreased $217, or 58.8%. 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
Gross margins were $3,490, or 27.2% of net sales, in the second quarter of 2002,
compared to $2,823, or 18.8% of net sales, in the comparable fiscal 2001 period.
Included in the gross margin for the second quarter of fiscal 2001 was a
negative gross margin of $620 related to PPT.
Excluding PPT, gross margins increased $47 in the second quarter of fiscal 2002
over the second quarter of fiscal 2001. As a percent of net sales, the gross
margin of 27.2% of sales in the second fiscal quarter of 2002 was higher than
the 26.1% of sales, excluding PPT, in fiscal 2001.
Operating expenses
Operating expenses were $2,691 for the three months ended March 31, 2002
compared to $3,723, excluding the Loss on Impairment of investment in Ajay for
the fiscal 2002 period and the Loss on Impairment of assets at Proactive for the
comparable fiscal 2001 period. Excluding the operating expenses related to PPT
and Geofocus and the Proactive impairment loss, operating expenses for the three
months ended March 31, 2001 were $2,847. The lower operating expenses in fiscal
2002 were the result of cost containment efforts.
Impairment Losses
The Company had previously accounted for its investment in Ajay using the equity
method of accounting. As a result of various changes within both the Company and
Ajay, the Company feels it no longer has influence over the operations of Ajay
and accordingly has changed to the cost method of accounting for investment in
and note receivable from Ajay. Accordingly, in accordance with the Company's
accounting policy for the impairment of long lived assets, the Company has
evaluated the realization of its investment in and note receivable from Ajay.
Based on the Company's current assessment and collection efforts against Ajay
and Mr. Itin's guarantee, the Company believes the investment in and note
receivable from Ajay have been impaired and accordingly an impairment loss for
the entire carrying value of $3,565 has been provided in the second quarter of
fiscal 2002. This amount has been reflected as a separate line "Loss on
impairment of investment - Ajay" within the operating expenses of the
consolidated statements of operations for the three and six month periods ended
March 31, 2002.
In July 1999, the Company purchased the ProActive Pedals (ProActive) division of
Active Tools Manufacturing Co., Inc. ProActive is a designer and developer of
patented adjustable food pedal systems and modular pedal systems. The
acquisition was accounted for using the purchase method of accounting and
resulted in $1,820 being allocated to developed technology, $1,439 to a patent
and patent license agreement acquired and $2,162 to goodwill, representing the
excess of the purchase price over the fair value of the assets acquired and
liabilities assumed. At March 31, 2001, the carrying value of the goodwill and
intangible assets of ProActive was $4,366.
ProActive's sales volumes of adjustable and modular foot pedal systems are
limited to one contract that ProActive has with a third party. Additionally, as
a result of the Company's overall capital constraints, the Company did not
possess the financial resources to further develop additional sales volumes or
to achieve the sales volumes originally projected for ProActive.
As a result of the above factors, management performed an analysis to measure
the impairment of the long-lived assets of ProActive in accordance with SFAS 121
as of March 31, 2001. Based on management's analysis it was concluded that the
undiscounted value of the projected cash flows of ProActive's current business
was less than the carrying value of the assets of ProActive as of March 31,
2001. As a result of this conclusion, the Company recorded an impairment charge
related to ProActive's remaining carrying value of the goodwill and intangible
assets, totaling $4,366. This amount has been reflected as a separate line "Loss
on impairment of asset - Proactive" within the operating expenses of the
consolidated statements of operations for the three and six month periods ended
March 31, 2001.
Interest and Other Expenses
Interest expense decreased $435 to $632 in the second quarter of fiscal 2002
from $1,067 in the second 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.
Income Taxes
The effective income tax rate was 0.00% for the quarters ended March 31, 2002
and 2001. 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.
Net earnings available to common shareholders
Net loss allocable to common shareholders declined to $(3,676) in the quarter
ended March 31, 2002 compared to $(6,919) in the comparative prior year period
primarily due to losses included in the second quarter of fiscal 2001 that were
not incurred in the second quarter of fiscal 2002. These losses included losses
on impartment of assets at Proactive and other operating losses attributable to
PPT and GeoFocus in fiscal 2001.
Results of Operations
Six months ended March 31, 2002 compared to the six months ended March 31, 2001.
Sales
Total sales decreased $5,742, or 19.1%, to $24,267 for the first six months of
fiscal 2002 from $30,009 for the first six months of fiscal 2001, primarily due
to lower unit sales volumes in the Company's Vehicle Components segment and to a
lesser degree, the Company's Electrical Components and GPS business segment.
Sales in the Vehicle component business segment decreased $5,117, or 17.6% to
$23,992 from the sales levels achieved in the first six months of fiscal 2001.
The most significant factor in the decline was the closing of the operations of
PPT in 2001. PPT sales for the six months ended March 31, 2001 were $4,026. The
absense of PPT sales in fiscal 2002 accounts for 78.7% of the sales decline in
this segment.
The Electrical Components and GPS component business segment sales decreased
$625 to $275 for the six months ended March 31, 2002 compared to the same period
in fiscal 2001 primarily as a result of lower sales volumes of the Company's
electronic sensors. The company sold its GeoFocus subsidiary in the third fiscal
quarter of 2001. GeoFocus was consolidated in the accompanying consolidated
financial statements at March 31, 2001.
Gross margin
Gross Margins from operations were $6,181, or 25.5% of sales in the first six
months of fiscal 2002 compared to $5,178, or 17.3% of sales in the corresponding
six month period of 2001. The increased gross profit margins were mainly due to
the the closing of the PPT operation, which had a negative margin of $(1,473)
for the six month period in 2001. The gross profit margins for the six month
period in 2001 excluding the effect of PPT sales and margin was 25.6%.
Operating Expenses
Operating expenses were $5,553 for the six months ended March 31, 2002 compared
to $7,511 for the comparable fiscal 2001 period, a decrease of $1,958, or 26.1%,
excluding the loss from impairment of assets and investments in fiscal 2002 and
fiscal 2001. The reduction was primarily as a result of elimination of expenses
for the Company's PPT subsidiary.
Research and development expenses decreased $308, to $1,659 during the first six
months of fiscal 2002 compared to $1,967 in the comparable fiscal 2001 period, a
15.7% decline. As a percent of sales, research and development expenses
increased slightly from 6.6% to 6.8%.
Administrative expenses decreased $1,485 to $3,292 during the first six months
of fiscal 2002 compared to $4,777 in the comparable fiscal 2001 period due
mainly to the elimination of expenses related to the closed PPT subsidiary.
Impairment Losses
As discussed above, the Company recorded an impairment loss of $ 3,565 related
to its investment in and note receivable from Ajay in the second quarter of
fiscal year 2002. Also as discussed above the Company recorded an impairment
loss of $ 4,366 related to the intangible assets of Proactive pedal (Proactive)
in the second quarter of fiscal year 2001.
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. As a result of the inability to sell PPT and after
reviewing PPT's history of operating problems, workforce levels and
profitability, PPT operations were terminated,effective March,2001. Prior to the
termination of operations, management of PPT evaluated the realizability of the
assets of PPT and the Company recorded an impairment charge on PPT's property,
plant, and equipment of $1,996 in the first quarter of fiscal year 2001. This
amount has been reflected as a separate line item within the operating expenses
of the consolidated statements of operations for the six month period ended
March 31, 2001. Management also established additional reserves of $100 and $598
for obsolete and excess inventory and estimated un-collectible accounts
receivable, respectively. Net sales and loss from operations of PPT were $1,827,
$(1,227) for the three months ended March 31, 2001 and were $4,026 and
$(4,833)for the six months ended March 31, 2001.
Interest and Other Expenses
Interest expense decreased $548 or 25.6%, to $1,592 in the first six months of
fiscal 2002 from $2,140 in the first six months of fiscal 2001. Lower interest
on reduced debt levels and reduced interest rates were partially offset by
increased costs of amortization of Secured Subordinated Debentures warrent
discounts.
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 in the six month period ended March 31, 2002 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.
Income Taxes
The effective income tax rate was 0.00% for the six month periods ended March
31, 2002 and 2001. 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.
Net earnings available to common shareholders
Net loss allocable to common shareholders improved to $(4,582) in the six month
period ended March 31, 2002 compared to $(11,560) in the comparative prior year
period primarily due to losses included in fiscal 2001 that were not incurred in
the corresponding period of fiscal 2002. These losses included losses on
impartment of assets at Proactive and PPT, and other operating losses
attributable to PPT and GeoFocus in fiscal 2001.
Exhibit 12(d)(iv)
___________________
Certificate to Provide for the Designation, Preferences,
Rights, Qualifications, Limitations or
Restrictions Thereof, of the Series A-1 Preferred Stock,
Non-Redeemable Convertible Series
___________________
Williams Controls, Inc., a Delaware corporation (the "Corporation"),
hereby certifies that pursuant to the authority vested in the Board of Directors
of the Corporation by the provisions of its Certificate of Incorporation, and by
the provisions of Section 151 of The General Corporation Law of the State of
Delaware, the Board of Directors adopted the following resolution:
RESOLVED, there is hereby created a series of preferred stock, $.01 par
value, of the Corporation, consisting of 80,000 shares of the
authorized, but unissued preferred stock and designated the "Series A-1
Preferred Stock" (hereinafter referred to as the "Series A-1"); and that
to the extent that the terms, relative rights, preferences,
qualifications and limitations of the Series A-1 are not fixed and
determined by the Certificate of Incorporation of the Corporation, as
amended, they hereby are fixed and determined as set forth in Attachment
A attached hereto.
I, being the duly authorized officer of the Corporation, do hereby certify under
penalty of perjury that the foregoing resolution amending the Williams Controls,
Inc. Certificate of Incorporation to provide for the designation, preferences,
rights, qualifications, limitations or restrictions thereof, of the Series A-1
Preferred Stock, Non-Redeemable Convertible Series is the act and deed of the
Corporation and that the facts stated herein are true and, accordingly, have
hereunto set my hand this _____ day of ___, 2002.
/s/
-----------------------
Williams Controls, Inc.
-----------------------------
Certificate to Provide for the Designation, Preferences,
Rights, Qualifications, Limitations or Restrictions Thereof,
of the Series A-1 Preferred Stock,
Non-Redeemable Convertible Series
-----------------------------
SECTION 1. DESIGNATION, PAR VALUE AND NUMBER. 80,000 shares of authorized
preferred stock of the Corporation are hereby constituted as a series of
preferred stock, having a par value of $0.01 per share, designated as "Series
A-1 Preferred Stock, Non-Redeemable Convertible Series" hereinafter called
"Series A-1". In accordance with the terms hereof, each share of Series A-1
shall have the same relative rights as and be identical in all respects with
each other share of Series A-1.
SECTION 2. DIVIDENDS
(a) Dividends. When and as declared by the Corporation's Board of
Directors and to the extent permitted under the General Corporation Law of State
of Delaware, the Corporation shall pay preferential dividends in cash to the
holders of shares of Series A-1 as provided in this Section 2. Cumulative
preferential dividends on each share of Series A-1 shall accrue on a daily basis
on the sum of $100 from and including the date of issuance of such share to and
including September 30, 2002 at rate sufficient to cause [DOLLAR AMOUNT OF
ACCRUED AND UNPAID DIVIDENDS ON THE SERIES A AS OF IMMEDIATELY PRIOR TO THE
CLOSING OF THE EXCHANGE OFFER] of dividends to have accrued on each share of
Series A-1 as of September 30, 2002. Such dividends shall accrue whether or not
they have been declared and whether or not there are profits, surplus or other
funds of the Corporation legally available for the payment of dividends. The
date on which the Corporation initially issues any share shall be deemed to be
its "date of issuance" regardless of the number of times transfer of such share
is made on the stock records maintained by or for the Corporation and regardless
of the number of certificates which may be issued to evidence such share. Except
as provided in Section 2(b), no dividends shall accrue on the Series A-1 after
September 30, 2002.
(b) Participating Dividends. In the event that the Corporation declares
or pays any dividends upon the Common Stock (as defined below) (whether payable
in cash, securities or other property), the Corporation shall also declare and
pay to the holders of the Series A-1 at the same time that it declares and pays
such dividends to the holders of the Common Stock, the dividends which would
have been declared and paid with respect to the Common Stock issuable upon
conversion of the Series A-1 had all of the outstanding Series A-1 been
converted pursuant to Section 4 immediately prior to the record date for such
dividend, or if no record date is fixed, the date as of which the record holders
of Common Stock entitled to such dividends are to be determined. "Common Stock"
means, collectively, the Corporation's Common Stock, par value $.01 per share,
and any capital stock of any class of the Corporation hereafter authorized which
is not limited to a fixed sum or percentage of par or stated value in respect to
the rights of the holders thereof to participate in dividends or in the
distribution of assets upon any liquidation, dissolution or winding up of the
Corporation.
(c) Distribution of Partial Dividend Payments. Except as otherwise
provided herein, if at any time the Corporation pays less than the total amount
of dividends then accrued with respect to the Series A-1, such payment shall be
distributed pro rata among the holders thereof based upon the aggregate accrued
but unpaid dividends on the shares held by each such holder.
SECTION 3. PRIORITY. All shares of the Series A-1 shall rank on a parity with
each other, shall be senior to all classes of Common Stock and the Corporation's
Series A Preferred Stock, 7 1/2% Redeemable Convertible Series (the "Series A")
and shall be subordinate to the Corporation's Series B Preferred Stock, 15%
Redeemable Convertible Series (the "Series B") and each other class or series of
preferred stock of the Corporation hereafter created by the Board of Directors
the terms of which do not expressly provide that it ranks on parity with or
subordinate to the Series A-1, in all cases as to the payment of dividends
(other than as set forth in Section 2(b)) and the distribution of assets upon
the liquidation, dissolution or winding up of the Corporation.
SECTION 4. VOLUNTARY CONVERSION RIGHTS.
(a) Voluntary Conversion. Each holder of shares of Series A-1 shall
have the right at any time from time to time after the first to occur of (i) the
third anniversary (the "Third Anniversary") of the date (the "Funding Date")
that the closing of the transactions contemplated by that certain Series B
Preferred Stock Purchase Agreement, by and among the Corporation and certain
investors, occurs, and (ii) a Change of Control (as defined below), at the
holder's option, to convert all or any portion of such holder's shares of Series
A-1 into a number of validly issued, fully paid and non-assessable shares of
Conversion Stock (as defined below) of the Corporation computed by multiplying
the number of shares to be converted by the sum of $100 per share plus accrued
and unpaid dividends on such share (the "Liquidation Preference"), and dividing
the result by the Voluntary Conversion Price (as defined below) in effect at the
time of conversion; provided, however, that holders of shares of Series A-1 may
convert their shares pursuant to this Section 4 prior to the first to occur of
the Third Anniversary and a Change of Control only if the average of the closing
bid price of the Conversion Stock as listed on the over the counter bulletin
board (the "OTC Bulletin Board") or wherever the Corporation's Conversion Stock
then trades for at least twelve of the last thirteen consecutive weeks prior to
the date of voluntary conversion, shall be greater than or equal to $1.00 per
share. The initial Voluntary Conversion Price is $.66. The "Voluntary Conversion
Price" means the initial Voluntary Conversion Price as adjusted from time to
time pursuant to Section 6. "Change of Control" means the occurrence of a
transaction, whether in a single transaction or series of related transactions,
pursuant to which a person or group of related persons (other than American
Industrial Partners Capital Fund III, L.P. or any of its affiliates) (A)
acquires, whether by merger, stock purchase, recapitalization, redemption,
issuance of capital stock or otherwise, more than fifty percent of the shares of
Common Stock outstanding on a "fully diluted basis", or (B) acquires assets
constituting all or substantially all of the assets of the Corporation and its
subsidiaries. "Fully diluted basis" means, as of any date of determination, the
number of shares of Common Stock outstanding plus (without duplication) all
shares of Common Stock issuable, whether at such time or upon the passage of
time or the occurrence of future events, upon the exercise, conversion or
exchange of all then-outstanding rights, warrants, options, convertible
securities, or exchangeable securities or indebtedness, or other rights,
exercisable for or convertible or exchangeable into, directly or indirectly,
Common Stock or securities exercisable for or convertible or exchangeable into
Common Stock. "Conversion Stock" means shares of the Corporation's Common Stock,
par value $.01 per share; provided, that if there is a change such that the
securities issuable upon conversion of the Series A-1 are issued by an entity
other than the Corporation or there is a change in the type or class of
securities so issuable, then the term "Conversion Stock" shall mean one share of
the security issuable upon conversion of the Series A-1 if such security is
issuable in shares, or shall mean the smallest unit in which such security is
issuable if such security is not issuable in shares.
(b) Method of Voluntary Conversion. In order to voluntarily convert
shares of the Series A-1 into Conversion Stock, the holder thereof shall
surrender the certificate or certificates therefor, duly endorsed in blank at
the principal office of the Corporation or its transfer agent, if any, or at
such other office or offices, located in the United States as the Board of
Directors may designate by written notice to all holders of Series A-1 shares,
and give written notice to the Corporation at said office that the holder elects
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to convert said shares of Series A-1. Shares of the Series A-1 shall be deemed
to have been converted as of the date (hereinafter called the "Conversion Date")
of receipt by the Corporation of the surrender of such shares for conversion as
provided above, and the person or persons entitled to receive the Conversion
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such Conversion Stock on such date.
(c) Deliveries. As soon as practicable on or after the Conversion Date
but in no event more than five business days thereafter, the Corporation will
deliver by Federal Express or other nationally recognized overnight delivery
service to the address of the holders who submitted the Series A-1 for
conversion: (i) a certificate or certificates for the number of full shares of
Conversion Stock issuable upon such conversion in such name or names and such
denomination or denominations as the converting holder has specified, (ii)
payment of the amount payable under Section 7(e) with respect to such
conversion, and (iii) a certificate representing any shares of Series A-1 which
were represented by the certificate or certificates delivered to the Corporation
in connection with such conversion but which were not converted.
SECTION 5. FORCED CONVERSION RIGHTS. The Corporation shall have the right in its
sole discretion to force conversion of all of the shares of Series A-1 into a
number of validly issued, fully paid and non-assessable shares of Conversion
Stock of the Corporation computed by multiplying the number of shares to be
converted by the amount of the Liquidation Preference thereof and dividing the
result by the Forced Conversion Price (as defined below) in effect at the time
of conversion at any time (a) after the Third Anniversary, or (b) in connection
with a Change of Control, in each case so long as both on the day that notice of
forced conversion is given (the "Forced Conversion Notice Date") and on the
Forced Conversion Date (as defined below) the Conversion Stock has been
registered pursuant to the Securities Act of 1933, as amended, and such
registration is then currently in effect; provided, however, that in the event
of a forced conversion in connection with a Change of Control, the Corporation
shall have the right in its sole discretion to force conversion of the
Liquidation Preference of all shares of Series A-1 into a number of shares of
Conversion Stock at a conversion price equal to the lesser of (i) the Conversion
Price then in effect, and (ii) the price per share of Conversion Stock as valued
in the Change of Control (which value shall not be subject to reduction for any
escrow or other expenses payable by the holders of the Conversion Stock under
the terms of the event underlying the Change of Control). The initial Forced
Conversion Price is $0.66. The "Forced Conversion Price" means the initial
Forced Conversion Price as adjusted from time to time pursuant to Section 6
below. The Corporation has the forced conversion right after the Third
Anniversary described above in clause (a) of this Section 5 (as opposed to the
forced conversion right in connection with a Change of Control described above
in clause (b), in which case the following restrictions do not apply) only if
the average weekly closing bid price of the Conversion Stock as listed on the
OTC Bulletin Board or wherever the Corporation's Conversion Stock then trades
shall be greater than or equal to the Forced Conversion Price for a period of at
least twelve out of thirteen consecutive weeks ending no more than ten days
prior to the Forced Conversion Notice Date. Any notice of forced conversion must
be given to all holders no less than fifteen days nor more than forty-five days
prior to the date set forth for conversion (the "Forced Conversion Date").
SECTION 6. ANTI-DILUTION ADJUSTMENTS. For purposes of this Section 6, the
Voluntary Conversion Price, the Forced Conversion Price and the Mandatory
Conversion Price shall be collectively referred to as the "Conversion Price."
The Conversion Price shall be adjusted as follows:
(a) Amendment to the Certificate of Incorporation. In the case of any
amendment to the Certificate of Incorporation of the Corporation to change the
designation of the Conversion Stock or the rights, privileges, restrictions or
conditions in respect to the Conversion Stock or division of the Conversion
Stock, the Series A-1 shall be adjusted so as to provide that upon conversion
thereof the holder shall receive, in lieu of shares of Conversion Stock
theretofore issuable upon such conversion, the
-3-
kind and amount of shares, other securities, money and property receivable upon
such designation, change or division by such holder had such holder converted
such holder's shares of Series A-1 into Conversion Stock in accordance with
Section 4 immediately prior to such designation, change or division. The Series
A-1 shall be deemed thereafter to provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Section 6. The provisions of this Section 6(a) shall apply in the same manner to
successive reclassifications, changes, consolidations and mergers.
(b) Stock Splits; Stock Dividends. If the Corporation shall at any time
subdivide its outstanding shares of Common Stock into a greater number of shares
of Common Stock, or declare a dividend or make any other distribution upon the
Common Stock payable in shares of Common Stock, the Conversion Price in effect
immediately prior to such subdivision or dividend or other distribution shall be
proportionately reduced, and conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares of Common Stock,
the Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
(c) Issuance of Additional Securities. In case the Corporation shall
issue or otherwise sell or distribute shares of Common Stock, or in accordance
with Section 6(d) or 6(e) is deemed to have issued or otherwise sold or
distributed any shares of Common Stock, for a consideration per share in cash or
property at a price less than the then effective Conversion Price, the
Conversion Price then in effect shall automatically be reduced by multiplying
the then Conversion Price by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issuance,
sale or distribution plus the number of shares of Common Stock which the
aggregate consideration received or to be received by the Corporation for such
issuance, sale or distribution (such consideration, if other than cash, as
determined by the Board of Directors including a majority of the Directors who
are not officers or employees of the Corporation or any of its subsidiaries,
whose determination shall be conclusive and described in a resolution of the
Board of Directors) would purchase at the then Conversion Price per share, and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately after giving effect to such issuance, sale or
distribution. For the purposes of this clause (c), the number of outstanding
shares of Common Stock shall be deemed to include the Common Stock issuable upon
conversion of the Series A, the Series A-1, the Series B and any other
securities or other rights convertible into Common Stock then outstanding.
(d) Issuance of Options, Warrants or Other Rights to Acquire Common
Stock. If the Corporation in any manner grants or sells any options, warrants or
other rights to acquire Common Stock and the price per share for which Common
Stock is issuable upon the exercise of such options, warrants or other rights or
upon conversion or exchange of any convertible securities issuable upon exercise
of such options, warrants or other rights is less than the Conversion Price in
effect immediately prior to the time of the granting or sale of such options,
warrants or rights, then the total maximum number of shares of Common Stock
issuable upon the exercise of such options, warrants or rights or upon
conversion or exchange of the total maximum amount of such convertible
securities issuable upon the exercise of such options, warrants or rights shall
be deemed to be outstanding and to have been issued and sold by the Corporation
at the time of the granting or sale of such options, warrants or rights for such
price per share. For purposes of this clause (d), the "price per share for which
Common Stock is issuable" shall be determined by dividing (i) the total amount,
if any, received or receivable by the Corporation as consideration for the
granting or sale of such options, warrants or rights, plus the minimum aggregate
amount of additional consideration payable to the Corporation upon exercise of
all such options, warrants or rights, plus in the case of such options, warrants
and rights which relate to convertible securities, the minimum aggregate amount
of additional consideration, if any, payable to the Corporation upon the
issuance or sale of such convertible securities and the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock issuable
upon the exercise of such options, warrants or rights or upon the conversion or
exchange of all such convertible securities issuable upon the exercise of such
-4-
options, warrants and rights. No further adjustment of the Conversion Price
shall be made when convertible securities are actually issued upon the exercise
of such options, warrants and rights or when Common Stock is actually issued
upon the exercise of such options, warrants and rights or the conversion or
exchange of such convertible securities.
(e) Issuance of Securities Convertible or Exchangeable into Common
Stock. If the Corporation in any manner issues or sells any convertible
securities and the price per share for which Common Stock is issuable upon
conversion or exchange thereof is less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then the maximum number of
shares of Common Stock issuable upon conversion or exchange of such convertible
securities shall be deemed to be outstanding and to have been issued and sold by
the Corporation at the time of the issuance or sale of such convertible
securities for such price per share. For the purposes of this clause (e), the
"price per share for which Common Stock is issuable" shall be determined by
dividing (i) the total amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such convertible securities. No further adjustment of the Conversion Price shall
be made when Common Stock is actually issued upon the conversion or exchange of
such convertible securities, and if any such issue or sale of such convertible
securities is made upon exercise of any options, warrants and rights for which
adjustments of the Conversion Price had been or are to be made pursuant to other
provisions of this Section 6, no further adjustment of the Conversion Price
shall be made by reason of such issue or sale.
(f) Change in Option Price or Conversion Rate; Expiration. If the
purchase price provided for in any options, warrants or rights to acquire Common
Stock, the additional consideration, if any, payable upon the conversion or
exchange of any convertible securities or the rate at which any convertible
securities are convertible into or exchangeable for Common Stock changes at any
time, the Conversion Price in effect at the time of such change shall be
immediately adjusted to the Conversion Price which would have been in effect at
such time had such options, warrants, rights to acquire Common Stock or
convertible securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold. Upon the expiration of any options,
warrants or rights to acquire Common Stock for which an adjustment to the
Conversion Price had been made, the Conversion Price in effect at the time of
such expiration shall be immediately adjusted to the Conversion Price which
would have been in effect at such time had such options, warrants or rights to
acquire Common Stock been exercisable only for the number of shares of Common
Stock actually issued upon the exercise of such options, warrants or rights to
acquire Common Stock. Notwithstanding the foregoing, no adjustment under this
clause (f) shall at any time cause the Conversion Price hereunder to be
increased to an amount which exceeds the Conversion Price in effect on the
applicable original adjustment date.
(g) Treasury Shares. The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the account
of the Corporation or any subsidiary thereof, and the disposition of any shares
so owned or held shall be considered an issue or sale of Common Stock.
(h) Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 6 but not expressly provided for by such provisions,
then the Corporation's Board of Directors shall make an appropriate adjustment
in the Conversion Price so as to protect the rights of the holders of Series
A-1; provided that no such adjustment shall increase the Conversion Price as
otherwise determined pursuant to this Section 6 or decrease the number of shares
of Conversion Stock issuable upon conversion of each share of Series A-1.
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(i) Exception. Notwithstanding anything herein to the contrary, no
adjustment shall be made to the Conversion Price pursuant to this Section 6 upon
the exercise of any options, warrants or other rights to purchase Common Stock
outstanding as of the Funding Date, upon the issuance of shares of the Series
A-1, upon the issuance of any dividends on securities outstanding as of the
Funding Date or on the Series A-1, or upon conversion of the Series A, the
Series A-1, the Series B or any securities or other rights convertible into
Common Stock, which options, warrants, securities or other rights were
outstanding as of the Funding Date. Notwithstanding anything herein to the
contrary, no adjustment shall be made to the Conversion Price pursuant to this
Section 6 for (i) any options, warrants or other rights to purchase Common Stock
granted to officers, directors or employees of, or consultants to, the
Corporation pursuant to a warrant, stock grant, option agreement or plan,
purchase plan or other employee stock incentive program or agreement approved by
the Board of Directors, or (ii) securities issued in connection with the
acquisition by the Corporation of another business entity or majority ownership
thereof approved by the Board of Directors.
SECTION 7. ADDITIONAL CONVERSION MATTERS.
(a) Recapitalization, Reorganization, Reclassification, Consolidation,
Merger or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Corporation's
assets or other transaction, in each case which is effected in such a manner
that the holders of Conversion Stock are entitled to receive (either directly or
upon subsequent liquidation) with respect to or in exchange for Conversion
Stock, shares of the Corporation's stock or other securities (other than shares
of Conversion Stock and other than securities for which an adjustment is
otherwise provided in Section 6), stock or other securities of other persons,
assets (excluding cash dividends) or options, warrants or rights (excluding
options and warrants to purchase and rights to subscribe for Conversion Stock or
other securities of the Corporation convertible into or exchangeable for
Conversion Stock), is referred to herein as an "Organic Change". Unless shares
of Series A-1 are converted to Conversion Stock prior to an Organic Change, then
prior to the consummation of any such Organic Change, the Corporation shall make
appropriate provisions (in form and substance reasonably satisfactory to the
holders of a majority of the Series A-1 then outstanding) to ensure that each of
the holders of Series A-1 shall thereafter have the right to acquire and
receive, in lieu of or in addition to (as the case may be) the shares of
Conversion Stock immediately theretofore acquirable and receivable upon the
conversion of such holder's Series A-1, such shares of stock, securities or
assets as such holder would have received in connection with such Organic Change
if such holder had converted its Series A-1 immediately prior to such Organic
Change. In each such case, the Corporation shall also make appropriate
provisions (in form and substance reasonably satisfactory to the holders of a
majority of the Series A-1 Preferred then outstanding) to insure that the
provisions of this Certificate of Designation shall thereafter be applicable to
the Series A-1 (including, in the case of any such consolidation, merger or sale
in which the successor entity or purchasing entity is other than the
Corporation, an immediate adjustment of the Conversion Price to the value for
the Conversion Stock reflected by the terms of such consolidation, merger or
sale, and a corresponding immediate adjustment in the number of shares of
Conversion Stock acquirable and receivable upon conversion of Series A-1, if the
value so reflected is less than the Conversion Price in effect immediately prior
to such consolidation, merger or sale). The Corporation shall not effect any
such consolidation, merger or sale, unless prior to the consummation thereof,
the successor entity (if other than the Corporation) resulting from
consolidation or merger or the entity purchasing such assets assumes by written
instrument (in form and substance reasonably satisfactory to the holders of a
majority of the Series A-1 then outstanding), the obligation to deliver to each
such holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to acquire. For
clarification purposes only, nothing in this Section 7(a) shall terminate the
right of a holder of Series A-1 to convert such holder's shares pursuant to
Section 4.
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(b) Record of Conversion Price. Whenever the shares of Common Stock or
other types of securities or assets receivable upon conversion of the Series A-1
shall be adjusted as provided in Section 6, the Corporation shall forthwith
obtain and file with its corporate records a certificate or letter from a firm
of independent public accountants of recognized standing (which may be the
Corporation's then independent certified public accountants) setting forth the
computation and the adjusted number of shares of Common Stock or other
securities or assets resulting from such adjustments, and a copy of such
certificate or letter shall be mailed to the holders hereof. Any such
certificate or letter shall be conclusive evidence as to the correctness of the
adjustment or adjustments referred to therein and shall be available for
inspection by any holders of the Series A-1 on any day during normal business
hours.
(c) Notice:
(i) Immediately upon any adjustment of the Conversion Price,
the Corporation shall give written notice thereof to all
holders of Series A-1, setting forth in reasonable detail
and certifying the calculation of such adjustment.
(ii) The Corporation shall give written notice to all holders
of Series A-1 at least 20 days prior to the date on which
the Corporation closes its books or takes a record (A)
with respect to any dividend or distribution upon Common
Stock, (B) with respect to any pro rata subscription offer
to holders of Common Stock or (C) for determining rights
to vote with respect to any Organic Change, dissolution or
liquidation..
(iii) The Corporation shall also give written notice to the
holders of Series A-1 at least 20 days prior to the date
on which any Organic Change shall take place.
(d) Reservation of Shares. The Corporation shall at all times reserve
and keep available out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of the shares of the Series A-1, the full
number of shares of Common Stock then deliverable upon the conversion of all
shares of the Series A-1 then outstanding.
(e) Fractional Shares. No fractional shares of Common Stock are to be
issued upon conversion. The Corporation shall pay a cash adjustment out of
surplus in respect to any fraction of a share which would otherwise be issuable,
in an amount equal to the fair market value of the Common Stock which shall be
the same fraction of the last price per share at which the Common Stock was sold
on any principal stock exchange on which such stock is then listed or admitted
to trading, prior to the opening of business on the conversion date, or if no
sale of such stock takes place on such day on such exchange, the average of the
closing bid and asked prices on such day as officially quoted on such exchange,
or if such stock shall not at the time be listed or admitted to trading on any
stock exchange, the average of the last bid and asked prices for such stock on
such day in the OTC Bulletin Board prior to the opening of business on the
conversion date, or, if the Common Stock is not then included in the OTC
Bulletin Board, as furnished by the National Quotation Bureau, Inc. or if such
firm is not at the time engaged in the business of reporting such prices, as
furnished by any firm then engaged in such business or by any member of the
National Association of Securities Dealers, Inc., selected by the Corporation.
If the Common Stock is not then publicly traded, fair market value shall be
determined in good faith by the Corporation's Board of Directors.
(f) Transfer Taxes. The Corporation will pay any and all transfer taxes
that may be payable in respect of the issue or delivery of shares of Common
Stock on conversion of shares of the Series A-1 pursuant hereto.
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(g) Status of Common Stock. All Common Stock that may be issued upon
conversion of the Series A-1 will, upon issuance, be validly issued, fully paid
and non-assessable and free from all taxes, liens and charges with respect to
the issuance thereof.
(h) Close of Books. The Corporation shall not close its books against
the transfer of Series A-1 or of Conversion Stock issued or issuable upon
conversion of Series A-1 in any manner which interferes with the timely
conversion of Series A-1. The Corporation shall assist and cooperate with any
holder of Shares required to make any governmental filings or obtain any
governmental approval prior to or in connection with any conversion of Shares
hereunder (including, without limitation, making any filings required to be made
by the Corporation).
SECTION 8. VOTING.
(a) Election of Directors. In the election of directors of the
Corporation, the holders of the Series A-1, voting together with the holders of
the Common Stock and the holders of the Series A as a single class, with each
share of Common Stock entitled to one vote, each share of Series A entitled to
one vote for each share of Common Stock issuable upon conversion pursuant to
Section 4 of that certain Certificate to Provide for the Designation,
Preferences, Rights, Qualifications, Limitations or Restrictions Thereof, of the
Series A Preferred Stock, 71/2% Redeemable Convertible Series and each share of
Series A-1 entitled to one vote for each share of Common Stock issuable upon
conversion pursuant to Section 4 hereof, in all cases as of the record date of
such vote or, if no record date is specified, as of the date of such vote, shall
be entitled to elect one less than a majority of the directors (or two less than
a majority if there are an even number of directors) to serve on the
Corporation's Board of Directors, until such director's successors are duly
elected by the holders of the Common Stock, the Series A and the Series A-1 or
are removed from office by the holders of the Common Stock, the Series A and the
Series A-1.
(b) Voting as a Separate Class. The Corporation shall not, without the
consent of the holders of at least a majority of the shares of the Series A-1
then outstanding, voting as a separate class to the exclusion of all other
classes, amend, alter, change, or repeal any of the express terms of the Series
A-1.
(c) Other Voting Rights. The holders of the Series A-1 shall be
entitled to vote on all matters, other than those described above in clause (a)
or (b) of this Section 8, in which holders of Common Stock, Series A and Series
B are entitled to vote, voting together with holders of the Common Stock, the
Series A and the Series B as a single class with (i) each share of Common Stock
entitled to one vote, (ii) each share of Series A-1 entitled to one vote for
each share of Common Stock issuable upon conversion pursuant to Section 4
hereof, (iii) each share of Series A entitled to one vote for each share of
Common Stock issuable upon conversion pursuant to Section 4 of that certain
Certificate to Provide for the Designation, Preferences, Rights, Qualifications,
Limitations or Restrictions Thereof, of the Series A Preferred Stock, 71/2%
Non-Redeemable Convertible Series, and (iv) each share of Series B entitled to
one vote for each share of Common Stock issuable upon conversion pursuant to
Section 4 of that certain Certificate to Provide for the Designation,
Preferences, Rights, Qualifications, Limitations or Restrictions Thereof, of the
Series B Preferred Stock, 15% Redeemable Convertible Series, in all cases as of
the record date of such vote or, if no record date is specified, as of the date
of such vote. The holders of the Series A-1 shall be entitled to receive all
communications sent by the Corporation to the holders of Common Stock.
(d) Except as provided in Section 8(b) or by Delaware law, holders of
shares of the Series A-1 shall not be entitled to vote as a separate class.
SECTION 9. LIQUIDATION.
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(a) Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation
(hereinafter collectively called "liquidation"), before any amount shall be paid
to or set aside for, or any assets shall be distributed among, the holders of
shares of Series A, Common Stock, or of any other equity security of the
Corporation subordinate to the Series A-1 as provided in Section 3 hereof, each
holder of a share of the Series A-1 shall be entitled to receive out of the
assets of the Corporation or the proceeds thereof, the higher of (i) a
preferential payment in an amount equal to the Liquidation Preference thereof,
and (ii) the value of the Common Stock issuable upon conversion of the Series
A-1 had all of the outstanding Series A-1 been converted immediately prior to
liquidation.
(b) Proportional Rights. In the event the amount available for
distribution as liquidation preference payments to holders of the Series A-1 and
any other stock ranking on a parity therewith is insufficient to pay the full
amount of their respective preferences, such amount shall be divided among and
paid to such holders ratably in proportion to the respective amounts which would
be payable to such holders if their respective liquidation preferences were to
be paid in full.
(c) Insufficient Funds. In the event any liquidation preference payment
to be made on the shares of the Series A-1 shall amount in the aggregate to less
than the Liquidation Preference thereof, the Corporation in its discretion may
require the surrender of certificates for shares of the Series A-1 and issue a
replacement certificate or certificates, or it may require the certificates
evidencing the shares in respect of which such payments are to be made to be
presented to the Corporation, or its agent, for notation thereon of the amounts
of the liquidation preference payments made in respect of such shares. In the
event a certificate for shares of the Series A-1 on which payment of one or more
partial liquidation preferences has been made is presented for exchange or
transfer shall bear an appropriate notation as to the aggregate amount of
liquidation preference payments theretofore made in respect thereof.
(d) Merger or Sale. Neither the consolidation or merger of the
Corporation into or with any other entity or entities (whether or not the
Corporation is the surviving entity), nor the sale or transfer by the
Corporation of all or any part of its assets, nor the reduction of the capital
stock of the Corporation nor any other form of recapitalization or
reorganization affecting the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation for the purposes of this Section 9.
SECTION 10. REPLACEMENT CERTIFICATES.
(a) Mutilated Certificate. If any mutilated certificate of Series A-1
is surrendered to the Corporation, the Corporation shall execute and deliver in
exchange therefor a new certificate for Series A-1 of like tenor and principal
amount, bearing a number not contemporaneously outstanding.
(b) Destroyed, Lost or Stolen Certificate. If there is delivered to the
Corporation (i) evidence to its reasonable satisfaction of the destruction, loss
or theft of any certificate of Series A-1 and (ii) such reasonable security or
indemnity as may be required by it to save it harmless, then, in the absence of
notice to the Corporation that such certificate of Series A-1 has been acquired
by a bona fide purchaser, the Corporation shall execute and deliver in lieu of
any such destroyed, lost or stolen certificate of Series A-1, a new certificate
of Series A-1 of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
(c) Status of New Certificate. Upon the issuance of any new certificate
of Series A-1 under this Section 11, the Corporation may require the payment of
a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other expenses connected therewith. Every
new certificate of Series A-1 issued pursuant to this Section 11 in lieu of any
destroyed, lost or stolen certificate of Series A-1, shall constitute an
original additional contractual obligation of the
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Corporation, whether or not the destroyed, lost or stolen certificate of Series
A-1 shall be at any time enforceable by anyone. Any new certificate for Series
A-1 delivered pursuant to this Section 11 shall be so dated that neither gain
nor loss in interest shall result from such exchange. The provisions of this
Section 11 are exclusive and shall preclude (to the extent lawful) all other
rights and remedies with respect to the replacement or payment of mutilated,
destroyed, lost or stolen certificate of Series A-1.
SECTION 11. AMENDMENT AND WAIVER. No amendment, modification or waiver shall be
binding or effective with respect to any provision of Sections 1 to 12 hereof
without the prior written consent of the holders of a majority of the shares of
Series A-1 outstanding at the time such action is taken.
SECTION 12. NOTICES. Except as otherwise expressly provided hereunder, all
notices referred to herein shall be in writing and shall be delivered by
registered or certified mail, return receipt requested and postage prepaid, or
by reputable overnight courier service, charges prepaid, and shall be deemed to
have been given when so mailed or sent (i) to the Corporation, at its principal
executive offices and (ii) to any stockholder, at such holder's address as it
appears in the stock records of the Corporation (unless otherwise indicated by
any such holder).
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EXHIBIT 12(d)(v)
___________________
Certificate to Provide for the Designation, Preferences,
Rights, Qualifications, Limitations or
Restrictions Thereof, of the Series B Preferred Stock,
15% Redeemable Convertible Series
___________________
Williams Controls, Inc., a Delaware corporation (the "Corporation"),
hereby certifies that pursuant to the authority vested in the Board of Directors
of the Corporation by the provisions of its Certificate of Incorporation, and by
the provisions of Section 151 of The General Corporation Law of the State of
Delaware, the Board of Directors adopted the following resolution:
RESOLVED, there is hereby created a series of preferred stock, $.01 par
value, of the Corporation, consisting of 150,000 shares of the
authorized, but unissued preferred stock and designated the "Series B
Preferred Stock" (hereinafter referred to as the "Series B"); and that
to the extent that the terms, relative rights, preferences,
qualifications and limitations of the Series B are not fixed and
determined by the Certificate of Incorporation of the Corporation, as
amended, they hereby are fixed and determined as set forth in Attachment
A attached hereto.
I, being the duly authorized officer of the Corporation, do hereby certify under
penalty of perjury that the foregoing resolution amending the Williams Controls,
Inc. Certificate of Incorporation to provide for the designation, preferences,
rights, qualifications, limitations or restrictions thereof, of the Series B
Preferred Stock, 15% Redeemable Convertible Series is the act and deed of the
Corporation and that the facts stated herein are true and, accordingly, have
hereunto set my hand this _____ day of ___, 2002.
/s/
-----------------------
Williams Controls, Inc.
-----------------------------
Certificate to Provide for the Designation, Preferences,
Rights, Qualifications, Limitations or Restrictions Thereof,
of the Series B Preferred Stock,
15% Redeemable Convertible Series
-----------------------------
SECTION 1. DESIGNATION, PAR VALUE AND NUMBER. 150,000 shares of authorized
preferred stock of the Corporation are hereby constituted as a series of
preferred stock, having a par value of $0.01 per share, designated as "Series B
Preferred Stock, 15% Redeemable Convertible Series" hereinafter called "Series
B". In accordance with the terms hereof, each share of Series B shall have the
same relative rights as and be identical in all respects with each other share
of Series B.
SECTION 2. DIVIDENDS
(a) Cumulative Dividends. When and as declared by the Corporation's
Board of Directors and to the extent permitted under the General Corporation Law
of State of Delaware, the Corporation shall pay preferential dividends in cash
to the holders of shares of Series B as provided in this Section 2. Except as
otherwise provided herein, cumulative preferential dividends on each share of
Series B shall accrue on a daily basis at the rate of 15% per annum (the
"Dividend Rate") on the sum of $100 plus accumulated and unpaid dividends
thereon from and including the date of issuance of such share to and including
the first to occur of (i) the date on which the amount payable pursuant to
Section 10(a) on such share is paid to the holder thereof in connection with the
liquidation of the Corporation, (ii) the date on which such share is converted
into shares of Conversion Stock (as defined below) as provided herein, (iii) the
date on which such share is redeemed by the Corporation as provided herein or
(iv) the date on which such share is otherwise acquired by the Corporation. Such
dividends shall accrue whether or not they have been declared and whether or not
there are profits, surplus or other funds of the Corporation legally available
for the payment of dividends. The date on which the Corporation initially issues
any share shall be deemed to be its "date of issuance" regardless of the number
of times transfer of such share is made on the stock records maintained by or
for the Corporation and regardless of the number of certificates which may be
issued to evidence such share. "Conversion Stock" means shares of the
Corporation's Common Stock, par value $.01 per share; provided, that if there is
a change such that the securities issuable upon conversion of the Series B are
issued by an entity other than the Corporation or there is a change in the type
or class of securities so issuable, then the term "Conversion Stock" shall mean
one share of the security issuable upon conversion of the Series B if such
security is issuable in shares, or shall mean the smallest unit in which such
security is issuable if such security is not issuable in shares.
(b) Dividend Reference Dates. To the extent not paid on January 2,
April 1, July 1 and October 1 of each year, beginning October 1, 2002 (the
"Dividend Reference Dates"), all dividends which have accrued on each share of
Series B outstanding during the three-month period (or other period in the case
of the initial Dividend Reference Date) ending upon each such Dividend Reference
Date (each such period, a "Dividend Period") shall be accumulated and shall
remain accumulated dividends with respect to such share until paid to the holder
thereof.
(c) Adjustment of Dividend Rate. Upon the occurrence of certain events
described below, the Dividend Rate for each share of Series B outstanding shall
be adjusted as follows:
(i) in the event the Corporation fails to pay any amounts due American
Industrial Partners Capital Fund III, L.P. ("AIP") or any of its
affiliates (a "Payment Default") under the terms of any agreement
with AIP or any of its affiliates (including without limitation
that certain Series B Preferred Stock Purchase Agreement, dated as
of May 31, 2002, by and among the Corporation, AIP and certain
other investors (the "Purchase Agreement")), and such Payment
Default is not cured within thirty days, then the Dividend Rate
will increase by five percent for any Dividend Period during which
such Payment Default exists at any time, and for the first
Dividend Period commencing after the date on which such Payment
Default is cured; and
(ii) in the event that any of the following occur, the Dividend Rate
shall be increased by five percent, effective as of the date of
issuance of such share of Series B: (A) less than $10,000,000 of
the Corporation's net operating loss was available for use without
restriction pursuant to Section 382 of the Internal Revenue Code
("Section 382") immediately after the date of the closing of the
transactions contemplated by the Purchase Agreement (the "Funding
Date"), (B) if during the period of time beginning on the Funding
Date and ending on the close of business on September 30, 2004
(the "Applicable Period") the Corporation shall have deducted in
the aggregate, for federal income tax purposes, less than
$5,800,000 of Additional Deductions (as defined below) in
connection with its investment in Ajay Sports, Inc. and Proactive
Acquisition Corp., (C) more than $3,500,000 of Excess Liabilities
(as defined below) (x) have collectively either been paid by the
Corporation after March 31, 2002 or are on the Corporation's
balance sheet as of September 30, 2004, or (y) have collectively
either been paid by the Corporation after March 31, 2002 or are on
the Corporation's balance sheet as of the last day of the fiscal
quarter immediately preceding a Change of Control (as defined
below), or (D) the average of the sum of the Corporation's pre-tax
net income, plus interest expense, plus depreciation and
amortization ("EBITDA"), each calculated based on the
Corporation's audited financial statements made in accordance with
U.S. generally acceptable accounting principles ("GAAP") for the
two fiscal years beginning after the Funding Date is less than
$7,000,000.
"Additional Deduction" means a loss or deduction (collectively, "loss") that is
deductible against the ordinary income of the Corporation, without regard to any
loss or limitation of deductibility caused by the application of Section 382 of
the Internal Revenue Code. "Excess Liabilities" means, without duplication, (1)
trade payables, accrued expenses and other obligations of the Corporation's
discontinued operations including AgroTek Williams, Inc., GeoFocus, Inc., Hardee
Williams, Inc., Kenco Williams, Inc., Premier Plastics Technologies, Techwood
Williams, Inc., Waccamaw Wheel Williams, Inc., Williams Technologies, Inc., and
Williams World Trade, Inc., (2) any monetary obligations related to Ed Cicotte,
Coyote Engineering Inc. or any of their respective affiliates, (3) vendor
interest and the 1999 Catepillar Inc. invoice settlement of Williams Controls
Industries, Inc. included in the Corporation's balance sheet as of March 31,
2002, (4) environmental liabilities in excess of $1,500,000 of the Corporation
or any of its subsidiaries, and (5) any other specific liability (excluding
ordinary course working capital liabilities) related to events or facts which
occurred prior to the Funding Date (whether or not such liability arise prior to
the Funding Date) which was not a component (or is in excess of the amount of
such component) of the amount set forth on the face (as opposed to in the
footnotes) of the Corporation's balance sheet as of March 31, 2002 (whether or
not such liability was required to be a component of the amount set forth on
such balance sheet). A "Change of Control" means any transaction, whether in a
single transaction or series of related transactions, pursuant to which a person
or group of related persons (other than AIP or any of its affiliates) (x)
acquires, whether by merger, stock purchase, recapitalization, redemption,
issuance of capital stock or otherwise, more than fifty percent of the shares of
Common Stock (as defined below) outstanding on a "fully diluted basis", or (y)
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acquires assets constituting all or substantially all of the assets of the
Corporation and its subsidiaries. "Common Stock" means, collectively, the
Corporation's Common Stock, par value $.01 per share, and any capital stock of
any class of the Corporation hereafter authorized which is not limited to a
fixed sum or percentage of par or stated value in respect to the rights of the
holders thereof to participate in dividends or in the distribution of assets
upon any liquidation, dissolution or winding up of the Corporation. "Fully
diluted basis" means, as of any date of determination, the number of shares of
Common Stock outstanding plus (without duplication) all shares of Common Stock
issuable, whether at such time or upon the passage of time or the occurrence of
future events, upon the exercise, conversion or exchange of all then-outstanding
rights, warrants, options, convertible securities, or exchangeable securities or
indebtedness, or other rights, exercisable for or convertible or exchangeable
into, directly or indirectly, Common Stock or securities exercisable for or
convertible or exchangeable into Common Stock.
(d) Participating Dividends. In the event that the Corporation declares
or pays any dividends upon the Common Stock (whether payable in cash, securities
or other property), the Corporation shall also declare and pay to the holders of
the Series B at the same time that it declares and pays such dividends to the
holders of the Common Stock, the dividends which would have been declared and
paid with respect to the Common Stock issuable upon conversion of the Series B
had all of the outstanding Series B been converted pursuant to Section 4
immediately prior to the record date for such dividend, or if no record date is
fixed, the date as of which the record holders of Common Stock entitled to such
dividends are to be determined.
(e) Distribution of Partial Dividend Payments. Except as otherwise
provided herein, if at any time the Corporation pays less than the total amount
of dividends then accrued with respect to the Series B, such payment shall be
distributed pro rata among the holders thereof based upon the aggregate accrued
but unpaid dividends on the shares held by each such holder.
SECTION 3. PRIORITY. All shares of the Series B shall rank on a parity with each
other and shall be senior to the Corporation's Series A Preferred Stock, 71/2%
Redeemable Convertible Series (the "Series A"), the Corporation's Series A-1
Preferred Stock, Non-Redeemable Convertible Series (the "Series A-1"), the
Common Stock of the Corporation, and any other class or series of stock of the
Corporation hereafter created by the Board of Directors (in accordance with
Section 8(b)) the terms of which do not expressly provide that it ranks on
parity with or senior to the Series B, in all cases as to the payment of
dividends and the distribution of assets upon the liquidation, dissolution or
winding up of the Corporation.
SECTION 4. VOLUNTARY CONVERSION RIGHTS.
(a) Voluntary Conversion. Each holder of shares of Series B shall have
the right, at any time and from time to time, at the holder's option, to convert
all or any portion of such holder's shares of Series B into a number of validly
issued, fully paid and non-assessable shares of Conversion Stock of the
Corporation computed by multiplying the number of shares to be converted by the
sum of $100 per share plus accrued and unpaid dividends on such share (the
"Liquidation Preference"), and dividing the result by the Conversion Price (as
defined below) in effect at the time of conversion. The initial Conversion Price
is $0.85; provided, however, that notwithstanding the foregoing, the holders of
shares of Series B shall have the right upon the occurrence of a Change of
Control on or after the third anniversary of the Funding Date ("Third
Anniversary") to convert the Liquidation Preference of their shares of Series B
into a number of shares of Conversion Stock at a conversion price equal to the
lesser of (i) the Conversion Price then in effect, and (ii) the price per share
of Conversion Stock as valued in the Change of Control (which value shall not be
subject to reduction for any escrow or other expenses payable by the holders of
the Conversion Stock under the terms of the event underlying the Change of
Control); provided, further, however, upon the occurrence of a Change of Control
before the Third Anniversary, the Conversion Price shall be adjusted so that the
holders of shares of Series B have the right to convert the Liquidation
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Preference of their shares of Series B into a number of shares of Conversion
Stock equal to the number of shares of Conversion Stock they would have received
using the Conversion Price in effect immediately prior to the Change of Control
had the Change of Control occurred on the Third Anniversary and had dividends
accrued at the rate in effect on the date of the Change of Control until the
Third Anniversary. The "Conversion Price" means the initial Conversion Price as
adjusted from time to time pursuant to Section 6 below.
(b) Method of Voluntary Conversion. In order to voluntarily convert
shares of the Series B into Conversion Stock, the holder thereof shall surrender
the certificate or certificates therefor, duly endorsed in blank at the
principal office of the Corporation or its transfer agent, if any, or at such
other office or offices, located in the United States as the Board of Directors
may designate by written notice to all holders of Series B shares, and give
written notice to the Corporation at said office that the holder elects to
convert said shares of Series B. Shares of the Series B shall be deemed to have
been converted as of the date (hereinafter called the "Conversion Date") of
receipt by the Corporation of the surrender of such shares for conversion as
provided above, and the person or persons entitled to receive the Conversion
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such Conversion Stock on such date.
(c) Deliveries. As soon as practicable on or after the Conversion Date
but in no event more than five business days thereafter, the Corporation will
deliver by Federal Express or other nationally recognized overnight delivery
service to the address of the holders who submitted the Series B for conversion:
(i) a certificate or certificates for the number of full shares of Conversion
Stock issuable upon such conversion in such name or names and such denomination
or denominations as the converting holder has specified, (ii) payment of the
amount payable under Section 7(e) with respect to such conversion, and (iii) a
certificate representing any shares of Series B which were represented by the
certificate or certificates delivered to the Corporation in connection with such
conversion but which were not converted.
SECTION 5. FORCED CONVERSION RIGHTS. The Corporation shall have the right in its
sole discretion to force conversion of all of the shares of Series B into a
number of validly issued, fully paid and non-assessable shares of Conversion
Stock of the Corporation computed by multiplying the number of shares to be
converted by the amount of the Liquidation Preference thereof and dividing the
result by the Conversion Price in effect at the time of conversion at any time
after the Third Anniversary so long as all shares of Series A, all shares of
Series A-1 and all shares of any other class or series of preferred stock
subordinate to the Series B have been converted or redeemed or are being
converted or redeemed concurrently with the conversion of the Series B;
provided, that (i) on the day the Corporation gives the holders of the Series B
notice of forced conversion (the "Forced Conversion Notice Date") and on the
Forced Conversion Date (as defined below), the Conversion Stock issuable upon
conversion has been registered pursuant to the Securities Act of 1933, as
amended, and such registration is then currently effective; (ii) the average
weekly closing bid price of the Conversion Stock as listed on the over the
counter bulletin board (the "OTC Bulletin Board") or wherever the Corporation's
Conversion Stock then trades for each of twenty-six consecutive weeks (the "Test
Period"), with the last day of the Test Period no more than ten days prior to
the Forced Conversion Notice Date, is greater than or equal to 200% of the
Conversion Price; (iii) each of the Corporation's audited EBITDA for the most
recently-ended fiscal year end and the Corporation's EBITDA for the twelve month
period ending on the last date of the last month preceding the Forced Conversion
Notice Date exceed $12,000,000; and (iv) the average weekly trading volume of
the Conversion Stock for the Test Period exceeds 2% of the shares of Conversion
Stock then outstanding. Any notice of forced conversion must be given to all
holders no less than thirty days nor more than forty-five days prior to the date
set forth for conversion (the "Forced Conversion Date"). The Forced Conversion
Date shall be postponed for a period of up to twenty-four months if the holders
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of a majority of the shares of Series B then outstanding agree to waive all
dividends on such shares during such period.
SECTION 6. ANTI-DILUTION ADJUSTMENTS. The Conversion Price shall be
adjusted as follows:
(a) Amendment to the Certificate of Incorporation. In the case of any
amendment to the Certificate of Incorporation of the Corporation to change the
designation of the Conversion Stock or the rights, privileges, restrictions or
conditions in respect to the Conversion Stock or division of the Conversion
Stock, the Series B shall be adjusted so as to provide that upon conversion
thereof the holder shall receive, in lieu of shares of Conversion Stock
theretofore issuable upon such conversion, the kind and amount of shares, other
securities, money and property receivable upon such designation, change or
division by such holder had such holder converted such holder's shares of Series
B into Conversion Stock in accordance with Section 4 immediately prior to such
designation, change or division. The Series B shall be deemed thereafter to
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 6. The provisions of
this Section 6(a) shall apply in the same manner to successive
reclassifications, changes, consolidations and mergers.
(b) Stock Splits; Stock Dividends. If the Corporation shall at any time
subdivide its outstanding shares of Common Stock into a greater number of shares
of Common Stock, or declare a dividend or make any other distribution upon the
Common Stock payable in shares of Common Stock, the Conversion Price in effect
immediately prior to such subdivision or dividend or other distribution shall be
proportionately reduced, and conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares of Common Stock,
the Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
(c) Issuance of Additional Securities. In case the Corporation shall
issue or otherwise sell or distribute shares of Common Stock, or in accordance
with Section 6(d) or 6(e) is deemed to have issued or otherwise sold or
distributed any shares of Common Stock, for a consideration per share in cash or
property at a price less than the then effective Conversion Price, the
Conversion Price then in effect shall automatically be reduced by multiplying
the then Conversion Price by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issuance,
sale or distribution plus the number of shares of Common Stock which the
aggregate consideration received or to be received by the Corporation for such
issuance, sale or distribution (such consideration, if other than cash, as
determined by the Board of Directors including a majority of the Directors who
are not officers or employees of the Corporation or any of its subsidiaries,
whose determination shall be conclusive and described in a resolution of the
Board of Directors) would purchase at the then Conversion Price per share, and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately after giving effect to such issuance, sale or
distribution. For the purposes of this clause (c), the number of outstanding
shares of Common Stock shall be deemed to include the Common Stock issuable upon
conversion of the Series A, the Series A-1, the Series B and any other
securities or other rights convertible into Common Stock then outstanding.
(d) Issuance of Options, Warrants or Other Rights to Acquire Common
Stock. If the Corporation in any manner grants or sells any options, warrants or
other rights to acquire Common Stock and the price per share for which Common
Stock is issuable upon the exercise of such options, warrants or other rights or
upon conversion or exchange of any convertible securities issuable upon exercise
of such options, warrants or other rights is less than the Conversion Price in
effect immediately prior to the time of the granting or sale of such options,
warrants or rights, then the total maximum number of shares of Common Stock
issuable upon the exercise of such options, warrants or rights or upon
conversion or exchange of the total maximum amount of such convertible
securities issuable upon the exercise of such options, warrants or rights shall
be deemed to be outstanding and to have been issued and sold by the Corporation
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at the time of the granting or sale of such options, warrants or rights for such
price per share. For purposes of this clause (d), the "price per share for which
Common Stock is issuable" shall be determined by dividing (i) the total amount,
if any, received or receivable by the Corporation as consideration for the
granting or sale of such options, warrants or rights, plus the minimum aggregate
amount of additional consideration payable to the Corporation upon exercise of
all such options, warrants or rights, plus in the case of such options, warrants
and rights which relate to convertible securities, the minimum aggregate amount
of additional consideration, if any, payable to the Corporation upon the
issuance or sale of such convertible securities and the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock issuable
upon the exercise of such options, warrants or rights or upon the conversion or
exchange of all such convertible securities issuable upon the exercise of such
options, warrants and rights. No further adjustment of the Conversion Price
shall be made when convertible securities are actually issued upon the exercise
of such options, warrants and rights or when Common Stock is actually issued
upon the exercise of such options, warrants and rights or the conversion or
exchange of such convertible securities.
(e) Issuance of Securities Convertible or Exchangeable into Common
Stock. If the Corporation in any manner issues or sells any convertible
securities and the price per share for which Common Stock is issuable upon
conversion or exchange thereof is less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then the maximum number of
shares of Common Stock issuable upon conversion or exchange of such convertible
securities shall be deemed to be outstanding and to have been issued and sold by
the Corporation at the time of the issuance or sale of such convertible
securities for such price per share. For the purposes of this clause (e), the
"price per share for which Common Stock is issuable" shall be determined by
dividing (i) the total amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such convertible securities. No further adjustment of the Conversion Price shall
be made when Common Stock is actually issued upon the conversion or exchange of
such convertible securities, and if any such issue or sale of such convertible
securities is made upon exercise of any options, warrants and rights for which
adjustments of the Conversion Price had been or are to be made pursuant to other
provisions of this Section 6, no further adjustment of the Conversion Price
shall be made by reason of such issue or sale.
(f) Change in Option Price or Conversion Rate; Expiration. If the
purchase price provided for in any options, warrants or rights to acquire Common
Stock, the additional consideration, if any, payable upon the conversion or
exchange of any convertible securities or the rate at which any convertible
securities are convertible into or exchangeable for Common Stock changes at any
time, the Conversion Price in effect at the time of such change shall be
immediately adjusted to the Conversion Price which would have been in effect at
such time had such options, warrants, rights to acquire Common Stock or
convertible securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold. Upon the expiration of any options,
warrants or rights to acquire Common Stock for which an adjustment to the
Conversion Price had been made, the Conversion Price in effect at the time of
such expiration shall be immediately adjusted to the Conversion Price which
would have been in effect at such time had such options, warrants or rights to
acquire Common Stock been exercisable only for the number of shares of Common
Stock actually issued upon the exercise of such options, warrants or rights to
acquire Common Stock. Notwithstanding the foregoing, no adjustment under this
clause (f) shall at any time cause the Conversion Price hereunder to be
increased to an amount which exceeds the Conversion Price in effect on the
applicable original adjustment date.
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(g) Treasury Shares. The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the account
of the Corporation or any subsidiary thereof, and the disposition of any shares
so owned or held shall be considered an issue or sale of Common Stock.
(h) Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 6 but not expressly provided for by such provisions,
then the Corporation's Board of Directors shall make an appropriate adjustment
in the Conversion Price so as to protect the rights of the holders of Series B;
provided that no such adjustment shall increase the Conversion Price as
otherwise determined pursuant to this Section 6 or decrease the number of shares
of Conversion Stock issuable upon conversion of each share of Series B.
(i) Exception. Notwithstanding anything herein to the contrary, no
adjustment shall be made to the Conversion Price pursuant to this Section 6 upon
the exercise of any options, warrants or other rights to purchase Common Stock
outstanding as of the Funding Date, upon the issuance of shares of the Series
A-1, upon the issuance of any dividends on securities outstanding as of the
Funding Date or on the Series A-1, or upon conversion of the Series A, the
Series A-1, the Series B or any securities or other rights convertible into
Common Stock, which options, warrants, securities or other rights were
outstanding as of the Funding Date. Notwithstanding anything herein to the
contrary, no adjustment shall be made to the Conversion Price pursuant to this
Section 6 for (i) any options, warrants or other rights to purchase Common Stock
granted to officers, directors or employees of, or consultants to, the
Corporation pursuant to a warrant, stock grant, option agreement or plan,
purchase plan or other employee stock incentive program or agreement approved by
the Board of Directors, or (ii) securities issued in connection with the
acquisition by the Corporation of another business entity or majority ownership
thereof approved by the Board of Directors.
SECTION 7. ADDITIONAL CONVERSION MATTERS.
(a) Recapitalization, Reorganization, Reclassification, Consolidation,
Merger or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Corporation's
assets or other transaction, in each case which is effected in such a manner
that the holders of Conversion Stock are entitled to receive (either directly or
upon subsequent liquidation) with respect to or in exchange for Conversion
Stock, shares of the Corporation's stock or other securities (other than shares
of Conversion Stock and other than securities for which an adjustment is
otherwise provided in Section 6), stock or other securities of other persons,
assets (excluding cash dividends) or options, warrants or rights (excluding
options and warrants to purchase and rights to subscribe for Conversion Stock or
other securities of the Corporation convertible into or exchangeable for
Conversion Stock), is referred to herein as an "Organic Change". Unless shares
of Series B are converted to Conversion Stock prior to an Organic Change, then
prior to the consummation of any such Organic Change, the Corporation shall make
appropriate provisions (in form and substance reasonably satisfactory to the
holders of a majority of the Series B then outstanding) to ensure that each of
the holders of Series B shall thereafter have the right to acquire and receive,
in lieu of or in addition to (as the case may be) the shares of Conversion Stock
immediately theretofore acquirable and receivable upon the conversion of such
holder's Series B, such shares of stock, securities or assets as such holder
would have received in connection with such Organic Change if such holder had
converted its Series B immediately prior to such Organic Change. In each such
case, the Corporation shall also make appropriate provisions (in form and
substance reasonably satisfactory to the holders of a majority of the Series B
Preferred then outstanding) to insure that the provisions of this Certificate of
Designation shall thereafter be applicable to the Series B (including, in the
case of any such consolidation, merger or sale in which the successor entity or
purchasing entity is other than the Corporation, an immediate adjustment of the
Conversion Price to the value for the Conversion Stock reflected by the terms of
such consolidation, merger or sale, and a corresponding immediate adjustment in
the number of shares of Conversion Stock acquirable and receivable upon
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conversion of Series B, if the value so reflected is less than the Conversion
Price in effect immediately prior to such consolidation, merger or sale). The
Corporation shall not effect any such consolidation, merger or sale, unless
prior to the consummation thereof, the successor entity (if other than the
Corporation) resulting from consolidation or merger or the entity purchasing
such assets assumes by written instrument (in form and substance reasonably
satisfactory to the holders of a majority of the Series B then outstanding), the
obligation to deliver to each such holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to acquire. For clarification purposes only, nothing in this Section
7(a) shall effect the right of a holder of Series B to convert such holder's
shares pursuant to Section 4.
(b) Record of Conversion Price. Whenever the shares of Common Stock or
other types of securities or assets receivable upon conversion of the Series B
shall be adjusted as provided in Section 6, the Corporation shall forthwith
obtain and file with its corporate records a certificate or letter from a firm
of independent public accountants of recognized standing (which may be the
Corporation's then independent certified public accountants) setting forth the
computation and the adjusted number of shares of Common Stock or other
securities or assets resulting from such adjustments, and a copy of such
certificate or letter shall be mailed to the holders hereof. Any such
certificate or letter shall be conclusive evidence as to the correctness of the
adjustment or adjustments referred to therein and shall be available for
inspection by any holders of the Series B on any day during normal business
hours.
(c) Notice.
(i) Immediately upon any adjustment of the Conversion Price,
the Corporation shall give written notice thereof to all
holders of Series B, setting forth in reasonable detail
and certifying the calculation of such adjustment.
(ii) The Corporation shall give written notice to all holders
of Series B at least 20 days prior to the date on which
the Corporation closes its books or takes a record (A)
with respect to any dividend or distribution upon Common
Stock, (B) with respect to any pro rata subscription offer
to holders of Common Stock or (C) for determining rights
to vote with respect to any Organic Change, dissolution or
liquidation.
(iii) The Corporation shall also give written notice to the
holders of Series B at least 20 days prior to the date on
which any Organic Change shall take place.
(d) Reservation of Shares. The Corporation shall at all times reserve
and keep available out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of the shares of the Series B, the full
number of shares of Common Stock then deliverable upon the conversion of all
shares of the Series B then outstanding.
(e) Fractional Shares. No fractional shares of Common Stock are to be
issued upon conversion. The Corporation shall pay a cash adjustment out of
surplus in respect to any fraction of a share which would otherwise be issuable,
in an amount equal to the fair market value of the Common Stock which shall be
the same fraction of the last price per share at which the Common Stock was sold
on any principal stock exchange on which such stock is then listed or admitted
to trading, prior to the opening of business on the conversion date, or if no
sale of such stock takes place on such day on such exchange, the average of the
closing bid and asked prices on such day as officially quoted on such exchange,
or if such stock shall not at the time be listed or admitted to trading on any
stock exchange, the average of the last bid and asked prices for such stock on
such day in the OTC Bulletin Board prior to the opening of business on the
conversion date, or, if the Common Stock is not then included in the OTC
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Bulletin Board, as furnished by the National Quotation Bureau, Inc. or if such
firm is not at the time engaged in the business of reporting such prices, as
furnished by any firm then engaged in such business or by any member of the
National Association of Securities Dealers, Inc., selected by the Corporation.
If the Common Stock is not then publicly traded, fair market value shall be
determined in good faith by the Corporation's Board of Directors.
(f) Transfer Taxes. The Corporation will pay any and all transfer taxes
that may be payable in respect of the issue or delivery of shares of Common
Stock on conversion of shares of the Series B pursuant hereto.
(g) Status of Common Stock. All Common Stock that may be issued upon
conversion of the Series B will, upon issuance, be validly issued, fully paid
and non-assessable and free from all taxes, liens and charges with respect to
the issuance thereof.
(h) Close of Books. The Corporation shall not close its books against
the transfer of Series B or of Conversion Stock issued or issuable upon
conversion of Series B in any manner which interferes with the timely conversion
of Series B. The Corporation shall assist and cooperate with any holder of
Shares required to make any governmental filings or obtain any governmental
approval prior to or in connection with any conversion of Shares hereunder
(including, without limitation, making any filings required to be made by the
Corporation).
SECTION 8. VOTING.
(a) Election of Directors. In the election of directors of the
Corporation, the holders of the Series B voting as a separate class to the
exclusion of all other classes shall be entitled to elect a minimum majority of
the directors to serve on the Corporation's Board of Directors (which minimum
majority shall initially be four (4) of seven (7) directors), until such
directors' successors are duly elected by the holders of the Series B or are
removed from office by the holders of the Series B (the "Class B Directors"). If
the number of Class B Directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain or attain, if possible, the
equality of the number of Class B Directors in each class. If such equality is
not possible, the increase or decrease shall be apportioned among the classes in
such a way that the difference in the number of Class B Directors in any two
classes shall not exceed one. In no case will a decrease in the number of Class
B Directors shorten the term of any incumbent Class B Director. If the holders
of the Series B for any reason fail to elect anyone to fill any such
directorship, such position shall remain vacant until such time as the holders
of the Series B elect a director to fill such position; provided, that in the
interim, directors elected by the holders of Series B shall be entitled by
resolution or vote to fill such directorship; provided further, that three of
the initial Class B Directors shall be the individuals appointed to the Board of
Directors as of the Funding Date by the Corporation's Board of Directors at its
meeting on June 26, 2002, namely (i) W. Richard Bingham, who will serve as a
Class II director of the Corporation, (ii) Kirk R. Ferguson, who will serve as a
Class I director of the Corporation, and (iii) R. Eugene Goodson, who will serve
as a Class II director of the Corporation. The fourth initial Class B Director
shall serve as a Class III director of the Corporation and shall be appointed or
elected after the Funding Date. Until the second anniversary of the Funding
Date, the holders of the Series B shall be entitled to vote together with the
holders of Common Stock, Series A and Series A-1 on the election of the
remaining directors as a single class with (i) each share of Common Stock
entitled to one vote, (ii) each share of Series A entitled to one vote for each
share of Common Stock issuable upon conversion pursuant to Section 4 of that
certain Certificate to Provide for the Designation, Preferences, Rights,
Qualifications, Limitations or Restrictions Thereof, of the Series A Preferred
Stock, 71/2% Redeemable Convertible Series (the "Series A Designation"), (iii)
each share of Series A-1 entitled to one vote for each share of Common Stock
issuable upon conversion pursuant to Section 4 of that certain Certificate to
Provide for the Designation, Preferences, Rights, Qualifications, Limitations or
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Restrictions Thereof, of the Series A-1 Preferred Stock, Non-Redeemable
Convertible Series (the "Series A-1 Designation"), and (iv) each share of Series
B entitled to one vote for each share of Common Stock issuable upon conversion
pursuant to Section 4 hereof, in all cases as of the record date of such vote
or, if no record date is specified, as of the date of such vote. On and after
the second anniversary of the Funding Date, the holders of the Series B shall
not be entitled to vote together with the holders of the Common Stock, the
Series A and the Series A-1 on the election of the remaining directors.
(b) Voting as a Separate Class. The Corporation shall not, without the
consent of the holders of at least a majority of the shares of the Series B then
outstanding, voting as a separate class to the exclusion of all other classes:
(i) create, authorize or issue any stock ranking equal to or
senior to the Series B as to dividends or distributions,
or any obligation or security convertible into shares of
any such senior stock;
(ii) amend, alter, change, or repeal any of the express terms
of the Series B; or
(iii) pay any dividends to any holder of any class of capital
stock of the Corporation.
(c) Other Voting Rights. The holders of the Series B shall be entitled
to vote on all matters, other than those described above in clause (a) or (b) of
this Section 8, in which holders of Common Stock, Series A and Series A-1 are
entitled to vote, voting together with holders of the Common Stock, the Series A
and the Series A-1 as a single class with (i) each share of Common Stock
entitled to one vote, (ii) each share of Series A entitled to one vote for each
share of Common Stock issuable upon conversion pursuant to Section 4 of the
Series A Designation, (iii) each share of Series A-1 entitled to one vote for
each share of Common Stock issuable upon conversion pursuant to Section 4 of the
Series A-1 Designation, and (iv) each share of Series B entitled to one vote for
each share of Common Stock issuable upon conversion pursuant to Section 4
hereof, in all cases as of the record date of such vote or, if no record date is
specified, as of the date of such vote. The holders of the Series B shall be
entitled to receive all communications sent by the Corporation to the holders of
Common Stock.
(d) Except as provided in Section 8(b) or by Delaware law, holders of
shares of the Series B shall not be entitled to vote as a separate class.
SECTION 9. MANDATORY REDEMPTION.
(a) Mandatory Redemption. Except as provided in Section 9(e), on the
first to occur of the seventh anniversary of the Funding Date and a Change of
Control (or as soon as practical thereafter), the Corporation shall redeem all
outstanding shares of Series B (i) in the case of redemption on the seventh
anniversary of the Funding Date, at a price per share equal to the product of
(x) 100%, and (y) the Liquidation Preference, and (ii) in the event of a Change
of Control, at a price per share equal to the product of (x) 100% plus the then
Dividend Rate, and (y) the Liquidation Preference (each such price shall be
referred to as the "Redemption Price").
(b) Notice of Redemption. The Corporation shall give written notice by
certified mail, return receipt requested, postage prepaid to each holder of the
Series B, at each such holder's last address appearing on the books of the
Corporation (but no failure to receive such a notice by any holder, so long as
mailed in accordance with the provisions herein, shall affect the validity of
the redemption of all shares of Series B) of a redemption (x) in the case of a
redemption on the seventh anniversary of the Funding Date, not more than 60 nor
less than 30 days prior to such seventh anniversary, and (y) in the event of a
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Change of Control, promptly after the Corporation obtains knowledge that a
Change of Control has occurred or is proposed to occur. Each notice of
redemption of shares of the Series B shall state:
(i) the redemption date (which in the event of a Change of
Control, shall be not more than 30 nor less than 10 days
after the date the Corporation sends the notice of
redemption),
(ii) the Redemption Price,
(iii) the Conversion Price on the date of notice,
(iv) the place or places where certificates for such shares of
the Series B to be redeemed are to be surrendered for
conversion or for payment of the Redemption Price, and
(v) in the event of a Change of Control, a description of the
material terms of the Change of Control.
(c) Conversion Prior to the Redemption. At any time prior to the
redemption date, the holders of a majority of the then outstanding shares of
Series B shall be entitled to elect, on behalf of each holder of Series B, to
convert each share's Redemption Price into Common Stock based on the Conversion
Price.
(d) Rights Following Redemption. If notice of redemption shall have
been duly given as provided in Section 9(b), and if, on the redemption date,
funds necessary for such redemption have been deposited in trust with a bank or
trust company, or have been set aside, in trust, by the Corporation, for the
purpose of redeeming shares of the Series B, the shares of the Series B called
for redemption shall, as of the close of business on the redemption date, no
longer be transferable on the books of the Corporation and shall no longer be
deemed to be outstanding, the right to receive dividends thereon shall cease to
accrue, and all rights with respect to such shares so called for redemption
shall terminate, except only the right of the holders thereof to receive the
Redemption Price, without interest thereon, upon surrender of the certificates
for such shares.
(e) Remaining Outstanding. Notwithstanding anything in Section 9(a) to
the contrary, the holders of a majority of the then outstanding shares of Series
B shall be entitled to elect, on behalf of each holder of Series B, to not have
the Series B redeemed pursuant to this Section 9, by sending written notice to
the Corporation of such request not less than five business days prior to the
redemption date. Such election shall be irrevocable once made; provided, that
the provisions of this Section 9 shall still apply in the event of a subsequent
mandatory redemption.
(f) Insufficient Funds. Subject to the rights of series of preferred
stock which may from time to time come into existence, if funds of the
Corporation legally available for redemption of shares of Series B on the
redemption date are insufficient to redeem all shares of Series B, those funds
which are legally available will be used to redeem the maximum possible number
of such shares ratably among the holders of such shares. Subject to the rights
of series of preferred stock which may from time to time come into existence, at
any time thereafter when additional funds of the Corporation become legally
available for the redemption of shares of Series B, such funds will immediately
be used to redeem the balance of the shares ratably among the holders of such
shares. For clarification purposes only, failure by the Corporation to redeem
all shares of Series B on the redemption date shall constitute a Payment Default
pursuant to Section 2(c)(i).
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(g) Escheat. In case any holder of shares of the Series B which shall
have been redeemed shall not, within three years of the date of redemption
thereof, claim the amount deposited in trust for the redemption of such shares,
the bank or trust company with which such funds were deposited, upon request of
the Corporation, shall pay over to the Corporation such unclaimed amount and
shall thereupon be relieved of all responsibility in respect thereof. The
Corporation shall not be required to hold the amount so paid over to it, or any
amount theretofore set aside by it, in trust after such three-year period,
separate and apart from its other funds, and thereafter the holders of such
shares of the Series B shall look only to the Corporation for payment of the
Redemption Price thereof, without interest. All liability of the Corporation to
any holder of shares of the Series B for payment of the Redemption Price for
shares of the Series B called for redemption shall cease and terminate as of the
close of business on the fourth anniversary of the redemption date for such
shares.
(h) Cancellation of Shares. Shares of the Series B redeemed pursuant to
this Section 9 shall be canceled by the Corporation and thereafter shall be
authorized and unissued shares of preferred stock, undesignated as to series,
subject to reissuance by the Corporation as shares of any series of preferred
stock other than the Series B.
SECTION 10. LIQUIDATION.
(a) Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation
(hereinafter collectively called "liquidation"), before any amount shall be paid
to or set aside for, or any assets shall be distributed among, the holders of
shares of Series A, Series A-1, Common Stock or of any other equity security of
the Corporation subordinate to the Series B as provided in Section 3 hereof,
each holder of a share of the Series B shall be entitled to receive out of the
assets of the Corporation or the proceeds thereof, the higher of (i) a
preferential payment in an amount equal to the Liquidation Preference thereof,
and (ii) the value of the Common Stock issuable upon conversion of the Series B
had all of the outstanding Series B been converted immediately prior to
liquidation.
(b) Proportional Rights. In the event the amount available for
distribution as liquidation preference payments to holders of the Series B and
any other stock ranking on a parity therewith is insufficient to pay the full
amount of their respective preferences, such amount shall be divided among and
paid to such holders ratably in proportion to the respective amounts which would
be payable to such holders if their respective liquidation preferences were to
be paid in full.
(c) Insufficient Funds. In the event any liquidation preference payment
to be made on the shares of the Series B shall amount in the aggregate to less
than the Liquidation Preference thereof, the Corporation in its discretion may
require the surrender of certificates for shares of the Series B and issue a
replacement certificate or certificates, or it may require the certificates
evidencing the shares in respect of which such payments are to be made to be
presented to the Corporation, or its agent, for notation thereon of the amounts
of the liquidation preference payments made in respect of such shares. In the
event a certificate for shares of the Series B on which payment of one or more
partial liquidation preferences has been made is presented for exchange or
transfer shall bear an appropriate notation as to the aggregate amount of
liquidation preference payments theretofore made in respect thereof.
(d) Merger or Sale. Neither the consolidation or merger of the
Corporation into or with any other entity or entities (whether or not the
Corporation is the surviving entity), nor the sale or transfer by the
Corporation of all or any part of its assets, nor the reduction of the capital
stock of the Corporation nor any other form of recapitalization or
reorganization affecting the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation for the purposes of this Section
10.
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SECTION 11. REPLACEMENT CERTIFICATES.
(a) Mutilated Certificate. If any mutilated certificate of Series B is
surrendered to the Corporation, the Corporation shall execute and deliver in
exchange therefor a new certificate for Series B of like tenor and principal
amount, bearing a number not contemporaneously outstanding.
(b) Destroyed, Lost or Stolen Certificate. If there is delivered to the
Corporation (i) evidence to its reasonable satisfaction of the destruction, loss
or theft of any certificate of Series B and (ii) such reasonable security or
indemnity as may be required by it to save it harmless, then, in the absence of
notice to the Corporation that such certificate of Series B has been acquired by
a bona fide purchaser, the Corporation shall execute and deliver in lieu of any
such destroyed, lost or stolen certificate of Series B, a new certificate of
Series B of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
(c) Status of New Certificate. Upon the issuance of any new certificate
of Series B under this Section 11, the Corporation may require the payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto and any other expenses connected therewith. Every new
certificate of Series B issued pursuant to this Section 11 in lieu of any
destroyed, lost or stolen certificate of Series B, shall constitute an original
additional contractual obligation of the Corporation, whether or not the
destroyed, lost or stolen certificate of Series B shall be at any time
enforceable by anyone. Any new certificate for Series B delivered pursuant to
this Section 11 shall be so dated that neither gain nor loss in interest shall
result from such exchange. The provisions of this Section 11 are exclusive and
shall preclude (to the extent lawful) all other rights and remedies with respect
to the replacement or payment of mutilated, destroyed, lost or stolen
certificate of Series B.
SECTION 12. AMENDMENT AND WAIVER. No amendment, modification or waiver shall be
binding or effective with respect to any provision of Sections 1 to 13 hereof
without the prior written consent of the holders of a majority of the shares of
Series B outstanding at the time such action is taken.
SECTION 13. NOTICES. Except as otherwise expressly provided hereunder, all
notices referred to herein shall be in writing and shall be delivered by
registered or certified mail, return receipt requested and postage prepaid, or
by reputable overnight courier service, charges prepaid, and shall be deemed to
have been given when so mailed or sent (i) to the Corporation, at its principal
executive offices and (ii) to any stockholder, at such holder's address as it
appears in the stock records of the Corporation (unless otherwise indicated by
any such holder).
-13-
Exhibit 12(d)(vi)
CERTIFICATE OF ELIMINATION
OF
THE 10% MANDATORY CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151 of the General Corporation Law of the State of
Delaware)
Williams Controls, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), in
accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY THAT:
1. At a meeting of the Board of Directors of the Corporation,
resolutions were duly adopted setting forth the proposed elimination of the 10%
Mandatory Convertible Preferred Stock as set forth herein:
"RESOLVED, that there are no shares of the Corporation's 10% Mandatory
Convertible Preferred Stock (the "Mandatory Convertible Preferred")
outstanding, and no shares will be issued pursuant to the Certificate of
the Powers, Designations, Preferences and Relative, Participating,
Optional and Other Special Rights of the 10% Mandatory Convertible
Preferred Stock filed with the Secretary of State of the State of
Delaware on December 20, 1988; and
FURTHER RESOLVED, that the President of the Corporation is hereby
authorized and directed to prepare or cause to be prepared a Certificate
providing for the elimination of the Mandatory Convertible Preferred,
and to execute and deliver such certificate to the Secretary of State of
the State of Delaware for filing."
2. None of the authorized shares of the 10% Mandatory Convertible
Preferred Stock of the Corporation are now outstanding and none will be issued.
3. In accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the Corporation's Certificate of
Incorporation, as amended, is hereby amended to eliminate all references to the
Mandatory Convertible Preferred.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Elimination of the 10% Mandatory Convertible Preferred Stock of the Corporation
to be signed by the Corporation's Chief Executive Officer and President this 1st
day of July, 2002.
WILLIAMS CONTROLS, INC.
By:/s/THOMAS K. ZIEGLER
------------------------------------
Name: Thomas K. Ziegler
Title: Chief Executive Officer and
President
EXHIBIT 12(d)(vii)
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of July
__, 2002, is made by and among Williams Controls, Inc., a Delaware corporation
(the "Company"), American Industrial Partners Capital Fund III, L.P., a Delaware
limited partnership ("AIP"), Dolphin Offshore Partners, L.P. and the other
persons who have executed this Agreement (or have otherwise agreed to be bound
by the provisions hereof by executing a Joinder Agreement in the form attached
hereto as Exhibit A (the "Joinder Agreement") in compliance with Section 2(e)
below (collectively with AIP, the "Security Owners"). Capitalized terms used but
not otherwise defined herein shall have the meaning set forth in Section 1
hereof.
WHEREAS, the Security Owners have acquired shares of the Company's
Series B Preferred Stock, 15% Redeemable Convertible Series, par value $.01 per
share (the "Preferred Stock") pursuant to that certain Series B Preferred Stock
Purchase Agreement, dated as of May 31, 2002, by and among the Company, AIP and
the other Security Owners listed therein (as amended, restated or modified from
time to time, the "Purchase Agreement").
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
Definitions. As used herein, the following terms shall have the
following meanings.
"Affiliate" shall mean, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"Common Stock" means the Company's common stock, par value $.01 per
share and any other securities issuable with respect thereto by way of stock
split, stock dividend or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
"Conversion Shares" means the shares of Common Stock issued or issuable
upon conversion of the Preferred Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"NASDAQ" has the meaning set forth in Section 4(d) of this Agreement.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a limited liability company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Piggyback Registration" has the meaning set forth in Section 3(a) of
this Agreement.
"Registration Expenses" means, except as otherwise set forth herein, all
expenses incident to the Company's performance of or compliance with this
Agreement, including, without limitation, all registration and filing fees, fees
and expenses of compliance with securities or blue sky laws, printing expenses,
stock exchange listing fees, messenger and delivery expenses, and fees and
disbursements of counsel for the Company and all independent certified public
accountants, underwriters (excluding discounts and commissions) and other
Persons retained by the Company.
"Registrable Securities" means (i) the Conversion Shares issued or
issuable upon conversion of the Series B Preferred Stock (including the
additional Conversion Shares that may be issued pursuant to the anti-dilution
rights of the Series B Preferred Stock) and (ii) any shares of capital stock
issued or issuable with respect to the Conversion Shares or the Series B
Preferred Stock as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise, without regard to any
limitations on conversions of the Series B Preferred Stock. Notwithstanding the
foregoing, any Registrable Securities sold pursuant to a registered offering as
provided by Section 2 or 3 of this Agreement or pursuant to Rule 144 under the
Securities Act shall no longer be considered Registrable Securities. For the
purposes of this Agreement, a Person will be deemed to be a holder of
Registrable Securities whenever such Person has the right to acquire directly or
indirectly such Registrable Securities (upon conversion or exercise in
connection with a transfer of securities or otherwise, but disregarding any
restrictions or limitations upon the exercise of such right), whether or not
such acquisition has actually been effected.
"Rule 144" means Rule 144 under the Securities Act (or any similar rule
then in force).
"SEC" means the Securities and Exchange Commission or any successor
entity.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration" means a registration of any or all of the
Registrable Securities pursuant to Rule 415 of the Securities Act.
"Takedown" has the meaning set forth in Section 2(b) of this Agreement.
SHELF REGISTRATIONS.
SHELF REGISTRATION. AS SOON AS POSSIBLE BUT IN NO EVENT LATER THAN 180
DAYS AFTER THE DATE HEREOF, THE COMPANY SHALL FILE WITH THE SEC A REGISTRATION
STATEMENT ON FORM S-1 UNDER THE SECURITIES ACT FOR THE SHELF REGISTRATION
PURSUANT TO WHICH ANY OR ALL OF THE REGISTRABLE SECURITIES MAY BE SOLD. THE
COMPANY SHALL USE ITS REASONABLE BEST EFFORTS TO CAUSE THE SHELF REGISTRATION TO
BE DECLARED EFFECTIVE UNDER THE SECURITIES ACT AS SOON AS PRACTICAL AFTER FILING
(BUT IN NO EVENT LATER THAN THE FIRST-YEAR ANNIVERSARY OF THE DATE HEREOF) AND,
ONCE EFFECTIVE, THE COMPANY SHALL CAUSE SUCH SHELF REGISTRATION TO REMAIN
EFFECTIVE UNTIL THE FIRST TO OCCUR
2
OF (I) THE DATE ON WHICH ALL REGISTRABLE SECURITIES HAVE BEEN SOLD PURSUANT TO
THE SHELF REGISTRATION AND (II) THE DATE AS OF WHICH THERE ARE NO LONGER ANY
REGISTRABLE SECURITIES IN EXISTENCE.
TAKEDOWN. IF HOLDERS OF A MAJORITY OF REGISTRABLE SECURITIES NOTIFY THE
COMPANY IN WRITING THAT THEY INTEND TO EFFECT THE SALE OF 25% OR MORE OF THE
REGISTRABLE SECURITIES THEN HELD BY SUCH HOLDERS PURSUANT TO THE SHELF
REGISTRATION (A "TAKEDOWN"), THE COMPANY SHALL NOT EFFECT ANY PUBLIC SALE OR
DISTRIBUTION OF ITS EQUITY SECURITIES, OR ANY SECURITIES CONVERTIBLE INTO OR
EXCHANGEABLE OR EXERCISABLE FOR ITS EQUITY SECURITIES, PURSUANT TO A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT DURING THE 90-DAY PERIOD
BEGINNING ON THE DATE SUCH NOTICE OF A TAKEDOWN IS RECEIVED. WITHIN TEN DAYS
AFTER RECEIPT OF ANY REQUEST FOR A TAKEDOWN, THE COMPANY WILL GIVE WRITTEN
NOTICE OF SUCH REQUESTED REGISTRATION TO ALL OTHER HOLDERS OF REGISTRABLE
SECURITIES AND WILL INCLUDE (SUBJECT TO THE PROVISIONS OF THIS AGREEMENT) IN
SUCH REGISTRATION, ALL REGISTRABLE SECURITIES WITH RESPECT TO WHICH THE COMPANY
HAS RECEIVED WRITTEN REQUESTS FOR INCLUSION THEREIN WITHIN TEN BUSINESS DAYS
AFTER THE RECEIPT OF THE COMPANY'S NOTICE. IF A TAKEDOWN IS AN UNDERWRITTEN
OFFERING, (I) THE COMPANY SHALL USE ITS REASONABLE BEST EFFORTS TO PROMPTLY
AMEND THE SHELF REGISTRATION TO INCLUDE ANY INFORMATION REASONABLY REQUESTED TO
BE INCLUDED THEREIN BY THE UNDERWRITERS OR HOLDERS OF REGISTRABLE SECURITIES,
AND (II) THE HOLDERS OF THE REGISTRABLE SECURITIES MAY ALSO REQUEST THAT THE
COMPANY REGISTER ANY OTHER SHARES OF COMMON STOCK THAT THEY HOLD AT THE TIME OF
THE TAKEDOWN; PROVIDED, HOWEVER, THAT SUCH SHARES OF COMMON STOCK SHALL NOT BE
CONSIDERED REGISTRABLE SECURITIES FOR PURPOSES OF THIS AGREEMENT.
PRIORITY. IF IN CONNECTION WITH ANY TAKEDOWN, THE MANAGING UNDERWRITERS
(SELECTED IN ACCORDANCE WITH CLAUSE (D) BELOW) ADVISE THE COMPANY THAT, IN THEIR
OPINION, THE INCLUSION OF ANY OTHER SECURITIES OTHER THAN REGISTRABLE SECURITIES
IN THE TAKEDOWN WOULD ADVERSELY AFFECT THE MARKETABILITY OF THE OFFERING, THEN
NO SUCH SECURITIES SHALL BE PERMITTED TO BE INCLUDED. ADDITIONALLY, IF IN
CONNECTION WITH SUCH AN OFFERING, THE NUMBER OF REGISTRABLE SECURITIES AND OTHER
SECURITIES (IF ANY) REQUESTED TO BE INCLUDED IN SUCH TAKEDOWN EXCEEDS THE NUMBER
OF REGISTRABLE SECURITIES AND OTHER SECURITIES WHICH CAN BE SOLD IN SUCH
OFFERING WITHOUT ADVERSELY AFFECTING THE MARKETABILITY OF THE OFFERING, THE
COMPANY SHALL INCLUDE IN SUCH TAKEDOWN (I) FIRST, THE REGISTRABLE SECURITIES
REQUESTED TO BE INCLUDED IN SUCH TAKEDOWN (INCLUDING, FOR THE AVOIDANCE OF
DOUBT, THE REGISTRABLE SECURITIES REQUESTED TO BE INCLUDED IN SUCH TAKEDOWN
WITHIN TEN BUSINESS DAYS AFTER THE RECEIPT OF THE COMPANY'S NOTICE AS SET FORTH
IN THE PENULTIMATE SENTENCE OF SECTION 2(B)), PRO RATA AMONG THE HOLDERS OF SUCH
3
REGISTRABLE SECURITIES ON THE BASIS OF THE NUMBER OF REGISTRABLE SECURITIES
OWNED BY EACH SUCH HOLDER, (II) SECOND, OTHER SHARES OF COMMON STOCK THAT THE
COMPANY IS OBLIGATED TO INCLUDE IN SUCH TAKEDOWN UNDER THE TERMS OF AGREEMENTS
BETWEEN THE COMPANY AND OTHER PERSONS, AND (III) THIRD, OTHER SECURITIES
REQUESTED TO BE INCLUDED IN SUCH TAKEDOWN TO THE EXTENT PERMITTED HEREUNDER.
SELECTION OF UNDERWRITERS. THE HOLDERS OF A MAJORITY OF THE REGISTRABLE
SECURITIES REQUESTED TO BE INCLUDED IN A TAKEDOWN SHALL HAVE THE RIGHT TO RETAIN
AND SELECT AN INVESTMENT BANKER AND MANAGER TO ADMINISTER THE SHELF REGISTRATION
AND ANY TAKEDOWN PURSUANT THERETO, SUBJECT TO THE CONSENT OF THE COMPANY, WHICH
CONSENT WILL NOT BE UNREASONABLY WITHHELD. IN ADDITION TO THE PROVISIONS SET
FORTH IN SECTION 5 BELOW, ALL EXPENSES INCURRED IN CONNECTION WITH THE
MANAGEMENT OF THE SHELF REGISTRATION (WHETHER INCURRED BY THE COMPANY OR THE
HOLDERS OF THE REGISTRABLE SECURITIES) SHALL BE BORNE BY THE COMPANY (INCLUDING
OUT-OF-POCKET FEES AND EXPENSES BUT EXCLUDING UNDERWRITING DISCOUNTS AND
COMMISSIONS).
OTHER REGISTRATION RIGHTS. EXCEPT AS PROVIDED IN THIS AGREEMENT, (I) (X)
EXCEPT FOR AGREEMENTS ENTERED INTO BY THE COMPANY ON THE DATE HEREOF, (Y)
AGREEMENTS IN EFFECT AS OF THE DATE HEREOF, AND (Z) A REGISTRATION RIGHTS
AGREEMENT AMONG THE COMPANY AND HOLDERS OF SERIES A-1 PREFERRED STOCK,
NON-REDEEMABLE CONVERTIBLE SERIES IN THE FORM ATTACHED HERETO AS EXHIBIT B, THE
COMPANY WILL NOT GRANT TO ANY PERSONS THE RIGHT TO REQUEST THE COMPANY TO
REGISTER ANY EQUITY SECURITIES OF THE COMPANY, OR ANY SECURITIES CONVERTIBLE OR
EXCHANGEABLE INTO OR EXERCISABLE FOR SUCH SECURITIES, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE HOLDERS OF A MAJORITY OF THE REGISTRABLE SECURITIES, OR (II) THE
COMPANY WILL NOT AMEND, MODIFY OR RESTATE ANY EXISTING AGREEMENT OR ARRANGEMENTS
PURSUANT TO WHICH THE COMPANY HAS PREVIOUSLY GRANTED OR IS CONTEMPORANEOUSLY
GRANTING SUCH RIGHTS, WITHOUT THE PRIOR WRITTEN CONSENT OF THE HOLDERS OF A
MAJORITY OF THE REGISTRABLE SECURITIES. NOTWITHSTANDING THE FOREGOING, FUTURE
HOLDERS OF SHARES OF PREFERRED STOCK SHALL BE ENTITLED TO JOIN THIS AGREEMENT BY
EXECUTING A JOINDER AGREEMENT WITH THE PRIOR WRITTEN CONSENT OF THE HOLDERS OF A
MAJORITY OF THE REGISTRABLE SECURITIES.
PIGGYBACK REGISTRATIONS.
RIGHT TO PIGGYBACK. WHENEVER THE COMPANY PROPOSES TO REGISTER ANY OF ITS
COMMON STOCK UNDER THE SECURITIES ACT (OTHER THAN PURSUANT TO A REGISTRATION
STATEMENT ON FORM S-8 OR S-4 OR ANY SIMILAR FORM OR IN CONNECTION WITH A
REGISTRATION THE PRIMARY PURPOSE OF WHICH IS TO REGISTER DEBT SECURITIES (I.E.,
4
IN CONNECTION WITH A SO-CALLED "EQUITY KICKER")) AND A REGISTRATION FORM TO BE
USED MAY BE USED FOR THE REGISTRATION OF REGISTRABLE SECURITIES (A "PIGGYBACK
REGISTRATION"), THE COMPANY WILL GIVE PROMPT WRITTEN NOTICE TO ALL HOLDERS OF
REGISTRABLE SECURITIES OF ITS INTENTION TO EFFECT SUCH A REGISTRATION AND WILL
INCLUDE IN SUCH REGISTRATION ALL REGISTRABLE SECURITIES WITH RESPECT TO WHICH
THE COMPANY HAS RECEIVED WRITTEN REQUESTS FOR INCLUSION THEREIN WITHIN TWENTY
DAYS AFTER THE RECEIPT OF THE COMPANY'S NOTICE.
PRIORITY ON PRIMARY REGISTRATIONS. IF A PIGGYBACK REGISTRATION IS AN
UNDERWRITTEN PRIMARY REGISTRATION ON BEHALF OF THE COMPANY, THE COMPANY WILL
INCLUDE IN SUCH REGISTRATION ALL REGISTRABLE SECURITIES REQUESTED TO BE INCLUDED
IN SUCH REGISTRATION; PROVIDED, THAT IF THE MANAGING UNDERWRITERS ADVISE THE
COMPANY IN WRITING THAT IN THEIR OPINION THE NUMBER OF SECURITIES REQUESTED TO
BE INCLUDED IN SUCH REGISTRATION EXCEEDS THE NUMBER WHICH CAN BE SOLD IN SUCH
OFFERING WITHOUT ADVERSELY AFFECTING THE MARKETABILITY OF THE OFFERING, THE
COMPANY WILL INCLUDE IN SUCH REGISTRATION (I) FIRST, THE SECURITIES THE COMPANY
PROPOSES TO SELL, (II) SECOND, THE REGISTRABLE SECURITIES AND OTHER SECURITIES
SUBJECT TO REGISTRATION RIGHTS REQUESTED TO BE INCLUDED IN SUCH REGISTRATION PRO
RATA AMONG THE HOLDERS OF SUCH REGISTRABLE SECURITIES AND SUCH OTHER SECURITIES
ON THE BASIS OF THE NUMBER OF SHARES OF REGISTRABLE SECURITIES AND SUCH OTHER
SECURITIES OWNED BY EACH SUCH HOLDER, AND (III) THIRD, OTHER SECURITIES
REQUESTED TO BE INCLUDED IN SUCH PRIMARY REGISTRATION TO THE EXTENT PERMITTED
HEREUNDER.
PRIORITY ON SECONDARY REGISTRATIONS. IF A PIGGYBACK REGISTRATION IS AN
UNDERWRITTEN SECONDARY REGISTRATION ON BEHALF OF HOLDERS OF THE COMPANY'S
SECURITIES OTHER THAN REGISTRABLE SECURITIES, AND THE MANAGING UNDERWRITERS
ADVISE THE COMPANY IN WRITING THAT IN THEIR OPINION THE NUMBER OF SECURITIES
REQUESTED TO BE INCLUDED IN SUCH REGISTRATION EXCEEDS THE NUMBER WHICH CAN BE
SOLD IN SUCH OFFERING WITHOUT ADVERSELY AFFECTING THE MARKETABILITY OF THE
OFFERING, THE COMPANY WILL INCLUDE IN SUCH REGISTRATION (I) FIRST, THE SHARES OF
COMMON STOCK REQUESTED TO BE INCLUDED THEREIN BY THE HOLDERS REQUESTING SUCH
REGISTRATION IF REQUEST IS MADE PURSUANT TO AN AGREEMENT GIVING SUCH HOLDERS THE
RIGHT TO REQUEST SUCH REGISTRATION WHICH HAS PRIORITY OVER THE RIGHTS GRANTED TO
THE HOLDERS OF REGISTRABLE SECURITIES HEREUNDER, (II) SECOND, THE REGISTRABLE
SECURITIES REQUESTED TO BE INCLUDED IN SUCH REGISTRATION, PRO RATA AMONG THE
HOLDERS OF SUCH REGISTRABLE SECURITIES ON THE BASIS OF THE NUMBER OF SHARES OF
REGISTRABLE SECURITIES OWNED BY EACH SUCH HOLDER AND (III) THIRD, OTHER
SECURITIES REQUESTED TO BE INCLUDED IN SUCH SECONDARY REGISTRATION TO THE EXTENT
PERMITTED HEREUNDER.
5
SELECTION OF UNDERWRITERS. IF ANY PIGGYBACK REGISTRATION IS AN
UNDERWRITTEN OFFERING, AND SUCH OFFERING INCLUDES REGISTRABLE SECURITIES, THEN
THE INVESTMENT BANKER(S) AND MANAGER(S) FOR THE OFFERING WILL BE SELECTED BY, IN
THE CASE OF A PRIMARY REGISTRATION, THE COMPANY, AND IN THE CASE OF A SECONDARY
REGISTRATION, THE HOLDERS OF A MAJORITY OF THE REGISTRABLE SECURITIES, SUBJECT
TO THE CONSENT OF THE COMPANY, WHICH CONSENT WILL NOT BE UNREASONABLY WITHHELD.
OTHER REGISTRATIONS. IF THE COMPANY HAS PREVIOUSLY FILED A REGISTRATION
STATEMENT WITH RESPECT TO REGISTRABLE SECURITIES PURSUANT TO THIS SECTION 3, AND
IF SUCH PREVIOUS REGISTRATION HAS NOT BEEN WITHDRAWN OR ABANDONED, THE COMPANY
WILL NOT FILE OR CAUSE TO BE EFFECTED ANY OTHER REGISTRATION OF ANY OF ITS
EQUITY SECURITIES OR SECURITIES CONVERTIBLE OR EXCHANGEABLE INTO OR EXERCISABLE
FOR ITS EQUITY SECURITIES UNDER THE SECURITIES ACT (EXCEPT ON FORMS S-4 OR S-8
OR ANY SUCCESSOR FORMS), WHETHER ON ITS OWN BEHALF OR AT THE REQUEST OF ANY
HOLDER OR HOLDERS OF SUCH SECURITIES, UNTIL A PERIOD OF AT LEAST THREE MONTHS
HAS ELAPSED FROM THE EFFECTIVE DATE OF SUCH PREVIOUS REGISTRATION.
REGISTRATION PROCEDURES. Whenever the holders of Registrable Securities
have requested that any Registrable Securities be registered pursuant to this
agreement (including pursuant to the Shelf Registration), the Company will use
its reasonable best efforts to effect the registration and the sale of such
Registrable Securities in accordance with the intended method of disposition
thereof, and pursuant thereto the Company will as expeditiously as possible (or
within such specific time period as may otherwise be specified):
FURNISH TO EACH SELLER OF REGISTRABLE SECURITIES SUCH NUMBER OF COPIES
OF SUCH REGISTRATION STATEMENT, EACH AMENDMENT AND SUPPLEMENT THERETO, THE
PROSPECTUS INCLUDED IN SUCH REGISTRATION STATEMENT (INCLUDING EACH PRELIMINARY
PROSPECTUS) AND SUCH OTHER DOCUMENTS AS SUCH SELLER MAY REASONABLY REQUEST IN
ORDER TO FACILITATE THE DISPOSITION OF THE REGISTRABLE SECURITIES OWNED BY SUCH
SELLER;
REGISTER OR QUALIFY SUCH REGISTRABLE SECURITIES UNDER SUCH OTHER
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTIONS AS ANY SELLER REASONABLY
REQUESTS AND DO ANY AND ALL OTHER ACTS AND THINGS WHICH MAY BE REASONABLY
NECESSARY OR ADVISABLE TO ENABLE SUCH SELLER TO CONSUMMATE THE DISPOSITION IN
SUCH JURISDICTIONS OF THE REGISTRABLE SECURITIES OWNED BY SUCH SELLER (PROVIDED
THAT THE COMPANY WILL NOT BE REQUIRED TO (I) QUALIFY GENERALLY TO DO BUSINESS IN
ANY JURISDICTION WHERE IT WOULD NOT OTHERWISE BE REQUIRED TO QUALIFY BUT FOR
THIS SUBSECTION, (II) SUBJECT ITSELF TO TAXATION IN ANY SUCH JURISDICTION OR
(III) CONSENT TO GENERAL SERVICE OF PROCESS (I.E.,
6
SERVICE OF PROCESS WHICH IS NOT LIMITED SOLELY TO SECURITIES LAW VIOLATIONS) IN
ANY SUCH JURISDICTION);
NOTIFY EACH SELLER OF SUCH REGISTRABLE SECURITIES AT ANY TIME WHEN A
PROSPECTUS RELATING THERETO IS REQUIRED TO BE DELIVERED UNDER THE SECURITIES
ACT, OF THE HAPPENING OF ANY EVENT AS A RESULT OF WHICH THE PROSPECTUS INCLUDED
IN SUCH REGISTRATION STATEMENT CONTAINS AN UNTRUE STATEMENT OF A MATERIAL FACT
OR OMITS ANY FACT NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING, AND,
AT THE REQUEST OF ANY SUCH SELLER, THE COMPANY WILL PROMPTLY PREPARE A
SUPPLEMENT OR AMENDMENT TO SUCH PROSPECTUS SO THAT, AS THEREAFTER DELIVERED TO
THE PURCHASERS OF SUCH REGISTRABLE SECURITIES SUCH PROSPECTUS WILL NOT CONTAIN
AN UNTRUE STATEMENT OF A MATERIAL FACT OR OMIT TO STATE ANY FACT NECESSARY TO
MAKE THE STATEMENTS THEREIN NOT MISLEADING;
CAUSE ALL SUCH REGISTRABLE SECURITIES TO BE LISTED ON EACH SECURITIES
EXCHANGE ON WHICH SIMILAR SECURITIES ISSUED BY THE COMPANY ARE THEN LISTED OR,
IF NOT SO LISTED, TO BE QUOTED ON THE NASDAQ STOCK MARKET ("NASDAQ") AND, IF
QUOTED ON THE NASDAQ, USE ITS REASONABLE BEST EFFORTS TO SECURE DESIGNATION OF
ALL SUCH REGISTRABLE SECURITIES COVERED BY SUCH REGISTRATION STATEMENT AS A
"NATIONAL MARKET SYSTEM SECURITY" WITHIN THE MEANING OF RULE 11AA2-1 OF THE SEC
OR, FAILING THAT, TO SECURE NASDAQ AUTHORIZATION FOR SUCH REGISTRABLE SECURITIES
AND, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, TO ARRANGE FOR AT LEAST
TWO MARKET MAKERS TO REGISTER AS SUCH WITH RESPECT TO SUCH REGISTRABLE
SECURITIES WITH THE NATIONAL ASSOCIATION OF SECURITIES DEALERS; PROVIDED, THAT
THE COMPANY HAS THEN SATISFIED THE LISTING REQUIREMENTS OF NASDAQ.
PROVIDE A TRANSFER AGENT AND REGISTRAR FOR ALL SUCH REGISTRABLE
SECURITIES NOT LATER THAN THE EFFECTIVE DATE OF SUCH REGISTRATION STATEMENT;
ENTER INTO SUCH CUSTOMARY AGREEMENTS (INCLUDING UNDERWRITING AGREEMENTS
IN CUSTOMARY FORM) AND TAKE ALL SUCH OTHER ACTIONS AS THE HOLDERS OF A MAJORITY
OF THE REGISTRABLE SECURITIES BEING SOLD OR THE UNDERWRITERS, IF ANY, REASONABLY
REQUEST IN ORDER TO EXPEDITE OR FACILITATE THE DISPOSITION OF SUCH REGISTRABLE
SECURITIES (INCLUDING, WITHOUT LIMITATION, EFFECTING A STOCK SPLIT OR A
COMBINATION OF SHARES);
MAKE AVAILABLE FOR INSPECTION BY ANY SELLER OF REGISTRABLE SECURITIES,
ANY UNDERWRITER PARTICIPATING IN ANY DISPOSITION PURSUANT TO SUCH REGISTRATION
STATEMENT AND ANY ATTORNEY, ACCOUNTANT OR OTHER AGENT RETAINED BY ANY SUCH
SELLER OR UNDERWRITER, ALL FINANCIAL AND OTHER RECORDS, PERTINENT CORPORATE
7
DOCUMENTS AND PROPERTIES OF THE COMPANY, AND CAUSE THE COMPANY'S OFFICERS,
DIRECTORS, EMPLOYEES AND INDEPENDENT ACCOUNTANTS TO SUPPLY ALL INFORMATION
REASONABLY REQUESTED BY ANY SUCH SELLER, UNDERWRITER, ATTORNEY, ACCOUNTANT OR
AGENT IN CONNECTION WITH SUCH REGISTRATION STATEMENT;
OTHERWISE USE ITS REASONABLE BEST EFFORTS TO COMPLY WITH ALL APPLICABLE
RULES AND REGULATIONS OF THE SEC, AND MAKE AVAILABLE TO ITS SECURITY HOLDERS, AS
SOON AS REASONABLY PRACTICABLE, AN EARNINGS STATEMENT COVERING THE PERIOD OF AT
LEAST TWELVE MONTHS BEGINNING WITH THE FIRST DAY OF THE COMPANY'S FIRST FULL
CALENDAR QUARTER AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT, WHICH
EARNING STATEMENT SHALL SATISFY THE PROVISIONS OF SECTION 11(A) OF THE
SECURITIES ACT AND RULE 158 PROMULGATED THEREUNDER;
PERMIT ANY HOLDER OF REGISTRABLE SECURITIES WHICH HOLDER, IN ITS SOLE
AND EXCLUSIVE JUDGMENT, MIGHT BE DEEMED TO BE AN UNDERWRITER OR A CONTROLLING
PERSON OF THE COMPANY, TO PARTICIPATE IN THE PREPARATION OF SUCH REGISTRATION OR
COMPARABLE STATEMENT AND TO REQUIRE THE INSERTION THEREIN OF MATERIAL, FURNISHED
TO THE COMPANY IN WRITING, WHICH IN THE REASONABLE JUDGMENT OF SUCH HOLDER AND
ITS COUNSEL SHOULD BE INCLUDED;
IN THE EVENT OF THE ISSUANCE OF ANY STOP ORDER SUSPENDING THE
EFFECTIVENESS OF A REGISTRATION STATEMENT, OR OF ANY ORDER SUSPENDING OR
PREVENTING THE USE OF ANY RELATED PROSPECTUS OR SUSPENDING THE QUALIFICATION OF
ANY COMMON STOCK INCLUDED IN SUCH REGISTRATION STATEMENT FOR SALE IN ANY
JURISDICTION, THE COMPANY WILL USE ITS REASONABLE BEST EFFORTS PROMPTLY TO
OBTAIN THE WITHDRAWAL OF SUCH ORDER;
USE ITS REASONABLE BEST EFFORTS TO CAUSE SUCH REGISTRABLE SECURITIES
COVERED BY SUCH REGISTRATION STATEMENT TO BE REGISTERED WITH OR APPROVED BY SUCH
OTHER GOVERNMENTAL AGENCIES OR AUTHORITIES AS MAY BE NECESSARY TO ENABLE THE
SELLERS THEREOF TO CONSUMMATE THE DISPOSITION OF SUCH REGISTRABLE SECURITIES;
AND
OBTAIN A "COLD COMFORT" LETTER FROM THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS AND A LEGAL OPINION FROM COMPANY'S COUNSEL IN CUSTOMARY FORM AND
COVERING SUCH MATTERS OF THE TYPE CUSTOMARILY COVERED BY SUCH DOCUMENTS AS THE
HOLDERS OF A MAJORITY OF THE REGISTRABLE SECURITIES BEING SOLD REASONABLY
REQUEST.
If any such registration statement or comparable statement refers to any holder
by name or otherwise as the holder of any securities of the Company and if, in
its sole and exclusive judgment, such holder is or might be deemed to be a
controlling person of the Company, such
8
holder shall have the right to require (i) the insertion therein of language, in
form and substance reasonably satisfactory to such holder and presented to the
Company in writing, to the effect that the holding by such holder of such
securities is not to be construed as a recommendation by such holder of the
investment quality of the Company's securities covered thereby and that such
holding does not imply that such holder will assist in meeting any future
financial requirements of the Company, or (ii) in the event that such reference
to such holder by name or otherwise is not required by the Securities Act or any
similar Federal statute then in force, the deletion of the reference to such
holder; provided, that with respect to this clause (ii) such holder shall
furnish to the Company an opinion of counsel to such effect, which opinion and
counsel shall be reasonably satisfactory to the Company.
REGISTRATION EXPENSES.
ALL REGISTRATION EXPENSES OF ANY SHELF REGISTRATION AND PIGGYBACK
REGISTRATION (WHETHER INCURRED BY THE COMPANY OR BY THE HOLDERS OF THE
REGISTRABLE SECURITIES) WILL BE BORNE BY THE COMPANY.
IN CONNECTION WITH EACH PIGGYBACK REGISTRATION AND EACH SHELF
REGISTRATION, THE COMPANY WILL REIMBURSE THE HOLDERS OF REGISTRABLE SECURITIES
COVERED BY SUCH REGISTRATION FOR THE REASONABLE FEES AND DISBURSEMENTS OF ONE
COUNSEL (WHICH SHALL BE KIRKLAND & Ellis or such other counsel chosen by the
holders of a majority of the Registrable Securities initially requesting such
registration.)
INDEMNIFICATION.
THE COMPANY AGREES TO INDEMNIFY, TO THE EXTENT PERMITTED BY LAW, EACH
HOLDER OF REGISTRABLE SECURITIES, ITS OFFICERS AND DIRECTORS, AND EACH PERSON
WHO CONTROLS SUCH HOLDER (WITHIN THE MEANING OF THE SECURITIES ACT) AGAINST ALL
LOSSES, CLAIMS, DAMAGES, LIABILITIES AND EXPENSES ARISING OUT OF OR BASED UPON
ANY UNTRUE OR ALLEGED UNTRUE STATEMENT OF MATERIAL FACT CONTAINED IN ANY
REGISTRATION STATEMENT, PROSPECTUS OR PRELIMINARY PROSPECTUS OR ANY AMENDMENT
THEREOF OR SUPPLEMENT THERETO OR ANY OMISSION OR ALLEGED OMISSION OF A MATERIAL
FACT REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN
NOT MISLEADING, AND SHALL REIMBURSE SUCH HOLDER, DIRECTOR, OFFICER OR
CONTROLLING PERSON FOR ANY LEGAL OR OTHER EXPENSES REASONABLY INCURRED BY SUCH
HOLDER, DIRECTOR, OFFICER OR CONTROLLING PERSON IN CONNECTION WITH THE
INVESTIGATION OR DEFENSE OF SUCH LOSS, CLAIM, DAMAGE, LIABILITY OR EXPENSE,
EXCEPT INSOFAR AS THE SAME ARE CAUSED BY OR CONTAINED IN ANY INFORMATION
FURNISHED IN WRITING TO THE COMPANY BY SUCH HOLDER, DIRECTOR, OFFICER OR
CONTROLLING PERSON EXPRESSLY FOR USE THEREIN OR BY SUCH HOLDER'S, DIRECTOR'S,
OFFICER'S OR CONTROLLING PERSON'S FAILURE TO DELIVER A COPY OF THE REGISTRATION
STATEMENT OR PROSPECTUS OR ANY AMENDMENTS OR SUPPLEMENTS
9
THERETO AFTER THE COMPANY HAS FURNISHED SUCH HOLDER, DIRECTOR, OFFICER OR
CONTROLLING PERSON WITH A SUFFICIENT NUMBER OF COPIES OF THE SAME. IN CONNECTION
WITH AN UNDERWRITTEN OFFERING, THE COMPANY WILL INDEMNIFY SUCH UNDERWRITERS,
THEIR OFFICERS AND DIRECTORS AND EACH PERSON WHO CONTROLS SUCH UNDERWRITERS
(WITHIN THE MEANING OF THE SECURITIES ACT) TO THE SAME EXTENT AS PROVIDED ABOVE
WITH RESPECT TO THE INDEMNIFICATION OF THE HOLDERS OF REGISTRABLE SECURITIES.
IN CONNECTION WITH ANY REGISTRATION STATEMENT IN WHICH A HOLDER OF
REGISTRABLE SECURITIES IS PARTICIPATING, EACH SUCH HOLDER WILL FURNISH TO THE
COMPANY IN WRITING SUCH INFORMATION AND AFFIDAVITS AS THE COMPANY REASONABLY
REQUESTS FOR USE IN CONNECTION WITH ANY SUCH REGISTRATION STATEMENT OR
PROSPECTUS AND, TO THE EXTENT PERMITTED BY LAW, WILL SEVERALLY, AND NOT JOINTLY
AND SEVERALLY, INDEMNIFY THE COMPANY, ITS DIRECTORS AND OFFICERS AND EACH PERSON
WHO CONTROLS THE COMPANY (WITHIN THE MEANING OF THE SECURITIES ACT) AGAINST ANY
LOSSES, CLAIMS, DAMAGES, LIABILITIES AND EXPENSES (INCLUDING, WITHOUT
LIMITATION, AMOUNTS PAID TO INDEMNIFY OTHERS) RESULTING FROM ANY UNTRUE OR
ALLEGED UNTRUE STATEMENT OF MATERIAL FACT CONTAINED IN THE REGISTRATION
STATEMENT, PROSPECTUS OR PRELIMINARY PROSPECTUS OR ANY AMENDMENT THEREOF OR
SUPPLEMENT THERETO OR ANY OMISSION OR ALLEGED OMISSION OF A MATERIAL FACT
REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT
MISLEADING, BUT ONLY TO THE EXTENT THAT SUCH UNTRUE STATEMENT OR OMISSION IS
CONTAINED IN ANY INFORMATION OR AFFIDAVIT SO FURNISHED IN WRITING BY SUCH
HOLDER; PROVIDED, THAT THE OBLIGATION TO INDEMNIFY WILL BE INDIVIDUAL TO EACH
HOLDER AND WILL BE LIMITED TO THE NET AMOUNT OF PROCEEDS RECEIVED BY SUCH HOLDER
FROM THE SALE OF REGISTRABLE SECURITIES PURSUANT TO SUCH REGISTRATION STATEMENT.
ANY PERSON ENTITLED TO INDEMNIFICATION HEREUNDER WILL (I) GIVE PROMPT
WRITTEN NOTICE TO THE INDEMNIFYING PARTY OF ANY CLAIM WITH RESPECT TO WHICH IT
SEEKS INDEMNIFICATION AND (II) UNLESS IN SUCH INDEMNIFIED PARTY'S REASONABLE
JUDGMENT A CONFLICT OF INTEREST BETWEEN SUCH INDEMNIFIED AND INDEMNIFYING
PARTIES MAY EXIST WITH RESPECT TO SUCH CLAIM, PERMIT SUCH INDEMNIFYING PARTY TO
ASSUME THE DEFENSE OF SUCH CLAIM WITH COUNSEL REASONABLY SATISFACTORY TO THE
INDEMNIFIED PARTY. IF SUCH DEFENSE IS ASSUMED, THE INDEMNIFYING PARTY WILL NOT
BE SUBJECT TO ANY LIABILITY FOR ANY SETTLEMENT MADE BY THE INDEMNIFIED PARTY
WITHOUT ITS CONSENT (BUT SUCH CONSENT WILL NOT BE UNREASONABLY WITHHELD). AN
INDEMNIFYING PARTY WHO IS NOT ENTITLED TO, OR ELECTS NOT TO, ASSUME THE DEFENSE
OF A CLAIM WILL NOT BE OBLIGATED TO PAY THE FEES AND EXPENSES OF MORE THAN ONE
COUNSEL FOR ALL PARTIES INDEMNIFIED BY SUCH INDEMNIFYING PARTY WITH RESPECT TO
SUCH CLAIM, UNLESS IN THE REASONABLE JUDGMENT OF ANY INDEMNIFIED
10
PARTY A CONFLICT OF INTEREST MAY EXIST BETWEEN SUCH INDEMNIFIED PARTY AND ANY
OTHER OF SUCH INDEMNIFIED PARTIES WITH RESPECT TO SUCH CLAIM.
THE INDEMNIFICATION PROVIDED FOR UNDER THIS AGREEMENT WILL REMAIN IN
FULL FORCE AND EFFECT REGARDLESS OF ANY INVESTIGATION MADE BY OR ON BEHALF OF
THE INDEMNIFIED PARTY OR ANY OFFICER, DIRECTOR OR CONTROLLING PERSON OF SUCH
INDEMNIFIED PARTY AND WILL SURVIVE THE TRANSFER OF SECURITIES. THE COMPANY ALSO
AGREES TO MAKE SUCH PROVISIONS, AS ARE REASONABLY REQUESTED BY ANY INDEMNIFIED
PARTY, FOR CONTRIBUTION TO SUCH PARTY IN THE EVENT THE COMPANY'S INDEMNIFICATION
IS UNAVAILABLE FOR ANY REASON.
PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No person may participate
in any registration hereunder which is underwritten unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all customary
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements; provided, that no holder of Registrable Securities included in any
underwritten registration shall be required to make any representations or
warranties to the Company or the underwriters other than representations and
warranties regarding such holder, such holder's Registrable Securities and such
holder's intended method of distribution.
RULE 144 REPORTING. With a view to making available to the holders of
Registrable Securities the benefits of certain rules and regulations of the SEC
which may permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its reasonable best efforts to:
MAKE AND KEEP CURRENT PUBLIC INFORMATION AVAILABLE, WITHIN THE MEANING
OF RULE 144 OR ANY SIMILAR OR ANALOGOUS RULE PROMULGATED UNDER THE SECURITIES
ACT, AT ALL TIMES AFTER IT HAS BECOME SUBJECT TO THE REPORTING REQUIREMENTS OF
THE EXCHANGE ACT;
FILE WITH THE SEC, IN A TIMELY MANNER, ALL REPORTS AND OTHER DOCUMENTS
REQUIRED OF THE COMPANY UNDER THE SECURITIES ACT AND EXCHANGE ACT (AFTER IT HAS
BECOME SUBJECT TO SUCH REPORTING REQUIREMENTS); AND
SO LONG AS ANY PARTY HERETO OWNS ANY REGISTRABLE SECURITIES, FURNISH TO
SUCH PARTY FORTHWITH UPON REQUEST, A WRITTEN STATEMENT BY THE COMPANY AS TO ITS
COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SAID RULE 144 (AT ANY TIME
COMMENCING 90 DAYS AFTER THE EFFECTIVE DATE OF THE FIRST REGISTRATION FILED BY
THE COMPANY FOR AN OFFERING OF ITS SECURITIES TO THE GENERAL PUBLIC), THE
SECURITIES ACT AND THE EXCHANGE ACT (AT ANY TIME AFTER IT HAS BECOME SUBJECT TO
SUCH REPORTING REQUIREMENTS); A COPY OF THE MOST RECENT ANNUAL OR QUARTERLY
11
REPORT OF THE COMPANY; AND SUCH OTHER REPORTS AND DOCUMENTS AS SUCH PERSON MAY
REASONABLY REQUEST IN AVAILING ITSELF OF ANY RULE OR REGULATION OF THE SEC
ALLOWING IT TO SELL ANY SUCH SECURITIES WITHOUT REGISTRATION.
OBLIGATIONS OF THE HOLDERS OF REGISTRABLE SECURITIES.
AT LEAST TWO BUSINESS DAYS PRIOR TO THE FIRST ANTICIPATED FILING DATE OF
A SHELF REGISTRATION OR A PIGGYBACK REGISTRATION, THE COMPANY SHALL NOTIFY EACH
HOLDER OF A REGISTRABLE SECURITY IN WRITING OF THE INFORMATION THE COMPANY
REQUIRES FROM EACH SUCH HOLDER IF SUCH HOLDER ELECTS TO HAVE ANY OF SUCH
HOLDER'S REGISTRABLE SECURITIES INCLUDED IN SUCH SHELF REGISTRATION OR PIGGYBACK
REGISTRATION. IT SHALL BE A CONDITION PRECEDENT TO THE OBLIGATIONS OF THE
COMPANY TO COMPLETE ANY REGISTRATION PURSUANT TO THIS AGREEMENT WITH RESPECT TO
THE REGISTRABLE SECURITIES OF A PARTICULAR HOLDER THAT SUCH HOLDER SHALL FURNISH
TO THE COMPANY SUCH INFORMATION REGARDING ITSELF, THE REGISTRABLE SECURITIES
HELD BY IT AND THE INTENDED METHOD OF DISPOSITION OF THE REGISTRABLE SECURITIES
HELD BY IT, AND ANY CHANGES IN ANY SUCH INFORMATION THAT WOULD REQUIRE AN
AMENDMENT OR SUPPLEMENT TO ANY SUCH REGISTRATION, AS SHALL BE REASONABLY
REQUIRED TO EFFECT AND MAINTAIN THE EFFECTIVENESS OF THE REGISTRATION OF SUCH
REGISTRABLE SECURITIES AND SHALL EXECUTE SUCH DOCUMENTS IN CONNECTION WITH SUCH
REGISTRATION AS THE COMPANY MAY REASONABLY REQUEST. TO THE EXTENT THAT ANY
HOLDER OF REGISTRABLE SECURITIES FAILS TO TIMELY PROVIDE SUCH INFORMATION, THE
COMPANY SHALL NOT BE SUBJECT TO ANY PENALTIES HEREUNDER OR UNDER THE PURCHASE
AGREEMENT FOR THE PERIOD OF TIME THAT SUCH HOLDER HAS FAILED TO TIMELY PROVIDE
SUCH INFORMATION.
EACH HOLDER OF REGISTRABLE SECURITIES, BY SUCH HOLDER'S ACCEPTANCE OF
THE REGISTRABLE SECURITIES, AGREES TO COOPERATE WITH THE COMPANY AS REASONABLY
REQUESTED BY THE COMPANY IN CONNECTION WITH THE PREPARATION AND FILING OF ANY
SHELF REGISTRATION OR PIGGYBACK REGISTRATION HEREUNDER, UNLESS SUCH HOLDER HAS
NOTIFIED THE COMPANY IN WRITING OF SUCH HOLDER'S ELECTION TO EXCLUDE ALL OF SUCH
HOLDER'S REGISTRABLE SECURITIES FROM SUCH SHELF REGISTRATION OR PIGGYBACK
REGISTRATION.
EACH HOLDER OF REGISTRABLE SECURITIES AGREES THAT, UPON RECEIPT OF ANY
NOTICE FROM THE COMPANY OF THE HAPPENING OF ANY EVENT OF THE KIND DESCRIBED IN
SECTION 4(C) OR SECTION 4(J), SUCH HOLDER WILL IMMEDIATELY DISCONTINUE
DISPOSITION OF REGISTRABLE SECURITIES PURSUANT TO ANY SHELF REGISTRATION(S)
COVERING SUCH REGISTRABLE SECURITIES UNTIL SUCH HOLDER'S RECEIPT OF THE COPIES
OF THE SUPPLEMENTED OR AMENDED PROSPECTUS CONTEMPLATED BY SECTION 4(C)
12
OR SECTION 4(J) OR RECEIPT OF NOTICE THAT NO SUPPLEMENT OR AMENDMENT IS
REQUIRED.
EACH HOLDER OF REGISTRABLE SECURITIES AGREES THAT, UPON REQUEST OF THE
COMPANY, SUCH HOLDER WILL IMMEDIATELY DISCONTINUE DISPOSITION OF THE REGISTRABLE
SECURITIES PURSUANT TO ANY SHELF REGISTRATION OR PIGGYBACK REGISTRATION COVERING
SUCH REGISTRABLE SECURITIES DURING ANY PERIOD NOT TO EXCEED ONE 90-DAY PERIOD
WITHIN ANY ONE 12-MONTH PERIOD THE COMPANY REQUIRES IN CONNECTION WITH AN
UNDERWRITTEN PUBLIC OFFERING. IN ADDITION, EACH HOLDER OF REGISTRABLE SECURITIES
AGREES THAT SUCH HOLDER WILL ENTER INTO A STANDSTILL OR LOCK-UP AGREEMENT WITH
RESPECT TO ANY UNDERWRITTEN PUBLIC OFFERING SO LONG AS (I) SUCH AGREEMENT IS
REQUIRED BY THE MANAGING UNDERWRITER IN CONNECTION WITH SUCH UNDERWRITTEN PUBLIC
OFFERING, (II) THE TERM OF SUCH AGREEMENT DOES NOT EXCEED 90 DAYS, (III) ALL OF
THE COMPANY'S EXECUTIVE OFFICERS, DIRECTORS AND 5% STOCKHOLDERS (OTHER THAN
INSTITUTIONAL STOCKHOLDERS) ARE REQUIRED BY SUCH MANAGING UNDERWRITER TO ENTER
INTO IDENTICAL STANDSTILL OR LOCKUP AGREEMENTS, AND (IV) THE CONTINUED
EFFECTIVENESS OF SUCH AGREEMENT IS CONDITIONED UPON THE CONTINUED EFFECTIVENESS
OF ALL OF THE AGREEMENTS DESCRIBED IN THE PRECEDING CLAUSE (III).
NOTICES. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally, mailed
by certified or registered mail, return receipt requested and postage prepaid,
or sent via a nationally recognized overnight courier, or sent via facsimile to
the recipient. Such notices, demands and other communications will be sent to
the address indicated below:
To the Company, To:
Williams Controls, Inc.
14100 Sw 72Nd Avenue
Portland, or 97224
Attention: Dennis Bunday
Facsimile: 503-624-3812
With a copy, which shall not constitute notice, to:
Davis Wright Tremaine, LLP
1300 Sw Fifth Avenue, Suite 2300
Portland, or 97201
Attention: James Waggoner
Facsimile: (503) 778-5399
to Aip, To:
13
c/o American Industrial Partners
551 Fifth Avenue, Suite 3800
New York, Ny 10176
Attention: Kirk Ferguson
Facsimile: (212) 986-5099
With a copy, which shall not constitute notice, to:
Kirkland & Ellis
655 Fifteenth Street, N.W.
Washington, D.C. 20005
Attention: Robert G. Marks
Facsimile No.: (202) 879-5000
To any other Security Holder, to:
the address set forth on the books and records of the Company
or, in each case, to such other address or to the attention of such other person
as the recipient party shall have specified by prior written notice to the
sending party.
MISCELLANEOUS.
NO INCONSISTENT AGREEMENTS. THE COMPANY WILL NOT ENTER INTO ANY
AGREEMENT WHICH IS INCONSISTENT WITH OR VIOLATES THE RIGHTS GRANTED TO THE
HOLDERS OF REGISTRABLE SECURITIES IN THIS AGREEMENT.
REMEDIES. ANY PERSON HAVING RIGHTS UNDER ANY PROVISION OF THIS AGREEMENT
WILL BE ENTITLED TO ENFORCE SUCH RIGHTS SPECIFICALLY TO RECOVER DAMAGES CAUSED
BY REASON OF ANY BREACH OF ANY PROVISION OF THIS AGREEMENT AND TO EXERCISE ALL
OTHER RIGHTS GRANTED BY LAW. THE PARTIES HERETO AGREE AND ACKNOWLEDGE THAT MONEY
DAMAGES MAY NOT BE AN ADEQUATE REMEDY FOR ANY BREACH OF THE PROVISIONS OF THIS
AGREEMENT AND THAT ANY PARTY MAY IN ITS SOLE DISCRETION APPLY TO ANY COURT OF
LAW OR EQUITY OF COMPETENT JURISDICTION (WITHOUT POSTING ANY BOND OR OTHER
SECURITY) FOR SPECIFIC PERFORMANCE AND FOR OTHER INJUNCTIVE RELIEF IN ORDER TO
ENFORCE OR PREVENT VIOLATION OF THE PROVISIONS OF THIS AGREEMENT.
AMENDMENTS AND WAIVERS. EXCEPT AS OTHERWISE PROVIDED HEREIN, THE
PROVISIONS OF THIS AGREEMENT MAY BE AMENDED OR WAIVED ONLY UPON THE PRIOR
WRITTEN CONSENT OF THE COMPANY AND HOLDERS OF A 50% OF THE REGISTRABLE
SECURITIES.
WAIVER OF JURY TRIAL. THE PARTIES TO THIS AGREEMENT EACH HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION, OR CAUSE OF ACTION (I)
14
ARISING UNDER THIS AGREEMENT OR (II) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR
ANY OF THE TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY, OR OTHERWISE. THE
PARTIES TO THIS AGREEMENT EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION, OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A
JURY AND THAT THE PARTIES TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OF
A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
SUCCESSORS AND ASSIGNS. SUBJECT TO THE FOLLOWING SENTENCE, ALL COVENANTS
AND AGREEMENTS IN THIS AGREEMENT BY OR ON BEHALF OF ANY OF THE PARTIES HERETO
WILL BIND AND INURE TO THE BENEFIT OF THE RESPECTIVE SUCCESSORS AND ASSIGNS OF
THE PARTIES HERETO WHETHER SO EXPRESSED OR NOT. IN ADDITION, WHETHER OR NOT ANY
EXPRESS ASSIGNMENT HAS BEEN MADE, THE PROVISIONS OF THIS AGREEMENT WHICH ARE FOR
THE BENEFIT OF HOLDERS OF REGISTRABLE SECURITIES ARE ALSO FOR THE BENEFIT OF,
AND ENFORCEABLE BY, ANY TRANSFEREE OF REGISTRABLE SECURITIES IF: (I) SUCH HOLDER
AGREES IN WRITING WITH THE TRANSFEREE OR ASSIGNEE TO ASSIGN SUCH RIGHTS, AND A
COPY OF SUCH AGREEMENT IS FURNISHED TO THE COMPANY WITHIN TEN DAYS AFTER SUCH
ASSIGNMENT; (II) THE COMPANY IS, WITHIN TEN DAYS AFTER SUCH TRANSFER OR
ASSIGNMENT, FURNISHED WITH WRITTEN NOTICE OF (A) THE NAME AND ADDRESS OF SUCH
TRANSFEREE OR ASSIGNEE, AND (B) THE SECURITIES WITH RESPECT TO WHICH SUCH
REGISTRATION RIGHTS ARE BEING TRANSFERRED OR ASSIGNED; (III) AT OR BEFORE THE
TIME THE COMPANY RECEIVES THE WRITTEN NOTICE CONTEMPLATED BY CLAUSE (II) OF THIS
SENTENCE, THE TRANSFEREE OR ASSIGNEE AGREES IN WRITING WITH THE COMPANY TO BE
BOUND BY ALL OF THE PROVISIONS CONTAINED HEREIN; AND (IV) SUCH TRANSFER SHALL
HAVE BEEN MADE IN ACCORDANCE WITH THE APPLICABLE REQUIREMENTS OF THE PURCHASE
AGREEMENT.
SEVERABILITY. WHENEVER POSSIBLE, EACH PROVISION OF THIS AGREEMENT WILL
BE INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE AND VALID UNDER APPLICABLE LAW,
BUT IF ANY PROVISION OF THIS AGREEMENT IS HELD TO BE PROHIBITED BY OR INVALID
UNDER APPLICABLE LAW, SUCH PROVISION WILL BE INEFFECTIVE ONLY TO THE EXTENT OF
SUCH PROHIBITION OR INVALIDITY, WITHOUT INVALIDATING THE REMAINDER OF THIS
AGREEMENT.
COUNTERPARTS. THIS AGREEMENT MAY BE EXECUTED SIMULTANEOUSLY IN TWO OR
MORE COUNTERPARTS, ANY ONE OF WHICH NEED NOT CONTAIN THE SIGNATURES OF MORE THAN
ONE PARTY, BUT ALL SUCH COUNTERPARTS TAKEN TOGETHER WILL CONSTITUTE ONE AND THE
SAME AGREEMENT.
15
DESCRIPTIVE HEADINGS. THE DESCRIPTIVE HEADINGS OF THIS AGREEMENT ARE
INSERTED FOR CONVENIENCE ONLY AND DO NOT CONSTITUTE A PART OF THIS AGREEMENT.
GOVERNING LAW. THE CORPORATE LAW OF THE STATE OF DELAWARE SHALL GOVERN
ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS STOCKHOLDERS.
ALL OTHER PROVISIONS OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS OR CHOICE OF LAW OF THE STATE OF NEW
YORK OR ANY OTHER JURISDICTION WHICH WOULD RESULT IN THE APPLICATION OF THE LAW
OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
TIME OF THE ESSENCE; COMPUTATION OF TIME. TIME IS OF THE ESSENCE FOR
EACH AND EVERY PROVISION OF THIS AGREEMENT. WHENEVER THE LAST DAY FOR THE
EXERCISE OF ANY PRIVILEGE OR THE DISCHARGE OR ANY DUTY HEREUNDER SHALL FALL UPON
A SATURDAY, SUNDAY, OR ANY DATE ON WHICH BANKS IN NEW YORK CITY, NEW YORK ARE
AUTHORIZED TO BE CLOSED, THE PARTY HAVING SUCH PRIVILEGE OR DUTY MAY EXERCISE
SUCH PRIVILEGE OR DISCHARGE SUCH DUTY ON THE NEXT SUCCEEDING DAY WHICH IS A
REGULAR BUSINESS DAY.
* * * * *
16
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date first above written.
WILLIAMS CONTROLS
BY:
---------------------------------------
NAME:
---------------------------------------
TITLE:
---------------------------------------
AMERICAN INDUSTRIAL PARTNERS CAPITAL FUND III, L.P.
BY: AMERICAN INDUSTRIAL PARTNERS III, L.P.
ITS: GENERAL PARTNER
BY: AMERICAN INDUSTRIAL PARTNERS III CORPORATION
ITS: GENERAL PARTNER
BY:
---------------------------------------
NAME: KIRK R. FERGUSON
TITLE: AUTHORIZED PERSON
BY:
---------------------------------------
NAME: NATHAN L. BELDEN
TITLE: AUTHORIZED PERSON
DOLPHIN OFFSHORE PARTNERS, L.P.
BY:
---------------------------------------
NAME: PETER SALAS
TITLE:
EXHIBIT A
FORM OF JOINDER AGREEMENT
TO
REGISTRATION RIGHTS AGREEMENT
This Joinder Agreement (this "Joinder") is made as of the date written
below by and among the undersigned (the "JPPning Party"), Williams Controls,
Inc. And the holders of a majority of the Registrable Securities. Capitalized
terms used but not defined herein shall have the meanings given such terms in
the Registration Rights Agreement, dated as of July __, 2002 (the "Registration
Rights Agreement").
The parties hereto hereby acknowledge, agree and confirm that the
Joining Party will be deemed to be a party to the Registration Rights Agreement
as a "Security Owner" and shall have all of the rights, obligations and
privileges of a Security Owner thereunder as if he, she or it had executed the
Registration Rights Agreement. The Joining Party hereby ratifies, as of the date
hereof, and agrees to be bound by, all of the terms, provisions and conditions
contained in the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Joinder
Agreement to Registration Rights Agreement as of ___________ __, 20__.
____________________________________
[NAME]
WILLIAMS CONTROLS
BY:________________________________
NAME:
TITLE:
HOLDERS OF A MAJORITY OF REGISTRABLE
SECURITIES:
____________________________________
[NAME]
____________________________________
[NAME]
EXHIBIT B
FORM OF REGISTRATION RIGHTS AGREEMENT
FOR SERIES A-1 PREFERRED STOCK,
NON-REDEEMABLE CONVERTIBLE SERIES
EXHIBIT 12(d)(viii)
SHAREHOLDERS AGREEMENT
by and among
WILLIAMS CONTROLS, INC.
a Delaware corporation,
AMERICAN INDUSTRIAL PARTNERS
CAPITAL FUND III, L.P.
a Delaware limited partnership,
and the other parties listed
as signatories hereto
TABLE OF CONTENTS
Section 1. Defined Terms.................................................1
Section 2. "Tag-Along" Right With Respect to Sales by AIP................4
(a) Sales of Shares by AIP........................................4
(b) Notices.......................................................4
(c) Power of Attorney and Further Assurances......................5
(d) Number of Shares to be Sold...................................5
Section 3. "Bring-Along" Right...........................................6
(a) Sales by AIP..................................................6
(b) Notice........................................................6
(c) Power of Attorney.............................................6
(d) Effect of Bring-Along Sale....................................7
Section 4. Restrictions on Transfer......................................7
(a) Transfers of Shares and Series A-1 Shares.....................7
(b) Certificates..................................................7
(c) Transfers in Violation........................................8
Section 5. Restrictions on Purchase......................................8
(a) Purchases.....................................................8
(b) Purchases in Violation........................................8
Section 6. Voting Requirements...........................................8
(a) Voting........................................................8
(b) Power of Attorney and Proxy...................................8
Section 7. Right of First Offer..........................................9
(a) First Offer Right Notice......................................9
(b) Offered Stock Closing.........................................9
(c) Deliveries....................................................9
(d) Subsequent Transfers..........................................9
Section 8. INDEMNIFICATION...............................................9
Section 9. Miscellaneous................................................10
(a) Assignment, Binding Effect...................................10
(b) Amendments...................................................10
(c) Governing Law................................................10
(d) Interpretation...............................................10
(e) Notices......................................................10
(f) Waiver and Consent...........................................11
(g) Inspection...................................................12
(h) Counterparts.................................................12
(i) Invalidity...................................................12
(j) Term.........................................................12
i
SHAREHOLDERS AGREEMENT
This Shareholders Agreement (this "Agreement") is entered into as of
July __, 2002 (the "Funding Date"), by and among Williams Controls, Inc., a
Delaware corporation (the "Company"), American Industrial Partners Capital Fund
III, L.P., a Delaware limited partnership (together with its Affiliates, "AIP")
and the other persons who have executed this Agreement (or have otherwise agreed
to be bound by the provisions hereof by executing a Joinder Agreement in the
form attached hereto as Exhibit A (the "Joinder Agreement")) (the
"Co-Investors," and together with AIP, the "Holders"). Capitalized terms used
herein are defined in Section 1 hereof.
RECITALS
WHEREAS, the Company and certain Holders have entered into that certain
Series B Preferred Stock Purchase Agreement (the "Stock Purchase Agreement")
dated as of May 31, 2002, pursuant to which, subject to the terms and conditions
therein, AIP and certain Co-Investors shall acquire newly issued shares of the
Company's Series B Preferred Stock, 15% Redeemable Convertible Series, par value
$.01 per share ("Series B Preferred Stock");
WHEREAS, certain Co-Investors currently own capital stock of the
Company; and
WHEREAS, the execution and delivery of this Agreement is a condition to
certain Holders' purchase of such shares of Series B Preferred Stock pursuant to
the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the parties hereto
agree as follows:
Section 1. Defined Terms. As used in this Agreement, the following
capitalized terms shall have the following meanings:
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with such Person, whether by
ownership of voting securities, by contract or otherwise.
"Agreement" shall have the meaning set forth in the preface
hereof.
"AIP" shall have the meaning set forth in the preface hereof.
"AIP Offer Exercise Period" has the meaning set forth in Section
7(a) hereof.
"AIP Shares" means, as of any date of determination, the Shares
then held by AIP.
"Attorneys-in-Fact" shall have the meaning set forth in Section
2(c) hereof.
"Bring-Along Notice" shall have the meaning set forth in Section
3(b) hereof.
"Bring-Along Sale" shall have the meaning set forth in Section
3(a) hereof.
"Bring-Along Sale Date" shall have the meaning set forth in
Section 3(b) hereof.
"Bring-Along Shares" shall have the meaning set forth in Section
3(b) hereof.
"Change of Control" means any transaction, whether in a single
transaction or series of related transactions, pursuant to which a person or
group of related persons (a) acquires, whether by merger, stock purchase,
recapitalization, redemption, issuance of capital stock or otherwise, more than
fifty percent of the Common Stock on a fully-diluted basis, or (b) acquires
assets constituting all or substantially all of the assets of the Company and
its subsidiaries.
"Code" means the Internal Revenue Code of 1986, as amended, and
any reference to any particular Code section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"Co-Investor" shall have the meaning set forth in the preface
hereof.
"Co-Investor Shares" means (i) any Shares purchased or otherwise
acquired by any Holder, (ii) any other shares of Stock purchased or otherwise
acquired by any Holder, (iii) any capital stock or other equity securities
issued or issuable directly or indirectly with respect to the shares of Stock
referred to in clauses (i) and (ii) above by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization and (iv) any other shares of any class or
series of capital stock of the Company held by a Holder. As to any particular
shares constituting Co-Investor Shares, such shares shall cease to be
Co-Investor Shares when they have been (w) effectively registered under the
Securities Act and disposed of in accordance with the registration statement
covering them, (x) sold to the public through a broker, dealer or market maker
pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, (y) Transferred to a Proposed Purchaser pursuant to Section 2 or
3 hereof or (z) other than Shares, Transferred after the first to occur of the
third anniversary of the Funding Date and after a Change of Control.
"Common Stock" means the Company Common Stock and any other class
or series of authorized capital stock of the Company which is not limited to a
fixed sum or percentage of par or stated value in respect to the rights of the
holders thereof to participate in dividends or in the distribution of assets
upon any liquidation, dissolution or winding up of the Company.
"Company" shall have the meaning set forth in the preface hereof.
"Company Common Stock" shall mean the Company's Common Stock, par
value $.01 per share.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal law then in force.
"Exempt Transfer" means the sale or transfer by AIP of Shares (a)
to any of its Affiliates, (b) to any partner of AIP or (c) in a Public Offering.
"First Offer Right Notice" has the meaning set forth in Section
7(a) hereof.
2
"fully-diluted basis" means, as of any date of determination, the
number of shares of Common Stock outstanding plus (without duplication) all
shares of Common Stock issuable, whether at such time or upon the passage of
time or the occurrence of future events, upon the exercise, conversion or
exchange of all then-outstanding rights, warrants, options, convertible
securities, or exchangeable securities or indebtedness, or other rights,
exercisable for or convertible or exchangeable into, directly or indirectly,
Common Stock or securities exercisable for or convertible or exchangeable into
Common Stock, whether at the time of issuance or upon the passage of time or the
occurrence of some future event.
"Holders" has the meaning set forth in the preface hereof.
"Joinder Agreement" shall have the meaning set forth in the
preface hereof.
"Notice of Acceptance" has the meaning set forth in Section 7(a)
hereof.
"Offered Stock" has the meaning set forth in Section 7(a) hereof.
"Offered Stock Closing" has the meaning set forth in Section 7(b)
hereof.
"Participating Holder" shall have the meaning set forth in
Section 2(a) hereof.
"Permitted Transfers" means Transfers by a Co-Investor (a) to a
Proposed Purchaser pursuant to Section 2 or 3 hereof or (b) to any Affiliate of
such Co-Investor (so long as such Affiliate executes a Joinder Agreement).
"Person" means an individual, partnership, limited liability
company, joint venture, corporation, trust or unincorporated organization,
government or any department, agency or political subdivision thereof, or other
entity.
"Preferred Stock" means the Series B Preferred Stock and any
other class or series of authorized capital stock of the Company which is
limited to a fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in the distribution
of assets upon any liquidation, dissolution or winding up of the Company.
"Price" has the meaning set forth in Section 7(a) hereof.
"Proposed Purchaser" shall have the meaning set forth in Section
2(a) hereof.
"Public Offering" means the sale of shares of Common Stock (i)
to the public generally pursuant to a Registration Statement which has been
declared effective by the SEC (other than a registration statement on Form S-8,
Form S-4 or any other similar form) or (ii) sold to the public through a broker,
dealer or market maker pursuant to Rule 144 (or any similar provision then in
force) under the Securities Act.
"Sale Notice" shall have the meaning set forth in Section 2(b)
hereof.
"SEC" means the United States Securities and Exchange Commission.
3
"Securities Act" means the Securities Act of 1933, as amended
from time to time and the rules and regulations promulgated thereunder.
"Series A-1 Shares" means shares of the Company's Series A-1
Preferred Stock, Non-Redeemable Convertible Series.
"Series B Preferred Stock" shall have the meaning set forth in
the recitals hereof.
"Shares" means the shares of the Series B Preferred Stock.
"Stock" means the Common Stock and the Preferred Stock.
"Stock Purchase Agreement" shall have the meaning set forth in
the recitals hereof.
"Tag-Along Notice" shall have the meaning set forth in Section
2(b) hereof.
"transfer" has the meaning set forth in Section 2(a) hereof.
"Transfer" has the meaning set forth in Section 4(a) hereof.
"Transferring Holder" has the meaning set forth in Section 7(a)
hereof.
Section 2. "Tag-Along" Right With Respect to Sales by AIP.
(a) Sales of Shares by AIP. With respect to any proposed
transfer, sale or other disposition for value (collectively, a "transfer"),
other than pursuant to an Exempt Transfer, by AIP of more than five percent in
the aggregate over the term of this Agreement of the number of AIP Shares as of
the Funding Date to a Person (including the Company) (a "Proposed Purchaser"),
each Holder (a "Participating Holder") shall have the right and option to
participate in such transfer at the same price and upon the same terms and
conditions as AIP (other than any management or transaction fees payable to
AIP); provided, however, that each Participating Holder shall be required, to
the extent applicable, as a condition to being permitted to sell Shares pursuant
to this Section 2, (i) to transfer Shares in the same relative proportion as the
Shares AIP intends to transfer (i.e., if AIP intends to sell fifty percent of
its Shares, then any Participating Holder shall be required to transfer fifty
percent of its Shares), (ii) to make to the Proposed Purchaser the same
representations, warranties, covenants, indemnities and agreements as AIP makes
in connection with such transfer (except that in the case of representations and
warranties pertaining specifically to, or covenants made specifically by, AIP,
the Participating Holders shall make comparable representations and warranties
pertaining specifically to (and, as applicable, covenants by) such Persons), and
(iii) bear such Person's pro rata share (based on the number of Shares
transferred) of all liabilities to the Proposed Purchaser arising out of
representations, warranties and covenants (other than those representations,
warranties and covenants that pertain specifically to a given Person, who shall
bear all of the liability related thereto), indemnities or other agreements made
in connection with the transfer.
(b) Notices. AIP shall notify, or cause to be notified, each
other Holder in writing of each proposed transfer subject to the tag-along
rights in Section 2(a) above at least ten
4
business days prior to such transfer (the "Sale Notice"). Such Sale Notice shall
set forth: (i) the name and address of the Proposed Purchaser, and (ii) the
proposed amount of consideration and the material terms and conditions of the
transfer (if the proposed consideration is not cash, the notice shall describe
the terms of the proposed consideration). The tag-along right may be exercised
by any Holder by delivery of a written notice to AIP (the "Tag-Along Notice")
within ten business days following receipt of the Sale Notice specified in the
preceding sentence. The Tag-Along Notice shall state the number of Shares that
such Holder proposes to include in such transfer to the Proposed Purchaser. Upon
request by AIP, each Participating Holder shall deliver to AIP the certificate
or certificates representing the Shares to be sold or otherwise disposed of
pursuant to such transfer by such Holder, free and clear of all liens and
encumbrances and duly endorsed in blank or accompanied by duly executed forms of
assignment (with signatures guaranteed).
(c) Power of Attorney and Further Assurances. In connection with
the delivery of a Sale Notice pursuant to this Section 2, each Participating
Holder hereby makes, constitutes and appoints Kirk Ferguson and Nathan L. Belden
for so long as they remain Managing Directors of AIP or such other individual
designated by AIP (the "Attorneys-in-Fact") the true and lawful
attorneys-in-fact of such Holder, with full power of substitution and
re-substitution and with full power and authority, in the name and on behalf of
such Holder, to transfer the Shares pursuant to the terms of such transfer and
to execute any purchase agreement or other documentation required to consummate
such transfer. The powers granted herein (or in the Tag-Along Notices) will be
deemed to be coupled with an interest, will be irrevocable and will survive
death, incompetency or dissolution of any Holder. Each Holder further agrees to
execute and deliver any other documentation or power of attorney required to
consummate the transfer pursuant to this Section 2. Notwithstanding the
foregoing, if a Holder electing to exercise his, her or its "tag-along" rights
pursuant to this Section 2 does not agree to execute and deliver or does not
execute and deliver any documentation required by this Section or otherwise
reasonably requested by AIP or the Proposed Purchaser in connection with the
sale of Shares pursuant to this Section 2, such Holder shall not be entitled to
participate in the proposed transfer.
(d) Number of Shares to be Sold. If there are no Participating
Holders, then AIP may transfer such Shares on the terms and conditions no more
favorable to AIP than those stated in the Sale Notice at any time within 180
days after expiration of the ten-business day period for giving Tag-Along
Notices with respect to such transfer. Any such Shares not transferred by AIP
during such 180-day period will again be subject to the provisions of this
Section 2 upon a subsequent transfer. If there are one or more Participating
Holders, then AIP shall use reasonable efforts to obtain the agreement of the
Proposed Purchaser to the participation of the Participating Holders in any
contemplated transfer on the same terms and conditions. If the Proposed
Purchaser is unwilling or unable to acquire all of the Shares offered to be
transferred by AIP and the Participating Holders, then AIP may elect either to
cancel such proposed transfer or to allow each of it and the Participating
Holders to transfer the number of Shares equal to the product of (i) the
quotient determined by dividing the percentage of Shares then held by AIP or
such Participating Holder, as the case may be, by the aggregate percentage of
such Shares then held by AIP and all Participating Holders, multiplied by (ii)
the maximum number of such Shares that the Proposed Purchaser is willing to
purchase.
5
Section 3. "Bring-Along" Right.
(a) Sales by AIP. If AIP at any time from time to time seeks a
transfer (other than a transfer which would qualify as an Exempt Transfer) to a
Proposed Purchaser of any Shares, upon the request of AIP, each Holder will sell
to such Proposed Purchaser at the same price and upon the same terms and
conditions as AIP (other than any management or transaction fees payable to
AIP), the number of Shares equal to the product of the number of Shares then
held by such Holder multiplied by a fraction, the numerator of which is the
total number of Shares that AIP proposes for the Holders to transfer and the
denominator of which is the total number of Shares. Such transaction is
hereafter referred to as a "Bring-Along Sale." In a Bring-Along Sale, each
Participating Holder shall be required, to the extent applicable, (i) to make to
the Proposed Purchaser the same representations, warranties, covenants,
indemnities and agreements as AIP makes in connection with such transfer (except
that in the case of representations and warranties pertaining specifically to,
or covenants made specifically by, AIP, the Participating Holders shall make
comparable representations and warranties pertaining specifically to (and, as
applicable, covenants by) such Persons), and (ii) bear such Person's pro rata
share (based on the number of Shares transferred) of all liabilities to the
Proposed Purchaser arising out of representations, warranties and covenants
(other than those representations, warranties and covenants that pertain
specifically to a given Person, who shall bear all of the liability related
thereto), indemnities or other agreements made in connection with the transfer).
Each Holder will bear (A) such Person's own costs of any sale of Shares pursuant
to this Section 3, and (B) such Person's pro rata share (based on the number of
Shares transferred) of the reasonable costs of any sale of Shares pursuant to
this Section 3 to the extent such costs are incurred for the benefit of all
selling Holders and are not otherwise paid by the acquiring party.
(b) Notice. Prior to making any Bring-Along Sale, AIP shall, if
it determines that Holders should participate in such transfer, provide each
Holder with written notice (the "Bring-Along Notice") not less than ten business
days prior to the proposed date of the Bring-Along Sale (the "Bring-Along Sale
Date"). The Bring-Along Notice shall set forth: (i) the Shares to be transferred
by such Holder (the "Bring-Along Shares"), (ii) the name and address of the
Proposed Purchaser, (iii) the proposed amount and form of consideration to be
paid per Share and the material terms and conditions of the transfer, (iv) the
Bring-Along Sale Date and the date upon which the Holders shall deliver to AIP
the certificates or other documentation representing the Shares to be
transferred, and (v) that the Proposed Purchaser has been informed of the
Bring-Along Sale rights and has agreed to purchase all of the applicable shares.
Each Holder shall deliver to AIP the certificate or certificates (or other
documentation) representing the applicable Shares, free and clear of all liens
and encumbrances and duly endorsed in blank or accompanied by duly executed
forms of assignment (with signatures guaranteed), on or before the date set
forth in the Bring-Along Notice for such delivery.
(c) Power of Attorney. In connection with the delivery of a
Bring-Along Notice pursuant to this Section 3, each Holder hereby makes,
constitutes and appoints the Attorneys-in-Fact the true and lawful
attorneys-in-fact of such Holder, with full power of substitution and
re-substitution and with full power and authority, in the name and on behalf of
such Holder, to transfer such Shares pursuant to the terms of such transfer and
to execute any documentation required to consummate such transfer. The powers
granted herein will be deemed to be coupled with an interest, will be
irrevocable and will survive death, incompetency
6
or dissolution of any Holder. Each Holder further agrees to execute and deliver
any other documentation or power of attorney required to consummate the transfer
of such Shares.
(d) Effect of Bring-Along Sale. If a Holder receives its
proportionate share of the purchase price from a Bring-Along Sale, but has
failed to deliver certificates (or other documentation, if applicable)
representing its Shares as described in this Section 3, it shall have no voting
rights, shall not be entitled to any dividends or other distributions and shall
have no other rights or privileges granted to shareholders under law or this
Agreement with respect to such Shares.
Section 4. Restrictions on Transfer.
(a) Transfers of Shares and Series A-1 Shares. Prior to the first
to occur of (i) the third anniversary of the Funding Date or (ii) a Change of
Control, except for Permitted Transfers, each Co-Investor agrees not to,
directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate,
encumber or otherwise dispose of (any such act, sometimes referred to herein as
a "Transfer") any Shares or Series A-1 Shares without the prior written consent
of AIP and the Company. In addition, except for Permitted Transfers, each
Co-Investor agrees not to, directly or indirectly, Transfer any Shares except in
compliance with Section 7 hereof.
(b) Certificates. Certificates representing the Shares and the
Series A-1 Shares shall bear the following legends:
THE TRANSFER, SALE, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE IS RESTRICTED
BY THE SHAREHOLDERS AGREEMENT AMONG THE COMPANY AND CERTAIN OF
ITS SHAREHOLDERS, A COPY OF WHICH IS ON FILE AT THE OFFICE OF THE
COMPANY. THE COMPANY WILL FURNISH A COPY OF THE SHAREHOLDERS
AGREEMENT TO THE HOLDER OF THIS CERTIFICATE UPON REQUEST AND
WITHOUT CHARGE.
THE SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM
REGISTRATION THEREUNDER.
Whenever in the opinion of counsel reasonably satisfactory to the Company (which
opinion, unless waived by the Company, shall be delivered in writing to the
Company) the restrictions described in any legend set forth above cease to be
applicable to any Shares or Series A-1 Shares, the holder thereof shall be
entitled to receive from the Company, without expense to the holder, a new
certificate not bearing a legend stating such restriction.
7
(c) Transfers in Violation. Any attempt to Transfer any Shares or
Series A-1 Shares held by a Co-Investor which is not in compliance with this
Agreement shall be null and void, and neither the Company nor any transfer agent
shall give any effect in the Company's stock records to such attempted Transfer.
Section 5. Restrictions on Purchase
(a) Purchases. Each Co-Investor agrees not to, directly or
indirectly, purchase any shares of Stock, without the prior written consent of
the Company until the earlier of (i) the third anniversary of the Funding Date,
and (ii) a Change of Control; provided, however, that any Co-Investor may
directly or indirectly purchase any shares of Stock, without the prior written
consent of the Company, at any time so long as the average weekly closing bid
price of the Common Stock as listed on the over the counter bulletin board or
wherever the Common Stock then trades shall be greater than or equal to $1.00
for a period of at least twelve out of thirteen consecutive weeks ending no more
than ten days prior to the date such Co-Investor consummates such purchase.
(b) Purchases in Violation. Any attempt by a Co-Investor to
purchase any shares of Stock which is not in compliance with this Agreement
shall be null and void, and neither the Company nor any transfer agent shall
give any effect in the Company's stock records to such attempted purchase.
Section 6. Voting Requirements.
(a) Voting.
(i) From and after the Funding Date and until the date that is
the first anniversary of the Funding Date, each Co-Investor shall vote all of
its Shares and all of its Series A-1 Shares over which such Co-Investor has
voting control with AIP on all matters related to the election of the Board of
Directors of the Company only, and shall take all other necessary or desirable
actions within its control to effect such vote as reasonably requested by AIP.
(ii) From and after the Funding Date and until the date that is
the second anniversary of the Funding Date, each Co-Investor shall vote all of
its Shares over which such Co-Investor has voting control with AIP on all
matters related to the election of the Board of Directors of the Company only,
and shall take all other necessary or desirable actions within its control to
effect such vote as reasonably requested by AIP.
(iii) From and after the Funding Date and until the date on which
AIP no longer owns a majority of the Shares, each Co-Investor shall vote all of
its Shares over which such Co-Investor has voting control with AIP on all
matters, and shall take all other necessary or desirable actions within its
control to effect such vote as reasonably requested by AIP.
(b) Power of Attorney and Proxy. In connection with the voting
arrangement described in clause (a) above, each Holder hereby makes, constitutes
and appoints the Attorneys-in-Fact the true and lawful attorneys-in-fact, agent
and proxy of such Holder, with full power of substitution and re-substitution
and with full power and authority, in the name and on behalf of such Holder, to
attend meetings of stockholders of the Company held from time to time, or to
8
execute written consents in lieu of such meetings, in each case to vote as such
Holder is required pursuant to this Section 6. The powers granted herein will be
deemed to be coupled with an interest, will be irrevocable and will survive
death, incompetency or dissolution of any Holder. Each Holder further agrees to
execute and deliver any other documentation, power of attorney or proxy required
to evidence such vote.
Section 7. Right of First Offer.
(a) First Offer Right Notice. If at any time any of the
Co-Investors (each a "Transferring Holder") proposes to Transfer any Shares
(except for Permitted Transfers), then such Transferring Holder will, not fewer
than fifteen business days prior to making such Transfer, give notice (the
"First Offer Right Notice") to AIP specifying the number of Shares to be
Transferred (the "Offered Stock"), the price (the "Price") and the other terms
and conditions upon which such Transferring Holder proposes to Transfer such
Offered Stock. The First Offer Right Notice will constitute an irrevocable offer
to Transfer all of the Offered Stock to AIP at the Price and on the terms
specified in the First Offer Right Notice. AIP will have ten business days after
its receipt of the First Offer Right Notice (the "AIP Offer Exercise Period")
during which to notify the Transferring Holder in writing of its election to
purchase all or any portion of the Offered Stock (a "Notice of Acceptance").
(b) Offered Stock Closing. Upon the delivery of the Notice of
Acceptance, AIP and the Transferring Holder shall be firmly bound to consummate
the purchase and sale of the applicable Offered Stock in accordance with the
First Offer Right Notice, the Notice of Acceptance and the terms hereof. Subject
to the provisions hereof, within forty-five days after the Transferring Holder's
receipt of the Notice of Acceptance, AIP shall purchase, and the Transferring
Holder shall sell, the applicable Offered Stock at a mutually agreeable time and
place (the "Offered Stock Closing").
(c) Deliveries. At the Offered Stock Closing, the Transferring
Holder shall deliver to AIP, certificates representing the Offered Stock, free
and clear of any liens or encumbrances and duly endorsed in blank or accompanied
by duly executed forms of assignment, to be purchased by AIP, and AIP shall pay
to the Transferring Holder the purchase price for such Offered Stock by
cashier's or certified check or by wire transfer of immediately available funds
to an account designated by each such Transferring Holder.
(d) Subsequent Transfers. If AIP elects not to purchase all or
any portion of the Offered Stock in accordance with this Section 7, then the
Transferring Holder may Transfer all or such portion of the Offered Stock, at a
price which is not less than the Price and on other terms and conditions which
are not materially more favorable in the aggregate to any transferee thereof
than those specified in the First Offer Right Notice, but only to the extent
that such Transfer occurs within ninety days after expiration of AIP Offer
Exercise Period; so long as such transferee executes a Joinder Agreement. Any
Shares not Transferred within such 90-day period will be subject to the
provisions of this Section 7 upon subsequent Transfer.
Section 8. INDEMNIFICATION. EACH HOLDER HEREBY AGREES SEVERALLY AND JOINTLY
TO INDEMNIFY EACH ATTORNEY-IN-FACT AND HIS, HER OR ITS OFFICERS, EMPLOYEES,
AFFILIATES, CONTROLLING PERSONS,
9
AGENTS AND REPRESENTATIVES AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS FROM AND
AGAINST ALL LIABILITIES, DEMANDS, CLAIMS, ACTIONS AND EXPENSES (INCLUDING
WITHOUT LIMITATION ATTORNEYS' FEES AND EXPENSES) ASSERTED AGAINST OR INCURRED AS
A RESULT OF, ARISING OUT OF, RELATING TO, IN THE NATURE OF, OR CAUSED BY ACTS OR
OMISSIONS OF ANY ATTORNEY-IN-FACT OR ANY OF HIS, HER OR ITS OFFICERS, EMPLOYEES,
AFFILIATES, CONTROLLING PERSONS, AGENTS OR REPRESENTATIVES OR THEIR RESPECTIVE
SUCCESSORS OR ASSIGNS PURSUANT TO THIS AGREEMENT.
Section 9. Miscellaneous.
(a) Assignment, Binding Effect. Except as otherwise specifically
provided herein, this Agreement shall not be assignable by the parties hereto;
provided, that AIP may assign its rights and obligations to any of its
Affiliates or to any transferee of Shares in compliance with this Agreement.
Subject to the foregoing, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective legal representatives, heirs,
legatees, successors and permitted assigns.
(b) Amendments. Except as otherwise provided herein, no
amendment, modification or waiver of any provision of this Agreement shall be
effective against the Company or the Holders unless such amendment or waiver is
approved in writing by the Company, AIP and the Co-Investors holding a majority
in interest of the then-outstanding Shares on a fully-diluted basis.
(c) Governing Law. This Agreement shall be construed, interpreted
and the rights of the parties determined in accordance with the laws of the
State of Delaware (without reference to any choice of law rules that would
require the application of the laws of any other jurisdiction).
(d) Interpretation. The headings of the sections contained in this Agreement are
solely for the purpose of reference, are not part of the agreement of the
parties and shall not affect the meaning or interpretation of this Agreement.
Words used herein, regardless of the number and gender specifically used, shall
be deemed and construed to include any other number, singular or plural, and any
other gender, masculine, feminine or neuter, as the context requires. The
language used in this Agreement shall be deemed to be the language chosen by the
parties hereto to express their mutual intent, and no rule of strict
construction shall be applied against any party.
(e) Notices. Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by any party to the
other shall be in writing and delivered in person, by courier, by facsimile
transmission, by nationally recognized overnight delivery service or by
registered or certified mail, postage prepaid, return receipt requested, as
follows:
if to the Company:
Williams Controls, Inc.
14100 SW 72nd Avenue
10
Portland, OR 97224
Attention: Dennis Bunday
Fax: 503-624-3812
with a copy (which shall not constitute notice) to:
Davis Wright Tremaine, LLP
1300 SW Fifth Avenue, Suite 2300
Portland, OR 97201
Attention: James Waggoner
Fax: (503) 778-5299
if to any Co-Investor:
at the address set forth on his, her or its Joinder
Agreement
if to AIP:
c/o American Industrial Partners
551 Fifth Avenue, Suite 3800
New York, NY 10176
Attention: Kirk Ferguson
Facsimile: (212) 986-5099
with a copy (which shall not constitute notice) to:
Kirkland & Ellis
655 Fifteenth Street, N.W.
Washington, D.C. 20005
Attention: Robert G. Marks
Facsimile: (202) 879-5200
Any party may, from time to time, designate any other address to which any such
notice to it or him shall be sent. Any such notice shall be deemed to have been
delivered upon receipt.
(f) Waiver and Consent. No action taken pursuant to this
Agreement, including, without limitation, any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained herein. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as waiver of any
preceding or succeeding breach and no failure by any party to exercise any right
or privilege hereunder shall be deemed a waiver of such party's rights or
privileges hereunder or shall be deemed a waiver of such party's rights to
exercise the same at any subsequent time or times hereunder. Each party hereto,
in addition to being entitled to exercise all rights provided herein, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. Each party hereto agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
the provisions of this
11
Agreement and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(g) Inspection. Copies of this Agreement will be available for
inspection or copying by any party at the offices of the Company through the
Secretary of the Company.
(h) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to constitute one and the same agreement.
(i) Invalidity. In the event that any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement.
(j) Term. This Agreement shall terminate on the first day in
which there are no Shares outstanding; provided, however, that the
indemnification provisions of Section 8 shall survive the termination of this
Agreement indefinitely.
[SIGNATURE PAGES FOLLOW]
12
IN WITNESS WHEREOF, the parties hereto have executed this
Shareholders Agreement as of the date first above written.
WILLIAMS CONTROLS, INC.
By:
---------------------------------------
Name:
Title:
AMERICAN INDUSTRIAL PARTNERS CAPITAL FUND III, L.P.
By:
---------------------------------------
American Industrial Partners III, L.P.,
its general partner
By:
---------------------------------------
American Industrial Partners III
Corporation, its general partner
By:
---------------------------------------
Name: Kirk R. Ferguson
Title: Authorized Person
By:
---------------------------------------
Name: Nathan L. Belden
Title: Authorized Person
[BRADY]
By:
---------------------------------
Name:
Title:
Exhibit A
FORM OF JOINDER AGREEMENT
TO
SHAREHOLDERS AGREEMENT
This Joinder Agreement (this "Joinder") is made as of the date written
below by the undersigned (the "Joining Party") in favor of and for the benefit
of Williams Controls, Inc. and the other parties to the Shareholders Agreement,
dated as of July __, 2002 (the "Shareholders Agreement"). Capitalized terms used
but not defined herein shall have the meanings given such terms in the
Shareholders Agreement.
The Joining Party hereby acknowledges, agrees and confirms that, by his,
her or its execution of this Joinder, the Joining Party will be deemed to be a
party to the Shareholders Agreement as a "Co-Investor" and shall have all of the
obligations of a Co-Investor thereunder as if he, she or it had executed the
Shareholders Agreement. The Joining Party hereby ratifies, as of the date
hereof, and agrees to be bound by, all of the terms, provisions and conditions
contained in the Shareholders Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement to Shareholders Agreement as of ____________ __, 20__.
-------------------------------------
[Name]
Address:
----------------------------
----------------------------
----------------------------
Exhibit 12(d)(ix)
MANAGEMENT SERVICES AGREEMENT
-----------------------------
MANAGEMENT SERVICES AGREEMENT, as of July __, 2002, among
Williams Controls, Inc., a Delaware corporation (the "Company"), and American
Industrial Partners, a Delaware general partnership (collectively with any
designee, the "Advisor"). Capitalized terms used herein but not defined herein
have the meanings assigned thereto in that certain Series B Preferred Stock
Purchase Agreement, dated as of May 31, 2002, by and among the Company, American
Industrial Partners Capital Fund III, L.P. ("AIP III") and the other purchasers
named therein (the "Stock Purchase Agreement").
The Company desires for Advisor to provide certain ongoing
management and advisory services to the Company and its subsidiaries, and
Advisor is willing to provide such services subject to the terms and conditions
contained herein.
NOW, THEREFORE, for good and valuable consideration, the receipt
of which is hereby acknowledged, the parties hereto agree as follows:
Section 1. Services. During the term of this Agreement, Advisor
shall provide such advisory and management services to the Company and its
subsidiaries as the Board of Directors of the Company shall reasonably request
and Advisor shall agree to provide from time to time. The Company agrees that
Advisor shall have the right, but not the obligation, to act as sole advisor to
the Company and its subsidiaries with respect to significant business
transactions. Such services shall be performed at Advisor's offices or at such
other locations as Advisor shall reasonably determine.
Section 2. Compensation. In consideration of the services
previously provided and to be provided in accordance with Section 1, the Company
agrees to pay to Advisor:
(i) an advisory fee of $850,000 by wire transfer of immediately
available funds on the date hereof;
(ii) subject to the conditions precedent to liability set forth
in Section 3 below, an annual management fee ("Annual Fee"),
payable in quarterly installments in advance on January 1,
April 1, July 1 and October 1 (or the next succeeding
business day, if such day is not a business day) of each
year, commencing July 1, 2002 (each, a "Payment Date"),
equal to $400,000, plus 3% of any debt outstanding
(including accrued interest thereon) of the Company or its
subsidiaries as of the first day of the applicable quarterly
payment period which is owned or guaranteed by AIP III or
any of its affiliates; provided, that the Annual Fee shall
be reduced by 50% beginning the first day of any quarterly
-2-
period following the conversion of all shares of AIP III's
Preferred Stock into the Company's Common Stock; and
(iii) advisory and/or structuring fees in connection with
significant business transactions of the Company (including,
without limitation, acquisitions, investments and
financings) (collectively, each a "Transaction") in amounts
comparable for similarly situated companies.
Section 3. Billing as Condition Precedent to Liability;
Forfeiture. Notwithstanding anything in Section 2(ii) to the contrary, the
Company shall not owe the Annual Fee to Advisor, and such amount shall not in
any manner be payable, unless and until Advisor sends the Company a bill for
such amount. Advisor may send the Company multiple, partial bills for amounts
owed as of the same Payment Date; provided, that for the avoidance of doubt the
aggregate amount so billed shall not exceed the amount that would otherwise be
due under Section 2(ii). To the extent Advisor does not bill the Company for an
amount which but for this Section 3 would be owed as of a Payment Date within 24
months of such Payment Date, such amount shall be deemed irrevocably forfeited
by Advisor and the Company shall have no further obligation whatsoever to pay
such amount. Forfeiture of one installment (or partial installment) of the
Annual Fee shall not in any way affect any other installment (or partial
installment) of the Annual Fee which is billed within 24 months of its
applicable Payment Date.
Section 4. Reimbursement. Advisor and its affiliates shall be
entitled to reimbursement of all reasonable out-of-pocket expenses (including
travel, consultant and legal expenses) incurred in connection with the
performance of this Agreement (other than salary expenses and associated
overhead charges). The Company agrees to pay such amounts promptly, in no event
later than 30 days of request therefor.
Section 5. Indemnity; No Liability. In consideration of the
execution and delivery of this Agreement by Advisor, the Company hereby agrees
to indemnify, exonerate and hold each of Advisor and its affiliates, and each of
their respective partners, shareholders, affiliates, directors, officers,
fiduciaries, employees and agents and each of the partners, shareholders,
affiliates, directors, officers, fiduciaries, employees and agents of each of
the foregoing (collectively, the "Indemnitees") free and harmless from and
against any and all actions, causes of action, suits, losses, liabilities and
damages, and expenses in connection therewith, including without limitation
reasonable attorneys' fees and disbursements (collectively, the "Indemnified
Liabilities"), incurred by the Indemnitees or any of them as a result of, or
arising out of, or relating to the execution, delivery, performance, enforcement
or existence of this Agreement or the transactions contemplated hereby or
thereby, and will reimburse each Indemnitee for all Indemnified Liabilities as
they are incurred (and in no event later than 30 days after requested), except
for any such Indemnified Liabilities arising solely on account of such
Indemnitee's gross negligence or willful misconduct, and if and to the extent
that the foregoing undertaking may
-3-
be unenforceable for any reason, the Company hereby agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. None of the Indemnitees
shall be liable to the Company or any of their affiliates for any act or
omission suffered or taken by such Indemnitee that is not finally judicially
determined to constitute gross negligence or willful misconduct. The Company
shall not, without the prior written consent of the Advisor, settle, compromise,
consent to the entry of any judgment in or otherwise seek to terminate any
action, claim, suit or proceeding in respect of which indemnification may be
sought hereunder (whether or not any Indemnitee is a party thereto) unless such
settlement, compromise, consent or termination includes a full, complete and
unconditional release of each Indemnitee for any liabilities arising out of such
action, claim, suit or proceeding.
Section 6. Independent Contractor; No Joint Venture; Not
Broker/Dealer, Securities Underwriter or Placement Agent. The Advisor is
performing services hereunder as an independent contractor (and not as an agent,
representative or employee of the Company), and the Advisor is not and shall not
be deemed to be a co-venturer with, or partner of, the Company in any respect.
The parties acknowledge that Advisor is not a broker/dealer, securities
underwriter or placement agent and, accordingly, if a Transaction consists of a
public or private offering or other placement of securities, Advisor shall have
the right to act as a financial advisor pursuant to Section 2(iii), and such
investment banking firm(s) as the Company's Board of Directors may select shall
be engaged as underwriter(s) or placement agent(s).
Section 7. Governing Law; Submission to Jurisdiction. This
Agreement shall be governed by, and construed in accordance with, the laws of
the State of New York, without regard to conflicts of law principles.
Section 8. Termination. This Agreement may be terminated by
Advisor at any time by written notice to the Company. In addition, this
Agreement will terminate automatically as of the earlier of (a) the seventh
(7th) anniversary of the date of this Agreement and (b) the end of the fiscal
year in which AIP III and its affiliates own, directly or indirectly, less than
five million shares of the Common Stock of the Company on a fully diluted basis
(as such number is adjusted for stock splits, stock dividends and similar
events). Notwithstanding the foregoing, this Agreement shall always remain in
effect to the extent that any money is owed under Sections 2, 3 or 4 hereof, and
Sections 4, 6 and 10 hereof shall survive the termination of this Agreement.
Section 9. Payment Default. In the event that the Company is in
payment default with respect to any amounts due the Advisor under this Agreement
(after expiration of a 7 day grace period from the date due), such amounts (a)
shall accrue interest daily at a rate equal to the greater of (x) 15% per annum,
and (y) the dividend rate on the Preferred Stock in effect as of the due date
(in each case, compounding quarterly), and (b) shall be paid in full prior to
any payments being made to any class or series of preferred stock.
-4-
Section 10. Entire Agreement; Amendment. This Agreement
constitutes the entire agreement and understanding between the parties with
respect to the subject matter hereof. This Agreement may be amended or modified,
or any provision hereof may be waived, provided that such amendment or waiver is
set forth in a writing executed by the parties. No courses of dealing between or
among any persons having any interest in this Agreement will be deemed effective
to modify, amend or discharge any part of this Agreement or any rights or
obligations of any person under or by reason of this Agreement.
Section 11. No Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any party hereto
without the prior written consent of the other parties hereto; provided that
Advisor may assign all of its rights and obligations hereunder to any affiliate
of Advisor without the consent of the Company; and provided, further, that
Advisor may assign any or all of its rights hereunder, without the consent of
the Company (i) to any lender providing financing to Advisor or its affiliates
and (ii) in connection with any sale of all or substantially all of the assets,
capital stock or business of Advisor or the Company (whether effected by sale,
exchange, merger, consolidation or other transaction).
Section 12. Binding Effect. In the event of assignment of this
Agreement pursuant to Section 11 hereunder, this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their successors and
permitted assigns.
Section 13. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given by
personal delivery, by reputable overnight courier or by mail (registered or
certified mail, postage prepaid, return receipt requested) to the respective
parties as follows:
If to the Advisor:
c/o American Industrial Partners
551 Fifth Avenue, Suite 3800
New York, NY 10176
Telecopy: 212-986-5099
Telephone: 212-983-1399
Attention: Kirk Ferguson
with a copy to:
Kirkland & Ellis
655 Fifteenth Street, N.W.
Suite 1200
Washington, D.C. 20005
Telecopy: (202) 879-5200
Telephone: (202) 879-5127
-5-
Attention: Robert G. Marks
If to the Company:
Williams Controls, Inc.
14100 SW 72nd Avenue
Portland, OR 97224
Telecopy: (503) 624-3812
Telephone: (503) 670-3307
Attention: Dennis E. Bunday
or to such other address as any party hereto may, from time to
time, designate in a written notice given in like manner. Notices will be deemed
to have been given hereunder when delivered personally, five days after deposit
in the U.S. mail and one business day after deposit with a reputable overnight
courier service.
IN WITNESS WHEREOF, the parties hereto have executed this
Management Services Agreement on the date first written above.
WILLIAMS CONTROLS, INC.
By: _______________________
Name:
Title:
AMERICAN INDUSTRIAL PARTNERS
By: _______________________
Name:
Title:
By: _______________________
Name:
Title:
Exhibit 12(d)(x)
VOTING AGREEMENT
This VOTING AGREEMENT (this "Agreement"), is dated as of July 1, 2002, by
Taglich Brothers, Inc., a New York corporation ("Taglich") in favor of American
Industrial Partners Capital Fund III, L.P., a Delaware limited partnership
(together with its Affiliates, "AIP").
W I T N E S S E T H:
WHEREAS, as of the date hereof, Taglich is entitled to vote 66,180 shares of the
Series A Preferred Stock, 71/2% Redeemable Convertible Series of Williams
Controls, Inc. (the "Company") and 20,000 shares of Series B Preferred Stock,
15% Redeemable Convertible Series of the Company (collectively, the "Voting
Shares") by reason of voting proxies granted by the owners of such Voting Shares
to Taglich;
WHEREAS, the written consent of a majority of the Company's stockholders is
necessary to approve an amendment to the Company's Certificate of Incorporation
(the "Amendment") regarding the Company's express election not to be governed by
Section 203 of the Delaware General Corporation Law (the "DGCL"); and
WHEREAS, in connection with the Amendment, Taglich agrees to vote all of the
Voting Shares over which it has voting control in favor of the Amendment.
NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration given to each party hereto, the receipt and sufficiency of which
is hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO VOTE. Taglich hereby agrees that, during the time this
Agreement is in effect, it will vote (or cause to be voted) all of the Voting
Shares over which it has voting control, in favor of the Amendment.
2. TERMINATION.
2.1 TERMINATION OF THIS AGREEMENT. This Agreement shall (i)
terminate automatically on the termination of that certain Series B Preferred
Stock Purchase Agreement, dated as of May 31, 2002, between AIP, the Company and
certain other parties thereto (the "Stock Purchase Agreement") pursuant to
Section 9.1 thereof, and (ii) if not earlier terminated, be deemed satisfied in
full and terminated upon the adoption of the Amendment in accordance with
Section 203(b)(3) of the DGCL.
2.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement pursuant to Section 2.1, this Agreement shall become void and of no
effect with no liability on the part of any party hereto; provided, however that
no such termination shall relieve any party hereto from any liability for any
breach of this Agreement occurring prior to such termination; provided, further,
however that Section 4.5 shall not be void and the parties shall continue to be
liable in connection therewith.
3. REPRESENTATIONS AND WARRANTIES OF TAGLICH. Taglich hereby represents
and warrants to AIP as follows:
3.1 AUTHORIZATION; ENFORCEABILITY; NO BREACH. Taglich has the authority to
execute, deliver and perform this Agreement and the other documents and
instruments to be executed by it pursuant hereto. This Agreement constitutes a
valid and binding obligation of Taglich, enforceable in accordance with its
terms except to the extent that the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws of general application relating to or
affecting the enforcement of creditors' rights or by general principles of
equity. The execution and delivery by Taglich of this Agreement and the
fulfillment of and compliance with the respective terms hereof by Taglich do not
and shall not conflict with or result in a breach of the terms, conditions or
provisions of, constitute a default under, or result in a violation of, any
material agreement or instrument, or any order, judgment or decree to which
Taglich is subject.
4. MISCELLANEOUS.
4.1 FURTHER ASSURANCES. From time to time, at the request of AIP,
and without further consideration, Taglich shall execute and deliver such
additional documents and take all such further action as may be necessary or
desirable to consummate and make effective the transactions contemplated by this
Agreement.
4.2 ASSIGNMENT. Except for an assignment by AIP to one of its
affiliates or to another purchaser of the Company's Series B Preferred, this
Agreement shall not be assigned by operation of law or otherwise and shall be
binding upon and inure solely to the benefit of each party hereto. 4.3
AMENDMENTS. This Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by Taglich and AIP.
4.4 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, by facsimile
transmission or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to Taglich:
1370 Avenue of the Americas
31st Floor
New York, NY 10019
Attn: Douglas E. Hailey
Facsimile: (212) 265-4744
2
with a copy to:
Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Attn: Antonio Peguero, Jr.
Facsimile: (212) 541-1467
If to AIP:
551 Fifth Avenue, #3800
New York, NY 10176
Attention: Kirk R. Ferguson
Facsimile: (212) 986-5099
with a copy to:
Kirkland & Ellis
655 Fifteenth Street, N.W., Suite 1200
Washington, D.C. 20005
Attention: Robert G. Marks
Facsimile: (202) 879-5200
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
4.5 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without regard
to conflicts of law principles.
4.6 REMEDIES. Taglich recognizes and acknowledges that a breach
by it of any covenants or agreements contained in this Agreement will cause AIP
or its assignees to sustain irreparable injury and damages, for which money
damages would not provide an adequate remedy, and therefore Taglich agrees that
in the event of any such breach by, AIP or its assignee shall be entitled to the
remedy of specific performance of such covenants and agreements and injunctive
and other equitable relief.
4.7 COUNTERPARTS. This Agreement may be executed by facsimile and
in two or more counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one and the same Agreement.
4.8 DESCRIPTIVE HEADINGS. The descriptive headings used herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
4.9 SEVERABILITY. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be
3
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability will
not affect any other provision or portion of any provision in such jurisdiction,
and this Agreement will be reformed, construed and enforced in such jurisdiction
as if such invalid, illegal or unenforceable provision or portion of any
provision had never been contained herein.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
4
IN WITNESS WHEREOF, the parties hereto have caused this Voting Agreement to be
duly executed as of the day and year first above written.
TAGLICH BROTHERS, INC.
By:________________________________
Name: Douglas E. Hailey
Title:
ACKNOWLEDGED AND AGREED TO AS OF
THE DATE FIRST WRITTEN ABOVE:
AMERICAN INDUSTRIAL PARTNERS CAPITAL
FUND III, L.P.
By: American Industrial Partners III, L.P.
Its: General Partner
By: American Industrial Partners III Corporation
Its: General Partner
By: ______________________________
Name: Kirk R. Ferguson
Title: Authorized Person
By: ______________________________
Name: Nathan L. Belden
Title: Authorized Person
Exhibit 12(d)(xi)
July 1, 2002
Dolphin Offshore Partners, L.P.
Ladies and Gentlemen:
Dolphin Offshore Partners, L.P. ("Dolphin") is the holder of a 12% Secured
Subordinated Debenture (the "Debenture") issued by Williams Controls, Inc. (the
"Company"). Dolphin has executed a Joinder whereunder it has agreed to become a
Purchaser under the Series B Preferred Stock Purchase Agreement dated as of May
31, 2002 (the "Purchase Agreement"), between the Company, American Industrial
Partners Capital Fund III, L.P. and the purchasers named therein. Capitalized
terms not otherwise defined herein shall have the meanings set forth in the
Purchase Agreement.
This letter will reflect that Dolphin will exchange its Debenture for shares of
Series B Preferred of the Company to be issued to it under the Purchase
Agreement. The Company deliver a certificate for shares of Series B Preferred
against delivery of the original Debenture, and will pay accrued interest on the
Debenture as of the Closing Date by a wire transfer issued promptly following
Closing and delivery of the Original Debenture. The Company will also pay a
management fee to Dolphin Management, Inc. in the amount of $67,000 by a wire
transfer issued promptly following Closing.
If you are in agreement with the foregoing, please countersign this letter and
return it to me.
Very truly yours,
WILLIAMS CONTROLS, INC.
Dennis Bunday, Chief Financial Officer
AGREED:
DOLPHIN OFFSHORE PARTNERS, L.P.
By
-----------------------------
Title
--------------------------
EXHIBIT 12(d)(xii)
THIS SECURITY WAS ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT") AND APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM.
THIS SECURITY, AND PAYMENT AND ENFORCEMENT HEREOF, IS SUBJECT TO THE
TERMS AND PROVISIONS OF THAT CERTAIN SUBORDINATION AGREEMENT DATED AS
OF [APRIL __, 2000] BETWEEN WELLS FARGO CREDIT, INC. AND THE HOLDER
HEREOF AND ACKNOWLEDGED BY SUCH HOLDER, AS SUCH SUBORDINATION AGREEMENT
MAY BE AMENDED FROM TIME TO TIME.
WILLIAMS CONTROLS, INC.
Amended and Restated Subordinated Debenture Due ______________, 2004
No.____ US$_________
Williams Controls, Inc., a Delaware corporation (the "Issuer"), for
value received, hereby promises to pay to _______, or registered assigns (the
"Registered Holder"), the principal sum of (US$______) on __________, 20041 (the
"Maturity Date"), and to pay interest on the unpaid principal amount of this
Security (as defined below) as follows: (a) all interest that is accrued and
unpaid on this Security as of the Amendment Date (as defined below) shall be
paid on the first Interest Payment Date (as defined below) accruing after the
Amendment Date, and (b) all interest that has accrued since (i) the Amendment
Date or (ii) if later, the most recent Interest Payment Date to which interest
has been paid, quarterly, in arrears, on March 1, June 1, September 1 and
December 1 in each year, commencing on September 1, 2002 (each an "Interest
Payment Date") at the rate of (A) twelve percent per annum for the period
commencing on the Amendment Date, until and including the first anniversary of
the Amendment Date, and (B) fifteen percent per annum for the period commencing
on the date that is one day after the first anniversary of the Amendment Date
until the principal hereof is paid. Interest shall accrue on any overdue
principal and on any overdue installment of interest, which amount shall accrue
daily, from the date such amount is due hereunder through and including the date
such amount is paid at a rate of fifteen percent per annum (or, if less, the
highest rate of interest that may then lawfully be charged). The interest so
payable, and punctually paid, on any Interest Payment Date will be paid to the
person in whose name this Security is registered at the close of business on
February 15, May 15, August 15 or November 15 (whether or not a business day) as
the case may be (each a "Regular Record Date"), next preceding such Interest
Payment Date. Interest shall be computed on the basis of the actual number of
days elapsed and the actual number of days in the relevant period.
Principal of this Security shall be payable at the earliest of the
Maturity Date, the Redemption Date (as defined below), or the Acceleration Date
(as defined below) against surrender hereof at the principal executive offices
of the Issuer in the United States; provided, that subject to Section 1(d), the
Issuer may, at any time, prepay, without premium or penalty, all or any portion
of this Security (all such prepayments shall be applied first against accrued
but unpaid interest and then against principal).
- ----------
1 Maturity Date will be the second anniversary of the Amendment Date.
Payments of principal and of any interest on this Security shall be made in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of pubic and private debts. Payments of principal of
this Security (other than partial prepayments) shall be made against surrender
hereof, and payments of interest on this Security shall be made, in accordance
with the foregoing and subject to applicable laws and regulations, by check
mailed on or before the due date for such payment to the person entitled thereto
at such person's address appearing on the Security Register (as hereinafter
defined) or to such other address as the Registered Holder may have previously
given notice to the Issuer in writing. Interest shall accrue and be payable on
this Security through the earlier of the Maturity Date or the Redemption Date.
If the principal on this Security is accelerated, interest shall accrue and be
payable until the date of payment. The Issuer covenants that until this Security
has been delivered to it for cancellation, or monies sufficient to pay the
principal of and interest in this Security have been made available for payment
and paid, it will at all times maintain at its principal executive offices in
the United States an office or agency for the payment of the principal of and
interest on the Securities as herein provided.
1. Security.
(a) The Issuer previously issued securities designated as 7.5%
Convertible Subordinated Debentures Due March 31, 2003 (each, as amended or
reissued from time to time prior to the date hereof, an "Original Debenture")
pursuant to Debenture Placement Agreements dated as of April __, 2000, between
the Issuer and each subscriber named therein (the "Purchase Agreements"). The
Registered Holder is the owner of one such Original Debenture, and the Issuer
and the Registered Holder each hereby amend and restate such Original Debenture
in its entirety with this Security (this "Security" or this "Debenture")
effective as of ______, 2002 (the "Amendment Date"), and the Issuer and the
other registered holders have amended and restated their Original Debentures
with similar securities (the "Securities" or the "Debentures"). Accordingly, it
is expressly understood and acknowledged that from and after the Amendment Date
these Amended and Restated Subordinated Debentures Due __________, 2004, and not
the Original Debentures, are the sole evidence of the indebtedness owed by the
Issuer to the registered holders of the "Debentures" described in the Purchase
Agreements. Further, each registered holder, including the Registered Holder, on
behalf of itself and its successor and assigns, waives, or has waived, any
rights or claims against the Issuer pursuant to, under or in connection with the
Original Debentures, except to the extent such rights or claims are set forth in
the Securities. The obligations of the Issuer hereunder are not secured by any
mortgage, pledge, encumbrance, security agreement or other security device and
only the full faith and credit of the Issuer are pledged for the payment of all
principal and interest due under this Security. The Securities are joint and
several direct, unconditional and general obligations of the Issuer.
(b) The Securities will be subordinate and inferior to the
Issuer's existing secured debt, any future secured debt, and up to $5,000,000 of
principal amount of any unsecured debt outstanding at any time which the Issuer
may incur in the future and which the Issuer classifies as "senior" to the
Securities (collectively, "Senior Indebtedness"). The Issuer for itself, its
successors and assigns, covenants and agrees and each Registered Holder of this
Debenture, its successors and assigns, by its acceptance of this Debenture
likewise covenants and agrees, that to the extent provided below the payment of
the principal of and interest on this Debenture is hereby expressly subordinated
and junior in right of payment to the extent and in the manner hereinafter set
forth, to all Senior Indebtedness. From time to time, one or more holders of
this Security may enter into a separate subordination agreement (a
"Subordination Agreement") with a holder of Senior Indebtedness (an "Opt-Out
Senior Lender"). In the event that one or more holders of this Security enter
into a Subordination Agreement with an Opt-Out Senior Lender, the terms and
conditions of the Subordination Agreement shall govern as between the holder or
holders of this Security and the Opt-Out Senior Lender, and the terms and
conditions of Sections 1(b) through 1(k) of this Security shall not be
applicable and shall be inoperative as between the
-2-
holder or holders of this Security and the Opt-Out Senior Lender (without
prejudice to the rights of any other holder of Senior Indebtedness granted
pursuant to this Section 1).
(c) Upon the acceleration of any Senior Indebtedness or upon
the maturity of the entire principal amount of any Senior Indebtedness by lapse
of time, acceleration or otherwise, all such Senior Indebtedness which has been
so accelerated or matured shall first indefeasibly be paid in full before any
payment is made by the Issuer or any person acting on behalf of the Issuer on
account of any obligations evidenced by this Debenture.
(d) The Issuer shall not pay any principal portion of this
Debenture before the scheduled due date thereof or pay any interest payable
under this Debenture if there exists a Default or Event of Default (as such
terms are defined in the instruments evidencing Senior Indebtedness) with
respect to any Senior Indebtedness (hereinafter referred to as a "Blockage
Event").
(e) The Issuer shall have the right to pay any principal
portion of this Debenture before the scheduled due date thereof and shall resume
payment of interest payable under this Debenture and a Blockage Event shall be
deemed to have terminated:
(i) when such Default or Event of Default on Senior
Indebtedness, as applicable, is cured or waived;
(ii) when the Registered Holder hereof shall have
cured any such Default or Event of Default on Senior Indebtedness to
the extent such Default or Event of Default can be cured by payment of
money, which amount shall be added to the principal amount owing to the
Registered Holder pursuant to this Debenture; or
(iii) 180 days after the occurrence of such Default
or Event of Default, provided, that at the end of such 180 days, if any
of the following events exists or occurs, the Blockage Event shall
continue: (A) a Default in payment of any amount with respect to the
Senior Indebtedness; (B) an acceleration of the Senior Indebtedness; or
(C) the occurrence of an event of the type described below in
subsection 1(k) hereof, provided, further, that a Blockage Event with
respect to a single specified Default or Event of Default may be deemed
to occur only once for each 360 day period.
(f) At any time there exists a Blockage Event, (i) the Issuer
shall not, directly or indirectly, make any payment of any part of this
Debenture, (ii) the Registered Holder hereof shall not demand or accept from the
Issuer or any other person any such payment or cancel, set-off or otherwise
discharge any part of the indebtedness represented by this Debenture, and (iii)
neither the Issuer nor the Registered Holder hereof shall otherwise take or
permit any action prejudicial to or inconsistent with the priority position of
any holder of Senior Indebtedness over the Registered Holder of this Debenture.
(g) Any holder of Senior Indebtedness is hereby authorized to
demand specific performance of this Debenture, whether or not the Issuer shall
have complied with the provisions hereof applicable to it, at any time when the
Registered Holder hereof shall have failed to comply with any provision hereof
applicable to such Registered Holder. The Registered Holder hereby irrevocably
waives any defense based on the adequacy of a remedy at law which might be
asserted as a bar to the remedy of specific performance hereof in any action
brought therefor by any holder of Senior Indebtedness. The Registered Holder
further (i) waives presentment, demand, notice and protest in connection with
all negotiable instruments evidencing Senior Indebtedness, notice of any loan
made, extension granted or other action taken in reliance hereon and all demands
and notices of every kind in connection with this Debenture or Senior
Indebtedness; and (ii) assents to any renewal, extension or postponement of the
time
-3-
of payment of Senior Indebtedness or any other indulgence with respect thereto,
to any substitution, exchange or release of collateral therefor and to the
addition or release of any person primarily or secondarily liable thereon.
(h) No right of any holder of Senior Indebtedness to enforce
the subordination of the obligations shall be impaired by any act or failure to
act by the Issuer or the Registered Holder or by their failure to comply with
this Debenture or any other agreement or document evidencing, related to or
securing the obligations hereunder. Without in any way limiting the generality
of the preceding sentence, the holders of Senior Indebtedness may, at any time
and from time to time, without the consent of or notice to the Registered
Holder, without incurring responsibility to the Registered Holder and without
impairing or releasing the subordination provided in this Debenture or the
obligations of the Registered Holder hereof to the holders of Senior
Indebtedness, do any one or more of the following: (i) change the manner, place
or terms of payment of, or renew or alter, any Senior Indebtedness, or otherwise
amend or supplement in any manner, any Senior Indebtedness, or any instrument
evidencing the same or any agreement under which Senior Indebtedness is
outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing any Senior Indebtedness; (iii) release
any Person or entity liable in any manner for the collection of any Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Issuer or any other Person or entity.
(i) In the event that the Issuer shall make any payment or
prepayment to the Registered Holder on account of the obligations under this
Debenture which is prohibited by this Section 1, such payment shall be held by
the Registered Holder, in trust for the benefit of, and shall be paid forthwith
over and delivered to, the holders of Senior Indebtedness (pro rata as to each
of such holders on the basis of the respective amounts and priorities of Senior
Indebtedness held by them) to the extent necessary to pay all Senior
Indebtedness due to such holders of Senior Indebtedness in full in accordance
with its terms (whether or not such Senior Indebtedness is due and owing), after
giving effect to any concurrent payment or distribution to or for the holders of
such Senior Indebtedness.
(j) After all Senior Indebtedness indefeasibly is paid in full
and until the obligations under the Debenture are paid in full, the Registered
Holder shall be subrogated to the rights of holders of Senior Indebtedness to
the extent that distributions otherwise payable to the Registered Holder have
been applied to the payment of Senior Indebtedness. For purposes of such
subrogation, no payments or distributions to holders of such Senior Indebtedness
of any cash, property or securities to which the Registered Holder would be
entitled except for the provisions of this Section 1 and no payment over
pursuant to the provisions of this Section 1 to holders of such Senior
Indebtedness by the Registered Holder, shall, as between the Issuer, its
creditors other than holders of such Senior Indebtedness, and the Registered
Holder, be deemed to be a payment by the Issuer to or on account of such Senior
Indebtedness, it being understood that the provisions of this Section 1 are
solely for the purpose of defining the relative rights of the holders of such
Senior Indebtedness, on the one hand and the Registered Holder hereof, on the
other hand.
(k) In any insolvency, receivership, bankruptcy, dissolution,
liquidation or reorganization proceeding, or in any other proceeding, whether
voluntary or involuntary, by or against the Issuer under any bankruptcy or
insolvency law or laws relating to relief of debtors, to compositions,
extensions or readjustments of indebtedness:
(i) the claims of any holders of Senior Indebtedness
against the Issuer shall be paid indefeasibly in full in cash before
any payment is made to the Registered Holder;
-4-
(ii) until all Senior Indebtedness is indefeasibly
paid in full in cash any distribution to which the Registered Holder
would be entitled but for this Section 4 shall be made to holders of
Senior Indebtedness; and
(iii) the holders of Senior Indebtedness shall have
the right to enforce, collect and receive every such payment or
distribution and give acquittance therefor. In furtherance of the
foregoing, in the event that the Issuer shall file or have filed
against it a petition under any chapter or Title 11 of the United
States Code or any comparable statute, with the result that the Issuer
is excused from the obligation to pay all or any part of the amount
otherwise payable in respect of the Senior Indebtedness during the
period subsequent to the commencement of such proceedings, the
Registered Holder agrees that all or such part of such amount shall be
payable out of, and to that extent diminish and be at the expense of,
the Registered Holder's reorganization dividends or other distributions
in respect of any claim filed by it as a creditor or interest holder.
In the event the holders of Senior Indebtedness receive amounts in
excess of payment in full (cash) of amounts outstanding in respect of
Senior Indebtedness (without giving effect to whether claims in respect
of the Senior Indebtedness are allowed in any insolvency proceeding),
the holders of the Senior Indebtedness shall pay such excess amounts to
the Registered Holder.
2. Denominations. The Securities are issuable only in fully
registered form and in minimum authorized denominations of $1,000 and any
integral multiple of $1,000 in excess thereof.
3. Transfer.
(a) So long as any Securities remain Outstanding (as hereinafter
defined), the Issuer shall maintain at its principal executive offices in the
United States an office or agency where Securities may be presented or
surrendered for payment, where Securities may be surrendered for registration of
transfer or exchange, and where notices and demands to or upon the Issuer in
respect of the Securities may be served. The Issuer will at all times act as its
own security registrar and paying and transfer agent for such purposes and
agrees to cause to be kept at such office a register (the "Security Register")
in which, subject to such reasonable regulations as it may prescribe, the Issuer
will provide for the registration of Securities and registration of transfers of
Securities. As of the date this Security was originally issued, such principal
executive offices of the Issuer were located at 14100 SW 72nd Avenue, Portland,
Oregon 97224 (the "Principal Executive Offices"). The Issuer shall not change
the location of its Principal Executive Offices unless Issuer provides all
Registered Holders with no less than thirty (30) days prior written notice.
(b) The transfer of a Security is registrable on the Security
Register upon surrender of such Security at the principal executive offices of
Issuer duly endorsed by, or accompanied by a written instrument of transfer in
form reasonably satisfactory to the Issuer duly executed by the Registered
Holder thereof, or the Registered Holder's attorney duly authorized in writing,
together with any certifications and representations which Issuer may reasonably
require to reflect compliance with all applicable securities laws, rules and
regulations and the due authorization of the transaction. Upon such surrender of
this Security for registration of transfer, the Issuer shall execute and
deliver, in the name of the designated transferee or transferees, one or more
new Securities, dated the date of the execution thereof, of any authorized
denominations and of a like tenor, form and aggregate principal amount.
(c) At the option of the Registered Holder, upon request confirmed
in writing, Securities may be exchanged for Securities of any authorized
denominations and of a like tenor, form and aggregate principal amount upon
surrender of the Securities to be exchanged at the principal executive offices
of the Issuer. Whenever any Securities are so surrendered for exchange, the
Issuer shall execute
-5-
and deliver the Securities which the Registered Holder making the exchange is
entitled to receive. Any registration of transfer or exchange will be effected
only upon the Issuer being reasonably satisfied with the documents of title and
identity of the person making the request and subject to compliance with
applicable Federal and state securities laws.
(d) All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Issuer, evidencing
the same debt, and entitled to the same benefits, as the Securities surrendered
upon such registration of transfer or exchange. No service or other charges
shall be made for any registration of transfer or exchange, but the Issuer may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
(e) Prior to due presentment of this Security for registration of
transfer, the Issuer may treat the person in whose name this Security is
registered as the owner hereof for all purposes, whether or not this Security be
overdue, and the Issuer shall not be affected by notice to the contrary.
4. Payments When Banking Institutions are Closed. In any case
where the due date for the payment of the principal of or interest on any
Security shall be at any place of payment a day on which banking institutions
are authorized or obligated by law to close, then payment of principal or
interest, as the case may be, need not be made on such date at such place but
may be made on the next succeeding day at such place which is not a day on which
banking institutions are authorized or obligated by law to close, with the same
force and effect as if made on the date for such payment, and interest shall
accrue and be paid for the period through and including the date of payment.
5. Taxes.
(a) The Issuer shall pay all stamp and other duties and
taxes, if any, which may be imposed by the United States or any political
subdivision thereof, any state or any political subdivision thereof or any other
taxing authority with respect to the issuance of the Securities.
(b) Except as specifically provided in this Security, the
Issuer shall not be required to make any payment with respect to any tax,
assessment or other governmental charge imposed by any government or any
political subdivision or taxing authorities thereof or therein.
6. Representations and Warranties of the Issuer. The Issuer
represents and warrants to the Registered Holder as of the Amendment Date, as
follows:
(a) Issuer is a corporation duly organized, existing and
in good standing under the laws of its state of incorporation and has the
corporate power to conduct the business which it conducts and proposes to
conduct.
(b) The amendment and restatement of the Securities by
the Issuer has been duly approved by the Board of Directors of Issuer and all
other actions required to authorize and effect the amendment and restatement of
the Securities have been duly taken and approved.
(c) The amendment and restatement of the Securities has
been duly and validly authorized. The Securities are valid and binding
obligations of the Issuer enforceable in accordance with their respective terms.
(d) Issuer has obtained all licenses, permits and other
governmental authorizations necessary to the conduct of its business; such
licenses, permits and other governmental authorizations obtained are in full
force and effect; and Issuer is in all material respects complying therewith.
-6-
(e) Except as disclosed in the Issuer's Consent
Solicitation Memorandum in Respect of the Amendment of all Outstanding 7.5%
Convertible Subordinated Debentures Due March 31, 2003 (the "Memorandum"), the
Issuer knows of no pending or threatened legal or governmental proceedings to
which Issuer is a party which could materially adversely affect the business,
property, financial condition or operations of the Issuer.
(f) Except as disclosed in the Memorandum, the Issuer is
not in violation of or default under, nor will the execution and delivery of the
amendment to and restatement of the Securities and the incurrence of the
obligations herein or therein set forth and the consummation of the transactions
herein or therein contemplated, result in a violation of, or constitute a
default under the certificate of incorporation or by-laws, the performance or
observance of any material obligations, agreement, covenant or condition
contained in any bond, debenture, note or other evidence of indebtedness or in
any material contract, indenture, mortgage, loan agreement, lease, joint venture
or other agreements or instrument to which the Issuer is a party or by which it
or any of its properties may be bound or in violation of any material order,
rule, regulation, writ, injunction or decree of any government, governmental
instrumentality or court, domestic or foreign.
7. Covenants of the Issuer. Issuer hereby covenants and agrees
that for so long as any of the Securities shall remain Outstanding:
(a) it will duly and punctually pay the principal of and
any interest on the Securities in accordance with the terms hereof;
(b) it will do or cause to be done all things necessary
to preserve and keep in full force and effect its existence, rights (charters
and statutory) and franchises;
(c) it will cause all material properties used or useful
in the conduct of its business to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and will
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the reasonable judgment of Issuer may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that the
foregoing shall not prevent the Issuer from discontinuing the operation or
maintenance of any such properties if such discontinuance is, in the reasonable
judgment of Issuer, desirable in the conduct of its business or the business of
any of its subsidiaries, and not disadvantageous in any material respect to the
holders of Securities; and, provided, further, that the failure to comply
herewith shall not be deemed a breach hereof unless such failure would have a
material adverse effect on the business, financial condition or results of
operations of Issuer and its subsidiaries, taken as a whole (a "Material Adverse
Effect");
(d) it will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all taxes, assessments
and governmental charges levied or imposed upon the Issuer or upon the income,
profits or property of the Issuer, and (ii) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon the
property of the Issuer; provided, however, that the Issuer shall not be required
to pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings; and, provided, further, that the failure
to comply herewith shall not be deemed a breach if it would not have a Material
Adverse Effect;
(e) it shall furnish to each Registered Holder of
Securities a copy of all documents it is required to send to its shareholders at
the time the same are sent to shareholders, including, without limitation,
annual reports and proxy statements; as soon as it becomes aware of the same, it
shall give
-7-
written notice to each Registered Holder of Securities of any event or
occurrence which by itself or with notice or lapse of time or both would entitle
the holders of the Securities to declare the principal of and any interest on
the Securities immediately due and payable pursuant to Section 11 hereof;
(f) it will promptly obtain and maintain from time to
time all authorizations, permits, approvals, consents, licenses and exemptions
which are required under any applicable law or regulation to enable it to
perform all of its payment and other material obligations under the Securities
or which may be required for the validity or enforceability of the Securities;
provided, however, that the failure to obtain and maintain such authorizations,
permits, approvals, consents, licenses and exemptions as to material obligations
other than payment shall not constitute a breach of this provision unless such
non-compliance materially adversely affects the Issuer's ability to comply with
its obligations under the Securities;
(g) it will duly and punctually comply with and observe
all statutes now or hereafter in force and all ordinances, regulation and
by-laws thereunder and all requirements and orders of any government or other
public authority; provided, however, that any non-compliance with any such
statute, ordinance, regulation or by-law shall not constitute a breach of this
provision unless such non-compliance materially adversely affects the Issuer's
ability to comply with its obligations under the Securities;
(h) it shall permit any representative of any Registered
Holder or Holders of at least $250,000 aggregate principal amount of the
Securities to make inspections of, and to report on, the property of, and
business operations being carried out by, the Issuer or any of its subsidiaries;
(i) it shall maintain and keep in force with reputable
insurers and in adequate amounts, property, casualty, third party liability,
business interruption and all such other insurances as would prudently be
effected and maintained in the case of a company carrying on a business similar
to that of the Issuer;
(j) it shall not:
(i) declare or pay any cash dividends on its Common Stock
(as defined below) or purchase, redeem or otherwise acquire or retire for value
any shares of Common Stock (other than under the terms of the Issuer's stock
option plan); or
(ii) consolidate with or merge into any other Person,
where the Issuer is not the surviving corporation, or
convey, transfer, lease or otherwise dispose of all
or substantially all of its assets, except in
compliance with the terms and conditions set forth in
Section 8 below.
8. Change of Control.
(a) Subject to Section 1, in the event that there is a
"Change of Control Event" of the Issuer, the Issuer shall immediately notify
each holder hereof. Each holder may, within fifteen (15) days after written
notice from the Issuer, elect to accelerate the maturity date of the Debentures
owned by such holder to a date not less than 30 but not more than 45 days after
the date of such notice from Issuer ("Redemption Date").
(b) For purposes hereof, a "Change of Control Event"
shall be deemed to have occurred if any transaction, whether in a single
transaction or series of related transactions, pursuant to which a person or
group of related persons (x) acquires, whether by merger, stock purchase,
recapitalization, redemption, issuance of capital stock or otherwise, more than
fifty percent of the shares of Common Stock (as defined below) outstanding on a
"fully diluted basis" (except to the extent resulting from such person's or
group's ownership of Series B Shares (as defined below)), or (y) acquires assets
-8-
constituting all or substantially all of the assets of the Issuer and its
subsidiaries. "Common Stock" means, collectively, the Issuer's Common Stock, par
value $.01 per share, and any capital stock of any class of the Issuer hereafter
authorized which is not limited to a fixed sum or percentage of par or stated
value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Issuer. "Fully diluted basis" means, as of any date of
determination, the number of shares of Common Stock outstanding plus (without
duplication) all shares of Common Stock issuable, whether at such time or upon
the passage of time or the occurrence of future events, upon the exercise,
conversion or exchange of all then-outstanding rights, warrants, options,
convertible securities, or exchangeable securities or indebtedness, or other
rights, exercisable for or convertible or exchangeable into, directly or
indirectly, Common Stock or securities exercisable for or convertible or
exchangeable into Common Stock. "Series B Shares" means, collectively, shares of
the Issuer's Series B Preferred Stock, and any shares of Common Stock issued
upon conversion of shares of the Issuer's Series B Preferred Stock.
9. Issuance of New Securities.
(a) If any mutilated Security is surrendered to the
Issuer, the Issuer shall execute and deliver in exchange therefor a new Security
of like tenor and principal amount, bearing a number not contemporaneously
outstanding.
(b) If there is delivered to the Issuer (a) evidence to
its reasonable satisfaction of the destruction, loss or theft of any Security
and (b) such reasonable security or indemnity as may be required by it to save
it harmless, then, in the absence of notice to the Issuer that such Security has
been acquired by a bona fide purchaser, the Issuer shall execute and deliver in
lieu of any such destroyed, lost or stolen Security a new Security of like tenor
and principal amount and bearing a number not contemporaneously outstanding.
(c) Upon the issuance of any new Security under this
Section 9, the Issuer may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and any
other expenses connected therewith.
(d) Any new Security delivered pursuant to this Section 9
shall be so dated that neither gain nor loss in interest shall result from such
exchange.
(e) The provisions of this Section 9 are exclusive and
shall preclude (to the extent lawful) all other rights and remedies with respect
to the replacement or payment of mutilated, destroyed, lost or stolen
Securities.
10. Meetings.
(a) A meeting of holders of the Securities may be called
at any time and from time to time to make, give or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
the Securities to be made, given or taken by holders of Securities or to modify,
amend or supplement the terms of the Securities as hereinafter provided. Notice
of every meeting of holders of Securities, setting forth the time and the place
of such meeting and in general terms the action proposed to be taken at such
meeting, shall be given as provided for in the terms of the Securities, not less
than fifteen (15) nor more than sixty (60) days prior to the date fixed for the
meeting. Such meetings may be called at any time for any such purpose by the
Issuer or by the holders of at least twenty-five (25%) percent in the aggregate
principal amount of the Outstanding Securities by, in the case of the holders,
written request to the Issuer setting forth in reasonable detail the action
proposed to be taken at the meeting. Upon receipt of any such request, the
Issuer shall call such meeting for such purposes by giving notice thereof.
-9-
(b) To be entitled to vote at any meeting of holders of
Securities, a person shall be a registered holder of Outstanding Securities or a
person duly appointed by an instrument in writing as proxy for such a holder.
The persons entitled to vote more than fifty (50%) percent in principal amount
of the Outstanding Securities shall constitute a quorum. The Issuer may make
such reasonable and customary regulations as it shall deem advisable for any
meeting of holders of Securities with respect to the appointment of proxies in
respect of holders of Securities, the record date for determining the registered
owners of Securities who are entitled to vote at such meeting (which date shall
be set forth in the notice calling such meeting hereinabove referred to and
which shall be not less than fifteen (15) nor more than sixty (60) days prior to
such meeting), the adjournment and chairmanship of such meeting, the appointment
and duties of inspectors of votes, the submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall deem appropriate.
(c) At any meeting of holders of Securities duly called
and held as specified above, upon the affirmative vote, in person or by proxy
thereunto duly authorized in writing, of the Registered Holders of not less than
seventy-five (75%) percent in aggregate principal amount of Outstanding
Securities, or with the written consent of the Registered Holders of not less
than seventy-five (75%) percent in aggregate principal amount of Outstanding
Securities, the Issuer may modify, amend or supplement the terms of the
Securities in any way, and the holders of Securities may make, take or give any
request, demand, authorization, direction, notice, consent, waiver or other
action provided by the terms of the Securities to be made, given or taken by
holders of Securities; provided, however, that no such action may, without the
consent of Registered Holders of Securities owning ninety (90%) percent or more
in the aggregate principal amount of Outstanding Securities affected thereby,
(a) change the due date for the payment of the principal of or any installment
of interest on any Security, (b) reduce the principal amount of any Security,
the portion of such principal amount which is payable upon acceleration of the
maturity of such Security or the interest rate thereon, (c) change the coin or
currency in which or the required places at which payment with respect to
interest or principal in respect of Securities is payable, (d) permit the Issuer
to redeem the Securities (other than as specifically provided in this Security),
or (e) reduce the proportion of the principal amount of Securities the vote or
consent of the holders of which is necessary to modify, amend or supplement the
terms and conditions of the Securities or to make, take or give any request,
demand, authorization, direction, notice, consent, waiver or other action
provided hereby or thereby to be made, taken or given.
(d) Any instrument given by or on behalf of any
Registered Holder of a Security in connection with any consent to or vote for
any such modification, amendment, supplement, request, demand, authorization,
direction, notice, consent, waiver or other action will be irrevocable once
given and will be conclusive and binding on all subsequent holders of such
Security or any Security issued directly or indirectly in exchange or
substitution therefor or in lieu thereof. Any such modification, amendment,
supplement, request, demand, authorization, direction, notice, consent, waiver
or other action will be conclusive and binding on all holders of Securities,
whether or not they have given such consent or cast such vote, and whether or
not notation of such modification, amendment, supplement, request, demand,
authorization, direction, notice, consent, waiver or other action is made upon
the Securities. Notice of any modification or amendment of, supplement to, or
request, demand, authorization, direction, notice, consent, waiver or other
action with respect to the Securities shall be given to each registered holder
of Securities affected thereby, in all cases as provided herein.
(e) Securities executed and delivered after the
effectiveness of any such modification, amendment, supplement, request, demand,
authorization, direction, notice, consent, waiver or other action shall bear a
notation in the form reasonably approved by the Issuer as to any matter provided
for in such modification, amendment, supplement, request, demand, authorization,
direction, notice, consent, waiver or other action. New Securities modified to
conform to any such modification,
-10-
amendment, supplement, request, demand, authorization, direction, notice,
consent, waiver or other action may be prepared by the Issuer and executed and
delivered in exchange for Outstanding Securities.
(f) For purposes of the provisions of the Securities, any
Security executed and delivered by the Issuer shall, as of any date of
determination, be deemed to be "Outstanding", except:
(i) Securities theretofore canceled by the Issuer or
delivered to the Issuer for cancellation or held by the Issuer for
reissuance but not reissued by the Issuer; or
(ii) Securities that have become due and payable at
Maturity or otherwise and with respect to which monies sufficient to
pay the principal thereof and any interest thereon shall have been made
available to the Registered Holders thereof; or
(iii) Securities in lieu of or in substitution for
which other Securities shall have been authenticated and delivered
pursuant to the terms of the Securities;
provided, however, that in determining whether the Registered Holders
of the requisite principal amount of Outstanding Securities are present
at a meeting of holders of Securities for quorum purposes or have
consented to or voted in favor of any request, demand, authorization,
direction, notice, consent, waiver, amendment, modification or
supplement hereunder, Securities owned directly or indirectly by the
Issuer or any Affiliate of the Issuer shall be disregarded and deemed
not to be Outstanding.
11. Notice. Where the terms of the Securities provide for notice
to the holders of any event, such notice shall be sufficiently given if given in
writing and mailed, first class postage prepaid, to each Registered Holder
affected by such event, at his address as it appears in the register for the
Securities. Any notice may be waived in writing by the Person entitled thereto,
either before or after the event, and such waiver shall be equivalent of such
notice.
12. Events of Default. In the event of:
(a) default in the payment of any interest on any
Security for a period of ten (10) days after such payment is due and payable; or
(b) default in the payment of the principal of any
Security at Maturity; or
(c) the breach by the Issuer of any of the
representations and warranties set forth in Section 6 of the Securities; or
(d) default in the performance or breach of any other
material covenant or agreement contained in the Securities that has not been
cured within thirty (30) days after the date on which written notice of such
default requiring the Issuer to remedy the same and stating that such notice is
a "Notice of Default", shall first have been given to the Issuer by a Registered
Holder or Holder(s) owning fifteen (15%) percent or more of Securities; or
(e) default under one or more bonds, debentures, notes or
other evidence of Indebtedness in excess of $250,000 in the aggregate, whether
such Indebtedness is secured or unsecured and whether such Indebtedness now
exists or shall hereinafter be created, which has not been cured within a period
of thirty (30) days; or
-11-
(f) any misstatement of a material fact in the Memorandum
or omission of a material fact necessary to make the information in the
Memorandum not misleading (regardless of any investigation made by any
Registered Holders); or
(g) the entry by a court having jurisdiction of (i) a
decree or order for relief in respect of the Issuer in an involuntary case or
proceeding under any applicable bankruptcy, insolvency, reorganization or other
similar law or (ii) a decree or order adjudging the Issuer a bankrupt or
insolvent, or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Issuer under any
applicable law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Issuer or of any
substantial part of the property of the Issuer, or ordering the winding up or
liquidation of the affairs of the Issuer, and any such decree or order for
relief or any such other decree or order shall continue unstayed and in effect
for a period of sixty (60) consecutive days; or
(h) commencement by any Issuer of a voluntary case or
proceeding under any applicable bankruptcy, insolvency, reorganization or other
similar law or of any other case or proceeding to be adjudicated a bankrupt or
insolvent, or the consent by the Issuer to the entry of a decree or order for
relief in respect of the Issuer in an involuntary case or proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against the
Issuer, or the filing by the Issuer of a petition or answer or consent seeking
reorganization or relief under any such applicable law, or the consent by the
Issuer to the filing of such petition or to the appointment of or the taking
possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator
or other similar official of the Issuer or of any substantial part of its
property, or the making by the Issuer of an assignment for the benefit of
creditors, or the taking of action by the Issuer in furtherance of any such
action;
then a Registered Holder or Registered Holders owning fifteen (15%) percent or
more of the Securities may, at their option, declare the principal of this
Security and the interest accrued hereon to be due and payable immediately (such
date being the "Acceleration Date") by written notice to the Issuer at its
principal executive offices, and unless all such defaults shall have been cured
by the Issuer prior to receipt of such written notice, the principal of this
Security and the interest accrued thereon shall become and be immediately due
and payable.
13. Amendments and Modifications. In the event that any of the
terms of this Security are modified or amended, other than the date of issuance
and face value of this Security, at any time, the Issuer shall notify each
Registered Holder, in writing, of such modification(s) or amendment(s). Except
as provided in Section 10, each Registered Holder may accept all such terms, at
the sole discretion of such Registered Holder by providing written notice to the
Issuer within fifteen (15) days after having received such notification from the
Issuer. Except as provided in Section 10, if no such acceptance is received by
the Issuer within said fifteen (15) days, the term of this Security shall remain
unmodified by such modification(s) or amendment(s).
14. Governing Law; Jurisdiction. This Security shall be governed
by and construed in accordance with the laws of New York without regard to the
conflicts-of-laws principles thereof. The Issuer hereby irrevocably (a) submits
to the exclusive jurisdiction of, and agrees that any action, suit or other
proceeding at law, in equity or otherwise, shall only be brought in the Supreme
Court, New York County, or Federal District Court for the Southern District of
New York, for the purpose of any such suit, action or other proceeding arising
out of or based upon this Security or the transactions contemplated hereby
("Action"); (b) waives, to the extent not prohibited by applicable law, rule or
regulation, and agrees not to assert, by way of motion, as a defense or
otherwise, in any such Action, any claim that any such person is not subject
personally to the jurisdiction of the aforementioned courts, that its property
-12-
is exempt or immune from attachment or execution, that any such action brought
in the aforementioned court is brought in an inconvenient forum, that the venue
of any such action brought in the aforementioned court is improper, or that this
Security, or the transactions contemplated hereby enforced in or by such court,
and (c) consents to service of process in any such Action by recognized
overnight courier service. Nothing herein shall affect the right to serve
process in any other manner permitted by law.
15. Definitions. The following terms shall have the meaning
ascribed to them below:
"Affiliate" means any Person directly or indirectly controlling,
controlled by or under direct or indirect control with another Person.
"Contingent Obligations", as applied to any Person, means any direct or
indirect liability, contingent or otherwise, of that Person (i) with respect to
any Indebtedness, lease, dividend or other obligation of another if the primary
purpose or intent thereof by the Person incurring the Contingent Obligation is
to provide assurance to the obligee of such obligation of another that such
obligation of another will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such obligation
will be protected (in whole or in part) against loss in respect thereof, (ii)
with respect to any letter of credit issued for the account of that person,
unpaid bankers' acceptances, bankers' assurances or guarantees or similar items,
or (iii) under any Interest Rate Protection Agreement or any long-term foreign
currency exchange contract, currency swap agreement, currency futures contract,
currency option contract, synthetic capital or similar arrangement designed to
protect the Person entering into the same against fluctuations in currency
values. Contingent Obligations shall include, without limitation, (A) the direct
or indirect guaranty, endorsement, co-making, discounting with recourse or sale
with recourse by such Person of the obligation of another, (B) the obligation to
make take-or-pay or similar payments if required regardless of non-performance
by any other party or parties to an agreement, and (C) any liability of such
Person for the obligations of another through any agreement (contingent or
otherwise) (x) to purchase, repurchase or otherwise acquire such obligation or
any security therefor, or to provide funds for the payment or discharge of such
obligation (whether in the form of loans, advances, stock purchases, capital
contributions or otherwise), (y) to maintain the solvency, any balance sheet
item, level of income or financial condition of another, or (z) to make
take-or-pay or similar payments if required regardless of non-performance by any
other party or parties to an agreement (provided, that in the case of any
agreement described under Sub-clauses (C)(x) or (C)(y) of this sentence, the
primary purpose or intent thereof is as described in the preceding sentence).
The amount of any Contingent Obligation of a Person shall be equal to the amount
of the obligation so guaranteed or otherwise supported, subject to any
limitation as to amount contained in the instrument or agreement creating or
evidencing such Contingent Obligation; or in the case of Contingent Obligations
referred to in clause (iii) above, the mark-to-market value of such Contingent
Obligation at the relevant date of determination.
"Control" means possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"Indebtedness" of any Person means, at any date of determination,
without duplication, (i) all obligations of such Person for borrowed money, (ii)
that portion of obligations with respect to capital leases that is properly
classified as a liability on a balance sheet of such Person in conformity with
GAAP, (iii) notes payable and drafts accepted of such Person representing
extensions of credit whether or not representing obligations for borrowed money,
(iv) any obligation of such Person owed for all or any part of the deferred
price of the property or services, which price or obligation is (x) due more
than (or has not been discharged prior to) three (3) months from the date of
incurrence of the obligation in respect thereof,
-13-
or (y) evidenced by a note, instrument or other written agreement, (v) all
Contingent Obligations of such Person, and (vi) all indebtedness of the type
described in clauses (i) through (v) above that is secured by any Lien on any
property or asset owned or held by such person (provided, that the amount of
such indebtedness included as Indebtedness under this clause (vi) shall not
exceed the market value of the property or asset subject to such Lien).
"Lien" means any mortgage, pledge, hypothecation, security interest,
encumbrance, charge or lien (statutory or otherwise) or assignment, deposit
arrangement or other preferential arrangement in respect of an interest in
property intended to secure, support or otherwise assure payment of an
obligation (including, without limitation, any conditional sale or other title
retention agreement and any lease having substantially the same economic effect
as the foregoing).
"Maturity" when used with respect to any Security, means the date on
which the principal of such Security or an installment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
declaration or acceleration, call for redemption or otherwise.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether Federal,
state, county, city, municipal or otherwise, including without limitation, any
instrumentality, division, agency, body or department thereof).
"Stated Maturity" when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
-14-
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed and it corporate seal to be affixed hereto.
WILLIAMS CONTROLS, INC.
By:
-----------------------
Name:
Title:
Dated: _____, 2002 [SEAL]
EXHIBIT 12(d)(xiii)
AMENDED AND RESTATED CREDIT AGREEMENT
among
WILLIAMS CONTROLS, INC.
AGROTEC WILLIAMS, INC.
APTEK WILLIAMS, INC.
WMCO-GEO, INC.
HARDEE WILLIAMS, INC.
KENCO/WILLIAMS, INC.
NESC WILLIAMS, INC.
PREMIER PLASTIC TECHNOLOGIES, INC.
PROACTIVE ACQUISITION CORPORATION
WACCAMAW WHEEL WILLIAMS, INC.
WILLIAMS CONTROLS INDUSTRIES, INC.
WILLIAMS TECHNOLOGIES, INC.
WILLIAMS WORLD TRADE, INC.
WILLIAMS AUTOMOTIVE, INC.
and
TECHWOOD WILLIAMS, INC.
as Borrowers
and
WELLS FARGO CREDIT, INC.,
as Lender
TOTAL COMMITMENT -- $12,200,000
JULY 1, 2002
[
CONTENTS
ARTICLE I. DEFINITIONS............................................1
1.1 DEFINED TERMS..........................................1
1.2 ACCOUNTING AND FINANCIAL DETERMINATIONS................19
1.3 HEADINGS...............................................19
1.4 ADDITIONAL DEFINITION PROVISIONS.......................19
ARTICLE II. APPOINTMENT OF BORROWERS' AGENT; JOINT AND
SEVERAL LIABILITY......................................19
2.1 APPOINTMENT OF AGENT...................................19
2.2 AUTHORIZED REPRESENTATIVES.............................20
2.3 JOINT AND SEVERAL LIABILITY; RIGHTS OF
CONTRIBUTION...........................................20
ARTICLE III. THE CREDITS............................................22
3.1 REVOLVING LOANS........................................22
3.2 TERM LOANS.............................................24
3.3 INTEREST/FEES..........................................24
3.4 INTEREST OPTIONS.......................................25
3.5 OTHER PAYMENT TERMS....................................26
3.6 CHANGE OF CIRCUMSTANCES................................26
3.7 TAXES ON PAYMENTS......................................28
3.8 FUNDING LOSS INDEMNIFICATION...........................28
ARTICLE IV. COLLECTION AND ADMINISTRATION..........................29
4.1 LOCKBOX AND CASH COLLATERAL ACCOUNT....................29
4.2 STATEMENTS.............................................29
4.3 PAYMENTS...............................................29
PAGE i
ARTICLE V. SECURITY...............................................30
5.1 GRANT OF SECURITY INTEREST.............................30
5.2 PERFECTION; DUTY OF CARE...............................30
5.3 REAL ESTATE SECURITY; RELEASE..........................31
ARTICLE VI. REPRESENTATIONS AND WARRANTIES.........................31
6.1 LEGAL STATUS; SUBSIDIARIES.............................31
6.2 DUE AUTHORIZATION; NO VIOLATION........................32
6.3 GOVERNMENT APPROVAL, REGULATION........................32
6.4 VALIDITY; ENFORCEABILITY...............................32
6.5 CORRECTNESS OF FINANCIAL STATEMENTS....................32
6.6 TAXES..................................................33
6.7 LITIGATION, LABOR CONTROVERSIES........................33
6.8 TITLE TO PROPERTY, LIENS...............................33
6.9 ERISA COMPLIANCE.......................................33
6.10 OTHER OBLIGATIONS......................................34
6.11 ENVIRONMENTAL MATTERS..................................34
6.12 NO BURDENSOME RESTRICTIONS; NO DEFAULTS................34
6.13 NO OTHER VENTURES......................................34
6.14 INSURANCE..............................................35
6.15 FORCE MAJEURE..........................................35
6.16 INTELLECTUAL PROPERTY..................................35
6.17 CERTAIN INDEBTEDNESS...................................35
6.18 SOLVENCY...............................................35
6.19 CHIEF EXECUTIVE OFFICE AND OTHER LOCATIONS.............36
6.20 FISCAL YEAR............................................36
PAGE ii
6.21 COMPLIANCE WITH LAW....................................36
6.22 NO SUBORDINATION.......................................36
6.23 TRUTH, ACCURACY OF INFORMATION.........................36
6.24 RIGHTS TO PAYMENT......................................36
6.25 SUBORDINATION OF CONVERTIBLE DEBT......................37
ARTICLE VII. CONDITIONS.............................................37
7.1 CONDITIONS OF INITIAL EXTENSION OF CREDIT..............37
7.2 CONDITIONS OF EACH EXTENSION OF CREDIT.................38
ARTICLE VIII. AFFIRMATIVE COVENANTS..................................39
8.1 PAYMENTS...............................................39
8.2 ACCOUNTING RECORDS.....................................39
8.3 INFORMATION AND REPORTS................................39
8.4 COMPLIANCE.............................................41
8.5 INSURANCE..............................................41
8.6 FACILITIES.............................................42
8.7 TAXES AND OTHER LIABILITIES............................42
8.8 LITIGATION.............................................42
8.9 NOTICE TO LENDER.......................................43
8.10 CONDUCT OF BUSINESS....................................43
8.11 PRESERVATION OF CORPORATE EXISTENCE, ETC...............43
8.12 ACCESS.................................................43
8.13 PERFORMANCE AND COMPLIANCE WITH OTHER
CONTRACTUAL OBLIGATIONS................................44
8.14 FISCAL YEAR; ACCOUNTING PRACTICES......................44
8.15 ENVIRONMENTAL..........................................44
8.16 LIENS..................................................45
PAGE iii
8.17 FUTURE SUBSIDIARIES....................................45
8.18 USE OF PROCEEDS........................................45
8.19 COMPLIANCE WITH ERISA..................................45
8.20 FURTHER ASSURANCES.....................................45
ARTICLE IX. NEGATIVE COVENANTS.....................................46
9.1 LIENS..................................................46
9.2 INDEBTEDNESS...........................................46
9.3 RESTRICTED PAYMENTS, REDEMPTIONS.......................46
9.4 MERGERS, STOCK ISSUANCES, SALE OF ASSETS, ETC..........47
9.5 INVESTMENTS............................................47
9.6 CHANGE IN NATURE OF BUSINESS...........................48
9.7 ERISA..................................................48
9.8 CANCELLATION OF INDEBTEDNESS OWED TO IT................48
9.9 MARGIN REGULATIONS.....................................48
9.10 ENVIRONMENTAL..........................................48
9.11 TRANSACTIONS WITH AFFILIATES...........................48
9.12 NEW COLLATERAL LOCATION; NAME CHANGE...................49
9.13 NO SPECULATIVE TRANSACTIONS............................49
ARTICLE X. FINANCIAL COVENANTS....................................49
10.1 MINIMUM ADJUSTED BOOK NET WORTH........................49
10.2 NET INCOME.............................................49
10.3 DEBT SERVICE COVERAGE RATIO............................50
10.4 CAPITAL EXPENDITURES...................................50
10.5 REVISED FINANCIAL COVENANTS............................50
10.6 GAAP CHANGES...........................................50
PAGE iv
ARTICLE XI. EVENTS OF DEFAULT......................................51
11.1 EVENTS OF DEFAULT......................................51
11.2 REMEDIES...............................................53
11.3 LENDER AS BORROWERS' ATTORNEY..........................55
11.4 EXCEPTIONS.............................................56
ARTICLE XII. MISCELLANEOUS..........................................56
12.1 NOTICES................................................56
12.2 COSTS, EXPENSES, ATTORNEYS' FEES.......................56
12.3 INDEMNIFICATION........................................57
12.4 SUCCESSORS AND ASSIGNS.................................58
12.5 SETOFF.................................................58
12.6 NO WAIVER; CUMULATIVE REMEDIES.........................58
12.7 ENTIRE AGREEMENT.......................................59
12.8 NO THIRD PARTY BENEFICIARIES...........................59
12.9 TIME...................................................59
12.10 SEVERABILITY OF PROVISIONS.............................59
12.11 GOVERNING LAW..........................................59
12.12 SUBMISSION TO JURISDICTION.............................59
12.13 WAIVER OF JURY TRIAL...................................60
12.14 COUNTERPARTS...........................................60
12.15 CONSENTS...............................................60
12.16 OREGON STATUTORY NOTICE................................60
PAGE v
EXHIBITS
A Borrowing Base Certificate
B Note Forms
C Notice of Authorized Representatives
D Notice of Borrowing
E Notice of Conversion or Continuation
F Closing Date Contingent Obligations
G Form of Chief Financial Officer's Certificate
PAGE vi
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of July
1, 2002 by and among WILLIAMS CONTROLS, INC. a Delaware corporation ("Parent"),
AGROTEC WILLIAMS, INC., a Delaware corporation, APTEK WILLIAMS, INC., a Delaware
corporation, WMCO-GEO, INC., a Florida corporation, HARDEE WILLIAMS, INC., a
Delaware corporation, KENCO/WILLIAMS, INC., a Delaware corporation, NESC
WILLIAMS, INC., a Delaware corporation, PREMIER PLASTIC TECHNOLOGIES, INC., a
Delaware corporation, PROACTIVE ACQUISITION CORPORATION, a Michigan corporation,
WACCAMAW WHEEL WILLIAMS, INC., a Delaware corporation, WILLIAMS CONTROLS
INDUSTRIES, INC., a Delaware corporation, WILLIAMS TECHNOLOGIES, INC., a
Delaware corporation, WILLIAMS WORLD TRADE, INC., a Delaware corporation,
WILLIAMS AUTOMOTIVE, INC., a Delaware corporation, TECHWOOD WILLIAMS, INC., a
Delaware corporation,(each of the foregoing parties, including Parent,
individually referred to as "Borrower" and all collectively referred to as
"Borrowers") and WELLS FARGO CREDIT, INC. ("Lender").
RECITALS
Borrowers and Lender are parties to that certain Credit Agreement dated
July 11, 1997 (as amended, the "Existing Credit Agreement"). The parties desire
to make certain changes to the Existing Credit Agreement and have decided, for
ease of reference, to amend and restate the Existing Credit Agreement in its
entirety.
NOW, THEREFORE, in consideration of the mutual covenants and promises
of the parties contained herein, Borrowers and Lender hereby agree as follows:
ARTICLE I. DEFINITIONS
1.1 DEFINED TERMS
All terms defined above shall have the meanings set forth above. The
following terms shall have the meanings set forth below (with all such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"Accounts" means (i) all "accounts" as defined in the UCC and (ii) all
presently existing and hereafter arising rights to payment of a monetary
obligation, whether or not earned by performance.
"Active Borrower" means any one of Parent, Aptek Williams, Inc., NESC
Williams, Inc., ProActive Acquisition Corporation and Williams Controls
Industries, Inc.
"Adjusted Book Net Worth" means the total of Parent's shareholders'
equity plus the following to the extent included in determining Parent's
shareholders' equity: (i) the
1
cumulative amount of transaction costs expensed or amortized in relation to the
AIP Transactions that reduced Parent's shareholders' equity, stay bonuses not to
exceed $300,000, any severance costs and any Management Fees; (ii) an amount
required such that the net effect to Parent's shareholders' equity of the
exchange of Series A Preferred Stock for Series A-1 Preferred Stock occurring on
or around the Closing Date is zero (iii) any non-cash dividends and (iv) any
other non-cash charges (excluding depreciation) incurred after May 31, 2002 and
less the following to the extent included in determining Parent's shareholders'
equity: (a) any income recognized after May 31, 2002 from escrow proceeds or
extinguishment of debt; and (b) the amount of equity contributed to Parent on or
about the Closing Date in connection with the AIP Transactions and repayment of
the Indebtedness referenced in Section 7.1(a)(vii).
"Agreement" means this Amended and Restated Credit Agreement as
amended, modified or supplemented from time to time.
"AIP" means American Industrial Partners Capital Fund III, L.P.
"AIP Transactions" means the transactions contemplated by that certain
Series B Preferred Stock Purchase Agreement among AIP, Parent and certain other
purchasers named therein dated May 31, 2002, including without limitation (i)
the exchange of the Series A Preferred Stock for the Series A-1 Preferred Stock,
(ii) the amendment and restatement of the Existing Credit Agreement and the
Convertible Debentures, (iii) the expansion of the size of the Board of
Directors of the Parent and the creation of an executive committee of the Board
of Directors of the Parent, (iv) the entering into the Management Agreement and
the agreement in respect of the Dolphin Transaction Fee, (v) the amendments to
the Certificate of Incorporation regarding the Series A-1 Preferred Stock,
Series B Preferred Stock, 10% Mandatory Convertible Preferred Stock, the
increase in number of authorized shares of Common Stock and Section 203 of the
Delaware General Corporation Law, (vi) the repayment of the Bridge Debt and
(vii) the payment to Taglich Brothers, Inc. of up to $600,000 of fees (payable
in a combination of Common Stock and cash).
"Applicable Rate" means, at any date, the lesser of (a) the Highest
Lawful Rate or (b) the following: (i) with respect to each Prime Rate Loan, a
per annum rate equal to the Prime Rate in effect on such date plus the
applicable Prime Margin; and (ii) with respect to each LIBOR Loan, a per annum
rate equal to the sum of LIBOR plus the applicable LIBOR Margin.
"A/R Advance Rate" means, the following (or such other rates as Lender
may designate from time to time in its sole discretion) with respect to the
Eligible Accounts of each Borrower listed below: 85% for Williams Controls
Industries, Inc., Aptek Williams, Inc. and NESC Williams, Inc.
"Authorized Representative" means a person designated as such by
Borrowers' Agent in a Notice of Authorized Representatives delivered to Lender.
2
"Available Credit" means, at any time, the amount by which (a) the
lesser of (i) $10,000,000 or (ii) the Borrowing Base is greater than (b) the
outstanding principal amount of the Revolving Loans.
"Availability Reserves" means, as of any date of determination, such
amounts (expressed as either a specified amount or as a percentage of a
specified category or item) as Lender may from time to time establish and revise
in Good Faith reducing the amount of Revolving Loans that would otherwise be
available to Borrowers under the lending formula(s) provided for herein: (a) to
reflect events, conditions, contingencies or risks which, as determined by
Lender in Good Faith, do or may affect (i) the Collateral or its value, (ii) the
assets, business or prospects of Borrower, or (iii) the security interests and
other rights of Lender in the Collateral (including the enforceability,
perfection and priority thereof), or (b) to reflect Lender's Good Faith belief
that any collateral report or financial information furnished by or on behalf of
Borrower to Lender is or may have been incomplete, inaccurate or misleading in
any material respect, or (c) in respect of any state of facts which Lender
determines in Good Faith constitutes a Default.
"Bankruptcy Code" means the Bankruptcy Reform Act, Title 11 of the
United States Code, as amended or recodified from time to time, including
(unless the context otherwise requires) any rules or regulations promulgated
thereunder.
"Borrowers' Agent" means Parent in its capacity as agent for the
Borrowers.
"Borrowing Base" means, as of any date of determination, an amount
equal to the following amount:
(i) the applicable A/R Advance Rate applied to an amount
equal to (A) the face amount of the then outstanding Eligible Accounts
of each Borrower for whom there is an A/R Advance Rate less (B) sales,
excise or similar taxes included in the amount thereof and less (C)
returns, discounts, claims, credits and allowances of any nature at any
time issued, owing, granted, outstanding, available or claimed with
respect thereto;
(ii) plus the lesser of (a) $4,000,000 or (b) the
applicable Inventory Advance Rates applied, with respect to the
applicable category of Eligible Inventory of each Borrower for whom
there is an Inventory Advance Rate, to the then amount of such Eligible
Inventory valued at the lower of cost (determined on a "first in, first
out" basis) or market value; and
(iii) plus, after the FREP Effective Date, the lesser of
(a) $1,000,000 (or such lesser amount as Borrowers' Agent designates in
a notice to Lender on or before the FREP Effective Date) or (b) the
applicable A/R Advance Rate applied to the face amount of the then
outstanding Eligible Foreign Accounts of each Borrower for whom there
is an A/R Advance Rate;
(iv) less all Availability Reserves.
3
"Borrowing Base Certificate" means certificates substantially in the
form of the certificates attached hereto as Exhibit A.
"Bridge Debt" means the $5,000,000 of 12% Secured Subordinated
Debentures issued by Parent and due March 1, 2002.
"Business Day" means (a) for all purposes other than as covered by
clause (b) below, any day other than a Saturday, Sunday or other day on which
commercial banks are authorized or required to be closed in Minneapolis,
Minnesota, San Francisco, California or New York, New York, and (b) with respect
to all notices, determinations, fundings and payments in connection with any
LIBOR interest selection or LIBOR Loan, any day that is a Business Day described
in clause (a) above and that also is a day for trading by and between banks in
U.S. Dollar deposits in the London interbank eurocurrency market.
"Capital Expenditures" mean, for any period, all capital expenditures
for such period, plus, without duplication, Capitalized Lease Obligations
incurred in such period and amounts incurred in such period with respect to
Other Leases.
"Capitalized Lease" means, as to any Person, any lease of property by
such Person as lessee that would be capitalized on a balance sheet of such
Person prepared in accordance with GAAP.
"Capitalized Lease Obligations" means, as to any Person, the
capitalized amount of all obligations of such Person and its subsidiaries under
Capitalized Leases, as determined on a consolidated basis in accordance with
GAAP.
"Cash Collateral Account" has the meaning set forth in Section 4.1(b).
"Cash Equivalent Investment" means, at any time: (a) any evidence of
indebtedness, maturing not more than one year after such time, issued or
guaranteed by the United States government; (b) commercial paper, maturing not
more than nine months from the date of issue, which is issued by (i) a
corporation (other than an affiliate of Borrower) organized under the laws of
any state of the United States or of the District of Columbia and rated at least
A-1 by Standard & Poor's Corporation or P-1 by Moody's Investors Service, Inc.,
or (ii) Lender (or its holding company); (c) any certificate of deposit or
bankers acceptance, maturing not more than one year after such time, which is
issued by either (i) a commercial banking institution that is a member of the
Federal Reserve System and has a combined capital and surplus and undivided
profits of not less than $500,000,000, or (ii) Lender; (d) any repurchase
agreement entered into with Lender (or other commercial banking institution of
the stature referred to in clause (c)(i)) which (i) is secured by a fully
perfected security interest in any obligation of the type described in any of
clauses (a) through (c), and (ii) has a market value at the time such repurchase
agreement is entered into of not less than 100% of the repurchase obligation of
Lender (or other commercial banking institution) thereunder; (e) investments
permitted under any investment policy adopted by Borrower and approved by
4
Lender; or (f) any mutual fund holding investments consisting of at least 95% of
the foregoing.
"Change in Control" means that AIP no longer possess the power to elect
a majority of Parent's directors.
"Change of Law" means the adoption of any Governmental Rule, any change
in any Governmental Rule or the application or requirements thereof (whether
such change occurs in accordance with the terms of such Governmental Rule as
enacted, as a result of amendment or otherwise), any change in the
interpretation or administration of any Governmental Rule by any Governmental
Authority, or compliance by Lender (or any entity controlling Lender) with any
request, guideline or directive (whether or not having the force of law) of any
Governmental Authority.
"Closing Date" means the date of this Agreement.
"CMLTD" means, for any period, all scheduled principal payments of
Borrowers' long-term Debt (including but not limited to scheduled principal
payments pursuant to Capitalized Lease Obligations) for such period.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" means all of Borrowers' assets, including, without
limitation, (a) all Accounts, Rights to Payment, General Intangibles, Records,
goods, fixtures, inventory, equipment, money, letter of credit rights,
supporting obligations, instruments, chattel paper, deposit accounts, documents,
investment property, and commercial tort claims; (b) all products, proceeds,
rents and profits of the foregoing; and (c) all of the foregoing, whether now
owned or existing or hereafter acquired or arising or in which Borrower now has
or hereafter acquires any rights.
"Commitment" means any obligation of Lender to extend credit or any
other financial accommodation under any of the Loan Documents.
"Commodity Contracts" means commodity options, futures, swaps, and
other similar agreements and arrangements designed to provide protection against
fluctuations in commodity prices.
"Contaminant" means any pollutant, hazardous substance, toxic
substance, hazardous waste or other substance regulated or forming the basis of
liability under any Environmental Law.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect to any
Indebtedness or Contractual Obligation of another Person, if the purpose or
intent of such Person in incurring the Contingent Obligation is to provide
assurance to the obligee of such Indebtedness or Contractual Obligation that
such Indebtedness or Contractual Obligation will be paid or
5
discharged, or that any agreement entered into by such other Person relating to
such Indebtedness or Contractual Obligation will be complied with, or that any
holder of such Indebtedness or Contractual Obligation will be protected against
loss in respect thereof. Contingent Obligations of a Person include, without
limitation, (a) the direct or indirect guarantee, endorsement (other than for
collection or deposit in the ordinary course of business), co-making,
discounting with recourse or sale with recourse by such Person of an obligation
of another Person, and (b) any liability of such Person for an obligation of
another Person through any agreement (contingent or otherwise) (i) to purchase,
repurchase or otherwise acquire such obligation or any security therefor, or to
provide funds for the payment or discharge of such obligation (whether in the
form of a loan, advance, stock purchase, capital contribution or otherwise),
(ii) to maintain the solvency or any balance sheet item, level of income or
financial condition of another Person, (iii) to make take-or-pay or similar
payments, if required, regardless of nonperformance by any other party or
parties to an agreement, (iv) to purchase, sell or lease (as lessor or lessee)
property, or to purchase or sell services, primarily for the purpose of enabling
the debtor to make payment of such obligation or to assure the holder of such
obligation against loss, or (v) to supply funds to or in any other manner invest
in such other Person (including, without limitation, to pay for property or
services irrespective of whether such property is received or such services are
rendered), if in the case of any agreement or liability described under
subclauses (i) through (v) of this sentence the primary purpose or intent
thereof is as described in the preceding sentence. The amount of any Contingent
Obligation shall be equal to the lesser of (A) the amount payable under such
Contingent Obligation (if quantifiable) or (B) the portion of the obligation so
guaranteed or otherwise supported.
"Contractual Obligation" of any Person means any obligation, agreement,
undertaking or similar provision of any security issued by such Person or of any
agreement, undertaking, contract, lease, indenture, mortgage, deed of trust or
other instrument to which such Person is a party or by which it or any of its
property is bound or to which any of its property is subject.
"Convertible Debentures" means the $2,149,000 of 7.5% Convertible
Subordinated Debentures issued by Parent and due March 31, 2003 (or such later
date as is provided pursuant to Section 7.1(a)(vi)).
"Debt" of any Person means, without duplication, (a) all obligations of
such Person for borrowed money and all obligations of such Person evidenced by
bonds, debentures, notes, bills or other similar instruments; (b) all
obligations, contingent or otherwise, relative to the face amount of all letters
of credit, whether or not drawn, and banker's acceptances issued for such
Person's account; (c) all Capitalized Lease Obligations and Other Lease
obligations of such Person; (d) whether or not so included as liabilities in
accordance with GAAP, all obligations of such Person to pay the deferred
purchase price of property or services, and indebtedness (excluding prepaid
interest thereon) secured by a Lien on property owned or being purchased by such
Person (including indebtedness arising under conditional sales or other title
retention agreements), whether or not such indebtedness shall have been assumed
by such Person or is limited in recourse; and (e) all Contingent Obligations of
such Person in
6
respect of any of the foregoing. For purposes of determining the amount of Debt
in a circumstance when the creditor has recourse only to specified assets, the
amount shall be the lesser of (i) the amount of such obligation or (ii) the fair
market value of such assets.
"Debt Service Coverage Ratio" means, for any period, the ratio of (i)
the sum of (A) EBITDA for such period less (B) Capital Expenditures for such
period to the extent not financed with long-term Debt, proceeds of Revolving
Loans, proceeds of insurance and/or net cash proceeds from the sale of capital
assets to (ii) the sum of CMLTD plus cash interest expense for such period.
"Default" means (i) an Event of Default, (ii) an event or condition
that with the giving of notice or the passage of time, or both, would constitute
an Event of Default, or (iii) the filing against Borrower of a petition
commencing an involuntary case under the Bankruptcy Code.
"Disclosure Letter" means the Disclosure Letter from Borrowers' Agent
to Lender dated the Closing Date.
"Dolphin Transaction Fee" means the transaction fee of $67,000 to be
paid by Parent to Dolphin Management, Inc. on or around the Closing Date.
"EBITDA" means, as of the end of any period, Borrowers' consolidated
net income after taxes for such period plus (i) the sum of the amounts for such
period included in determining such net income of (A) interest expense, (B)
income tax expense, (C) depreciation expense, (D) amortization expense, (D)
unusual non-cash charges, extraordinary non-cash losses and other non-recurring
non-cash charges and (E) Management Fees; less (ii) the sum of the amounts for
such period included in determining such net income of (A) gains on sales of
assets (excluding sales of inventory in the ordinary course of business) and (B)
unusual non-cash gains, extraordinary non-cash gains and other non-recurring
non-cash gains.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended or recodified from time to time, including (unless the context otherwise
requires) any rules or regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with Borrower within the meaning of Section
414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes
of provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a Pension
Plan; (b) a withdrawal by Borrower or any ERISA Affiliate from a Pension Plan
subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation
of operations that is treated as such a withdrawal under Section 4062(e) of
ERISA; (c) a complete or partial withdrawal by Borrower or any ERISA Affiliate
from a Multiemployer Plan or notification that a Multiemployer Plan is in
7
reorganization; (d) the filing of a notice of intent to terminate, the treatment
of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or
the commencement of proceedings by the PBGC to terminate a Pension Plan or
Multiemployer Plan; (e) an event or condition which might reasonably be expected
to constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan or Multiemployer Plan;
or (f) the imposition of any liability under Title IV of ERISA, other than PBGC
premiums due but not delinquent under Section 4007 of ERISA, upon Borrower or
any ERISA Affiliate.
"Eligible Accounts" means those Accounts that Lender determines in the
Good Faith exercise of its discretion to be eligible for inclusion in the
Borrowing Base. General criteria for Eligible Accounts may be established and
revised from time to time by Lender in Good Faith. Without limiting such
discretion as to other Accounts, the following Accounts shall not be Eligible
Accounts:
(i) Accounts which do not consist of ordinary trade
accounts receivable owned by Borrower, payable in cash in United States
dollars (except for amounts payable in a foreign currency if the
applicable Borrower has entered into a currency hedge agreement with
respect to such foreign currency on terms acceptable to Lender) and
arising out of the final sale of inventory or provision of services in
the ordinary course of Borrower's business as presently conducted by
it;
(ii) Accounts with respect to which the services covered
thereby have not been rendered or the goods covered thereby have not
been delivered to the account debtor or its designee or with respect to
which Borrower failed to issue an original invoice at the agreed-upon
purchase price to the account debtor promptly after rendering such
services or delivering such goods to the account debtor;
(iii) Accounts which are not absolutely and unconditionally
payable;
(iv) Accounts with respect to which more than 120 days
have elapsed since the date of the original invoice applicable thereto;
(v) Accounts which are more than 60 days past due;
(vi) Accounts with respect to which the account debtor is
an affiliate of Borrower or any officer, employee or agent of the
account debtor is an officer, employee or agent of or affiliated with
Borrower directly or indirectly by virtue of family membership,
ownership, control, management or otherwise;
(vii) Accounts with respect to which the account debtor is
the United States of America or any department, agency or
instrumentality thereof, except for those Accounts as to which Borrower
has assigned its right to payment thereof to Lender, and the assignment
has been acknowledged, pursuant to the Assignment of Claims Act of
1940, as amended (31 U.S.C. ss.3727);
8
(viii) the chief executive office of the account debtor with
respect to such Account is not located in the United States of America,
unless (a) the account debtor has delivered to Borrower an irrevocable
letter of credit issued or confirmed by a bank satisfactory to Lender,
sufficient to cover such Account, in form and substance satisfactory to
Lender and, if required by Lender, the original of such letter of
credit has been delivered to Lender or Lender's agent and the issuer
thereof notified of the assignment of the proceeds of such letter of
credit to Lender, (b) such Account is subject to credit insurance
payable to Lender issued by an insurer and on terms and in an amount
acceptable to Lender, (c) the account debtor resides in a province of
Canada under the laws of which Lender has a perfected Lien in such
account, or (d) such Account is otherwise acceptable in all respects to
Lender (subject to such lending formula with respect thereto as Lender
may determine); provided, however, that up to $1,000,000 of Accounts of
Volvo Lastvagnar A.B. shall not be ineligible as a result of this item
(viii);
(ix) Accounts for which the prospect of payment or
performance by the account debtor is or will be impaired in the Good
Faith determination of Lender;
(x) Accounts with respect to which Lender does not have a
valid and prior, fully perfected first Lien free of all Liens or other
claims of all other Persons;
(xi) Accounts with respect to which the account debtor is
the subject of bankruptcy or a similar insolvency proceeding, or has
made an assignment for the benefit of creditors, or whose assets have
been conveyed to a receiver or trustee, or who has failed or suspended
or gone out of business;
(xii) Accounts with respect to which the account debtor's
obligation to pay the Accounts is conditional upon the account debtor's
approval;
(xiii) except as otherwise designated by Lender in a notice
to Borrowers' Agent, Accounts from an account debtor to the extent that
the account debtor's indebtedness to a Borrower (whether evidenced by
such Accounts or otherwise) exceeds an amount which is greater than 15%
(30% with respect to Navistar, Freightliner and General Motors) of the
face amount of Borrowers' aggregate gross accounts receivable;
(xiv) Accounts owed by a particular account debtor if 25%
or more of the aggregate Accounts then owed to Borrower by that account
debtor and its affiliates are not Eligible Accounts;
(xv) Accounts of a particular account debtor in excess of
a credit limit established as to that account debtor by Borrower or by
Lender;
(xvi) Accounts which represent a prepayment or progress
payment or a partial payment under an installment contract;
9
(xvii) Accounts which are evidenced by a promissory note or
other instrument;
(xviii) Accounts with respect to which the terms or
conditions prohibit or restrict assignment or collection rights;
(xix) Accounts with respect to which the account debtor is
located in any jurisdiction requiring the timely filing by Borrower of
a report or document before such Account is created in order to bring
suit or otherwise enforce its remedies against such account debtor in
the courts or through any judicial process of such jurisdiction, unless
Borrower has filed, or is exempt from filing, such a report; and
(xx) Accounts with respect to which the account debtor is
also a creditor of Borrower, but only to the extent of the amount owed
by Borrower to such account debtor if such amount is less than the
amount of all Accounts with respect to such account debtor which
otherwise would be Eligible Accounts.
Lender shall have the right, but not the duty, to declare particular
accounts ineligible. The fact that Lender has not declared a particular account
ineligible shall not be deemed to be a determination or representation by Lender
as to the creditworthiness or financial condition of any account debtor. Because
of banking relationships between account debtors of Borrower and Lender, Lender
may have information about the creditworthiness of such account debtors;
however, Lender shall not have any duty to Borrowers to disclose information it
may have about any of Borrowers' account debtors and Borrowers shall have no
right to rely upon any action or inaction of Lender concerning the
creditworthiness or financial condition of Borrowers' account debtors. BORROWERS
HEREBY COVENANT NOT TO SUE AND TO HOLD HARMLESS LENDER AND ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, SUCCESSORS AND ASSIGNS FOR AND FROM ANY AND ALL
DAMAGES, LIABILITY, OR CLAIMS OF LIABILITY, WHETHER KNOWN OR UNKNOWN, OF ANY
NATURE ARISING OUT OF OR BASED IN WHOLE OR IN PART UPON LENDER'S FAILURE TO
DISCLOSE UNFAVORABLE INFORMATION ABOUT AN ACCOUNT DEBTOR OF BORROWER TO
BORROWERS, OR LENDER'S FAILURE TO TREAT AS INELIGIBLE THE ACCOUNT OF AN ACCOUNT
DEBTOR OF BORROWER ABOUT WHOM LENDER HAS UNFAVORABLE INFORMATION.
"Eligible Foreign Accounts" means those Accounts that would be Eligible
Accounts except for application of the following items included in the
definition of Eligible Accounts: (a) item (viii) and (b) the parenthetical
language in item (i). In addition, the following Accounts shall not be Eligible
Foreign Accounts:
(i) Accounts owed by a Governmental Authority;
(ii) that portion of Accounts that has been restructured,
extended, amended or modified;
10
(iii) that portion of Accounts that constitutes
advertising, finance charges, service charges or sales or excise taxes;
(iv) that portion of Accounts owed by any one account
debtor that would permit Revolving Loans supported by such account
debtor's Accounts to exceed $200,000 at any one time;
(v) Accounts denominated in any currency other than
United States dollars, Canadian dollars, French francs, Swiss francs,
German marks, Japanese yen, United Kingdom pounds sterling;
(vi) Accounts with respect to which Borrower has not
instructed the account debtor to pay the Account to the Cash Collateral
Account; and
(vii) Accounts owed by debtors located in countries not
acceptable to the Bank in its sole discretion.
"Eligible Inventory" means inventory that Lender determines in the Good
Faith exercise of its discretion to be eligible for inclusion in the Borrowing
Base. General criteria for Eligible Inventory may be established and revised
from time to time by Lender in Good Faith. Without limiting such discretion as
to other inventory, the following inventory shall in any event not constitute
Eligible Inventory:
(i) finished goods that are not held by Borrower for sale
as inventory in the ordinary course of Borrower's business as presently
conducted by it or that are obsolete, not in good condition, not of
merchantable quality or not salable in the ordinary course of
Borrower's business or that are subject to defects that would affect
their market value;
(ii) work in process, supplies and packaging;
(iii) inventory that Lender, in the Good Faith exercise of
its discretion determines to be unacceptable due to age, type, category
or quantity;
(iv) inventory with respect to which Lender does not have
a valid and prior, fully perfected Lien and that is not free of all
other Liens, except Permitted Liens;
(v) inventory in the possession of any Person other than
Borrower, except (subject to any additional requirements imposed by
Lender, in the Good Faith exercise of its discretion to protect
Borrower's title thereto or Lender's Lien therein) goods held in
storage solely for the account of Borrower, if the Person in possession
has acknowledged in writing (on terms acceptable to Lender) Lender's
Lien thereon and has not issued a negotiable document of title as to
the goods;
(vi) inventory located on premises leased by Borrower if
Lender has not received a landlord's waiver acceptable to Lender with
respect to such premises; and
11
(vii) inventory not located in Portland, Oregon, Sarasota,
Florida or Zanesville, Ohio.
"Employee Loan" means a loan made by Parent to an officer, director
and/or employee of Parent solely for the purpose of financing all or part of a
contemporaneous purchase by the obligor of Series B Preferred Stock from Parent.
"Environmental Law" means all applicable federal, state and local laws,
statutes, ordinances and regulations, and any applicable judicial or
administrative interpretation, order, consent decree or judgment, relating to
the regulation and protection of the environment. Environmental Laws include but
are not limited to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C.ss. 9601 et seq.); the Hazardous
Material Transportation Act, as amended (49 U.S.C.ss. 180 et seq.); the Federal
Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C.ss. 136 et
seq.); the Resource Conservation and Recovery Act, as amended (42 U.S.C.ss. 6901
et seq.); the Toxic Substance Control Act, as amended (42 U.S.C.ss. 7401 et
seq.); the Clean Air Act, as amended (42 U.S.C.ss. 740 et seq.); the Federal
Water Pollution Control Act, as amended (33 U.S.C.ss. 1251 et seq.); and the
Safe Drinking Water Act, as amended (42 U.S.C.ss. 300f et seq.), and their state
and local counterparts or equivalents and any applicable transfer of ownership
notification or approval statutes.
"Environmental Liabilities and Costs" means, as to any Person, all
liabilities, obligations, responsibilities, Remedial Actions, losses, damages,
punitive damages, consequential damages, treble damages, costs and expenses
(including, without limitation, all fees, disbursements and expenses of counsel,
experts and consultants and costs of investigation and feasibility studies),
fines, penalties, sanctions and interest incurred as a result of any claim or
demand by any other Person, whether based in contract, tort, implied or express
warranty, strict liability, criminal or civil statute, including, without
limitation, any thereof arising under any Environmental Law, Permit, order or
agreement with any Governmental Authority or other Person, and which relate to
any violation or alleged violation of an Environmental Law or a Permit, or a
Release or threatened Release.
"Event of Default" has the meaning set forth in Section 11.1.
"FREP Effective Date" means the first day on which all of the following
events have occurred: (i) Lender has notified Borrowers' Agent that Lender's
foreign receivables eligibility program is available to Borrowers; (ii)
Borrowers' Agent has notified Lender that Borrowers elect to participate in
Lender's foreign receivables eligibility program; and (iii) Borrowers have paid
Lender an amount equal to the FREP Fee Amount.
"FREP Fee Amount" means an amount equal to the dollar amount in item
(iii)(a) of the definition of "Borrowing Base" multiplied by 0.375%.
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time, consistently applied.
12
"General Intangibles" means (i) all "general intangibles" as defined in
the UCC and (ii) all tax and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee, choses in action, causes of
action and other claims, judgments in favor of Borrower, leasehold interests in
equipment, software and payment intangibles.
"Good Faith" means honesty in fact in the conduct or transaction
concerned, without regard to whether standards that might be deemed commercially
reasonable have been observed.
"Governmental Authority" means any domestic or foreign national, state
or local government, any political subdivision thereof, any department, agency,
authority or bureau of any of the foregoing, or any other entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, including the Federal Deposit Insurance Corporation,
the Federal Reserve Board, the Comptroller of the Currency, any central bank or
any comparable authority.
"Governmental Rule" means any applicable law, rule, regulation,
ordinance, order, code interpretation, judgment, decree, directive, guidelines,
policy or similar form of decision of any Governmental Authority.
"Highest Lawful Rate" means, at the particular time in question, the
maximum rate of interest which, under applicable law, Lender is then permitted
to charge Borrowers on the applicable Loan, and if the maximum rate changes at
any time, the Highest Lawful Rate shall increase or decrease, as the case may
be, as of the effective time of each such change, without notice to Borrowers.
"Inactive Borrower" means any Borrower that is not an Active Borrower.
"Indebtedness" of any Person means, without duplication, (a) all
liabilities of such Person as determined in accordance with GAAP, (b) all
obligations of such Person created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such Person
(even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (c) all lease obligations of such Person (including, without
limitation, operating leases, Capitalized Leases and Other Leases), (d) all
Contingent Obligations of such Person, (e) all obligations of such Person to
purchase, redeem, retire, defease or otherwise acquire for value any Stock or
Stock Equivalents of such Person with a mandatory repurchase or redemption date
of less than ten years from the date of issuance thereof, (f) all obligations
secured by (or for which the holder of such obligations has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property owned by
such Person, even though such Person has not assumed or become liable for the
payment of such obligations, (g) all liabilities of such Person in connection
with the failure to make when due any contribution or payment pursuant to or
under any Plan and (h) net liabilities of such Person under all Commodity
Contracts,
13
Interest Rate Contracts and foreign exchange agreements. For purposes of
determining the amount of Indebtedness in a circumstance when the creditor has
recourse only to specified assets, the amount shall be the lesser of (i) the
amount of such obligation or (ii) the fair market value of such assets.
"Indemnitees" has the meaning set forth in Section 12.3.
"Indemnified Liabilities" has the meaning set forth in Section 12.3.
"Itin" means Thomas W. Itin and affiliates of Thomas W. Itin.
"Interest Period" means a period of one, three or six months as
designated by Borrower; provided, however, that no Interest Period may extend
beyond the Maturity Date, and if the last day of a Interest Period is not a
Business Day, such period shall be extended to the next succeeding Business Day,
or if the next succeeding Business Day falls in another calendar month, such
period shall end on the next preceding Business Day.
"Interest Rate Contracts" means interest rate swap agreements, interest
rate cap agreements, interest rate collar agreements, interest rate insurance,
and other agreements or arrangements designed to provide protection against
fluctuations in interest rates.
"Inventory Advance Rates" means the percentages to be fixed and subject
to change by Lender from time to time in Good Faith and in its discretion, which
are applied to Eligible Inventory for purposes of determining the Borrowing Base
until changed by Lender. Initially, the Inventory Advance Rates shall be as
follows: (a) with respect to raw materials, 55% (35% after the FREP Effective
Date) for Williams Controls Industries, Inc. and 35% for each of Aptek Williams,
Inc. and NESC Williams, Inc.; (b) with respect to finished goods, 70% for
Williams Controls Industries, Inc. and 50% (70% after the FREP Effective Date)
for Aptek Williams, Inc. Lender may establish, in the Good Faith exercise of its
discretion, one or more Inventory Advance Rates to reflect contingencies or
risks which may affect the Collateral, the business, business prospects or
financial condition of Borrower, or the security of the Loans.
"Investment" means, relative to any Person, (a) any loan or advance
made by such Person to any other Person (excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business) and (b) any ownership or similar interest held by such Person in any
other Person. The amount of any Investment shall be the original principal or
capital amount thereof less all returns of principal or equity thereon (and
without adjustment by reason of the financial condition of such other Person)
and shall, if made by the transfer or exchange of property other than cash, be
deemed to have been made in an original principal or capital amount equal to the
fair market value of such property.
"LIBOR" means, for each Interest Period, the rate per annum (rounded
upward if necessary to the nearest whole 1/8th of 1%) and determined pursuant to
the following formula:
14
LIBOR = Base LIBOR
-------------------------------
100% - LIBOR Reserve Percentage
As used herein, (a) "Base LIBOR" means the average of the rates per annum at
which U.S. Dollar deposits are offered to Wells Fargo Bank in the London
interbank eurocurrency market on the second Business Day prior to the
commencement of an Interest Period at or about 11:00 A.M. (London time), for
delivery on the first day of such Interest Period, for a term comparable to the
number of days in such Interest Period and in an amount approximately equal to
the principal amount to which such Interest Period shall apply, and (b) "LIBOR
Reserve Percentage" means, for any day, the aggregate (without duplication) of
the maximum rates (expressed as a decimal) of reserve requirements in effect on
such day (including basic, supplemental, marginal and emergency reserves under
any regulations of the Federal Reserve Board or other Governmental Authority
having jurisdiction with respect thereto) dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of the Federal Reserve Board) maintained by a
member bank of the Federal Reserve System.
"LIBOR Loan" means any Loan that bears interest with reference to
LIBOR.
"LIBOR Margin" means (i) with respect to Revolving Loans, 485 basis
points and (ii) with respect to Term Loans, 510 basis points.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
security interest, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever, including, without limitation, any
conditional sale or other title retention agreement or the interest of a lessor
under a Capitalized Lease Obligation or any Other Lease.
"Loan" means an advance made by Lender to Borrowers pursuant to Section
3.1 or Section 3.2.
"Loan Documents" means this Agreement, the Notes and each other
agreement, note, notice, document, contract or instrument to which Borrower now
or hereafter is a party and that is required by Lender and all agreements,
documents and instruments that constituted "Loan Documents" under the Existing
Agreement, except the Existing Agreement itself and the promissory notes issued
in connection with the Existing Agreement.
"Material Adverse Effect" means a material adverse effect on (a) the
condition (financial or otherwise), business, performance, operations or
properties of Borrowers, (b) the ability of Borrowers to perform their
obligations under the Loan Documents, or (c) the rights and remedies of Lender
under the Loan Documents.
"Management Agreement" means that certain Management Services Agreement
between Parent and American Industrial Partners as in effect on the Closing
Date.
15
"Management Fees" means the management fees payable by Parent to AIP
pursuant to the Management Agreement.
"Maturity Date" means the fifth anniversary of the Closing Date or, if
a Rejection Notice is given, the 90th day after Lender's receipt of the
Rejection Notice.
"Net Income" means, for any period, Borrowers' consolidated net income
for such period from all Active Borrowers plus the following to the extent
included in determining such net income: (i) the cumulative amount of
transaction costs expensed or amortized in relation to the AIP Transactions that
reduced Borrowers' consolidated net income, stay bonuses not to exceed $300,000,
any severance costs and any Management Fees; (ii) an amount required such that
the net effect to Borrowers' consolidated net income of the exchange of Series A
Preferred Stock for Series A-1 Preferred Stock occurring on or around the
Closing Date is zero (iii) any non-cash dividends and (iv) any other non-cash
charges (excluding depreciation) incurred after May 31, 2002 and less any income
recognized after May 31, 2002 from escrow proceeds or extinguishment of debt to
the extent included in determining such net income.
"Note" means a promissory note executed by Borrowers in favor of Lender
evidencing a Loan and substantially in the form of one of the forms attached as
Exhibit B.
"Notice of Authorized Representatives" has the meaning set forth in
Section 2.2.
"Notice of Borrowing" has the meaning set forth in Section 3.1(c).
"Notice of Conversion or Continuation" has the meaning set forth in
Section 3.4(c).
"Obligations" means all of Borrowers' obligations under the Loan
Documents, whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising.
"Organic Documents" means, relative to Borrower, as applicable, its
certificate or articles of incorporation, its by-laws, its partnership
agreement, its certificate of partnership, certificate of organization,
operating agreement and other limited liability company organizational documents
and all shareholder agreements, voting trusts and similar arrangements
applicable to any of its Stock or Stock Equivalents.
"Other Lease" means any synthetic lease, tax retention operating lease,
financing lease or any other lease having substantially the same economic effect
as a conditional sale, title retention agreement or similar arrangement.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Title IV of ERISA.
"Pension Plan" means any "employee pension benefit plan" (as such term
is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is
subject to Title IV of ERISA and is sponsored or maintained by Borrower or any
ERISA Affiliate or to which Borrower or
16
any ERISA Affiliate contributes or has an obligation to contribute, or in the
case of a multiple employer plan (as described in Section 4064(a) of ERISA) has
made contributions at any time during the immediately preceding five plan years.
"Permit" means any permit, approval, authorization, license, variance
or permission required from a Governmental Authority under an applicable
Governmental Rule.
"Permitted Liens" means (a) Liens arising by operation of law for
taxes, assessments or governmental charges not yet due; (b) statutory Liens of
mechanics, materialmen, shippers, warehousemen, carriers, and other similar
persons for services or materials arising in the ordinary course of business for
which payment is not yet due; (c) nonconsensual Liens incurred or deposits made
in the ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (d) Liens for taxes
or statutory Liens of mechanics, materialmen, shippers, warehousemen, carriers
and other similar persons for services or materials that are due but are being
contested in good faith and by appropriate and lawful proceedings promptly
initiated and diligently conducted and for which reserves satisfactory to Lender
have been established; (e) Liens listed on the Disclosure Letter; and (f) Liens
granted in the Loan Documents.
"Person" means an individual, partnership, corporation (including,
without limitation, a business trust), joint stock company, limited liability
company, trust, unincorporated association, joint venture or other entity, or a
Governmental Authority.
"Plan" means any "employee benefit plan" (as such term is defined in
Section 3(3) of ERISA) established by Borrower or any ERISA Affiliate.
"Prime Margin" means (i) with respect to Revolving Loans, 200 basis
points and (ii) with respect to Term Loans, 225 basis points.
"Prime Rate" means, for any day, an interest rate per annum equal to
the rate of interest most recently announced within Wells Fargo Bank at its
principal office as its prime rate, with any change in the prime rate to be
effective as of the day such change is announced within Wells Fargo Bank and
with the understanding that the prime rate is one of Wells Fargo Bank's base
rates used to price some loans and may not be the lowest rate at which Wells
Fargo Bank makes any loan, and is evidenced by the recording thereof in such
internal publication or publications as Wells Fargo Bank may designate.
"Prime Rate Loan" means any Loan that bears interest with reference to
the Prime Rate.
"Records" means all of Borrowers' present and future records and books
of account of every kind or nature, purchase and sale agreements, invoices,
ledger cards, bills of lading and other shipping evidence, statements,
correspondence, memoranda, credit files, electronically stored data and other
data, together with the tapes, disks, diskettes, drives and other data and
software storage media and devices, file cabinets or containers in or on which
the foregoing
17
are stored (including any rights of Borrower with respect to the foregoing
maintained with or by any other Person).
"Rejection Notice" has the meaning set forth in Section 10.5
"Release" means, as to any Person, any unpermitted spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration of a Contaminant into the environment, and any "release" as defined
in the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended (42 U.S.C. ss. 9601 et seq.).
"Remedial Action" means all actions required to clean up, remove,
prevent or minimize a Release or threat of Release or to perform pre-remedial
studies and investigations and post-remedial monitoring and care.
"Reportable Event" means any of the events set forth in Section 4043(c)
of ERISA, other than events for which the thirty day notice period has been
waived.
"Revolving Loan" means a Loan made by Lender to Borrowers pursuant to
Section 3.1.
"Rights to Payment" means all Accounts, General Intangibles, contract
rights, chattel paper, documents, instruments, letters of credit, bankers
acceptances and guaranties, and all present and future liens, security
interests, rights, remedies, title and interest in, to and in respect of
Accounts and other Collateral, and shall include without limitation, (a) rights
and remedies under or relating to guaranties, contracts of suretyship, letters
of credit and credit and other insurance related to the Collateral, (b) rights
of stoppage in transit, replevin, repossession, reclamation and other rights and
remedies of an unpaid vendor, lienor or secured party, (c) goods described in
invoices, documents, contracts or instruments with respect to, or otherwise
representing or evidencing, Accounts or other Collateral, including without
limitation, returned, repossessed and reclaimed goods, and (d) deposits by and
property of account debtors or other persons securing the obligations of account
debtors, moneys, securities, credit balances, deposits, deposit accounts and
other property of Borrower now or hereafter held or received by or in transit to
Lender or any of its affiliates or at any other depository or other institution
from or for the account of Borrower, whether for safekeeping, pledge, custody,
transmission, collection or otherwise.
"Stock" means shares of capital stock, membership interests, beneficial
or partnership interests, participations or other equivalents (regardless of how
designated) of or in a corporation, limited liability company, partnership or
other entity, whether voting or nonvoting, and includes, without limitation,
common stock and preferred stock.
"Stock Equivalents" means all securities convertible into or
exchangeable for Stock and all warrants, options or other rights to purchase or
subscribe for any Stock, whether or not presently convertible, exchangeable or
exercisable.
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"Subsidiary" means any Person required by GAAP to be included in the
consolidated financial reporting of Parent.
"Term Loan" means a Loan made by Lender to Borrowers pursuant to
Section 3.2.
"UCC" means the Uniform Commercial Code as from time to time in effect
in the applicable jurisdiction.
"Unfunded Pension Liability" means the excess of a Pension Plan's
benefit liabilities under Section 4001(a)(16) of ERISA, over the current value
of that Pension Plan's assets, determined in accordance with the assumptions
used for funding the Pension Plan pursuant to Section 412 of the Code for the
applicable plan year.
1.2 ACCOUNTING AND FINANCIAL DETERMINATIONS
Any accounting term used in this Agreement that is not specifically
defined herein shall have the meaning customarily given to it under GAAP, and
all accounting determinations and computations under any Loan Document shall be
made, and all financial statements required to be delivered under any Loan
Document shall be prepared, in accordance with GAAP applied in the preparation
of the financial statements referred to in Section 6.5.
1.3 HEADINGS
Headings in this Agreement and each of the other Loan Documents are for
convenience of reference only and are not part of the substance hereof or
thereof.
1.4 ADDITIONAL DEFINITION PROVISIONS
Whenever the terms "herein," "hereof," "hereto," "hereunder,"
"therein," "thereof," "thereto," "thereunder," and similar terms contained in
this Agreement or any Loan Document refer to this Agreement or other Loan
Document, such terms refer to the whole of this Agreement or other Loan Document
and not to any particular section, paragraph or provision. All other terms
contained in this Agreement that are not defined herein shall, unless the
context indicates otherwise, have the meanings provided in the UCC to the extent
such terms are defined therein.
ARTICLE II. APPOINTMENT OF BORROWERS' AGENT; JOINT AND SEVERAL
LIABILITY
2.1 APPOINTMENT OF AGENT
In order to facilitate and insure prompt and accurate communication
among Borrowers and Lender and to insure the efficient and effective
distribution of proceeds of the Loans, each Borrower hereby appoints Parent as
its agent to perform the functions of Borrowers' Agent under the Loan Documents,
to take such actions and make such elections on such Borrower's behalf as are
delegated to the Borrowers' Agent in the Loan Documents and for the following
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purposes: (i) communicating to and receiving communications from Lender; (ii)
receiving all proceeds of the Loans and making all decisions regarding the
distribution of such proceeds among the Borrowers as Borrowers' Agent, in the
sole exercise of its discretion, deems fair and appropriate; and (iii) making
all decisions and elections with respect to requests for advances of credit and
election of interest options.
2.2 AUTHORIZED REPRESENTATIVES
On the Closing Date, and from time to time subsequent thereto at
Borrowers' Agent's option, Borrowers' Agent shall deliver to Lender a written
notice in the form of Exhibit C attached hereto, which designates by name one or
more Authorized Representatives and includes each of their respective specimen
signatures (each, a "Notice of Authorized Representatives"). Lender shall be
entitled to rely conclusively on the authority of each person designated as an
Authorized Representative in the most current Notice of Authorized
Representatives delivered by Borrowers' Agent to Lender, to request borrowings,
to select interest rate options hereunder, and to give to Lender such other
notices as are specified herein as being made through an Authorized
Representative, until such time as Borrowers' Agent has delivered to Lender, and
Lender has actual receipt of, a new written Notice of Authorized
Representatives. Lender shall have no duty or obligation to Borrowers to verify
the authenticity of any signature appearing on any Notice of Borrowing, Notice
of Conversion or Continuation or any other notice from an Authorized
Representative or to verify the authenticity of any person purporting to be an
Authorized Representative giving any telephonic notice permitted hereby.
2.3 JOINT AND SEVERAL LIABILITY; RIGHTS OF CONTRIBUTION
(a) Each Borrower states and acknowledges that: (i) pursuant to this
Agreement, Borrowers desire to utilize their borrowing potential on a
consolidated basis to the same extent possible if they were merged into a single
corporate entity; (ii) it has determined that it will benefit specifically and
materially from the advances of credit contemplated by this Agreement; (iii) it
is both a condition precedent to the obligations of Lender hereunder and a
desire of Borrowers that each Borrower execute and deliver this Agreement to
Lender; and (iv) Borrowers have requested and bargained for the structure and
terms of the credit contemplated by this Agreement.
(b) Each Borrower hereby irrevocably and unconditionally: (i) agrees
that it is jointly and severally liable to Lender for the full and prompt
payment of the Obligations and the performance by each Borrower of its
obligations hereunder in accordance with the terms of the Loan Documents; (ii)
agrees to fully and promptly perform all of its obligations under the Loan
Documents with respect to each advance of credit hereunder as if such advance
had been made directly to it; and (iii) agrees as a primary obligation to
indemnify Lender on demand for and against any loss incurred by Lender (other
than a loss arising from Lender's willful misconduct or gross negligence) as a
result of any of the obligations of any one or more of Borrowers under the Loan
Documents being or becoming void, voidable, unenforceable or ineffective for any
reason whatsoever, whether or not known to Lender or
20
any other Person, the amount of such loss being the amount which Lender would
otherwise have been entitled to recover from any one or more of Borrowers. Each
Borrower hereby irrevocably and unconditionally accepts, not merely as a surety
but also as a co-debtor, joint and several liability with each other Borrower
with respect to the payment and performance of all of the Obligations. If and to
the extent that any Borrower fails to make any payment with respect to the
Obligations as and when due or to perform any of its obligations in accordance
with the terms of the Loan Documents, then in each such event the other
Borrowers will make such payment with respect to, or perform, such obligations.
(c) The joint and several liability of each Borrower for the
Obligations shall be absolute and unconditional irrespective of and shall not be
subject to any reduction, limitation, impairment or termination for any reason,
including, without limitation, any claim of waiver, release, surrender,
alteration or compromise, and shall not be subject to any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of any of the Obligations. Without limiting the
generality of the foregoing, the obligations of each Borrower shall not be
discharged or impaired or otherwise affected by:
(i) any change in the manner, place or terms of payment
or performance and/or any change or extension of the time of payment or
performance of, renewal or alteration of, any Obligation, any security
therefor, or any liability incurred directly or indirectly in respect
thereof, or any rescission of, or amendment, waiver or other
modification of, or any consent to departure from any Loan Document,
including any increase in the Obligations resulting from the extension
of additional credit to any Borrower;
(ii) any sale, exchange, release, surrender, realization
upon any property at any time pledged or mortgaged to secure any of the
Obligations, and/or any offset against, or failure to perfect, or
continue the perfection of, any Lien in any such property, or delay in
the perfection of any such Lien, or any amendment or waiver of or
consent to departure from any other guaranty for any of the
Obligations;
(iii) the failure of Lender to assert any claim or demand
or to enforce any right or remedy against any Borrower or other Person
under the provisions of any Loan Document;
(iv) any settlement or compromise of any Obligation, any
security therefor or any liability incurred directly or indirectly in
respect thereof, and any subordination of the payment of any part
thereof to the payment of any obligation (whether due or not) of any
other Borrower to creditors of such other Borrower other than any other
Borrower;
(v) any manner of application of any collateral for the
Obligations or proceeds thereof, to any of the Obligations, or any
manner of sale or other disposition of any such collateral for all or
any of the Obligations or any other assets of any Borrower;
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(vi) any change, restructuring or termination of the
existence of any Borrower; or
(vii) any other agreement or circumstance of any nature
whatsoever that might in any manner or to any extent vary the risk of
any Borrower, or that might otherwise at law or in equity constitute a
defense available to, or a discharge of, the obligations of any
Borrower, or a defense to, or discharge of, any Borrower or other
Person relating to any of the Obligations.
(d) The joint and several liability of Borrowers shall continue in full
force and effect notwithstanding any absorption, merger, amalgamation or any
other change whatsoever in the name, membership, constitution or place of
formation of any Borrower.
(e) It is the intent of each Borrower that the indebtedness,
obligations and liability hereunder of no one of them be subject to challenge on
any basis. Accordingly, as of the date hereof, the liability of each Borrower
under the Loan Documents, together with all of its other liabilities to all
Persons as of the date hereof and as of any other date on which a transfer is
deemed to occur by virtue of this Agreement, calculated in an amount sufficient
to pay its probable net liabilities (including Contingent Obligations) as the
same become absolute and matured ("Dated Liabilities") is, and is to be, less
than the amount of the aggregate of a fair valuation of its property as of such
corresponding date ("Dated Assets"). To this end each Borrower hereby (i) grants
to and recognizes in each other Borrower, ratably, rights of subrogation and
contribution in the amount, if any, by which the Dated Assets of such Borrower,
but for the aggregate of subrogation and contribution in its favor recognized
herein, would exceed the Dated Liabilities of such Borrower or, as the case may
be (ii) acknowledges receipt of and recognizes its right to subrogation and
contribution ratably from each of the other Borrowers in the amount, if any, by
which the Dated Liabilities of such Borrower, but for the aggregate of
subrogation and contribution in its favor recognized herein, would exceed the
Dated Assets of such Borrower. In recognizing the value of the Dated Assets and
the Dated Liabilities, it is understood that Borrowers will recognize, to at
least the same extent of their aggregate recognition of liabilities hereunder,
their rights to subrogation and contribution hereunder. It is a material
objective of this Section that each Borrower recognizes rights to subrogation
and contribution rather than be deemed to be insolvent (or in contemplation
thereof) by reason of its joint and several obligations hereunder.
ARTICLE III. THE CREDITS
3.1 REVOLVING LOANS
(a) On the terms and subject to the conditions contained in this
Agreement, Lender agrees to make loans (each a "Revolving Loan") to Borrowers
from time to time until the Maturity Date in an aggregate amount not to exceed
at any time outstanding the lesser of (i) $10,000,000 or (ii) the Borrowing
Base. Borrowers may from time to time borrow, partially or wholly repay
outstanding Revolving Loans, and reborrow, subject to all the
22
limitations, terms and conditions contained herein. The Revolving Loans shall be
evidenced by a Note.
(b) If at any time the Available Credit is negative, Borrowers, without
demand or notice, shall immediately repay that portion of the Revolving Loans
necessary to cause the Available Credit to be zero. Borrowers shall repay the
outstanding principal balance of the Revolving Loans, together with all accrued
and unpaid interest and related fees on the Maturity Date.
(c) Borrowers' Agent, through an Authorized Representative, shall
request each advance of a Revolving Loan by giving Lender irrevocable written
notice or telephonic notice (confirmed promptly by fax or email), in the form of
Exhibit D attached hereto (each, a "Notice of Borrowing"), which specifies,
among other things:
(i) the aggregate principal amount of the requested
advances (which amount must be a minimum of $1,000,000 and in integral
multiples of $100,000 if a LIBOR Loan);
(ii) the proposed date of borrowing, which shall be a
Business Day;
(iii) whether such advance is to be a Prime Rate Loan or a
LIBOR Loan; and
(iv) if such advance is to be a LIBOR Loan, the length of
the Interest Period applicable thereto.
Each such Notice of Borrowing must be received by Lender not later than 10:00 AM
(San Francisco time) (x) on the date of borrowing if a Prime Rate Loan or (y) at
least three Business Days prior to the date of borrowing if a LIBOR Loan.
(d) From time to time before 10:00 AM (San Francisco time) on any
Business Day, Borrowers may make a voluntary prepayment, in whole or in part, of
the outstanding principal amount of any Revolving Loan(s) that are Prime Rate
Loans. From time to time before 10:00 AM (San Francisco time) on any Business
Day, Borrowers may make a voluntary prepayment, in whole or in part, of the
outstanding principal amount of any Revolving Loan(s) that are LIBOR Loans;
provided, however, that (i) Borrowers' Agent gives Lender notice of such
prepayment before 2:00 PM (San Francisco time) on the third Business Day before
the date of prepayment (which notice shall be irrevocable), (ii) each voluntary
partial prepayment must be in a minimum of $1,000,000 and in integral multiples
of $100,000; and (iii) any prepayment shall be subject to the provisions of
Section 3.8 hereof. Except as otherwise provided in Section 10.5, if the
Revolving Loans are prepaid in full and Lender's Commitment to make Revolving
Loans voluntarily terminated before the Maturity Date, Borrowers shall pay
Lender an early payment fee (as compensation to Lender for loss of bargain with
respect to the credit advanced hereunder and not as a penalty) of $200,000 if
terminated on or before the first anniversary of the Closing Date and $100,000
if terminated
23
after the first anniversary of the Closing Date, provided that the early payment
fee will not be due and payable if the Revolving Loans are refinanced by an
affiliate of Lender.
3.2 TERM LOANS
(a) On the Closing Date, Lender agrees to make two term loans to
Borrowers (collectively, the "Term Loans"), one term loan ("Term Loan A") in the
amount of $1,400,000 and the other term loan ("Term Loan B") in the amount of
$800,000. The Term Loans shall be evidenced by two Notes.
(b) Borrowers shall repay the unpaid principal amount of Term Loan A on
the Maturity Date and the unpaid principal amount of Term Loan B on the second
anniversary of the Closing Date, and prior thereto:
(i) On the first day of each month, beginning July 1,
2002, Borrowers shall repay the outstanding principal balance of Term
Loan A by making a payment equal to the lesser of (A) the outstanding
principal balance of Term Loan A or (B) $23,333.33, and repay the
outstanding principal balance of Term Loan B by making a payment equal
to the lesser of (A) the outstanding principal balance of Term Loan B
or (B) $33,333.33; and,
(ii) Borrowers may, from time to time on any Business Day,
make a voluntary prepayment, in whole or in part, of the outstanding
principal amount of the Term Loans; provided, however, that, except as
otherwise provided in Section 10.5, (A) no such prepayment of any LIBOR
Loan may be made on any day other than the last day of the Interest
Period for such Loan; (B) each such voluntary prepayment shall require
at least three but no more than five Business Days prior written notice
to Lender; and (C) each such voluntary prepayment shall be accompanied
by an early payment fee (as compensation to Lender for loss of bargain
with respect to the credit advanced hereunder and not as a penalty)
equal to 2% of the principal prepaid if prepaid on or before the first
anniversary of the Closing Date and 1% of the principal prepaid if
prepaid after the first anniversary of the Closing Date, provided that
the early payment fee will not be due and payable if the Term Loans are
prepaid pursuant to a refinancing by an affiliate of Lender. Each
prepayment of principal shall be applied in the inverse order of the
scheduled repayments set forth in clause (i) of the Term Loan being
prepaid. No amounts paid or prepaid with respect to the Term Loans may
be reborrowed
3.3 INTEREST/FEES
(a) Interest. The outstanding principal balance of each Loan shall bear
interest at the Applicable Rate. The foregoing notwithstanding, the rate of
interest applicable at all times during the continuation of an Event of Default
shall be the Applicable Rate plus 200 basis points. All fees, expenses and other
amounts not paid when due shall bear interest (from the date due until paid) at
the rate set forth in the preceding sentence.
24
(b) Unused Line Fee. On the first day of each month and on the Maturity
Date, Borrowers shall pay to Lender an unused line fee equal to (i) the amount
by which $10,000,000 is greater than the total of the average daily outstanding
balance of the Revolving Loans for the immediately preceding month or period
multiplied by (ii) 0.25% per annum.
(c) Administration Fee. Borrowers shall pay Lender an administration
fee of $4,000 on the first day of each month beginning July 1, 2002 and ending
the earlier of (i) the payment on June 1, 2004 or (ii) the payment in full, in
cash, of all other Obligations and termination of the Commitments.
(d) Restructuring Fee. On the Closing Date, Borrowers shall pay Lender
a restructuring fee of $122,000.
(e) FREP Fee. On the first day of each of Parent's fiscal quarters
occurring after the FREP Effective Date, Borrowers shall pay Lender an amount
equal to the FREP Fee Amount.
(f) Computation. All interest and per annum fees shall be computed on
the basis of a 360-day year, actual days elapsed. For purposes of calculating
interest on the Loans, each payment received as a principal reduction will be
applied (conditional upon final collection) one Business Day following the date
of receipt by Lender.
(g) Payment. Interest shall be payable monthly, in arrears, on the
first day of each month, on the last day of each Interest Period (with respect
to LIBOR Loans), on the Maturity Date and on the due date for Term Loan B (with
respect to Term Loan B).
3.4 INTEREST OPTIONS
(a) Election. Subject to the requirement that each LIBOR Loan be in a
minimum amount of $1,000,000 and in integral multiples of $100,000 and the
limitation in Section 3.4(b) regarding the number of Interest Periods
outstanding, (i) except as otherwise provided herein, at any time when a Default
is not continuing Borrowers' Agent may convert all or any portion of a Prime
Rate Loan to a LIBOR Loan for a Interest Period designated by Borrowers' Agent,
and (ii) at any time Borrowers' Agent may convert all or a portion of a LIBOR
Loan at the end of the Interest Period applicable thereto to a Prime Rate Loan
or, if no Default is continuing, to a LIBOR Loan for a new Interest Period
designated by Borrowers' Agent. If Borrowers' Agent has not made the required
interest rate conversion or continuation election prior to the last day of any
Interest Period, Borrowers shall be deemed to have elected to convert such LIBOR
Loan to a Prime Rate Loan.
(b) Maximum Number of Interest Periods. At no time shall there be more
than six different Interest Periods outstanding.
(c) Notice to Lender. Borrowers' Agent shall request each interest rate
conversion or continuation by giving Lender irrevocable written notice or
telephonic notice (confirmed promptly in writing), in the form of Exhibit E
attached hereto (a "Notice of
25
Conversion or Continuation"), that specifies, among other things: (i) the Loan
to which such Notice of Conversion or Continuation applies; (ii) the principal
amount that is the subject of such conversion or continuation; (iii) the
proposed date of such conversion or continuation, which shall be a Business Day;
and (iv) if such Notice pertains to a LIBOR Loan, the length of the applicable
Interest Period. Any such Notice of Conversion or Continuation must be received
by Lender not later than 10:00 AM (San Francisco time) (i) at least one Business
Day prior to the effective date of any Prime Rate interest selection, and (ii)
at least three Business Days prior to the effective date of any LIBOR interest
selection.
3.5 OTHER PAYMENT TERMS
(a) Automatic Payment. Lender, in its sole discretion, may (but is not
obligated to) pay any principal, interest, fees and other amounts due under the
Loan Documents as they become due by adding the amount thereof to the then
outstanding balance of the Revolving Loans and/or debiting the Cash Collateral
Account.
(b) Place. Borrowers shall make all payments due to Lender under the
Loan Documents by payment to Lender in lawful money of the United States and in
same day or immediately available funds not later than 11:00 AM (San Francisco
time) on the date due.
(c) Date. Whenever any payment due hereunder shall fall due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall be included in the computation of
interest or fees, as the case may be.
(d) Application of Payments. All payments under the Loan Documents
(including prepayments) shall be applied first to unpaid fees, costs and
expenses then due and payable under the Loan Documents, second to accrued
interest then due and payable under the Loan Documents and finally to reduce the
principal amount of the other outstanding Loans.
3.6 CHANGE OF CIRCUMSTANCES
(a) Inability to Determine Rate. If Lender at any time determines that
adequate and reasonable means do not exist for ascertaining LIBOR, or that LIBOR
does not accurately reflect the cost to Lender of making or maintaining LIBOR
interest rates hereunder, then Lender shall give telephonic notice (promptly
confirmed in writing) to Borrowers' Agent of such determination. If such notice
is given and until such notice has been withdrawn in writing by Lender, no LIBOR
interest option may be selected by Borrowers' Agent and each LIBOR Loan,
subsequent to the end of the Interest Period applicable thereto, shall become a
Prime Rate Loan.
(b) Illegality: Termination of Commitment. Notwithstanding any other
provisions herein, if any Change of Law shall make it unlawful for Lender (i) to
make a LIBOR interest rate available, or (ii) to maintain LIBOR interest rates
hereunder, then, in the former event, any obligation of Lender to make available
such unlawful LIBOR interest rate shall be suspended until such time as it is
once again lawful to make such rate available, and in
26
the latter event, any such unlawful LIBOR interest rate then outstanding shall
be converted so that interest is determined in relation to the Prime Rate
pursuant to the terms of this Agreement; provided, however, if any such Change
in Law shall permit a LIBOR interest rate until the expiration of the Interest
Period relating thereto, then such permitted LIBOR interest rate shall continue
as such until the end of such Interest Period. If as a result of this Section a
LIBOR interest rate is converted to a lower interest rate, Borrowers shall pay
to Lender immediately upon demand such amount or amounts as may be necessary to
compensate Lender for any loss in connection therewith.
(c) Charges: Illegality. Upon the occurrence of any event described in
Section 3.6(b) hereof, Borrowers shall pay to Lender, on demand, such amount or
amounts as may be necessary to compensate Lender for any fines, fees, charges,
penalties or other amounts payable by Lender as a result thereof and that are
attributable to LIBOR interest rates made available to Borrowers hereunder. In
determining which amounts payable by Lender and/or losses incurred by Lender are
attributable to LIBOR interest rates made available to Borrowers hereunder, any
reasonable allocation made by Lender among its operations shall, in the absence
of manifest error, be conclusive and binding upon Borrowers.
(d) Increased LIBOR Loan Costs, etc. Borrowers shall reimburse Lender
for any increase in the cost to Lender of, or any reduction in the amount of any
sum receivable by Lender in respect of, making, continuing or maintaining (or of
its obligation to make, continue or maintain) any Loans as, or of converting (or
of its obligation to convert) any Loans into, LIBOR Loans which results from any
Change of Law announced after the Closing Date. Lender shall promptly notify
Borrowers' Agent in writing of the occurrence of any such event, such notice to
state, in reasonable detail, the reasons therefor, that substantially all
similarly situated borrowers are being treated similarly and the calculation of
the additional amount required fully to compensate Lender for such increased
cost or reduced amount. Such additional amounts shall be payable by Borrowers
directly to Lender within five days of Borrowers' Agent's receipt of such
notice, and such notice shall, in the absence of manifest error, be conclusive
and binding on Borrowers.
(e) Capital Requirements. If Lender determines that any Change of Law
regarding capital adequacy which is announced after the Closing Date has or
shall have the effect of reducing the rate of return on the capital of Lender
(or any entity controlling Lender) as a consequence of Lender's obligations
hereunder to a level below that which Lender or such entity would have achieved
but for such Change of Law (taking into consideration Lender's or such entity's
policies with respect to capital adequacy), by an amount deemed by Lender to be
material, then from time to time, within fifteen days after demand by Lender
(with a copy to Lender) to Borrowers' Agent, Borrowers shall pay to Lender or
such entity such additional amounts as shall compensate Lender or such entity
for such reduction. Any request by Lender under this Section shall set forth in
reasonable detail the basis of the calculation of such additional amounts, shall
state that substantially all similarly situated borrowers are being treated
similarly and shall, in the absence of manifest error, be conclusive and binding
on Borrowers for all purposes.
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3.7 TAXES ON PAYMENTS
All payments made by Borrowers under the Loan Documents shall be made
free and clear of, and without deduction or withholding for or on account of,
any present or future income, stamp or other taxes, levies, imposts, duties,
charges, fees, deductions or withholdings, now or hereafter imposed, levied,
collected, withheld or assessed by any Governmental Authority (except taxes
based on overall net income imposed on Lender) (with all such non-excluded
taxes, levies, imposts, duties, charges, fees, deductions and withholdings being
hereinafter referred to herein as "Taxes"). Except to the extent that
withholding results from a failure of a Lender to comply with Section 3.7(b), if
any Taxes are required to be withheld from any amounts payable to Lender under
the Loan Documents, the amounts so payable to Lender or Lender shall be
increased to the extent necessary to yield to Lender or Lender (after payment of
all Taxes) interest or any such other amounts payable hereunder at the rates or
in the amounts specified in the Loan Documents. Whenever any Taxes are payable
by Borrowers, as promptly as possible thereafter, Borrowers' Agent shall send to
Lender for its own account or for the account of Lender, as the case may be, a
certified copy of an original official receipt received by Borrowers showing
payment thereof. If Borrowers fail to pay any Taxes when due to the appropriate
taxing authority or Borrowers' Agent fails to remit to Lender the required
receipts or other required documentary evidence, Borrowers shall indemnify
Lender for any incremental taxes, interest or penalties that may become payable
by Lender as a result of any such failure. This Section shall survive the
payment in full and performance of all of Borrowers' other Obligations.
3.8 FUNDING LOSS INDEMNIFICATION
Borrowers will indemnify Lender upon demand against any loss or expense
which Lender may sustain or incur as a consequence of (a) any payment of any
portion of the principal of a LIBOR Loan before the last day of the Interest
Period applicable thereto (whether through voluntary prepayment, acceleration or
otherwise), or (b) any failure to borrow the full amount of a requested LIBOR
Loan set forth in any Notice of Borrowing or to convert or continue at the LIBOR
interest option any portion of a Loan in accordance with a Notice of Conversion
or Continuation (in either event, whether as a result of the failure to satisfy
any applicable conditions or otherwise). The determination by Lender of the
amount payable under this Section shall, in the absence of manifest error, be
conclusive and binding on Borrowers for all purposes. In determining such
amount, Lender may use any reasonable averaging and attribution methods and
Lender shall be deemed to have actually funded and maintained all LIBOR Loans
during the applicable Interest Period through the purchase of deposits having a
term corresponding to such Interest Period and bearing interest at a rate equal
to LIBOR for such Interest Period. This Section shall survive the payment in
full and performance of all of Borrowers' other Obligations.
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ARTICLE IV. COLLECTION AND ADMINISTRATION
4.1 LOCKBOX AND CASH COLLATERAL ACCOUNT
(a) Lockbox. Borrowers, at their expense and in the manner requested by
Lender from time to time, shall direct that remittances and all other
collections and proceeds of Accounts and other Collateral shall be deposited
into a lockbox account maintained in Lender's name. In connection therewith,
Borrowers shall execute such lockbox agreements as Lender shall require.
(b) Cash Collateral Account. Borrowers shall maintain with Wells Fargo
Bank a non-interest bearing deposit account over which Borrowers shall have no
control ("Cash Collateral Account") and into which the proceeds of all
Borrowers' Rights to Payment shall be deposited immediately upon their receipt.
(c) Immediate Deposit. Borrowers and all of their affiliates,
subsidiaries, shareholders, directors, employees or agents shall, acting as
trustee for Lender, receive, as the property of Lender, any monies, checks,
notes, drafts, or any other payment relating to and/or proceeds of Rights to
Payment or other Collateral which come into their possession or under their
control and immediately upon receipt thereof, shall deposit or cause the same to
be deposited in the Cash Collateral Account, or remit the same or cause the same
to be remitted, in kind, to Lender. In no event shall the same be commingled
with Borrower's own funds.
4.2 STATEMENTS
From time to time, Lender may render to Borrowers' Agent a statement
setting forth the balance in the loan account(s) maintained by Lender for
Borrowers pursuant to this Agreement, including principal, interest, fees, costs
and expenses. Each such statement shall be subject to subsequent adjustment by
Lender but shall, absent manifest errors or omissions, be considered correct and
deemed accepted by Borrowers and conclusively binding upon Borrowers as an
account stated except to the extent that Lender receives notice from Borrowers'
Agent of any specific exceptions thereto within thirty days after the date such
statement has been mailed by Lender. Until such time as Lender shall have
rendered to Borrowers' Agent a written statement as provided above, the balance
in the loan account(s) shall be presumptive evidence of the amounts due and
owing to Lender by Borrowers.
4.3 PAYMENTS
All amounts due under any of the Loan Documents shall be payable to
such account as Lender may designate from time to time. Borrowers shall make all
payments due hereunder free and clear of, and without deduction or withholding
for or on account of, any setoff, counterclaim, defense, duties, taxes, levies,
imposts, fees, deductions, withholding, restrictions or conditions of any kind.
If after receipt of any payment of, or proceeds of Collateral applied to the
payment of, any of the Obligations Lender is required to surrender or return
such payment or proceeds to any person or entity for any reason, then the
Obligations intended to be satisfied by such payment or proceeds shall be
reinstated and continue and this Agreement
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shall continue in full force and effect as if such payment or proceeds had not
been received by Lender. Borrowers hereby indemnify and hold Lender harmless for
the amount of any payments or proceeds surrendered or returned. This Section
shall remain effective notwithstanding any contrary action which may be taken by
Lender in reliance upon such payment or proceeds. This Section shall survive the
payment in full and performance of all of Borrowers' other Obligations.
ARTICLE V. SECURITY
5.1 GRANT OF SECURITY INTEREST
Borrowers hereby grant to Lender (and reaffirm their prior grant to
Lender of) a security interest in all of the Collateral as security for the full
and prompt payment in cash and performance of the Obligations.
5.2 PERFECTION; DUTY OF CARE
(a) Until all the Obligations have been fully satisfied and paid in
cash and the Commitments terminated, Borrowers shall perform all steps requested
by Lender to perfect, maintain and protect Lender's security interest in the
Collateral, including, without limitation, delivering all Collateral in which
Lender's security interest may be perfected by possession together with such
indorsements as Lender may request. Borrowers hereby authorize Lender to file
such UCC financing statements as Lender deems appropriate to perfect the
security interests granted to Lender.
(b) Lender shall have the right at all times, and from time to time, to
contact Borrowers' account debtors to verify Rights to Payment.
(c) Borrowers shall pay or cause to be paid all taxes, assessments and
governmental charges levied or assessed or imposed upon or with respect to the
Collateral or any part thereof; provided, however, Borrowers shall not be
required to pay any tax if the validity and/or amount thereof is being contested
in good faith and by appropriate and lawful proceedings promptly initiated and
diligently conducted of which Borrowers' Agent has given prior notice to Lender
and for which appropriate reserves have been established and so long as levy and
execution have been and continue to be stayed. If Borrowers fail to pay or so
contest and reserve for such taxes, assessments and governmental charges, Lender
may (but shall not be required to) pay the same and add the amount of such
payment to the principal of the Revolving Loans.
(d) In order to protect or perfect the security interest granted under
the Loan Documents, Lender may discharge any Lien that is not a Permitted Lien
or bond the same, pay for any insurance that Borrowers have failed to maintain
as required by this Agreement, maintain guards, pay any service bureau, or
obtain any record and add the same to the principal of the Revolving Loans.
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(e) Lender shall have no duty of care with respect to the Collateral,
except to exercise reasonable care with respect to the Collateral in its
custody, but shall be deemed to have exercised reasonable care if such property
is accorded treatment either (i) substantially equal to that which it accords
its own property or (ii) as Borrowers' Agent requests in writing, provided that
no failure to comply with any such request nor any omission to do any such act
requested by Borrowers' Agent shall be deemed a failure to exercise reasonable
care. Lender's failure to take steps to preserve rights against any parties or
property shall not be deemed to be a failure to exercise reasonable care with
respect to the Collateral in its custody.
5.3 REAL ESTATE SECURITY; RELEASE
As additional security for the full and prompt payment in cash and
performance of the Obligations, Williams Controls Industries, Inc. ("Grantor")
has granted to Lender a first mortgage lien on certain real property and
improvements thereon located in Washington County, Oregon, which Lien has been
perfected by recording a Line of Credit Deed of Trust, Security Agreement,
Assignment of Leases and Rents and Fixture Filing ("Trust Deed") in the real
estate records of Washington County, Oregon. Lender agrees to execute and
deliver to Borrowers' Agent a Request for Reconveyance for the Trust Deed if (i)
Grantor finances the property subject to the Trust Deed in a financing
transaction resulting in net proceeds to Borrowers of at least $750,000 and
otherwise on terms acceptable to Lender and (ii) Borrowers prepay the
outstanding principal balance of the Term Loans by at least $750,000
contemporaneously with such financing. Such prepayment will be applied in
accordance with Section 3.2(b)(ii), except that no early payment fee shall be
due and payable with respect to such prepayment.
ARTICLE VI. REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Lender,
subject to the exceptions set forth on the Disclosure Letter, and based on the
assumption that the AIP Transactions have closed, which representations and
warranties shall survive the execution of this Agreement and shall continue in
full force and effect until the performance and payment in full, in cash, of all
Obligations:
6.1 LEGAL STATUS; SUBSIDIARIES
(a) Each Borrower and Subsidiary is a corporation validly organized and
existing and in good standing under the laws of the jurisdiction of its
incorporation, is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction where the nature of its business
requires such qualification, and has full power and authority and holds all
Permits and other approvals to enter into and perform the Obligations and to own
and hold under lease its property and to conduct its business substantially as
currently conducted by it, except where the failure to have so qualified or have
such power and authority could not reasonably be expected to have a Material
Adverse Effect. Each Borrower, except Parent, is a direct, wholly-owned
subsidiary of Parent, and each Borrower, except Parent, does not otherwise own
or hold, directly or indirectly, any Stock or Stock Equivalents.
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(b) The classes of Stock of each Borrower, number of authorized shares,
number of outstanding shares and par values or other designations of such Stock
or other Stock Equivalents of Borrowers are set forth in Section 6.1 of the
Disclosure Letter. All of the outstanding Stock and Stock Equivalents issued by
Borrower are duly and validly issued, fully paid and nonassessable, and none of
such issued and outstanding Stock or Stock Equivalents has been issued in
violation of, or subject to any preemptive or subscription rights.
6.2 DUE AUTHORIZATION; NO VIOLATION
The execution, delivery and performance by Borrower of the Loan
Documents executed or to be executed by it are within Borrower's powers, have
been duly authorized by all necessary action, and do not (a) contravene
Borrower's Organic Documents; (b) contravene any contractual restriction or
Governmental Rule binding on or affecting Borrower; or (c) result in, or require
the creation or imposition of, any Lien on Borrower's or Subsidiary's property,
except Liens for the benefit of Lender.
6.3 GOVERNMENT APPROVAL, REGULATION
No authorization or approval or other action by, and no notice to or
filing with, any Governmental Authority or other Person is required for the due
execution, delivery or performance by Borrower of the Loan Documents to which it
is a party. No Borrower or Subsidiary is an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, or a "holding
company", or a "subsidiary company" of a "holding company", or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company", within
the meaning of the Public Utility Holding Company Act of 1935, as amended. No
Borrower or Subsidiary is engaged in the business of extending credit for the
purpose of purchasing or carrying margin stock, and no proceeds of any Loans
will be used for a purpose which violates, or would be inconsistent with,
Regulation U or X of the Board of Governors of the Federal Reserve System
6.4 VALIDITY; ENFORCEABILITY
The Loan Documents executed by Borrower constitute, the legal, valid
and binding obligations of Borrower enforceable in accordance with their
respective terms.
6.5 CORRECTNESS OF FINANCIAL STATEMENTS
The consolidated financial statements of Parent and Subsidiaries dated
as of April 30, 2002 heretofore delivered to Lender, (a) present fairly in all
material respects the financial condition and results of operations of Parent
and Subsidiaries; (b) disclose all liabilities of Parent and Subsidiaries that
are required to be reflected or reserved against under GAAP, whether liquidated
or unliquidated, fixed or contingent; and (c) have been prepared in accordance
with GAAP consistently applied. Except as disclosed to Lender pursuant to
Section 8.3, since the date of such financial statements there has been no
change or changes that have resulted in, or could reasonably be expected to
result in, a Material Adverse Effect.
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All of Borrower's Contingent Obligations existing as of the Closing Date are
listed on Exhibit F.
6.6 TAXES
Each Borrower and Subsidiary has filed, or caused to be filed, all
federal, state, local and foreign tax returns required to be filed by it, and
has paid, or caused to be paid, all taxes as are shown on such returns, or on
any assessment received by it, to the extent that such taxes have become due,
except as otherwise contested in good faith. Borrower has set aside proper
amounts on its books, determined in accordance with GAAP, for the payment of all
taxes for the years that have not been audited by the respective tax authorities
and for taxes being contested by it.
6.7 LITIGATION, LABOR CONTROVERSIES
There is no pending or, to the knowledge of Borrower, threatened
litigation, action, proceeding, or labor controversy affecting any Borrower or
Subsidiary, or any of their respective properties, businesses, assets or
revenues, which could reasonably be expected to have a Material Adverse Effect.
As of the Closing Date, no Borrower or Subsidiary is a party to, and has no
obligations under, any collective bargaining agreement.
6.8 TITLE TO PROPERTY, LIENS
Each Borrower and Subsidiary has good, indefeasible, and merchantable
title to and ownership of the Collateral and its real property, free and clear
of all Liens, except Permitted Liens.
6.9 ERISA COMPLIANCE
Each Plan is in compliance in all material respects with the applicable
provisions of ERISA, the Code and other Government Rules. Each Plan that is
intended to qualify under Section 401(a) of the Code has received a favorable
determination letter from the IRS or an application for such a letter is
currently being processed by the IRS with respect thereto and, to the best of
Borrower's knowledge, nothing has occurred which would prevent, or cause the
loss of, such qualification. Borrower and each ERISA Affiliate have made all
required contributions to each Plan subject to Section 412 of the Code, and no
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made with respect to any Plan.
There are no pending or, to the best of Borrower's knowledge, threatened claims,
actions or lawsuits, or action by any Governmental Authority, with respect to
any Plan that could reasonably be expected to have a Material Adverse Effect.
There has been no prohibited transaction or violation of the fiduciary
responsibility rules with respect to any Plan that has resulted or could
reasonably be expected to result in a Material Adverse Effect. No ERISA Event
has occurred or is reasonably expected to occur. No Pension Plan has any
Unfunded Pension Liability. Neither Borrower nor any ERISA Affiliate has
incurred, or reasonably expects to incur, any liability under Title IV of ERISA
with respect to any Pension Plan (other than premiums due and not
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delinquent under Section 4007 of ERISA). Neither Borrower nor any ERISA
Affiliate has incurred, or reasonably expects to incur, any liability (and no
event has occurred which, with the giving of notice under Section 4219 of ERISA,
would result in such liability) under Sections 4201 or 4243 of ERISA with
respect to a Multiemployer Plan. Neither Borrower nor any ERISA Affiliate has
engaged in a transaction that could be subject to Sections 4069 or 4212(c) of
ERISA.
6.10 OTHER OBLIGATIONS
No Borrower or Subsidiary is in default with respect to (i) any of its
Contractual Obligations default of which could reasonably be expected to result
in a Material Adverse Effect or (ii) any Debt.
6.11 ENVIRONMENTAL MATTERS
Each Borrower and Subsidiary is in compliance in all material respects
with all Environmental Laws applicable to it, other than such noncompliance as
in the aggregate could not reasonably be expected to have a Material Adverse
Effect. No Borrower or Subsidiary has received notice that it is the subject of
any federal or state investigation evaluating whether any Remedial Action is
needed, except for such notices received that in the aggregate do not refer to
Remedial Actions that could reasonably be expected to result in a Material
Adverse Effect. There have been no Releases by any Borrower or Subsidiary that
could result in a Material Adverse Effect.
6.12 NO BURDENSOME RESTRICTIONS; NO DEFAULTS
(a) No Borrower or Subsidiary is a party to any Contractual Obligation
the compliance with which could reasonably be expected to have a Material
Adverse Effect or the performance of which, either unconditionally or upon the
happening of an event, will result in the creation of a Lien (other than
Permitted Liens) on its property or assets.
(b) No facts or circumstances exist which would constitute a breach of
any obligation, representation or warranty of Borrower hereunder if this
Agreement were in effect immediately prior to Borrower's execution hereof.
(c) There is no Governmental Rule the compliance with which by any
Borrower or Subsidiary could reasonably be expected to have a Material Adverse
Effect.
6.13 NO OTHER VENTURES
No Borrower or Subsidiary is engaged in any joint purchasing
arrangement, joint venture, partnership or other joint enterprise with any other
Person.
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6.14 INSURANCE
All current policies of insurance of any kind or nature owned by or
issued to Borrower and the Subsidiaries, including, without limitation, policies
of fire, theft, product liability, public liability, property damage, other
casualty, employee fidelity, workers' compensation and employee health and
welfare insurance, are in full force and effect and are of a nature and provide
such coverage as is sufficient and as is customarily carried by companies of its
size and character. No Borrower or Subsidiary has any reason to believe that it
will be unable to comply with Section 8.5.
6.15 FORCE MAJEURE
No Borrower's or Subsidiary's business or properties is currently
suffering from the effects of any fire, explosion, accident, strike, lockout or
other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of
the public enemy or other casualty (whether or not covered by insurance), other
than those the consequences of which in the aggregate could not reasonably be
expected to have a Material Adverse Effect.
6.16 INTELLECTUAL PROPERTY
Each Borrower and Subsidiary owns or licenses or otherwise has the
right to use all material licenses, Permits, patents, patent applications,
trademarks, trademark applications, service marks, trade names, copyrights,
copyright applications, franchises, authorizations and other intellectual
property rights and General Intangibles that are necessary for the operation of
its businesses, without infringement upon or conflict with the rights of any
other Person with respect thereto, including, without limitation, all trade
names, which infringement or conflict could reasonably be expected to have a
Material Adverse Effect. No slogan or other advertising device, product,
process, method, substance, part or other material now employed, or now
contemplated to be employed, by any Borrower or Subsidiary infringes upon or
conflicts with any rights owned by any other Person, which infringement or
conflict could reasonably be expected to have a Material Adverse Effect, and no
claim or litigation regarding any of the foregoing is pending or, to its
knowledge, threatened, the existence of which could reasonably be expected to
have a Material Adverse Effect.
6.17 CERTAIN INDEBTEDNESS
The Disclosure Letter identifies as of the Closing Date all
Indebtedness of Parent and the Subsidiaries which is either (a) Debt or (b)
which was incurred outside of the ordinary course of the business.
6.18 SOLVENCY
Borrower has received consideration that is the reasonably equivalent
value of the obligations and liabilities that it has incurred to Lender.
Borrower is not insolvent as defined in any applicable state or federal statute,
nor will it be rendered insolvent by the execution and delivery of this
Agreement or the other Loan Documents. Borrower does not intend to, nor
35
does it believe that it will, incur debts beyond its ability to pay them as they
mature. Borrower has capital sufficient to carry on its business and
transactions and all business and transactions in which it is about to engage.
6.19 CHIEF EXECUTIVE OFFICE AND OTHER LOCATIONS
Borrower's chief executive office and principal place of business is
set forth in Section 6.19 of the Disclosure Letter. Borrower's books and records
are located at its chief executive office, and the only other offices and/or
locations where it keeps the Collateral (except for inventory which is in
transit) or conducts any of its business are set forth in Section 6.19 of the
Disclosure Letter.
6.20 FISCAL YEAR
Parent's fiscal year ends on September 30.
6.21 COMPLIANCE WITH LAW
Each Borrower and Subsidiary is in compliance with all Governmental
Rules and law, except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect.
6.22 NO SUBORDINATION
There is no agreement, indenture, contract or instrument to which any
Borrower or Subsidiary is a party or by which it may be bound that requires the
subordination in right of payment of any of the Obligations to any other
obligation of it.
6.23 TRUTH, ACCURACY OF INFORMATION
All factual information furnished by each Borrower and Subsidiary to
Lender in connection with the Loan Documents is accurate in all material
respects and does not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the information furnished, in
light of the circumstances under which furnished, not misleading (it being
recognized that the projections and forecasts provided by Borrowers are not to
be viewed as facts and that actual results during the period covered by any such
projections and forecasts may differ from the projected or forecasted results).
6.24 RIGHTS TO PAYMENT
Unless otherwise noted by it, each Right to Payment listed or referred
to on its trial balance, balance sheet or the books or records, or referred to
in any report to Lender (other than Rights to Payment which are proceeds of
letters of credit, insurance proceeds, contract rights, chattel paper,
instruments and documents not arising directly out of a sale or lease of goods
or services) is and will be free and clear of Liens in favor of any Person other
than Lender, will cover a bona fide sale or lease and delivery of goods usually
dealt in by it in the
36
ordinary course of its business or will cover the rendition of services by it to
customers of a kind ordinarily rendered in the ordinary course of its business,
and will be for a liquidated amount from a customer competent to contract
therefor and maturing as stated by it.
6.25 SUBORDINATION OF CONVERTIBLE DEBT
Each holder of Convertible Debentures is subject to a subordination
agreement identical to the one attached as Subscription Document 2 to the
Parent's Confidential Private Placement Memorandum dated March 27, 2000 with
respect to the Convertible Debentures. Parent hereby reaffirms that it has duly
executed and is bound by the Acknowledgment by Borrower incorporated as part of
said subordination agreement with respect to each of the outstanding Convertible
Debentures.
ARTICLE VII. CONDITIONS
7.1 CONDITIONS OF INITIAL EXTENSION OF CREDIT
The obligation of Lender to extend any credit contemplated by this
Agreement is subject to the fulfillment to Lender's satisfaction of all of the
following conditions:
(a) Documentation. Lender shall have received, in form and substance
satisfactory to it, each of the following duly executed:
(i) this Agreement, the Notes and such security
instruments as Lender may require;
(ii) from Borrower, a certificate of its secretary or
assistant secretary dated as of the Closing Date as to: (A) resolutions
of its board of directors or other governing body then in full force
and effect authorizing the execution, delivery and performance of each
of the Loan Documents to be executed by it; (B) its Organic Documents,
a copy of each of which is attached; and (C) the incumbency and
signatures of those of its officers authorized to act with respect to
the Loan Documents to be executed by it;
(iii) with respect to Borrower: (A) from the Secretary of
State (or other appropriate governmental official) of its jurisdiction
of incorporation or organization, a good standing certificate or
certificate of existence, as applicable, and a certified copy of its
filed Organic Documents; and (B) a certificate of good standing as a
foreign corporation in each jurisdiction described in Section 6.1;
(iv) the opinion of Davis Wright Tremaine, LLP, counsel to
Borrowers, as to such matters as Lender shall reasonably require;
(v) evidence satisfactory to Lender that Parent has
received since May 31, 2002 cash proceeds of additional equity on terms
acceptable to Lender in an amount not less than $11,000,000 net of fees
paid to the investors and their affiliates;
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(vi) evidence satisfactory to Lender that the due date of
the Convertible Debentures has been extended to a date not earlier than
the second anniversary of the Closing Date;
(vii) evidence satisfactory to Lender that the Bridge Debt
has been repaid and/or converted to equity on terms acceptable to
Lender; and
(viii) such other documents as Lender may require.
(b) Financial Condition. There is no event or circumstance that can
reasonably be expected to have a Material Adverse Effect.
(c) Fees and Expenses. Borrowers shall have paid all fees and invoiced
costs and expenses then due pursuant to the terms of this Agreement.
(d) Insurance. Borrowers' Agent shall have delivered to Lender evidence
of the insurance coverage, including loss payable endorsements, required
pursuant to Section 8.5.
(e) Availability. Borrowers, on a pro forma basis, shall have Available
Credit of at least $2,000,000 immediately after the initial funding of the
Loans, repayment of Borrowers' Indebtedness intended to repaid on the Closing
Date (including, without limitation, the amounts described in Section 8.18),
payment of all accounts payable more than 60 days past due (except accounts
payable subject to a written payment agreement acceptable to Lender and accounts
payable of Inactive Borrowers) and payment of all transaction expenses.
(f) AIP Transactions. Lender shall have evidence satisfactory to it
that the components of the AIP Transactions which were supposed to close on or
before the Closing Date have closed on terms acceptable to Lender, and Lender
shall be satisfied that the components of the AIP Transactions which are
supposed to close after the Closing Date shall close on terms acceptable to
Lender.
7.2 CONDITIONS OF EACH EXTENSION OF CREDIT
Lender's obligation to make any credit available under the Loan
Documents (including any Loan being made by Lender on the Closing Date) shall be
subject to the further conditions precedent that:
(a) the following statements shall be true on the date such credit is
advanced, both before and after giving effect thereto and to the application of
the proceeds therefrom, and the acceptance by Borrowers' Agent of the proceeds
of such credit shall constitute a representation and warranty by Borrowers that
on the date such credit is advanced such statements are true:
(i) the representations and warranties of Borrowers
contained in the Loan Documents are correct in all material respects on
and as of such date as though made
38
on and as of such date or, as to those representations and warranties
limited by their terms to a specified date, were correct in all
material respects on and as of such date; and
(ii) no Default is continuing or would result from the
credit being advanced;
(b) advancing such credit on such date does not violate any
Governmental Rule and is not enjoined, temporarily, preliminarily or
permanently;
(c) Lender shall have received such additional documents, information
and materials as Lender may reasonably request; and
(d) no event or circumstance exists that could reasonably be expected
to have a Material Adverse Effect.
ARTICLE VIII. AFFIRMATIVE COVENANTS
Borrowers covenant that so long as Lender remains committed to extend
credit to Borrowers pursuant to the terms hereof and until performance and
payment in full, in cash, of all Obligations and termination of the Commitments,
Borrowers shall:
8.1 PAYMENTS
Pay all principal, interest, fees and other liabilities due under any
of the Loan Documents at the times and place and in the manner specified
therein.
8.2 ACCOUNTING RECORDS
Keep, and cause each Subsidiary to keep, accurate books and records of
its financial affairs sufficient to permit the preparation of financial
statements therefrom in accordance with GAAP.
8.3 INFORMATION AND REPORTS
Provide to Lender all of the following, in form and detail reasonably
satisfactory to Lender:
(i) as soon as available but not later than 90 days after
and as of the end of each fiscal year of Parent, a copy of the annual
unqualified audit report for such fiscal year for Parent and the
Subsidiaries, including therein consolidated balance sheets of Parent
and the Subsidiaries as of the end of such fiscal year and consolidated
statements of earnings and cash flow of Parent and the Subsidiaries for
such fiscal year, in each case certified in a manner acceptable to
Lender by independent public accountants acceptable to Lender, together
with a report from such accountants to the effect that, in making the
examination necessary for the signing of such annual report
39
by such accountants, they have not become aware of any Default that has
occurred and is continuing, or, if they have become aware of such
Default, describing such Default and the steps, if any, of which they
are aware being taken to cure it;
(ii) as soon as available but not later than 35 days after
and as of the end of each month that is not the last month of a fiscal
quarter, nor later than 45 days after and as of the end of each month
that is the last month of a fiscal quarter, consolidated and
consolidating balance sheets of Parent and the Subsidiaries as of the
end of such month and consolidated and consolidating statements of
earnings and cash flow of Parent and the Subsidiaries for such month
and for fiscal year-to-date, together with a comparison of Parent's
financial condition for such quarter and year-to-date with the
corresponding month and year-to-date in Parent's immediately preceding
fiscal year;
(iii) contemporaneously with the delivery of each financial
statement required hereby, a certificate of Parent's principal
financial officer substantially in the form of Exhibit G attached
hereto (A) certifying that such financial statements fairly present in
accordance with GAAP such balance sheet as of the end of such
month/year and income and cash flow for such month/year and
year-to-date (subject to normal year-end adjustments and the absence of
footnotes in the case of monthly financial statements), (B) stating
that no Default existed at any time during the period covered by such
statement, except for those events or conditions, if any, described in
such certificate in reasonable detail together with a statement of any
action taken or proposed to be taken with respect thereto, and (C)
setting forth the calculations required to establish compliance by
Borrowers with the covenants set forth in Article X;
(iv) within 30 days before the beginning of each of
Parent's fiscal years which begin after September 30, 2003, Borrowers'
Agent shall furnish to Lender detailed projections setting forth
Parent's projected consolidated and consolidating income and cash flow
for each month of such fiscal year and projected consolidated and
consolidating balance sheet as of the end of each month of such fiscal
year, together with a certificate of Parent's principal financial
officer setting forth the assumptions on which such projections are
based and certifying that such assumptions are reasonable in light of
past experience and reasonably anticipated future results of
operations;
(v) not later than 10 days after and as of the end of
each month: (i) a report of the aging (based on due date) of Borrower's
accounts payable and accounts receivable as of the end of the preceding
month; and (ii) an inventory certification report and a report of
Borrower's inventory, valued at the lower of cost (determined on the
"first-in, first-out" basis) or market value as of the end of the
preceding month, which report shall separately identify, by category,
raw materials, work in process and finished goods;
40
(vi) weekly reporting of sales and credit memos; weekly
(or more frequent if requested by Lender) delivery of a Borrowing Base
Certificate (provided that unless otherwise requested by Lender, the
Eligible Inventory information reported thereon shall be updated only
on a monthly basis); and daily reporting of collections;
(vii) promptly after the sending or filing thereof, copies
of all reports which Borrower sends to any of its securityholders, and
all reports and registration statements which any Borrower or
Subsidiary files with the Securities and Exchange Commission or any
national securities exchange; and
(viii) from time to time such other information as Lender
may request.
8.4 COMPLIANCE
Comply in all material respects, and cause each Subsidiary to comply in
all material respects, with all Governmental Rules, Contractual Obligations,
commitments, instruments, licenses, Permits and franchises, other than such
noncompliance the consequences of which in the aggregate could not reasonably be
expected to have a Material Adverse Effect.
8.5 INSURANCE
(a) At all times, Borrowers shall maintain property insurance insuring
all Collateral which is tangible property against loss or damage by fire, theft,
burglary, pilferage, loss in transit and such other hazards as Lender shall
specify in an amount equal to the full insurable value of the Collateral with
reasonable deductible amounts. Such insurance shall contain extra expense and
business interruption endorsements, shall contain a lender's loss payable
endorsement acceptable to Lender, shall be evidenced by policies containing
terms reasonably acceptable to Lender and shall be provided by insurers
acceptable to Lender. The policies or a certificate thereof signed by the
insurer shall be delivered to Lender within five (5) Business Days after the
issuance or renewal of the policies to Borrowers. Each such policy shall provide
that such policy may not be amended or canceled without thirty (30) days prior
written notice to Lender. At least fifteen (15) days before the expiration of a
policy, Borrowers' Agent shall deliver to Lender a binder (or other evidence
reasonably acceptable to Lender) indicating that such policy has been renewed or
that a substitute for such policy will be issued effective upon the expiration
of such policy. If Borrowers' Agent fails to do so, Lender may (but shall not be
required to) procure such insurance and add the cost thereof to the Revolving
Loan.
(b) At all times, Borrowers shall maintain in full force and effect
such liability and other insurance with respect to its activities as may be
reasonably required by Lender. Such liability insurance shall name Lender as an
additional insured with respect to the activities of Borrowers and shall be
provided by insurer(s) acceptable to Lender.
(c) The following is inserted pursuant to ORS 746.201:
41
WARNING
UNLESS BORROWERS PROVIDE LENDER WITH EVIDENCE OF THE INSURANCE
COVERAGE AS REQUIRED BY THIS AGREEMENT, LENDER MAY PURCHASE INSURANCE
AT BORROWERS' EXPENSE TO PROTECT LENDER'S INTEREST. THIS INSURANCE MAY,
BUT NEED NOT, ALSO PROTECT BORROWERS' INTEREST. IF THE COLLATERAL
BECOMES DAMAGED, THE COVERAGE LENDER PURCHASES MAY NOT PAY ANY CLAIM
BORROWERS MAKE OR ANY CLAIM MADE AGAINST BORROWERS. BORROWERS MAY LATER
CANCEL THIS COVERAGE BY PROVIDING EVIDENCE THAT BORROWERS HAVE OBTAINED
PROPERTY COVERAGE ELSEWHERE.
BORROWERS ARE RESPONSIBLE FOR THE COST OF ANY INSURANCE
PURCHASED BY LENDER. THE COST OF THIS INSURANCE MAY BE ADDED TO
BORROWERS' CONTRACT OR LOAN BALANCE. IF THE COST IS ADDED TO BORROWERS'
CONTRACT OR LOAN BALANCE, THE INTEREST RATE ON THE UNDERLYING CONTRACT
OR LOAN WILL APPLY TO THIS ADDED AMOUNT. THE EFFECTIVE DATE OF COVERAGE
MAY BE THE DATE BORROWERS' PRIOR COVERAGE LAPSED OR THE DATE BORROWERS
FAILED TO PROVIDE PROOF OF COVERAGE.
THE COVERAGE LENDER PURCHASES MAY BE CONSIDERABLY MORE
EXPENSIVE THAN INSURANCE BORROWERS CAN OBTAIN ON ITS OWN AND MAY NOT
SATISFY ANY NEED FOR PROPERTY DAMAGE COVERAGE OR ANY MANDATORY
LIABILITY INSURANCE REQUIREMENTS IMPOSED BY APPLICABLE LAW.
8.6 FACILITIES
Keep all properties useful or necessary to Borrowers' business in good
repair and condition, and from time to time make necessary repairs, renewals and
replacements thereto so that such property shall be fully and efficiently
preserved and maintained.
8.7 TAXES AND OTHER LIABILITIES
Pay and discharge when due any and all indebtedness, obligations,
assessments and taxes, both real or personal, including without limitation
Federal and state income taxes and state and local property taxes and
assessments, except such as a Borrower may in good faith contest or as to which
a bona fide dispute may arise, and for which Borrowers have made provision for
adequate reserves in accordance with GAAP.
8.8 LITIGATION
Promptly give notice in writing to Lender of any litigation pending or
threatened in writing against any Borrower or Subsidiary with a claim in excess
of $250,000 in the aggregate for Borrowers and all Subsidiaries.
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8.9 NOTICE TO LENDER
Promptly (but in no event more than two Business Days after the
occurrence of each such event or matter) cause Borrowers' Agent to give notice
to Lender in reasonable detail of: (i) the occurrence of any Default; (ii) any
termination or cancellation of any insurance policy which any Borrower or
Subsidiary is required to maintain, unless such policy is replaced without any
break in coverage with an equivalent or better policy; (iii) any uninsured or
partially uninsured loss or losses through liability or property damage, or
through fire, theft or any other cause affecting the property of any Borrower or
Subsidiary in excess of an aggregate of $250,000 during any twelve month period;
(iv) any change in the Organic Documents of any Borrower or Subsidiary; (v) the
occurrence of any adverse development with respect to any litigation, action,
proceeding, or labor controversy described in Section 6.7 or the commencement of
any labor controversy, litigation, action, proceeding of the type described in
Section 6.7 together with copies of all documentation relating thereto; (vi) any
ERISA Event; or (vii) the occurrence of any event that could have a Material
Adverse Effect.
8.10 CONDUCT OF BUSINESS
Except as otherwise permitted by this Agreement, (a) conduct, and cause
each Subsidiary to conduct, its business in the ordinary course and (b) use, and
cause each Subsidiary to use, its reasonable efforts in the ordinary course and
consistent with past practice to (i) preserve its business and the goodwill and
business of the customers, advertisers, suppliers and others with whom it has
business relations and (ii) keep available the services and goodwill of its
present employees.
8.11 PRESERVATION OF CORPORATE EXISTENCE, ETC.
Preserve and maintain all licenses, Permits, governmental approvals,
rights, privileges, franchises and General Intangibles necessary for the conduct
by each Active Borrower of its business, and its corporate existence and rights
(charter and statutory).
8.12 ACCESS
(a) At any reasonable time and from time to time upon at least two
Business Days' prior notice from Lender (unless a Default shall have occurred
and be continuing, in which case no prior notice is necessary), permit Lender,
or any agents or representatives thereof, to (i) examine and make copies of and
abstracts from the records and books of account of Borrower, (ii) visit the
properties of Borrower, (iii) discuss the affairs, finances and accounts of
Borrower with any of its officers or directors who may then be reasonably
available, and (iv) communicate directly with Borrowers' independent certified
public accountants. Borrower shall authorize its independent certified public
accountants to disclose to Lender any and all financial statements and other
information of any kind, including, without limitation, copies of any management
letter, or the substance of any oral information that such
43
accountants may have with respect to the business, financial condition, results
of operations or other affairs of Borrowers and each of its Subsidiaries.
(b) Borrowers shall execute and deliver at the request of Lender such
instruments as may be necessary for Lender to obtain such information concerning
the business of Borrowers as Lender may require from accountants, service
bureaus or others having custody of or maintaining records or assets of
Borrower. Borrowers shall furnish Lender at reasonable intervals with such
statements and reports regarding the Collateral, Borrowers' financial condition
and the results of Borrowers' operations, in addition to those otherwise herein
required, as Lender may request from time to time.
8.13 PERFORMANCE AND COMPLIANCE WITH OTHER CONTRACTUAL
OBLIGATIONS
Perform and observe, and cause each Subsidiary to perform and observe,
all the terms, covenants and conditions required to be performed and observed by
it under its Contractual Obligations, and do all things necessary to preserve
and to keep unimpaired its rights under such Contractual Obligations, other than
such failures the consequences of which in the aggregate could not reasonably be
expected to have a Material Adverse Effect.
8.14 FISCAL YEAR; ACCOUNTING PRACTICES
Notify Lender at least 30 days in advance of any action any Borrower or
Subsidiary intends to take to change (i) its fiscal year or (ii) its method of
accounting, or any accounting practice used by it, or the application of GAAP in
a manner inconsistent with the financial statements previously delivered by it
to Lender.
8.15 ENVIRONMENTAL
(a) Promptly give notice to Lender upon obtaining knowledge of (i) any
claim, injury, proceeding, investigation or other action, including a request
for information or a notice of potential environmental liability, by or from any
Governmental Authority or any third-party claimant that could result in any
Borrower or Subsidiary incurring Environmental Liabilities and Costs or (ii) the
discovery of any Release at, on, under or from any real property, facility or
equipment owned or leased by any Borrower or Subsidiary in excess of reportable
or allowable standards or levels under any applicable Environmental Law, or in
any manner or amount that could result in any Borrower or Subsidiary incurring
Environmental Liabilities and Costs.
(b) Upon discovery of the presence on any property owned or leased by
any Borrower or Subsidiary of any Contaminant that reasonably could be expected
to result in Environmental Liabilities and Costs, take all Remedial Action
required by applicable Environmental Law.
(c) Borrowers shall protect, defend, indemnify and hold harmless Lender
from and against all Environmental Liabilities and Costs arising with respect to
Borrower or any of its
44
property, except for those arising from Lender's gross negligence or willful
misconduct. This indemnity obligation shall survive the payment in full and
performance of all of Borrower's other Obligations.
8.16 LIENS
Keep the Collateral and all of its real property free and clear of all
Liens, except Permitted Liens.
8.17 FUTURE SUBSIDIARIES
Upon any Person becoming a Subsidiary after the Closing Date, notify
Lender of such event, and execute and deliver, and cause such Subsidiary to
execute and deliver, such additional Loan Documents as Lender may reasonably
require, including such as are necessary to cause any such Subsidiary to become
a "Borrower."
8.18 USE OF PROCEEDS
Use the proceeds of the Loans first to repay the following obligations
under the Existing Credit Agreement: (i) all term loans; (ii) all accrued and
unpaid interest; and (iii) all outstanding fees and expenses (including the
$225,000 extension fee), and then solely for Borrowers' general working capital
and corporate purposes.
8.19 COMPLIANCE WITH ERISA
Do, and cause each of its ERISA Affiliates to do, each of the
following: (a) maintain each Plan in compliance in all material respects with
the applicable provisions of ERISA, the Code and other Federal or state law; (b)
cause each Plan that is qualified under Section 401(a) of the Code to maintain
such qualification; and (c) make all required contributions to any Plan subject
to Section 412 of the Code.
8.20 FURTHER ASSURANCES
At Lender's request at any time and from time to time, duly execute and
deliver, and cause each Subsidiary to execute and deliver, such further
agreements, documents and instruments, and do or cause to be done such further
acts as may reasonably be necessary or proper to evidence, perfect, maintain and
enforce the security interests and the priority thereof in the Collateral and to
otherwise effectuate the provisions or purposes of the Loan Documents, at
Borrowers' expense. Lender may at any time and from time to time request a
certificate from Borrowers' Agent representing that all conditions precedent to
the advancement of credit contained herein are satisfied. In the event of such
request, Lender may cease to make any further advancements of credit until
Lender has received such certificate and Lender has determined that such
conditions are satisfied.
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ARTICLE IX. NEGATIVE COVENANTS
Borrowers covenant that so long as Lender remains committed to extend
credit to Borrowers pursuant to the terms hereof and until performance and
payment in full, in cash, of all Obligations and termination of the Commitments,
Borrowers will not:
9.1 LIENS
Create or suffer to exist, or permit any Subsidiary to create or suffer
to exist, any Lien upon or with respect to any of its properties (including,
without limitation any real property), whether now owned or hereafter acquired,
or assign any right to receive income, except Permitted Liens.
9.2 INDEBTEDNESS
Create or suffer to exist, or permit any Subsidiary to create or suffer
to exist, any Indebtedness, except:
(a) the Obligations;
(b) current liabilities in respect of taxes, assessments and
governmental charges or levies incurred, or liabilities for labor, materials,
inventory, services, supplies and rentals incurred, or for goods or services
purchased, in the ordinary course of business consistent with past practice and
industry practice in respect of arm's length transactions;
(c) Debt outstanding on the Closing Date and referenced on Section 6.17
of the Disclosure Letter;
(d) Debt subordinated in writing to the Obligations on terms acceptable
to Lender in favor of the prior payment in full in cash of the Obligations;
(e) Indebtedness owed to a Borrower; and
(f) the real estate financing contemplated by Section 5.3.
9.3 RESTRICTED PAYMENTS, REDEMPTIONS
(a) Make any dividend payment or other distribution of assets,
properties, cash, rights, obligations or securities on account or in respect of
any of its Stock or Stock Equivalents except (i) dividends paid to Borrower,
(ii) dividends paid by Parent solely in Stock or Stock Equivalents of Parent,
(iii) the Management Fees, (iv) Employee Loans in an aggregate amount of not
more than $500,000 or (v) the Dolphin Transaction Fee;
(b) Purchase, redeem or otherwise acquire for value any of Parent's
Stock or Stock Equivalents, except that Parent may convert any of its
convertible securities of the type in existence on the Closing Date into other
securities pursuant to the terms of such convertible
46
securities or otherwise in exchange therefor and except that Parent may acquire
or redeem Stock held by Itin in connection with the settlement of pending
litigation between Itin and Parent; or
(c) Make any change in its capital structure, including, without
limitation, the creation of new classes or types of Stock or Stock Equivalents.
9.4 MERGERS, STOCK ISSUANCES, SALE OF ASSETS, ETC.
(a) Merge or consolidate with, or permit any Subsidiary to merge or
consolidate with, any Person or acquire all or substantially all of the Stock or
Stock Equivalents of any Person; provided any Borrower (other than Parent) may
liquidate or dissolve voluntarily into, and may merge with and into, or have its
Stock otherwise acquired by Parent;
(b) Acquire all or substantially all, or permit any Subsidiary to
acquire all or substantially all of (i) the assets of any Person or (ii) the
assets constituting the business of a division, branch or other unit operation
of any Person; provided any Borrower may acquire all or substantially all of the
assets of (or the assets constituting the business of a division, branch or
other unit operation of) any other Borrower; or
(c) Sell, convey, transfer, lease or otherwise dispose of, or permit
any Subsidiary to sell, convey, transfer, lease or otherwise dispose of, any of
its assets or any interest therein to any Person, or permit or suffer any other
Person to acquire any interest in any of its assets, except (i) Permitted Liens,
(ii) as otherwise permitted under item (a) or (b) above, or (iii) the sale or
disposition of inventory in the ordinary course of business and/or assets which
have become obsolete, unneeded or are replaced in the ordinary course of
business.
9.5 INVESTMENTS
Make, incur, assume or suffer to exist any Investment in any other
Person, except, without duplication:
(a) Investments existing on the Closing Date and identified in Section
9.5 of the Disclosure Letter;
(b) Cash Equivalent Investments (provided that any Investment which
when made complies with the requirements of the definition of the term "Cash
Equivalent Investment" may continue to be held notwithstanding that such
Investment if made thereafter would not comply with such requirements);
(c) Investments permitted as Indebtedness pursuant to Section 9.2;
(d) Investments consisting of incidental advances to employees of
Borrower in the ordinary course of business;
(e) loans and advances to Borrower; and
47
(f) Employee Loans in an aggregate amount of not more than $500,000.
9.6 CHANGE IN NATURE OF BUSINESS
Directly or indirectly engage, or permit any Subsidiary to directly or
indirectly engage, in any business activity other than the type of business
activities in which Borrowers are currently engaged.
9.7 ERISA
At any time engage in a transaction that could be subject to Section
4069 or 4212(c) of ERISA, or permit any Plan to (a) engage in any non-exempt
"prohibited transaction" (as defined in Section 4975 of the Code); (b) fail to
comply with ERISA or any other applicable Laws; or (c) incur any material
"accumulated funding deficiency" (as defined in Section 302 of ERISA), that,
with respect to each event listed above, could be reasonably expected to have a
Material Adverse Effect.
9.8 CANCELLATION OF INDEBTEDNESS OWED TO IT
Cancel, or permit any Subsidiary to cancel, any claim or Indebtedness
owed to it except for legitimate business purposes in the reasonable judgment of
Borrowers and in the ordinary course of business or except in connection with a
settlement of pending litigation with Itin and Ajay Sports, Inc. ("Ajay") with
respect to obligations of Itin and Ajay.
9.9 MARGIN REGULATIONS
Use, or permit any Subsidiary to use, the proceeds of any Loan to
purchase or carry any margin stock (within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System).
9.10 ENVIRONMENTAL
Permit any lessee or any other Person to dispose of any Contaminant by
placing it in or on the ground or waters of any property owned or leased by any
Borrower or Subsidiary, except in material compliance with Environmental Law or
the terms of any Permit or other than those that in the aggregate could not
reasonably be expected to have a Material Adverse Effect.
9.11 TRANSACTIONS WITH AFFILIATES
Enter, or permit any Subsidiary to enter, into any transaction directly
or indirectly with or for any affiliate of Borrower (other than another
Borrower) except (a) in the ordinary course of business on a basis no less
favorable to such affiliate than would be obtained in a comparable arm's length
transaction with a Person not an affiliate of Borrower, (b) any transaction
involving assets that are not material to the business and operations of
Borrowers or the Subsidiaries, (c) the Management Agreement and the transactions
contemplated therein,
48
including payment of the Management Fees pursuant thereto, (d) Employee Loans in
an aggregate amount of not more than $500,000, (e) payment of the Dolphin
Transaction Fee and (f) transactions with affiliates permitted by any of
Sections 9.3, 9.4, 9.5 and 9.8.
9.12 NEW COLLATERAL LOCATION; NAME CHANGE
Open any new location or change its name, or permit any Subsidiary to
do so, unless (a) Borrowers' Agent gives Lender (i) 30 days prior notice of the
intended name change, (ii) 30 days prior notice of the intended opening of such
new location, and (b) Borrowers execute and Borrowers' Agent delivers to Lender
such agreements, documents and instruments as Lender deems reasonably necessary
or desirable to protect its interests in the Collateral.
9.13 NO SPECULATIVE TRANSACTIONS
Engage in, or permit any Subsidiary to engage in, any Commodity
Contract, Interest Rate Contract or foreign exchange agreement, except on terms
reasonably acceptable to Lender.
ARTICLE X. FINANCIAL COVENANTS
10.1 MINIMUM ADJUSTED BOOK NET WORTH
As of the end of each month set forth below, Borrowers shall have an
Adjusted Book Net Worth not less than the total of the amount set forth below
opposite such month:
Minimum Adjusted
Month Book Net Worth
----- --------------
June 2002 ($14,589,000)
July 2002 ($14,332,000)
August 2002 ($14,025,000)
September 2002 ($13,810,000)
10.2 NET INCOME
For each period set forth below, Borrowers' Net Income shall not be
less than the amount set forth below opposite such period:
Period Minimum Net Income
------ ------------------
Three months ending $300,000
June 30, 2002
Six months ending September
30, 2002 $878,000
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10.3 DEBT SERVICE COVERAGE RATIO
As of the last day of each of Parent's fiscal quarters beginning
September 30, 2002, Borrowers shall maintain a Debt Service Coverage Ratio of at
least 1.2:1. Debt Service Coverage Ratio shall be computed as of each such date
of determination for a period equal to the shorter of (i) the 12 months ending
with such date, or (ii) from July 1, 2002 through such date.
10.4 CAPITAL EXPENDITURES
Borrowers' Capital Expenditures for the 12-month period ending
September 30, 2002 shall not exceed $2,500,000.
10.5 REVISED FINANCIAL COVENANTS
On or before August 31, 2002, Borrowers' Agent shall furnish to Lender
detailed projections setting forth Parent's projected consolidated and
consolidating income and cash flow for each month from October , 2002 through
the Maturity Date and Parent's projected consolidated and consolidating balance
sheet as of the end of each such month, together with a certificate of Parent's
principal financial officer setting forth the assumptions on which such
projections are based and certifying that the Parent believes that such
assumptions are reasonable in light of past experience and reasonably
anticipated future results of operations. Based on such projections and such
other information as Lender deems appropriate, Lender, on or before September
30, 2002, shall establish the covenant levels for Sections 10.1 through 10.4 for
periods after September 30, 2002 through the Maturity Date and give Borrowers'
Agent notice of the language of Sections 10.1 through 10.4 that Lender proposes
to apply through the Maturity Date ("Proposed Covenants"). Sections 10.1 through
10.4 shall be deemed to be amended to read in the manner of the Proposed
Covenants, unless Borrowers' Agent gives Lender notice within two weeks of its
receipt of the Proposed Covenants that the Proposed Covenants are not acceptable
("Rejection Notice"). The Rejection Notice shall constitute Borrowers'
irrevocable election to prepay the Obligations on or before the 90th day after
Lender's receipt of the Rejection Notice, and no early payment fee shall be due
and payable if the Obligations are prepaid within 90 days after Lender's receipt
of the Rejection Notice. If the Rejection Notice is given, the references in
Sections 10.1, 10.2 and 10.4 to "September 30, 2002" shall be deemed to also be
references to each month end after September 30, 2002.
10.6 GAAP CHANGES
The covenants in Sections 10.1 through 10.4 were prepared based on GAAP
as in effect on June 1, 2002 as applied in a manner consistent with Parent's
April 30, 2002 financial statements and with respect to the Proposed Covenants,
GAAP as in effect on the first day of the month in which the Proposed Covenants
were sent to Borrowers' Agent as applied in a manner consistent with Parent's
financial statements most recently delivered to Lender before such date (both,
"Current GAAP"). Compliance with Sections 10.1 through 10.4 shall be
50
measured in a manner consistent with Current GAAP, provided that if GAAP is
modified to differ from Current GAAP in any material respect or if Parent
subsequently applies GAAP in a manner inconsistent with the financial statements
referenced above, the provisions of Sections 10.1 through 10.4 shall be adjusted
in such manner as Lender reasonably determines to be necessary to compensate for
such modification of GAAP or such inconsistent application of GAAP.
ARTICLE XI. EVENTS OF DEFAULT
11.1 EVENTS OF DEFAULT
The occurrence of any of the following shall constitute an "Event of
Default" under this Agreement:
(a) Borrower shall fail to pay when due any amount payable under the
Loan Documents;
(b) any financial statement or certificate furnished to Lender in
connection with, or any representation or warranty made by Borrower under any of
the Loan Documents shall prove to be false or misleading in any material respect
when furnished or made;
(c) Borrowers or Borrowers' Agent shall fail to provide any
certificate, report or other information which it is required to provide
pursuant to Section 8.3 or Section 8.9 on the date specified in Section 8.3 or
Section 8.9; provided that unless Borrowers and Borrowers' Agent have previously
failed to provide any required certificate, report or other information by the
required date on two prior occasions within the preceding 12 months such failure
shall be considered an Event of Default only if Borrowers and Borrowers' Agent
fail to provide such certificate, report or other information within five
Business Days (two Business Days with respect to Section 8.9(a)) of the earlier
of (i) the date an officer of Borrower has knowledge of the failure to so
provide such certificate, report or other information, or (ii) the date Lender,
notifies Borrowers' Agent of such failure;
(d) any default by Borrowers in the performance of or compliance with
any obligation, agreement or other provision contained in Sections 5.2(a), 8.5,
8.10, 8.11, 8.12, 8.14, 8.16, 8.17, 9.1, 9.2, 9.3, 9.4, 9.5, 9.6 and 9.12 and
contained in Article X;
(e) any default by Borrower in the performance of or compliance with
any obligation, agreement or other provision contained in any Loan Document
(other than those referred to in subsections (a) through (d) above) for 15 days
after notice thereof has been given to Borrowers' Agent by Lender;
(f) except as otherwise provided in Section 11.4, any breach(es) by
Borrower in the payment or performance of any other obligation(s) under the
terms of any contract(s) or instrument(s) (other than any of the Loan Documents)
evidencing Indebtedness in excess of $200,000 in the aggregate if such
breach(es) has/have not been cured to the satisfaction of the
51
affected creditor(s) or waived by such creditor(s) within any applicable cure
period provided under the contract(s) or instrument(s);
(g) except as otherwise provided in Section 11.4, any judgment, order
or writ in excess of $250,000 is rendered or entered against Borrower and/or one
or more Subsidiaries, except any judgment for which Borrowers are fully insured
and with respect to which the insurer has admitted in writing its liability for
the full amount thereof or except if the enforcement of such judgment, order or
writ has been stayed or the liability thereon bonded in a manner and on terms
reasonably satisfactory to Lender; or the service of a notice of levy and/or of
a writ of attachment or execution, or other like process, against any of the
assets of Borrower and/or one or more Subsidiaries with respect to obligations
in excess of $100,000;
(h) Borrower becomes insolvent, or suffers or consents to or applies
for the appointment of a receiver, trustee, custodian or liquidator of itself or
any of its property, or is generally unable to or fails to pay its debts as they
become due, or makes a general assignment for the benefit of creditors; Borrower
files a voluntary petition in bankruptcy, or seeks to effect a plan or other
arrangement with creditors or any other relief under the Bankruptcy Code or
under any state or other Federal law granting relief to debtors, whether now or
hereafter in effect; or any involuntary petition or proceeding pursuant to the
Bankruptcy Code or any other applicable state or Federal law relating to
bankruptcy, reorganization or other relief for debtors is filed or commenced
against Borrower and is not dismissed, stayed or vacated within 60 days
thereafter or Borrower files an answer admitting the jurisdiction of the court
and the material allegations of any such involuntary petition; Borrower is
adjudicated a bankrupt, or an order for relief is entered by any court of
competent jurisdiction under the Bankruptcy Code or any other applicable state
or Federal law relating to bankruptcy, reorganization or other relief for
debtors; or Borrower takes any corporate, partnership or company action
authorizing, or in furtherance of, any of the foregoing;
(i) an ERISA Event occurs with respect to a Pension Plan or
Multiemployer Plan that has resulted or could reasonably be expected to result
in liability of Borrower under Title IV of ERISA to the Pension Plan,
Multiemployer Plan or the PBGC in an aggregate amount in excess of $200,000, or
(ii) Borrower or any ERISA Affiliate fails to pay when due, after the expiration
of any applicable grace period, any installment payment with respect to its
withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in
an aggregate amount in excess of $200,000;
(j) the dissolution or liquidation of Borrower, or Borrower or its
directors or stockholders shall take action seeking to effect the dissolution or
liquidation of Borrower;
(k) any Change in Control;
(l) any Loan Document shall (except in accordance with its terms), in
whole or in part, terminate, cease to be effective or cease to be the legally
valid, binding and enforceable obligation of Borrower party thereto; Borrower
shall, directly or indirectly, contest in any manner such effectiveness,
validity, binding nature or enforceability; or any Lien securing
52
any Obligation shall, in whole or in part, cease to be a perfected first
priority Lien, subject only to those exceptions expressly permitted by such Loan
Document; or
(m) the indictment of Borrower under any criminal statute, or
commencement of criminal or civil proceedings against Borrower, pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of any material amount of property of Borrower.
11.2 REMEDIES
(a) During the continuance of any Event of Default (other than an Event
of Default referred to in Section 11.1(h)), Lender may (i) terminate its
obligation to extend any further credit under any of the Loan Documents, and
(ii) declare all or any part of the Obligations to be immediately due and
payable without presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived by Borrowers, and/or take such
enforcement action as is permitted under this Section. Upon the occurrence or
existence of any Event of Default described in Section 11.1(h), immediately and
without notice, (A) the obligations, if any, of Lender to extend any further
credit under any of the Loan Documents shall automatically cease and terminate,
and (B) all indebtedness of Borrowers under the Loan Documents shall
automatically become immediately due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived by Borrowers.
(b) During the continuance of an Event of Default, Lender, in addition
to any other rights and remedies contained in the Loan Documents, shall have all
of the rights and remedies of a secured party under the Code and all other
applicable law, all of which rights and remedies shall be cumulative and
nonexclusive to the extent permitted by law. Lender may cause the Collateral to
remain on Borrower's premises, at Borrowers' expense, pending sale or other
disposition thereof. Lender shall have the right to conduct such sales on
Borrower's premises or elsewhere, at Borrowers' expense, on such occasion(s) as
Lender may see fit, and Borrowers, at Lender's request, will, at Borrowers'
expense, assemble the Collateral and make it available to Lender at such
place(s) as Lender may reasonably designate from time to time. Any sale, lease
or other disposition by Lender of the Collateral, or any part thereof, may be
for cash or other value. Borrowers shall execute and deliver, or cause to be
executed and delivered, such instruments, documents, assignments, deeds,
waivers, certificates and affidavits and take such further action as Lender
shall reasonably require in connection with such sale, and Borrower hereby
constitutes Lender as its attorney-in-fact to execute any such instrument,
document, assignment, deed, waiver, certificate or affidavit on behalf of
Borrower and in its name. At any sale of the Collateral, the Collateral to be
sold may be sold in one lot as an entirety or in separate lots as Lender may
determine. Lender shall not be obligated to make any sale of any Collateral if
it determines not to do so, regardless of the fact that notice of sale was
given. Lender may, without notice or publication, adjourn any public or private
sale or cause the sale to be adjourned from time to time by announcement at the
time and place fixed for sale, and such sale may, without further notice, be
made at the time and place to which it is so adjourned. In case any sale of
Collateral is made on credit or for future
53
delivery, the Collateral so sold may be retained by Lender until the sale price
is paid, but Lender shall not incur any liability if any purchaser fails to pay
for any Collateral so sold and, in case of any such failure, such Collateral may
be sold again. At any public sale, Lender (i) may bid for or purchase the
Collateral offered for sale free (to the extent permitted by law) from any
rights of redemption, stay or appraisal on the part of Borrower with respect to
the Collateral, (ii) make payment on account thereof by using any claim then due
and payable to Lender from Borrower as a credit against the purchase price, and
(iii) upon compliance with the terms of sale, hold, retain and dispose of such
property without further accountability to Borrower therefor. Borrowers
acknowledge that portions of the Collateral may be difficult to preserve and
dispose of and may be subject to complex maintenance and management;
accordingly, Lender shall have the widest possible latitude in the exercise of
its rights and remedies hereunder.
(c) Lender is hereby granted a license and right to use, without charge
upon the occurrence and during the continuance of an Event of Default and until
the Obligations are fully and finally paid in cash and the Commitments
terminated, Borrowers' labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks, service marks, advertising material,
General Intangibles and any other property of a similar nature in completing the
production, advertising for sale and sale of any Collateral.
(d) Any notice required to be given by Lender with respect to any of
the Collateral, which notice is given pursuant to Section 12.1 and deemed
received pursuant to Section 12.1 at least five Business Days before a sale,
lease, disposition or other intended action by Lender with respect to any of the
Collateral, shall constitute fair and reasonable notice to Borrowers of any such
action. A public sale in the following fashion shall be conclusively presumed to
be reasonable: (i) the sale is held in a county where any part of the Collateral
is located or in which Borrower has a place of business; (ii) the sale is
conducted by auction, but it need not be by a professional auctioneer; (iii) any
Collateral is sold as is and without any preparation for sale; and (iv)
Borrowers' Agent is given notice of such public sale pursuant to the preceding
sentence.
(e) Upon the occurrence and during the continuance of an Event of
Default, Lender shall have, with respect to Rights to Payment, all rights and
powers to: (i) direct any and all account debtors to make all payments in
respect of the Rights to Payment directly to Lender or otherwise demand payment
of any or all of the Rights to Payment; (ii) enforce payment of any or all of
the Rights to Payment by legal proceedings or otherwise; (iii) exercise
Borrower's rights and remedies with respect to any actions or proceedings
brought to collect a Right to Payment; (iv) sell or assign any Right to Payment
upon such terms, for such amount and at such time or times as Lender deems
advisable; (v) settle, adjust, compromise, extend or renew a Right to Payment;
(vi) discharge or release any Right to Payment; and (vii) prepare, file and sign
Borrower's name on any proof of claim in bankruptcy or any similar document
against an account debtor, and to otherwise exercise the rights granted herein.
(f) Lender shall have no obligation (i) to preserve any rights to the
Collateral against any Person, (ii) to make any demand upon or pursue or exhaust
any rights or remedies
54
against Borrowers or others with respect to payment of the Obligations, (iii) to
pursue or exhaust any rights or remedies with respect to any of the Collateral
or any other security for the Obligations, or (iv) to marshal any assets in
favor of Borrower or any other Person against or in payment of any or all of the
Obligations.
(g) Borrowers recognize that federal and/or state securities and other
laws may limit the flexibility desired to achieve an otherwise commercially
reasonable disposition of Collateral, and in the event of potential conflict
between such laws and what in other circumstances might constitute commercial
reasonableness, it is intended that consideration of such laws will prevail over
attempts to achieve such commercial reasonableness. In connection with any sale
or other disposition of Collateral, compliance by Lender with the written advice
of its counsel concerning the potential effect of any such law will not be cause
for Borrower, or any other Person, to claim that such sale or other disposition
was not commercially reasonable.
(h) Borrowers shall pay to Lender, on demand and as part of the
Obligations, all costs and expenses, including court costs and costs of sale,
incurred by Lender in exercising any of its rights or remedies hereunder, and
all costs and expenses incurred in connection with any review of any part of the
Collateral.
11.3 LENDER AS BORROWERS' ATTORNEY
Borrower hereby appoints Lender or any other Person whom Lender may
designate, as Borrower's attorney, with power during the continuation of an
Event of Default: to indorse Borrower's name on any checks, notes, acceptances,
money orders, drafts or other forms of payment or security that may come into
Lender's possession; to sign Borrower's name on any invoice or bill of lading
relating to any Right to Payment, on drafts against customers, on schedules and
assignments of Rights to Payment, on notices of assignment, financing statements
and other public records, and on notices to customers; to notify the post office
authorities to change the address for delivery of Borrower's mail to an address
designated by Lender; to receive, open and process all mail addressed to
Borrower; to ask for, demand, sue for, collect, receive, receipt and give
aquittance for any and all moneys due or to become due with respect to any
Collateral; to settle, compromise, prosecute or defend any action, claim or
proceeding with respect to Collateral; to sell, assign, pledge, transfer and
make any agreement with respect to or otherwise deal with the Collateral; and to
do all things necessary to perfect Lender's security interest in the Collateral,
to preserve and protect the Collateral and to otherwise carry out this
Agreement; provided, however, that nothing contained in this Section will be
construed as requiring or obligating Lender to take any action. Provided Lender
acts in a reasonable manner, Borrower ratifies and approves all acts of such
attorney, and neither Lender nor the attorney will be liable for any acts or
omissions nor for any error of judgment or mistake of fact or law. This power
being coupled with an interest is irrevocable until the Obligations have been
fully satisfied and indefeasibly paid in cash and the Commitments terminated.
55
11.4 EXCEPTIONS
If upon the occurrence of an event described in Section 11.1(f) or
Section 11.1(g) the Available Credit exceeds the aggregate amount of all
Indebtedness described in Section 11.1(f) and all judgments, orders, writs and
obligations described in Section 11.1(g), then such occurrence shall constitute
an Event of Default only at such later time as the total of the Available Credit
plus all reserves created by Lender for such events no longer exceeds such
aggregate amount.
ARTICLE XII. MISCELLANEOUS
12.1 NOTICES
Any notice required or permitted to be given hereunder will be in
writing, will be addressed to the party to be notified at the address set forth
below, or at such other address as each party may designate for itself from time
to time by notice hereunder, and will be deemed to have been validly given (i)
five days following deposit in the United States mail, with proper first-class
postage prepaid, (ii) the next Business Day after notice was delivered to a
regularly scheduled overnight delivery carrier, or (iii) upon receipt of notice
given by fax, mailgram, telegram, telex or personal delivery:
To Borrowers: Williams Controls, Inc.
14100 S.W. 72nd Avenue
Portland, Oregon 97224
Attn: Chief Financial Officer
Fax No.: (503) 624-3812
To Lender: Wells Fargo Credit, Inc.
245 S. Los Robles Avenue, Suite 600
Pasadena, California 91101
Attn: Angelo Samperisi
Fax No.: (626) 844-9063
12.2 COSTS, EXPENSES, ATTORNEYS' FEES
Borrowers shall pay immediately upon demand the full amount of all
payments, advances, charges, costs and expenses, including reasonable attorneys'
fees (whether incurred at the trial or appellate level, in an arbitration or
administrative proceeding, in bankruptcy (including, without limitation, any
adversary proceeding, contested matter or motion) or otherwise), incurred by
Lender in connection with (a) the negotiation and preparation of the Loan
Documents, (b) the enforcement, preservation or protection (or attempted
enforcement, preservation or protection) of Lender's rights, including, without
limitation, periodic collateral examinations, and/or the collection of any
amounts which become due under any of the Loan Documents, and (c) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation, any action for declaratory relief, and
including
56
any of the foregoing incurred in connection with any bankruptcy proceeding
relating to Borrower.
12.3 INDEMNIFICATION
(a) To the fullest extent permitted by law, Borrowers hereby agree to
protect, indemnify, defend and hold harmless each of Lender and its officers,
directors, shareholders, employees, agents, attorneys and affiliates
(collectively, "Indemnitees") from and against any liabilities, losses, damages
or expenses of any kind or nature and from any suits, claims or demands
(including in respect of or for reasonable attorneys' fees (whether incurred at
the trial or appellate level, in an arbitration or administrative proceeding, in
bankruptcy (including, without limitation, any adversary proceeding, contested
matter or motion) or otherwise) and other expenses, including the allocated
costs and expenses of internal counsel) arising on account of or in connection
with any matter or thing or action or failure to act by Indemnitees, or any of
them, arising out of or relating to any Loan Document or Collateral, including
without limitation any use by Borrower of any proceeds of credit advanced,
except to the extent such liability arises from the willful misconduct or gross
negligence of the Indemnitees (collectively, the "Indemnified Liabilities").
(b) Upon receiving knowledge of any suit, claim or demand asserted by a
third party that Lender believes is covered by this indemnity, such Indemnitee
shall give Borrowers' Agent notice of the matter and an opportunity to defend
it, at Borrowers' sole cost and expense, with legal counsel satisfactory to
Lender. Lender may also require Borrowers to defend the matter. Any failure or
delay of Lender to notify Borrowers' Agent of any such suit, claim or demand
shall not relieve Borrowers of their obligations under this Section, but shall
reduce such obligations to the extent of any increase in those obligations
caused solely by an unreasonable failure or delay in providing such notice.
Borrowers may not settle or otherwise compromise any claim with respect to any
Indemnified Liability unless the settlement includes an unconditional release of
the Indemnitee from all liability on claims that are the subject of such
settlement and may not settle or otherwise compromise any claim with respect to
any Indemnified Liability, other than a claim for money damages, without the
prior written consent of the Indemnitee, which consent shall not be unreasonably
withheld.
(c) Upon performance and indefeasible payment in full, in cash, of all
Obligations, termination of the Commitments and release of all claims against
Lender, and so long as no suits, actions, proceedings or claims are pending or
threatened against any Indemnitee asserting any damages, losses or liabilities
that are Indemnified Liabilities, Lender shall deliver to Borrowers' Agent UCC
termination statements and other documents necessary or appropriate to evidence
the termination of the Liens securing payment of the Obligations.
(d) If and to the extent that the foregoing undertaking may be
unenforceable for any reason Borrowers shall make the maximum contribution
permissible under applicable law to the payment and satisfaction of each of the
Indemnified Liabilities.
57
(e) Notwithstanding anything to the contrary in any Loan Document,
solely for purposes of this Section 12.3, any representation, warranty or
covenant contained in any Loan Document qualified by materiality or the
occurrence of a Material Adverse Effect shall not be so qualified.
(f) This Section shall survive the payment in full and performance of
all of Borrowers' other Obligations.
12.4 SUCCESSORS AND ASSIGNS
(a) The Loan Documents shall be binding upon and inure to the benefit
of the successors and assigns of the parties; provided, however, that Borrower
may not assign or transfer its interest hereunder. Lender reserves the right to
sell, assign, transfer, negotiate or grant participations in all or any part of,
or any interest in, Lender's rights and benefits under each of the Loan
Documents.
(b) Without limitation, Lender may disclose the Loan Documents, and any
financial or other information relating to Borrower, to its affiliates, auditors
and legal counsel, to any potential participant or assignee and to any
Governmental Authority to the extent that such disclosure is required by law and
as required in order to comply with a subpoena or order issued by a court of
competent jurisdiction or by a legislative or regulatory body.
12.5 SETOFF
In addition to any rights and remedies of Lender provided by law,
Lender shall have the right, with the prior consent of Lender (which consent
will not be unreasonably withheld) but without prior notice to Borrower, any
such notice being expressly waived by Borrower to the extent permitted by
applicable law, during the continuance of an Event of Default to setoff and
apply against any indebtedness, whether matured or unmatured, of Borrower to
Lender any amount owing from Lender or any affiliate thereof to Borrower at any
time during the continuation of an Event of Default. This right of setoff may be
exercised by Lender against Borrower or against any trustee in bankruptcy,
debtor in possession, assignee for the benefit of creditors, receiver or
execution, judgment or attachment creditor of Borrower or against anyone else
claiming through or against Borrower or such trustee in bankruptcy, debtor in
possession, assignee for the benefit of creditors, receiver, or execution,
judgment or attachment creditor, notwithstanding the fact that such right of
setoff shall not have been exercised by Lender prior to the occurrence of an
Event of Default. Lender shall endeavor to promptly notify Borrower after any
such setoff and application made by Lender, provided that the failure to give
such notice shall not affect the validity of such setoff and application.
12.6 NO WAIVER; CUMULATIVE REMEDIES
No failure on the part of Lender to exercise, and no delay in
exercising, any right, power, privilege or remedy under any Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power, privilege or remedy preclude any other or further exercise
thereof or the exercise of any other right, power, privilege or remedy.
58
The rights and remedies under the Loan Documents are cumulative and not
exclusive of any rights, powers, privileges and remedies that may otherwise be
available to Lender.
12.7 ENTIRE AGREEMENT
The Loan Documents constitute the entire agreement among Borrowers and
Lender with respect to the Loans and supersede all prior negotiations,
communications, discussions, correspondence and agreements concerning the
subject matter hereof. This Agreement cannot be changed orally or by the conduct
of the parties and may be amended or modified only in writing signed by the
party against whom enforcement is sought.
12.8 NO THIRD PARTY BENEFICIARIES
This Agreement is made and entered into for the sole protection and
benefit of the parties hereto and their respective permitted successors and
assigns, and no other person or entity shall be a third party beneficiary of, or
have any direct or indirect cause of action or claim in connection with, this
Agreement or any other of the Loan Documents to which it is not a party.
12.9 TIME
Time is of the essence of each and every provision of this Agreement
and each other of the Loan Documents.
12.10 SEVERABILITY OF PROVISIONS
If any provision of this Agreement shall be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or any remaining provisions of this Agreement.
12.11 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of Oregon.
12.12 SUBMISSION TO JURISDICTION
LENDER AND EACH BORROWER HEREBY: (A) SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF OREGON AND THE FEDERAL COURTS OF THE
UNITED STATES FOR THE DISTRICT OF OREGON FOR THE PURPOSE OF ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS; (B) AGREES
THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN SUCH COURTS; (C) IRREVOCABLY WAIVES (TO THE FULL EXTENT PERMITTED
BY APPLICABLE LAW) ANY OBJECTION WHICH IT
59
NOW OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY OF THE FOREGOING COURTS, AND ANY OBJECTION ON THE
GROUND THAT ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM; AND (D) AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION
OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PERMITTED BY LAW.
12.13 WAIVER OF JURY TRIAL
LENDER AND EACH BORROWER, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING, COUNTERCLAIM OR OTHER LITIGATION IN ANY WAY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS OR EVENTS REFERENCED HEREIN OR THEREIN OR CONTEMPLATED HEREBY OR
THEREBY, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR OTHERWISE. THIS
WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND/OR ANY OTHER OF THE LOAN DOCUMENTS. A COPY
OF THIS SECTION MAY BE FILED WITH ANY COURT AS WRITTEN EVIDENCE OF THE WAIVER OF
THE RIGHT TO TRIAL BY JURY AND THE CONSENT TO TRIAL BY COURT.
12.14 COUNTERPARTS
This Agreement may be executed in any number of identical counterparts,
any set of which signed by all the parties hereto shall be deemed to constitute
a complete, executed original for all purposes. Delivery of an executed
signature page of this Agreement by fax shall be effective as delivery of a
manually executed counterpart hereof.
12.15 CONSENTS
Subject to Section 7.1, Lender consents to Parent's receipt of
contributions of up to an additional $15,000,000 of equity and repayment and/or
conversion into equity of the Bridge Debt. Lender also consents to the
prepayment at any time of the Convertible Debentures provided that at the time
of such prepayment and immediately thereafter (i) there is Available Credit of
at least $2,000,000, (ii) none of Borrower's accounts payable are more than 60
days past due (except accounts payable subject to a written payment agreement
acceptable to Lender) and (iii) no Default exists. Notwithstanding any other
provision of this Agreement to the contrary, Lender consents to Parent entering
into the AIP Transactions.
12.16 OREGON STATUTORY NOTICE
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY
LENDER AFTER OCTOBER 3, 1989 CONCERNING
60
LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR
HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN
WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDER TO BE ENFORCEABLE.
IN WITNESS WHEREOF, this Amended and Restated Credit Agreement has been
duly executed as of the date first written above.
AGROTEC WILLIAMS, INC. WILLIAMS CONTROLS, INC.
APTEK WILLIAMS, INC.
WMCO-GEO, INC. By:/s/DENNIS E. BUNDAY
HARDEE WILLIAMS, INC. -----------------------------------------
KENCO/WILLIAMS, INC. Dennis E. Bunday, Chief Financial Officer
NESC WILLIAMS, INC.
PREMIER PLASTIC TECHNOLOGIES, INC.
WACCAMAW WHEEL WILLIAMS, INC.
WILLIAMS CONTROLS INDUSTRIES, INC.
WILLIAMS TECHNOLOGIES, INC. WELLS FARGO CREDIT, INC.
WILLIAMS WORLD TRADE, INC.
WILLIAMS AUTOMOTIVE, INC.
TECHWOOD WILLIAMS, INC. By:
PROACTIVE ACQUISITION CORPORATION -----------------------------------------
Title:
-----------------------------------
By:/s/DENNIS E. BUNDAY
-----------------------------
Dennis E. Bunday, President
61
EXHIBIT A
TO
AMENDED AND RESTATED CREDIT AGREEMENT
Borrowing Base Certificate
1
EXHIBIT B
TO
AMENDED AND RESTATED CREDIT AGREEMENT
FORM OF PROMISSORY NOTES
------------------------
(SEE ATTACHED)
1
Revolving Loans Promissory Note
-------------------------------
$10,000,000 July 1, 2002
FOR VALUE RECEIVED, the undersigned, WILLIAMS CONTROLS, INC. a Delaware
corporation, AGROTEC WILLIAMS, INC., a Delaware corporation, APTEK WILLIAMS,
INC., a Delaware corporation, WMCO-GEO, INC., a Florida corporation, HARDEE
WILLIAMS, INC., a Delaware corporation, KENCO/WILLIAMS, INC., a Delaware
corporation, NESC WILLIAMS, INC., a Delaware corporation, PREMIER PLASTIC
TECHNOLOGIES, INC., a Delaware corporation, PROACTIVE ACQUISITION CORPORATION, a
Michigan corporation, WACCAMAW WHEEL WILLIAMS, INC., a Delaware corporation,
WILLIAMS CONTROLS INDUSTRIES, INC., a Delaware corporation, WILLIAMS
TECHNOLOGIES, INC., a Delaware corporation, WILLIAMS WORLD TRADE, INC., a
Delaware corporation, WILLIAMS AUTOMOTIVE, INC., a Delaware corporation,
TECHWOOD WILLIAMS, INC., a Delaware corporation, hereby jointly and severally
promise to pay to the order of WELLS FARGO CREDIT, INC. on the Maturity Date, or
at such earlier time as is provided in that certain Amended and Restated Credit
Agreement among Borrowers and Lender dated as of July 1, 2002, (as amended,
modified or supplemented from time to time, the "Credit Agreement"), the
principal sum of Ten Million Dollars ($10,000,000), or such lesser amount as
shall equal the aggregate outstanding principal balance of all Revolving Loans
made by Lender to Borrowers pursuant to the Credit Agreement.
This promissory note is one of the promissory notes referred to in, and
subject to the terms of, the Credit Agreement. Capitalized terms used herein
shall have the respective meanings assigned to them in the Credit Agreement.
Borrowers further promise to pay interest on the outstanding principal
balance hereof at the interest rates, and payable on the dates, set forth in the
Credit Agreement. All payments of principal and interest hereunder shall be made
to Lender in lawful money of the United States and in same day or immediately
available funds.
Lender is authorized but not required to record the date and amount of
each advance made hereunder, the date and amount of each payment of principal
and interest hereunder, and the resulting unpaid principal balance hereof, in
Lender's internal records, and any such recordation shall be prima facie
evidence of the accuracy of the information so recorded; provided however, that
Lender's failure to so record such amounts shall not limit or otherwise affect
Borrower's obligations hereunder and under the Credit Agreement to repay the
principal hereof and interest hereon.
1
Borrowers shall pay all costs of collection, including reasonable
attorneys' fees (whether incurred at the trial or appellate level, in an
arbitration or administrative proceeding, in bankruptcy (including, without
limitation, any adversary proceeding, contested matter or motion) or otherwise).
No delay or failure on the part of Lender to exercise any of its rights
hereunder shall be deemed a waiver of such rights or any other right of Lender
nor shall any delay, omission or waiver on any one occasion be deemed a bar to
or waiver of such rights or any other right on any future occasion. Borrower and
every surety, indorser and guarantor of this Note waive presentment, demand,
protest, notice of intention to accelerate, notice of acceleration, notice of
nonpayment and all other notices of every kind (except as otherwise provided in
the Credit Agreement), and agree that its liability under this Note shall not be
affected by any renewal, postponement or extension in the time of payment
hereof, by any indulgence granted by any holder hereof with respect hereto, or
by any release or change in any security for the payment of this Note, and they
hereby consent to any and all renewals, extensions, indulgences, releases or
changes, regardless of the number of such renewals, extensions, indulgences,
releases or changes.
Borrowers' obligations evidenced by this promissory note are secured by
the Collateral and certain other liens in real property. The Loan Documents
describe the rights of Lender with respect to the Collateral and such real
property.
In the event of any conflict between the terms of this promissory note
and the terms of the Credit Agreement, the terms of the Credit Agreement shall
control.
This promissory note shall be governed by and construed in accordance
with the laws of the State of Oregon.
(This space intentionally left blank)
2
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY ANY
LENDER OR LENDER AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT
EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED
SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND
BE SIGNED BY SUCH LENDER OR LENDER TO BE ENFORCEABLE.
AGROTEC WILLIAMS, INC. WILLIAMS CONTROLS, INC.
APTEK WILLIAMS, INC.
WMCO-GEO, INC. By:/s/DENNIS E. BUNDAY
HARDEE WILLIAMS, INC. -----------------------------------------
KENCO/WILLIAMS, INC. Dennis E. Bunday, Chief Financial Officer
NESC WILLIAMS, INC.
PREMIER PLASTIC TECHNOLOGIES, INC.
WACCAMAW WHEEL WILLIAMS, INC.
WILLIAMS CONTROLS INDUSTRIES, INC.
WILLIAMS TECHNOLOGIES, INC.
WILLIAMS WORLD TRADE, INC.
WILLIAMS AUTOMOTIVE, INC.
TECHWOOD WILLIAMS, INC.
PROACTIVE ACQUISITION CORPORATION
By:/s/DENNIS E. BUNDAY
-----------------------------
Dennis E. Bunday, President
3
Term Loan A Promissory Note
---------------------------
$1,400,000 July 1, 2002
FOR VALUE RECEIVED, the undersigned, WILLIAMS CONTROLS, INC. a Delaware
corporation, AGROTEC WILLIAMS, INC., a Delaware corporation, APTEK WILLIAMS,
INC., a Delaware corporation, WMCO-GEO, INC., a Florida corporation, HARDEE
WILLIAMS, INC., a Delaware corporation, KENCO/WILLIAMS, INC., a Delaware
corporation, NESC WILLIAMS, INC., a Delaware corporation, PREMIER PLASTIC
TECHNOLOGIES, INC., a Delaware corporation, PROACTIVE ACQUISITION CORPORATION, a
Michigan corporation, WACCAMAW WHEEL WILLIAMS, INC., a Delaware corporation,
WILLIAMS CONTROLS INDUSTRIES, INC., a Delaware corporation, WILLIAMS
TECHNOLOGIES, INC., a Delaware corporation, WILLIAMS WORLD TRADE, INC., a
Delaware corporation, WILLIAMS AUTOMOTIVE, INC., a Delaware corporation,
TECHWOOD WILLIAMS, INC., a Delaware corporation,, hereby jointly and severally
promise to pay to the order of WELLS FARGO CREDIT, INC. in the manner and at the
times provided in that certain Amended and Restated Credit Agreement among
Borrowers and Lender dated as of July 1, 2002, (as amended, modified or
supplemented from time to time, the "Credit Agreement"), the principal sum of
One Million Four Hundred Thousand Dollars ($1,400,000).
This promissory note is one of the promissory notes referred to in, and
subject to the terms of, the Credit Agreement. Capitalized terms used herein
shall have the respective meanings assigned to them in the Credit Agreement.
Borrowers further promise to pay interest on the outstanding principal
balance hereof at the interest rates, and payable on the dates, set forth in the
Credit Agreement. All payments of principal and interest hereunder shall be made
to Lender in lawful money of the United States and in same day or immediately
available funds.
Lender is authorized but not required to record the date and amount of
each advance made hereunder, the date and amount of each payment of principal
and interest hereunder, and the resulting unpaid principal balance hereof, in
Lender's internal records, and any such recordation shall be prima facie
evidence of the accuracy of the information so recorded; provided however, that
Lender's failure to so record such amounts shall not limit or otherwise affect
Borrower's obligations hereunder and under the Credit Agreement to repay the
principal hereof and interest hereon.
Borrowers shall pay all costs of collection, including reasonable
attorneys' fees (whether incurred at the trial or appellate level, in an
arbitration or administrative proceeding, in bankruptcy (including, without
limitation, any adversary proceeding, contested matter or
1
motion) or otherwise). No delay or failure on the part of Lender to exercise any
of its rights hereunder shall be deemed a waiver of such rights or any other
right of Lender nor shall any delay, omission or waiver on any one occasion be
deemed a bar to or waiver of such rights or any other right on any future
occasion. Borrower and every surety, indorser and guarantor of this Note waive
presentment, demand, protest, notice of intention to accelerate, notice of
acceleration, notice of nonpayment and all other notices of every kind (except
as otherwise provided in the Credit Agreement), and agree that its liability
under this Note shall not be affected by any renewal, postponement or extension
in the time of payment hereof, by any indulgence granted by any holder hereof
with respect hereto, or by any release or change in any security for the payment
of this Note, and they hereby consent to any and all renewals, extensions,
indulgences, releases or changes, regardless of the number of such renewals,
extensions, indulgences, releases or changes.
Borrowers' obligations evidenced by this promissory note are secured by
the Collateral and certain other liens in real property. The Loan Documents
describe the rights of Lender with respect to the Collateral and such real
property.
In the event of any conflict between the terms of this promissory note
and the terms of the Credit Agreement, the terms of the Credit Agreement shall
control.
This promissory note shall be governed by and construed in accordance
with the laws of the State of Oregon.
(This space intentionally left blank)
2
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY ANY
LENDER OR LENDER AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT
EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED
SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND
BE SIGNED BY SUCH LENDER OR LENDER TO BE ENFORCEABLE.
AGROTEC WILLIAMS, INC. WILLIAMS CONTROLS, INC.
APTEK WILLIAMS, INC.
WMCO-GEO, INC. By:/s/DENNIS E. BUNDAY
HARDEE WILLIAMS, INC. ----------------------------------------
KENCO/WILLIAMS, INC. Dennis E. Bunday, Chief Financial Officer
NESC WILLIAMS, INC.
PREMIER PLASTIC TECHNOLOGIES, INC.
WACCAMAW WHEEL WILLIAMS, INC.
WILLIAMS CONTROLS INDUSTRIES, INC.
WILLIAMS TECHNOLOGIES, INC.
WILLIAMS WORLD TRADE, INC.
WILLIAMS AUTOMOTIVE, INC.
TECHWOOD WILLIAMS, INC.
PROACTIVE ACQUISITION CORPORATION
By:/s/DENNIS E. BUNDAY
---------------------------
Dennis E. Bunday, President
3
Term Loan B Promissory Note
---------------------------
$800,000 July 1, 2002
FOR VALUE RECEIVED, the undersigned, WILLIAMS CONTROLS, INC. a Delaware
corporation, AGROTEC WILLIAMS, INC., a Delaware corporation, APTEK WILLIAMS,
INC., a Delaware corporation, WMCO-GEO, INC., a Florida corporation, HARDEE
WILLIAMS, INC., a Delaware corporation, KENCO/WILLIAMS, INC., a Delaware
corporation, NESC WILLIAMS, INC., a Delaware corporation, PREMIER PLASTIC
TECHNOLOGIES, INC., a Delaware corporation, PROACTIVE ACQUISITION CORPORATION, a
Michigan corporation, WACCAMAW WHEEL WILLIAMS, INC., a Delaware corporation,
WILLIAMS CONTROLS INDUSTRIES, INC., a Delaware corporation, WILLIAMS
TECHNOLOGIES, INC., a Delaware corporation, WILLIAMS WORLD TRADE, INC., a
Delaware corporation, WILLIAMS AUTOMOTIVE, INC., a Delaware corporation,
TECHWOOD WILLIAMS, INC., a Delaware corporation, hereby jointly and severally
promise to pay to the order of WELLS FARGO CREDIT, INC. in the manner and at the
times provided in that certain Amended and Restated Credit Agreement among
Borrowers and Lender dated as of July 1, 2002, (as amended, modified or
supplemented from time to time, the "Credit Agreement"), the principal sum of
Eight Hundred Thousand Dollars ($800,000).
This promissory note is one of the promissory notes referred to in, and
subject to the terms of, the Credit Agreement. Capitalized terms used herein
shall have the respective meanings assigned to them in the Credit Agreement.
Borrowers further promise to pay interest on the outstanding principal
balance hereof at the interest rates, and payable on the dates, set forth in the
Credit Agreement. All payments of principal and interest hereunder shall be made
to Lender in lawful money of the United States and in same day or immediately
available funds.
Lender is authorized but not required to record the date and amount of
each advance made hereunder, the date and amount of each payment of principal
and interest hereunder, and the resulting unpaid principal balance hereof, in
Lender's internal records, and any such recordation shall be prima facie
evidence of the accuracy of the information so recorded; provided however, that
Lender's failure to so record such amounts shall not limit or otherwise affect
Borrower's obligations hereunder and under the Credit Agreement to repay the
principal hereof and interest hereon.
Borrowers shall pay all costs of collection, including reasonable
attorneys' fees (whether incurred at the trial or appellate level, in an
arbitration or administrative proceeding, in bankruptcy (including, without
limitation, any adversary proceeding, contested matter
1
or motion) or otherwise). No delay or failure on the part of Lender to exercise
any of its rights hereunder shall be deemed a waiver of such rights or any other
right of Lender nor shall any delay, omission or waiver on any one occasion be
deemed a bar to or waiver of such rights or any other right on any future
occasion. Borrower and every surety, indorser and guarantor of this Note waive
presentment, demand, protest, notice of intention to accelerate, notice of
acceleration, notice of nonpayment and all other notices of every kind (except
as otherwise provided in the Credit Agreement), and agree that its liability
under this Note shall not be affected by any renewal, postponement or extension
in the time of payment hereof, by any indulgence granted by any holder hereof
with respect hereto, or by any release or change in any security for the payment
of this Note, and they hereby consent to any and all renewals, extensions,
indulgences, releases or changes, regardless of the number of such renewals,
extensions, indulgences, releases or changes.
Borrowers' obligations evidenced by this promissory note are secured by
the Collateral and certain other liens in real property. The Loan Documents
describe the rights of Lender with respect to the Collateral and such real
property.
In the event of any conflict between the terms of this promissory note
and the terms of the Credit Agreement, the terms of the Credit Agreement shall
control.
This promissory note shall be governed by and construed in accordance
with the laws of the State of Oregon.
(This space intentionally left blank)
2
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY ANY
LENDER OR LENDER AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT
EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED
SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND
BE SIGNED BY SUCH LENDER OR LENDER TO BE ENFORCEABLE.
AGROTEC WILLIAMS, INC. WILLIAMS CONTROLS, INC.
APTEK WILLIAMS, INC.
WMCO-GEO, INC. By:/s/DENNIS E. BUNDAY
HARDEE WILLIAMS, INC. ----------------------------------------
KENCO/WILLIAMS, INC. Dennis E. Bunday, Chief Financial Officer
NESC WILLIAMS, INC.
PREMIER PLASTIC TECHNOLOGIES, INC.
WACCAMAW WHEEL WILLIAMS, INC.
WILLIAMS CONTROLS INDUSTRIES, INC.
WILLIAMS TECHNOLOGIES, INC.
WILLIAMS WORLD TRADE, INC.
WILLIAMS AUTOMOTIVE, INC.
TECHWOOD WILLIAMS, INC.
PROACTIVE ACQUISITION CORPORATION
By:/s/DENNIS E. BUNDAY
---------------------------
Dennis E. Bunday, President
3
EXHIBIT C
TO
AMENDED AND RESTATED CREDIT AGREEMENT
Notice of Authorized Representatives
Wells Fargo Credit, Inc.
245 S. Los Robles Avenue, Suite 600
Pasadena, California 91101
Attn: Angelo Samperisi
Reference is made to that certain Amended and Restated Credit Agreement
among WILLIAMS CONTROLS, INC. a Delaware corporation, AGROTEC WILLIAMS, INC., a
Delaware corporation, APTEK WILLIAMS, INC., a Delaware corporation, WMCO-GEO,
INC., a Florida corporation, HARDEE WILLIAMS, INC., a Delaware corporation,
KENCO/WILLIAMS, INC., a Delaware corporation, NESC WILLIAMS, INC., a Delaware
corporation, PREMIER PLASTIC TECHNOLOGIES, INC., a Delaware corporation,
PROACTIVE ACQUISITION CORPORATION, a Michigan corporation, WACCAMAW WHEEL
WILLIAMS, INC., a Delaware corporation, WILLIAMS CONTROLS INDUSTRIES, INC., a
Delaware corporation, WILLIAMS TECHNOLOGIES, INC., a Delaware corporation,
WILLIAMS WORLD TRADE, INC., a Delaware corporation, WILLIAMS AUTOMOTIVE, INC., a
Delaware corporation, TECHWOOD WILLIAMS, INC., a Delaware corporation, and WELLS
FARGO CREDIT, INC. dated as of July 1, 2002, (as amended, modified or
supplemented from time to time, the "Credit Agreement"). Capitalized terms used
herein shall have the respective meanings assigned to them in the Credit
Agreement.
Borrowers' Agent hereby represents to Lender that the following persons
are the Authorized Representatives, as defined in the Credit Agreement, and that
the signatures opposite their names are their true signatures:
Name and Office Signature
--------------- ---------
------------------------- ------------------------
------------------------- ------------------------
------------------------- ------------------------
------------------------- ------------------------
1
------------------------- ------------------------
Lender is authorized to rely on this Notice of Authorized
Representatives until such time, if any, as Borrowers' Agent has delivered to
Lender, and Lender has received, a duly executed Notice of Authorized
Representatives in substitution hereof. This Notice of Authorized
Representatives cancels and supersedes any Notice of Authorized Representatives
at any time prior to the date hereof delivered by Borrowers' Agent to Lender.
IN WITNESS WHEREOF, Borrowers' Agent hereby confirms that it has caused
this Notice of Authorized Representatives to be duly executed as of
______________.
WILLIAMS CONTROLS, INC.
By:
----------------------------
Title:
--------------------------
2
EXHIBIT D
TO
AMENDED AND RESTATED CREDIT AGREEMENT
Notice of Borrowing
Wells Fargo Credit, Inc.
245 S. Los Robles Avenue, Suite 600
Pasadena, California 91101
Attn: Angelo Samperisi
Reference is made to that certain Amended and Restated Credit Agreement
among WILLIAMS CONTROLS, INC. a Delaware corporation, AGROTEC WILLIAMS, INC., a
Delaware corporation, APTEK WILLIAMS, INC., a Delaware corporation, WMCO-GEO,
INC., a Florida corporation, HARDEE WILLIAMS, INC., a Delaware corporation,
KENCO/WILLIAMS, INC., a Delaware corporation, NESC WILLIAMS, INC., a Delaware
corporation, PREMIER PLASTIC TECHNOLOGIES, INC., a Delaware corporation,
PROACTIVE ACQUISITION CORPORATION, a Michigan corporation, WACCAMAW WHEEL
WILLIAMS, INC., a Delaware corporation, WILLIAMS CONTROLS INDUSTRIES, INC., a
Delaware corporation, WILLIAMS TECHNOLOGIES, INC., a Delaware corporation,
WILLIAMS WORLD TRADE, INC., a Delaware corporation, WILLIAMS AUTOMOTIVE, INC., a
Delaware corporation, TECHWOOD WILLIAMS, INC., a Delaware corporation, and WELLS
FARGO CREDIT, INC. dated as of July 1, 2002, (as amended, modified or
supplemented from time to time, the "Credit Agreement"). Capitalized terms used
herein shall have the respective meanings assigned to them in the Credit
Agreement.
1. Pursuant to Section 3.1 of the Credit Agreement, Borrowers hereby
request Revolving Loans upon the following terms:
(a) The aggregate principal amount is to be $___________.
(b) The date of borrowing is to be _________.
(c) $________ of the Loans are to be Prime Rate Loans, and
$________ of the Loans are to be LIBOR Loans with a Interest Period of
_______________months.
1
2. Borrowers hereby certify to Lender that, on the date of this Notice
of Borrowing and after giving effect to the requested disbursement (including
the use of the proceeds thereof):
(a) Borrowers' representations and warranties in the Loan
Documents are correct in all material respects as if made on the date
hereof;
(b) no Default is continuing or would result from the
requested Loans being made; and
(c) no event or circumstance exists that can reasonably be
expected to have a Material Adverse Effect.
Dated: ______________.
WILLIAMS CONTROLS, INC.
By:
-----------------------------
Title:
--------------------------
2
EXHIBIT E
TO
AMENDED AND RESTATED CREDIT AGREEMENT
Notice of Conversion or Continuation
------------------------------------
Wells Fargo Credit, Inc.
245 S. Los Robles Avenue, Suite 600
Pasadena, California 91101
Attn: Angelo Samperisi
Reference is made to that certain Amended and Restated Credit Agreement
among WILLIAMS CONTROLS, INC. a Delaware corporation, AGROTEC WILLIAMS, INC., a
Delaware corporation, APTEK WILLIAMS, INC., a Delaware corporation, WMCO-GEO,
INC., a Florida corporation, HARDEE WILLIAMS, INC., a Delaware corporation,
KENCO/WILLIAMS, INC., a Delaware corporation, NESC WILLIAMS, INC., a Delaware
corporation, PREMIER PLASTIC TECHNOLOGIES, INC., a Delaware corporation,
PROACTIVE ACQUISITION CORPORATION, a Michigan corporation, WACCAMAW WHEEL
WILLIAMS, INC., a Delaware corporation, WILLIAMS CONTROLS INDUSTRIES, INC., a
Delaware corporation, WILLIAMS TECHNOLOGIES, INC., a Delaware corporation,
WILLIAMS WORLD TRADE, INC., a Delaware corporation, WILLIAMS AUTOMOTIVE, INC., a
Delaware corporation, TECHWOOD WILLIAMS, INC., a Delaware corporation, and WELLS
FARGO CREDIT, INC. dated as of July 1, 2002, (as amended, modified or
supplemented from time to time, the "Credit Agreement"). Capitalized terms used
herein shall have the respective meanings assigned to them in the Credit
Agreement.
1. Pursuant to Section 3.4 of the Credit Agreement, Borrowers hereby
request [the continuation of all or part of outstanding LIBOR Loans with
Interest Periods ending on ___________] [the conversion of all or part of its
outstanding Prime Rate Loans], as follows:
(a) The Loans to which this Notice applies are $_______ of
Revolving Loans and $_________ of Term Loans.
(b) The effective date of continuation and/or conversion is to
be ___________.
(c) The aggregate amount of [said outstanding LIBOR Loans that
are Revolving Loans to be continued as] [said outstanding Prime Rate
Loans that are
1
Revolving Loans to be converted to] LIBOR Loans, and each requested
Interest Period, are:
2
Amount Interest Period
------ ---------------
$___________ __________ months
$___________ __________ months
(d) The aggregate amount of said outstanding LIBOR Loans that
are Revolving Loans to be continued as Prime Rate Loans is
$___________.
(e) The aggregate amount of [said outstanding LIBOR Loans that
are Term Loans to be continued as] [said outstanding Prime Rate Loans
that are Term Loans to be converted to] LIBOR Loans, and each requested
Interest Period, are:
Amount Interest Period
------ ---------------
$___________ __________ months
$___________ __________ months
(d) The aggregate amount of said outstanding LIBOR Loans that
are Term Loans to be continued as Prime Rate Loans is $___________.
2. Borrowers hereby certify to Lender that, on the date of this Notice
of Conversion or Continuation, no Default has occurred and is continuing.
Dated: _____________.
WILLIAMS CONTROLS, INC.
By:
-----------------------------
Title:
--------------------------
3
EXHIBIT F
TO
AMENDED AND RESTATED CREDIT AGREEMENT
List of Contingent Obligations as of Closing Date
-------------------------------------------------
1
EXHIBIT G
TO
AMENDED AND RESTATED CREDIT AGREEMENT
Certificate of Chief Financial Officer
--------------------------------------
Wells Fargo Credit, Inc.
245 S. Los Robles Avenue, Suite 600
Pasadena, California 91101
Attn: Angelo Samperisi
This certificate is furnished pursuant to Section 8.3 of that certain
Amended and Restated Credit Agreement among WILLIAMS CONTROLS, INC. a Delaware
corporation, AGROTEC WILLIAMS, INC., a Delaware corporation, APTEK WILLIAMS,
INC., a Delaware corporation, WMCO-GEO, INC., a Florida corporation, HARDEE
WILLIAMS, INC., a Delaware corporation, KENCO/WILLIAMS, INC., a Delaware
corporation, NESC WILLIAMS, INC., a Delaware corporation, PREMIER PLASTIC
TECHNOLOGIES, INC., a Delaware corporation, PROACTIVE ACQUISITION CORPORATION, a
Michigan corporation, WACCAMAW WHEEL WILLIAMS, INC., a Delaware corporation,
WILLIAMS CONTROLS INDUSTRIES, INC., a Delaware corporation, WILLIAMS
TECHNOLOGIES, INC., a Delaware corporation, WILLIAMS WORLD TRADE, INC., a
Delaware corporation, WILLIAMS AUTOMOTIVE, INC., a Delaware corporation,
TECHWOOD WILLIAMS, INC., a Delaware corporation, and WELLS FARGO CREDIT, INC.
dated as of July 1, 2002, (as amended, modified or supplemented from time to
time, the "Credit Agreement"). Capitalized terms used herein shall have the
respective meanings assigned to them in the Credit Agreement.
The undersigned hereby certifies that:
(1) the financial statements of Borrower attached hereto for the
[month] [year] ending _________________, ____ were prepared in accordance with
GAAP and fairly present in all material respects Borrowers' [consolidated]
[consolidated and consolidating] balance sheet as of the end of such [month]
[year] and [consolidated] [consolidated and consolidating] income and cash flow
for such [month] [year] and year-to-date (subject to normal year end adjustments
and without notes);
(2) [no Default existed at any time during such [month] [year]] [no
Default existed at any time during such [month] [year] except for the events
described below and a detailed statement of the action which Borrowers [have
taken] [propose to take] with respect to each such event is set forth the
description of such event below]; and
1
(3) the calculation demonstrating Borrower's compliance with the
covenants set forth in Article X is attached hereto.
Dated: __________, ____.
-----------------------------------------------
Name:_________________, Chief Financial Officer
2