sc13d

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U7ry0rf3/5vm3BFvypBWkB3nNTXYbDk+9FNrhEIAf5zRKGwv7P/M2JhEeYGU6toe 3DjpbR6UmuSby7xCfxXz2g== 0000950133-02-002491.txt : 20020705 0000950133-02-002491.hdr.sgml : 20020704 20020705080436 ACCESSION NUMBER: 0000950133-02-002491 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 20020705 GROUP MEMBERS: AMERICAN INDUSTRIAL PARTNERS CAPITAL FUND III, L. P. GROUP MEMBERS: AMERICAN INDUSTRIAL PARTNERS III CORPORATION GROUP MEMBERS: AMERICAN INDUSTRIAL PARTNERS III, L. P. GROUP MEMBERS: W. RICHARD BINGHAM FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INDUSTRIAL PARTNERS CAPITAL FUND III LP CENTRAL INDEX KEY: 0001176392 IRS NUMBER: 943357963 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D MAIL ADDRESS: STREET 1: ONE MARTIME PLZ STREET 2: STE 252 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: WILLIAMS CONTROLS INC CENTRAL INDEX KEY: 0000854860 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 841099587 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-41058 FILM NUMBER: 02697027 BUSINESS ADDRESS: STREET 1: 14100 SW 72ND AVENUE CITY: PORTLAND STATE: OR ZIP: 97224 BUSINESS PHONE: 5036848600 MAIL ADDRESS: STREET 1: 14100 SW 72ND AVENUE CITY: PORTLAND STATE: OR ZIP: 97224 SC 13D 1 w61956sc13d.htm SCHEDULE 13D sc13d

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Schedule 13D

Under the Securities Exchange Act of 1934
(Amendment No. _____________)

Williams Controls, Inc.

(Name of Issuer)

Common Stock, $.01 Par Value

(Title of Class of Securities)

969465

(CUSIP Number)

American Industrial Partners Capital Fund III, L.P.

(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)

COPY TO:


Robert G. Marks Kirkland & Ellis 655 Fifteenth Street, NW Suite 1200 Washington, D.C. 20005 (202) 879-5000		Dennis Bunday 14100 SW 72nd Avenue Portland, OR 97224 (887) 330-9820

July 1, 2002

(Date of Event which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. [ ]

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See §240.13d-7 for other parties to whom copies are to be sent.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).


CUSIP No. 969465	13D	Page 2 of 17
		Pages



1	NAMES OF REPORTING PERSONS / I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

	American Industrial Partners Capital Fund III, L.P.

2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
		(a) [ ]

		(b) [X]

3	SEC USE ONLY


4	SOURCE OF FUNDS*

		OO

5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E)	[ ]

6	CITIZENSHIP OR PLACE OF ORGANIZATION

	Delaware


NUMBER OF	7	SOLE VOTING POWER

SHARES

BENEFICIALLY	8	SHARED VOTING POWER

OWNED BY		15,294,117

EACH	9	SOLE DISPOSITIVE POWER

REPORTING

PERSON	10	SHARED DISPOSITIVE POWER

WITH		15,294,117



11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

	15,294,117 (See Item 5)

12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*	[ ]

13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

	32.8%

14	TYPE OF REPORTING PERSON*

		PN

* SEE INSTRUCTIONS.


CUSIP No. 969465	13D	Page 3 of 17
		Pages



1	NAMES OF REPORTING PERSONS / I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

	American Industrial Partners III, L.P.

2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
		(a) [ ]

		(b) [X]

3	SEC USE ONLY


4	SOURCE OF FUNDS*

		OO

5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E)	[ ]

6	CITIZENSHIP OR PLACE OF ORGANIZATION

	Delaware


NUMBER OF	7	SOLE VOTING POWER

SHARES

BENEFICIALLY	8	SHARED VOTING POWER

OWNED BY		15,294,117

EACH	9	SOLE DISPOSITIVE POWER

REPORTING

PERSON	10	SHARED DISPOSITIVE POWER

WITH		15,294,117



11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

	15,294,117 (See Item 5)

12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*	[ ]

13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

	32.8%

14	TYPE OF REPORTING PERSON*

		PN

* SEE INSTRUCTIONS.


CUSIP No. 969465	13D	Page 4 of 17
		Pages



1	NAMES OF REPORTING PERSONS / I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

	American Industrial Partners III Corporation

2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
		(a) [ ]

		(b) [X]

3	SEC USE ONLY


4	SOURCE OF FUNDS*

		OO

5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E)	[ ]

6	CITIZENSHIP OR PLACE OF ORGANIZATION

	Delaware


NUMBER OF	7	SOLE VOTING POWER

SHARES

BENEFICIALLY	8	SHARED VOTING POWER

OWNED BY		15,294,117

EACH	9	SOLE DISPOSITIVE POWER

REPORTING

PERSON	10	SHARED DISPOSITIVE POWER

WITH		15,294,117



11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

	15,294,117 (See Item 5)

12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*	[ ]

13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

	32.8%

14	TYPE OF REPORTING PERSON*

		CO

* SEE INSTRUCTIONS.


CUSIP No. 969465	13D	Page 5 of 17
		Pages



1	NAMES OF REPORTING PERSONS / I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

	W. Richard Bingham

2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
		(a) [ ]

		(b) [X]

3	SEC USE ONLY


4	SOURCE OF FUNDS*

		OO

5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E)	[ ]

6	CITIZENSHIP OR PLACE OF ORGANIZATION

	Delaware


NUMBER OF	7	SOLE VOTING POWER

SHARES

BENEFICIALLY	8	SHARED VOTING POWER

OWNED BY		15,294,117

EACH	9	SOLE DISPOSITIVE POWER

REPORTING

PERSON	10	SHARED DISPOSITIVE POWER

WITH		15,294,117



11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

	15,294,117 (See Item 5)

12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*	[ ]

13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

	32.8%

14	TYPE OF REPORTING PERSON*

		IN

ITEM 1. SECURITY AND ISSUER.

This Statement relates to the Common Stock, par value $.01 (the “Common Stock”) of Williams Controls, Inc., a Delaware corporation (the “Issuer”) into which the Issuer's Series B Preferred Stock, 15% Redeemable Convertible Series, par value per $.01 share (the “Series B Preferred Stock”) is convertible. The address of the principal executive office of the Issuer is 1400 SW 72nd Avenue, Portland, OR 97224.

ITEM 2. IDENTITY AND BACKGROUND.

This Statement is being filed by American Industrial Partners Capital Fund III, L.P., a Delaware limited partnership (“AIP Fund III”), American Industrial Partners III, L.P., a Delaware limited partnership (“AIP III”), American Industrial Partners III Corporation, a Delaware corporation (“AIP Corporation”) and W. Richard Bingham, an individual (collectively, the “Reporting Persons” and each a “Reporting Person”).

(a)-(c) The principal offices of the Reporting Persons are located at One Maritime Plaza, Suite 2525, San Francisco, California 94111. AIP Fund III, AIP III and AIP Corporation are principally engaged in the business of investing in businesses. AIP III is the sole general partner of AIP Fund III and AIP Corporation is the sole general partner of AIP III. Mr. Bingham is, or may be considered to be, the controlling stockholder of AIP Corporation.

The executive officers of AIP Corporation are as follows: Mr. Bingham is the President and Theodore C. Rogers is Secretary. Messrs. Bingham and Rogers are members of the Board of Directors of AIP Corporation. Mr. Rogers’ principal place of business is 551 Fifth Avenue, New York, NY 10176. Mr. Bingham’s principal business address is One Maritime Plaza, Suite 2525, San Francisco, California 94111. Messrs. Bingham and Rogers are citizens of the United States of America. The present principal occupation or employment of Mr. Bingham is serving in his position with AIP Corporation and as President and a member of the Board of Directors of AIP Corporation. The present principal occupation or employment of Mr. Rogers is serving in his position with AIP Corporation and as Secretary and a member of the Board of Directors of AIP Corporation.

A joint filing agreement of the Reporting Persons is attached hereto as Exhibit 1.

(d)-(e) During the last five years, none of the Reporting Persons nor any of the officers or directors listed above, of AIP Corporation, has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which such person was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.

(f) See above.

ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.

The source of funds for AIP Fund III’s acquisition of 130,000 shares of Series B Preferred Stock (convertible into 15,294,117 shares of Common Stock as of the date such Series B Preferred Stock was issued) pursuant to the Stock Purchase Agreement referred to below was funds committed to AIP Fund III by its partners pursuant to a partnership agreement previously entered into with such partners. Pursuant to the Series B Preferred Stock Purchase Agreement, dated as of May 31, 2002 (the “Stock Purchase Agreement”), between AIP Fund III, the Issuer and certain other purchasers named therein, AIP Fund III

paid a purchase price of $100 per share for 130,000 shares of Series B Preferred Stock, for an aggregate purchase price of $13,000,000.

ITEM 4. PURPOSE OF TRANSACTION.

(a) The information in Item 3 above is incorporated herein by reference. The shares of Series B Preferred Stock acquired by AIP Fund III have been acquired solely for the purpose of investment.

Each of the Reporting Persons acquired beneficial ownership of the 130,000 shares of Series B Preferred Stock and the 15,294,117 shares of Common Stock into which such Series B Stock was convertible just after the issuance of the Series B Preferred Stock (representing approximately 32.8% of the outstanding shares of the Common Stock as of the date of such issuance) pursuant to the Stock Purchase Agreement.

In addition, in connection with the execution and delivery of the Stock Purchase Agreement, AIP Fund III entered into the Shareholders Agreement, Registration Rights Agreement, Management Services Agreement and is a beneficiary of the Voting Agreement (each as described in Item 6 below), which contain provisions regarding, among other things, the acquisition, disposition and voting of shares of the Series B Preferred Stock, Common Stock, and certain other securities of the Issuer by the parties to such agreements, as well as certain provisions regarding the composition of the Issuer’s Board of Directors (the “Board”).

(b) Not applicable.

(d) Pursuant to the rights granted to the holders of the Series B Preferred Stock under the Issuer’s Certificate to Provide for the Designation, Preferences, Rights, Qualifications, Limitations or Restrictions Thereof, of the Series B Preferred Stock (the “Certificate of Designation”), the holders of the Series B Preferred Stock are entitled to elect a minimum majority of the Board. Such minimum majority shall initially be four (4) of seven (7) directors. Furthermore, pursuant to resolutions passed by the Board before the transaction contemplated under the Stock Purchase Agreement (the “Transaction”) took place, upon the occurrence of the Transaction, three of the Board’s former directors resigned and three directors designated by AIP Fund III were appointed to the Board. The seventh director will be appointed by the holders of the Series B Preferred Stock in the future.

The foregoing discussion of the change in the board of directors is qualified in its entirety by reference to the Certificate of Designation filed with this Schedule 13D as Exhibit 2 and is incorporated herein by reference.

(e) In connection with the Transaction, the Issuer will redeem all of its outstanding 12% Secured Subordinated Debentures for a total of $5,000,000.

Additionally, the Issuer conducted an exchange offer (the “Exchange Offer”) pursuant to which it offered to exchange all of its shares of Series A Preferred Stock, 71/2% Redeemable Convertible Series (the “Series A Preferred Stock”) for Series A-1 Preferred Stock, Non-Redeemable Convertible Series (the “Series A-1 Preferred Stock”). Such exchange offer is scheduled to close on July 11, 2002. The principal differences between the Series A Preferred Stock and the Series A-1 Preferred Stock are described below.

(A) Dividends. The Series A Preferred Stock has dividend rights, which, in the long-term, are superior compared to the Series A-1 Preferred Stock. Series A Preferred Stock has 17.5% cumulative dividends per share per year, payable quarterly in arrears when and as declared by the Board. The

dividend rate for the Series A Preferred will increase by 2.5% per quarter from and after July 1, 2002 up to a maximum of 24% per share per year. Payment of accrued but unpaid dividends on the Series A Preferred Stock is senior to the payment of any dividends on the Issuer’s outstanding Common Stock.

The right of any holder of Series A Preferred Stock tendered in the Exchange Offer to receive any accrued but unpaid dividends on the Series A Preferred Stock will be forfeited. However, preferred dividends on the Series A-1 Preferred Stock will accrue on a daily basis from and including the date of issuance to and including September 30, 2002 at a rate sufficient to cause dividends to have accrued on each share of Series A-1 Preferred Stock as of September 30, 2002 in an amount equal to the dividends accrued but unpaid on each share of Series A Preferred Stock prior to the exchange. After September 30, 2002, no additional dividends will accrue on the Series A-1 Preferred Stock. If the Issuer declares or pays any dividends on its Common Stock, the holders of Series A-1 Preferred Stock will have the right to receive dividends in the amount which would have been declared and paid with respect to the Common Stock issuable upon conversion of the Series A-1 Preferred Stock had all of the outstanding shares of Series A-1 Preferred Stock been converted prior to the date as of which the record holders of Common Stock entitled to such dividends is determined.

Accrued but unpaid dividends on the Series A-1 Preferred Stock may be converted, but accrued but unpaid dividends on the Series A Preferred Stock are not subject to conversion. Additionally, if shares of Series B Preferred Stock are outstanding, the holders of a majority of the outstanding shares will have to approve the payment of any dividends by the Issuer.

(B) Conversion Price. The price at which the Series A-1 Preferred Stock is convertible into shares of the Issuer’s Common Stock is much lower than the price at which the Series A Preferred Stock converts. Each share of Series A-1 Preferred Stock was, just prior to the Transaction, convertible into Common Stock at $0.66 per share. Each share of Series A Preferred Stock was, just prior to the Transaction, convertible into Common Stock at a price of $2.54 per share (the conversion price of the Series A Preferred Stock was originally $2.75 per share, but was adjusted as a result of the issuance of convertible subordinated debt in April 2000 and as a result of the issuance of secured subordinated debt in February 2001). However, the conversion price of the Series A Preferred Stock will likely be adjusted downward as a result of the issuance of the shares of Series B Preferred Stock.

For both the Series A Preferred Stock and Series A-1 Preferred Stock, the current conversion price is subject to adjustment if, among other things, the Issuer 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. In each case, the amount of the adjustment is set forth in the certificates of designation for both the Series A Preferred Stock and the Series A-1 Preferred Stock. Additionally, the conversion price of the Series A-1 Preferred Stock may be adjusted in the event of any mandatory conversion in connection with a change of control.

The conversion price of the Series A Preferred Stock will likely be adjusted downward as a result of the sale of the shares of the Series B Preferred Stock. However, there will not be any adjustment to the conversion price of the Series A-1 Preferred Stock as a result of the sale of the shares of Series B Preferred Stock

(C) Voluntary Conversion. Both the Series A-1 Preferred Stock and Series A Preferred Stock are convertible into shares of Common Stock at the election of the stockholder. The Series A-1 Preferred Stock is convertible into a much greater number of shares of Common Stock than the Series A Preferred Stock. Also, upon conversion, any dividends on the Series A-1 Preferred Stock which have accrued but are unpaid at the time of conversion will be converted into Common Stock, whereas no accrued dividends on the Series A Preferred Stock are convertible. There are certain conditions described below that must

be satisfied before the holders of Series A-1 Preferred Stock may convert their shares. There are no conditions to the voluntary conversion of the Series A Preferred Stock.

Each holder of Series A Preferred Stock has the right at any time to convert any or all of his shares into shares of Common Stock at the conversion price in effect at the time of the conversion. The number of shares of Common Stock issuable upon conversion equals the number of shares of Series A Preferred Stock being converted multiplied by $100 then divided by the conversion price.

Each holder of Series A-1 Preferred Stock has the right at any time after the first to occur of (i) the third anniversary of the Effective Date (the “Third Anniversary”) or (ii) a change of control of the Issuer to convert any or all of his shares into shares of Common Stock at the conversion price in effect at the time of the conversion. A holder may voluntarily convert his shares prior to such time only if the average of the closing bid price of the Common Stock as listed on the over the counter bulletin board (the “OTC Bulletin Board”), or wherever the Common Stock then trades, for 12 of the 13 weeks preceding the date of voluntary conversion is greater than or equal to $1.00 per share. The number of shares of Common Stock issuable upon conversion equals the number of shares of Series A-1 Preferred Stock being converted multiplied by the sum of $100 plus accrued and unpaid dividends, then divided by the conversion price, which, as discussed above, is initially $0.66 per share. The number of shares of Common Stock issuable upon conversion of each share of Series A-1 Preferred, assuming no adjustment of the conversion price and assuming no dividends have accrued, is approximately 151.5151. A “change of control” occurs if a person or group of related persons (a) acquires more than fifty percent of the shares of Common Stock outstanding on a “fully diluted basis”, whether by merger, stock purchase, recapitalization, redemption, issuance of capital stock or otherwise, or (b) acquires assets constituting all or substantially all of the Issuer’s assets.

(D) Mandatory Conversion. Both the Series A-1 Preferred Stock and Series A Preferred Stock are convertible into shares of Common Stock at the Issuer’s option. The Issuer may convert all, but not less than all, of the shares then outstanding. The conditions which must be satisfied before the Issuer can force the conversion of the shares of Series A-1 Preferred Stock and Series A Preferred Stock vary between the series, as do the terms of the conversion.

The Series A Preferred Stock is not subject to mandatory conversion unless and until (i) the shares of Common Stock issued upon conversion of the Series A Preferred Stock have been registered under the Securities Act of 1933, as amended (the “Securities Act”), and the registration is then effective, (ii) the average of the closing bid price of the Common Stock as listed on the National Association of Securities Dealers Automated Quotation System, the New York Stock Exchange, the American Stock Exchange or wherever the Common Stock then trades is at least 150% of the conversion price for 20 trading days within a 30 day consecutive trading day period ending no more than ten days prior to the date that the Issuer notifies the holders of Series A Preferred of its intention to convert them. The Issuer must give notice of its election to convert all of the Series A Preferred Stock at least 30, but no more than 45, days prior to the date that the conversion will be effective. Upon the mandatory conversion of the Series A Preferred Stock, the Issuer is obligated to pay all accrued and unpaid dividends through the date of conversion. The number of shares of Common Stock issuable upon mandatory conversion is the same as in a voluntary conversion.

The Series A-1 Preferred Stock is not subject to mandatory conversion until the first to occur of (a) the Third Anniversary, or (b) in connection with a change of control, and then only if the shares of Common Stock to be issued upon conversion of the Series A-1 Preferred Stock have been registered under the Securities Act and the registration is then effective. The Series A-1 Preferred Stock is subject to mandatory conversion following the Third Anniversary (unless there is a change of control) only if the average weekly closing bid price of the Common Stock as listed on the OTC Bulletin Board or

wherever the Common Stock then trades is greater than or equal to the conversion price (initially $0.66 per share) for a period of 12 out of 13 consecutive weeks ending no more than ten days prior to the prior to the date that the Issuer notifies the holders of Series A Preferred Stock of its intention to convert them. The Issuer must give notice of its election to convert all of the Series A-1 Preferred Stock at least 15, but no more than 45, days prior to the date set for conversion. The number of shares issuable upon mandatory conversion of the Series A-1 Preferred Stock is the same as in a voluntary conversion, except that, in the event of any mandatory conversion in connection with a change of control, the shares of Series A-1 Preferred Stock will convert at the price per share to be received at the closing of the change of control by the holders of Common Stock if it is less than the conversion price then in effect.

(E) The Issuer’s Optional Redemption Rights. The Series A-1 Preferred Stock is not subject to redemption. The Issuer may redeem Series A Preferred Stock at any time after April 21, 2001. The redemption price per share of Series A Preferred Stock is $100.00 per share, plus any accumulated and unpaid dividends. Prior to any redemption, the holders of Series A Preferred Stock have the right to convert their shares of Series A Preferred Stock into Common Stock based on the conversion price.

(F) Voting Rights. The Series A-1 Preferred Stock and Series A Preferred Stock have generally the same voting rights. Both the Series A-1 Preferred Stock and Series A Preferred Stock vote with the Common Stock, and for the first two years following its issuance, the Series B Preferred Stock as a single class are entitled to elect a minimum majority of the directors on the Board. Each of the Series A-1 Preferred Stock and Series A Preferred Stock are entitled to vote as a separate class on any proposal which would amend, alter, change, or repeal any of the express terms of the Series A-1 Preferred Stock or Series A Preferred Stock, respectively. On all other matters subject to a vote of the Issuer’s stockholders, both Series A-1 Preferred Stock and Series A Preferred Stock vote with the Common Stock and Series B Preferred Stock as a single class. The only significant difference is that the holders of Series A Preferred Stock are also entitled to vote as a separate class on any action which would create, authorize or issue any class or series of capital stock rating equal senior in priority to the Series A Preferred Stock as to dividends or distributions, or any obligation or security convertible into shares of any such senior stock.

However, in any matter upon which the Series A-1 Preferred Stock and Series A Preferred Stock are entitled to vote, the number of votes per share of Series A-1 Preferred Stock will be greater than the number of votes per share of Series A Preferred Stock. In any vote of the Issuer’s stockholders in which the Series A-1 Preferred Stock or Series A Preferred Stock are entitled to vote, the holders of Series A-1 Preferred Stock and Series A Preferred Stock are entitled to a number of votes equal to the number of shares into which their shares of Series A-1 Preferred Stock or Series A Preferred Stock, as applicable, may then be converted. Thus, because the Series A-1 Preferred Stock is convertible into a greater number of shares of Common Stock than the Series A Preferred Stock, the holder of Series A-1 Preferred Stock will have a greater number of votes per share.

(G) Liquidation Rights. Holders of Series A-1 Preferred Stock have a liquidation preference equal to the greater of $100.00 per share, plus accrued but unpaid dividends, or the value of the Common Stock issuable upon conversion of the Series A-1 Preferred Stock had all of the outstanding Series A-1 Preferred Stock been converted immediately prior to the liquidation. The holders of Series A Preferred Stock have a liquidation preference of $100.00 per share, plus accrued but unpaid dividends. In each case, the amount upon any liquidation will partially depend on the amount of the accrued but unpaid dividends. As the Series A Preferred Stock accrues dividends in excess of the dividends which will accrue on the shares of Series A-1 Preferred Stock, the holders of Series A Preferred Stock may receive more per share in the event of the liquidation of the Issuer.

The Series A-1 Preferred Stock will be senior to the Series A Preferred Stock, and both the Series A-1 Preferred Stock and Series A Preferred Stock will be senior to our Common Stock. Both the Series A-1 Preferred Stock and the Series A Preferred Stock are junior to the Series B Preferred Stock.

The foregoing discussion of the Exchange Offer is qualified in its entirety by reference to the Issuer's Schedule TO (Amendment No. 1) filed on June 11, 2002 as amended by the Issuer's Schedule TO (Amendment No. 2) filed on July 3, 2002, both of which are incorporated herein by reference.

(f) Not applicable.

(g) The information set forth in Item 4(d) above is incorporated herein by reference.

(h) Not applicable.

(i) Not applicable.

(j) Not applicable.

ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.

(a)-(b) AIP Fund III may be deemed to beneficially own 130,000 shares of Series B Preferred Stock, representing approximately 86.7% of the outstanding shares of Series B Preferred Stock. Immediately after giving effect to the Transaction, such stock was convertible into 15,294,117 shares of Common Stock, representing approximately 32.8% of the outstanding shares of Common Stock at that time. However, as the Series B Preferred Stock accrues dividends on a daily basis and such accrued dividends are also convertible into Common Stock, the number of shares of Common Stock into which the Series B Preferred Stock is convertible and the percentage of outstanding shares of Common Stock AIP Fund III's 130,000 shares of Series B Preferred Stock represents, will increase accordingly. Additionally, the closing of the Exchange Offer will likely affect the percentage of outstanding shares of Common Stock AIP Fund III's 130,000 shares of Series B Preferred Stock represents. Each of AIP III, AIP Corporation and Mr. Bingham, exclusively through their direct or indirect control of AIP Fund III, indirectly beneficially own the 130,000 shares of Series B Preferred Stock and the Common Stock into which such shares are convertible directly beneficially owned by AIP Fund III. Each of the Reporting Persons may be deemed to have sole voting and dispositive powers over the 130,000 shares of the Series B Preferred Stock and the shares of Common Stock into which such shares are convertible by virtue of the fact that AIP Fund III directly beneficially owns such shares, AIP III is the general partner of AIP Fund III, AIP Corporation is the general partner of AIP III and Mr. Bingham is, or may be considered to be, a controlling stockholder of AIP Corporation. Additionally, pursuant to the terms of the Shareholders Agreement described in Item 6 hereof, each of the Reporting Persons may be deemed to have certain voting and/or drag-along rights with respect to all 150,000 shares of the Series B Preferred Stock (initially convertible into 17,647,058 shares of Common Stock), and the Common Stock into which such shares are convertible, and over the shares of Series A-1 Preferred Stock (when issued) and the Common Stock into which such shares are convertible, owned by certain holders of such shares by virtue of the fact that AIP Fund III is a party to the Shareholders Agreement, AIP III is the general partner of AIP Fund III, AIP Corporation is the general partner of AIP III and Mr. Bingham is, or may be considered to be, a controlling stockholder of AIP Corporation.

The foregoing discussion of the Series B Preferred Stock is qualified in its entirety by reference to the Certificate of Designation filed with this Schedule 13D as Exhibit 2, which is incorporated herein by reference.

(d) Not Applicable.

(e) Not Applicable.

Pursuant to the Shareholders Agreement described in Item 6 hereof, the Reporting Persons have certain rights and obligations with respect to shares of Series B Preferred Stock and shares of Series A-1 Preferred Stock beneficially owned (or to be beneficially owned upon issuance of the Series A-1 Preferred Stock). While the Reporting Persons do not believe that they constitute a “Group” with the other parties to the Shareholders Agreement by virtue of the terms of the Shareholders Agreement, if they were considered such a “Group”, then they would be deemed to beneficially own certain shares beneficially owned by the other parties to the Shareholders Agreement. The Reporting Persons expressly disclaim beneficial ownership of any of those shares except as stated above.

ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER.

The information set forth in Items 3 and 4 above is incorporated herein by reference.

Stock Purchase Agreement. Pursuant to the Stock Purchase Agreement, AIP Fund III purchased 130,000 shares of Series B Preferred Stock for an aggregate of $13,000,000. The foregoing discussion of the Stock Purchase Agreement is qualified in its entirety by reference to the Stock Purchase Agreement filed with this Schedule 13D as Exhibit 3, which is incorporated herein by reference.

Shareholders Agreement. The Shareholders Agreement, dated as of July 1, 2002, between the Issuer, AIP Fund III (together with its affiliates, “AIP”) and the other parties thereto (the “Shareholders Agreement”) provides, among other things, for the rights, obligations and restrictions listed below.

(A) Tag-Along Rights. With respect to any proposed transfer, sale or other disposition for value (collectively, a “transfer”), other than pursuant to Exempt Transfers (as defined in the Shareholders Agreement), by AIP of more than five percent in the aggregate over the term of the Shareholders Agreement of the number of shares that AIP held as of the Effective Date to any proposed purchaser, each other holder of shares of the Series B Preferred Stock (each, a “Co-Investor”) shall have the right and option to participate in such transfer in the same proportion, 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 Co-Investors comply with certain conditions necessary to effect the proposed transfer.

(B) Bring-Along Rights. If AIP at any time from time to time seeks a transfer (other than a transfer pursuant to an Exempt Transfer), to a proposed purchaser of any of its shares of Series B Preferred Stock, upon the request of AIP, each Co-Investor 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 of Series B Preferred Stock equal to the product of the number of such shares then held by such Co-Investor multiplied by a fraction, the numerator of which is the total number of shares of Series B Preferred Stock that AIP proposes for the Co-Investors to transfer and the denominator of which is the total number of shares of Series B Preferred Stock.

(C) Restrictions on Transfer. Prior to the first to occur of (i) the Third Anniversary or (ii) a Change of Control (as defined in the Shareholders Agreement), except for a Permitted Transfer (as defined in the Shareholders Agreement), each Co-Investor agrees not to, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate, encumber or otherwise dispose of any shares of the Series B Preferred Stock or the Series A-1 Preferred Stock without the prior written consent of AIP and the Company.

(D) Restrictions on Purchase. Each Co-Investor agrees not to, directly or indirectly, purchase any shares of Common Stock, Series A Preferred Stock, Series A-1 Preferred Stock, Series B Preferred Stock or other Stock (as defined in the Shareholders Agreement) of the Issuer (collectively, “Issuer Stock”), without the prior written consent of the Issuer until the earlier of (i) the Third Anniversary, and (ii) a Change of Control; provided, however, that such Co-Investor may directly or indirectly purchase any shares Issuer Stock without the prior written consent of the Issuer at any time so long as the average weekly closing bid price of the Common Stock as listed on the OTC 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.

(E) Voting Requirements. From and after the Effective Date and until the date that is the first anniversary of the Effective Date, each Co-Investor shall vote all of its shares of Series B Preferred Stock and all of its shares of Series A-1 Preferred Stock over which such Co-Investor has voting control with AIP on all matters related to the election of the Board only, and shall take all other necessary or desirable actions within its control to effect such vote as reasonably requested by AIP. From and after the Effective Date and until the date that is the second anniversary of the Effective Date, each Co-Investor shall vote all of its shares of Series B Preferred Stock over which such Co-Investor has voting control with AIP on all

matters related to the election of the Board only, and shall take all other necessary or desirable actions within its control to effect such vote as reasonably requested by AIP. From and after the Effective Date and until the date on which AIP no longer owns a majority of the shares of the Series B Preferred Stock, each Co-Investor shall vote all of its shares of Series B Preferred Stock 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.

(F) Right of First Offer. If at any time any of the Co-Investors proposes to transfer any shares of Series B Preferred Stock (except for Permitted Transfers), then such Co-Investor 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 of Series B Preferred Stock to be transferred (the “Offered Stock”), the price (the “Price”) and the other terms and conditions upon which such Co-Investor 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 during which to notify the Co-Investor in writing of its election to purchase all or any portion of the Offered Stock.

The foregoing discussion of the Shareholders Agreement is qualified in its entirety by reference to the Shareholders Agreement filed with this Schedule 13D as Exhibit 4, which is incorporated herein by reference.

Registration Rights Agreement. The Registration Rights Agreement dated as of July 1, 2002 between AIP Fund III, the Company and the other parties thereto provides that as soon as possible, but in no event later than 180 days after the date thereof, the Issuer shall file with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act for the registration of any or all of the shares into which the Series B Preferred Stock is convertible, pursuant to Rule 415 of the Securities Act under which any or all of such shares may be sold. The Registration Rights Agreement also includes other provisions typically found in a Registration Rights Agreement. The foregoing discussion of the Registration Rights Agreement is qualified in its entirety by reference to the Registration Rights Agreement filed with this Schedule 13D as Exhibit 5, which is incorporated herein by reference.

Voting Agreement. The Voting Agreement dated as of July 1, 2002 by Taglich Brothers, Inc. (“Taglich”) in favor of AIP Fund III (the “Voting Agreement”) provides that Taglich will vote all of the shares of Series A Preferred Stock and Series B Preferred Stock over which it has voting control pursuant to voting proxies, in favor of an amendment to the Issuer’s Certificate of Incorporation expressly electing not to be governed by Section 203 of the Delaware General Corporation Law. The foregoing discussion of the Voting Agreement is qualified in its entirety by reference to the Voting Agreement filed with this Schedule 13D as Exhibit 6, which is incorporated herein by reference.

Management Services Agreement. The Management Services Agreement dated as of July 1, 2002 between American Industrial Partners, a Delaware general partnership (“American Industrial Partners”), and the Issuer (the “Management Services Agreement”) provides that, in consideration of management and advisory services previously provided and to be provided by American Industrial Partners to the Issuer, the Issuer agrees to pay American Industrial Partners:

(A) an advisory fee of $850,000, which fee was paid as of July 1, 2002;

(B) subject to certain conditions precedent, an annual management 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, equal to $400,000, plus 3% of any debt outstanding (including accrued interest thereon) of the Issuer 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 such annual fee shall be reduced by 50% beginning the first day of any quarterly period following the conversion of all shares of AIP Fund III’s Series B Preferred Stock into Common Stock; 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 foregoing discussion of the Management Services Agreement is qualified in its entirety by reference to the Management Services Agreement filed with this Schedule 13D as Exhibit 7, which is incorporated herein by reference.

ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.

1. Joint Filing Agreement, dated as of July 2, 2002, by and among AIP Fund III, AIP III and AIP Corporation.

2. Certificate to Provide for the Designation, Preferences, Rights, Qualifications, Limitations or Restrictions Thereof, of the Series B Preferred Stock, 15% Redeemable Convertible Series.

3. Stock Purchase Agreement, dated as of May 31, 2002, by and among AIP Fund III, the Issuer and certain other parties thereto.

4. Shareholders Agreement, dated as of July 1, 2002, by and among AIP, the Issuer and the other parties thereto.

5. Registration Rights Agreement, dated as of July 1, 2002, by and among AIP Fund III, the Issuer and the other parties thereto.

6. Voting Agreement, dated as of July 1, 2002, by Taglich in favor of AIP Fund III.

7. Management Services Agreement, dated as of July 2, 2002, by and among American Industrial Partners and the Issuer.

* * * * *

SIGNATURE

After reasonable 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.

Dated: July 2, 2002


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:		/s/ W. RICHARD BINGHAM

		Name: W. Richard Bingham
		Title: President

AMERICAN INDUSTRIAL PARTNERS III, L.P.

By:		American Industrial Partners III Corporation
Its:		General Partner

By:		/s/ W. RICHARD BINGHAM

		Name: W. Richard Bingham
		Title: President

AMERICAN INDUSTRIAL PARTNERS III CORPORATION

By:		/s/ W. RICHARD BINGHAM

		Name: W. Richard Bingham
		Title: President

By:		/s/ W. RICHARD BINGHAM

		W. Richard Bingham

EX-1 3 w61956exv1.htm SCHEDULE 13D JOINT FILING AGREEMENT exv1

EXHIBIT 1

SCHEDULE 13D JOINT FILING AGREEMENT

The undersigned and each other person executing this joint filing agreement (this “Agreement”) agree as follows:

The undersigned and each other person executing this Agreement are responsible for the timely filing of such Schedule 13D and any amendments thereto, and for the completeness and accuracy of the information concerning such person contained therein; but none of the undersigned or any other person executing this Agreement is responsible for the completeness or accuracy of the information statement concerning any other persons making the filing, unless such person knows or has reason to believe that such information is inaccurate.

This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same instrument.

* * * * * *

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be signed by their respective officers thereunto duly authorized as of the date set forth opposite their name.

Date: July 2, 2002


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:		/s/ W. RICHARD BINGHAM

		Name: W. Richard Bingham
		Title: President

AMERICAN INDUSTRIAL PARTNERS III, L.P.

By:		American Industrial Partners III Corporation
Its:		General Partner

By:		/s/ W. RICHARD BINGHAM

		Name: W. Richard Bingham
		Title: President

AMERICAN INDUSTRIAL PARTNERS III CORPORATION

By:		/s/ W. RICHARD BINGHAM

		Name: W. Richard Bingham
		Title: President

By:		/s/ W. RICHARD BINGHAM

		W. Richard Bingham

EX-2 4 w61956exv2.htm CERTIFICATE TO PROVIDE FOR THE DESIGNATION exv2

EXHIBIT 2

__________________

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 1^st day of July, 2002.

/s/ Dennis Bunday
Chief Financial Officer,
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) acquires

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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, 7 1/2% 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 of a

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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

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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 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

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receivable upon 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.


(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, 7 1/2% 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 Restrictions

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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- EX-3 5 w61956exv3.htm SERIES B PREFERRED STOCK PURCHASE AGREEMENT exv3

EXHIBIT 3

SERIES B PREFERRED STOCK

PURCHASE AGREEMENT

by and among

WILLIAMS CONTROLS, INC.,

AMERICAN INDUSTRIAL PARTNERS CAPITAL FUND III, L.P.,

AND THE OTHER PURCHASERS NAMED HEREIN

May 31, 2002

TABLE OF CONTENTS


		Page

ARTICLE I Purchase and Sale; Closing; Purchasers Representative			1
	Section 1.1 Purchase and Sale of the Shares		1
	Section 1.2 The Closing		1
	Section 1.3 Purchasers Representative		1
	Section 1.4 Additional Purchasers		3
ARTICLE II Definitions			3
	Section 2.1 Definitions		3
ARTICLE III Representations and Warranties of the Company			10
	Section 3.1 Organization, Corporate Power and Licenses		10
	Section 3.2 Capitalization		10
	Section 3.3 Subsidiaries		11
	Section 3.4 Authorization; No Breach; Consents		11
	Section 3.5 SEC Reports; Financial Statements		12
	Section 3.6 Absence of Undisclosed Liabilities		13
	Section 3.7 Absence of Certain Developments		13
	Section 3.8 Properties		13
	Section 3.9 Assets		14
	Section 3.10 Tax Matters		14
	Section 3.11 Brokerage		15
	Section 3.12 Employees		16
	Section 3.13 ERISA and ERISA Affiliates		16
	Section 3.14 Compliance with Laws		18
	Section 3.15 Environmental, Health, and Safety Matters		18
	Section 3.16 Affiliated Transactions		19
	Section 3.17 Contracts and Commitments		19
	Section 3.18 Intellectual Property		20
	Section 3.19 Litigation		21
	Section 3.20 Other Investors		22
	Section 3.21 Guaranties		22
	Section 3.22 Disclosure		22
	Section 3.23 Delivery of Disclosure Schedule		22
ARTICLE IV Representations and Warranties of Each Purchaser			23
	Section 4.1 Organization and Power of Purchaser		23
	Section 4.2 Authorization; No Breach		23
	Section 4.3 Brokerage		23
	Section 4.4 Purchaser’s Investment Representations		23
ARTICLE V Pre-Closing Covenants			24
	Section 5.1 General		24
	Section 5.2 Notices of Certain Events		24


	Section 5.3 Operation of Business	24
	Section 5.4 Full Access	26
	Section 5.5 Exclusivity	26
ARTICLE VI Post-Closing Covenants		27
	Section 6.1 General	27
	Section 6.2 Access	27
	Section 6.3 Stockholder Approval	27
	Section 6.4 Reservation of Common Stock	27
	Section 6.5 Public Filings	28
	Section 6.6 Use of Proceeds	28
	Section 6.7 Termination	28
	Section 6.8 Restriction on Payment of Dividends	28
	Section 6.9 Registration	28
	Section 6.10 Indemnification	28
ARTICLE VII Conditions to Obligation to Close		29
	Section 7.1 Conditions to Purchasers’ Obligations	29
	Section 7.2 Conditions to the Company’s Obligations	33
ARTICLE VIII Remedies for Breaches of This Agreement		33
	Section 8.1 Survival of Representations and Warranties	33
	Section 8.2 Indemnification Provisions for the Purchasers’ Benefit	34
	Section 8.3 Monetary Limitation	34
	Section 8.4 Indemnification Provisions for the Company’s Benefit	34
	Section 8.5 Matters Involving Third Parties	35
ARTICLE IX Termination		35
	Section 9.1 Termination	35
	Section 9.2 Effect of Termination or Breach	36
	Section 9.3 Break-up Fee	36
ARTICLE X Miscellaneous		37
	Section 10.1 Expenses	37
	Section 10.2 Closing Fee and Management Services Agreement	37
	Section 10.3 Consent to Amendments	38
	Section 10.4 Successors and Assigns	38
	Section 10.5 Severability	38
	Section 10.6 Counterparts	38
	Section 10.7 Descriptive Headings; Interpretation	38
	Section 10.8 Governing Law	38
	Section 10.9 Notices	38
	Section 10.10 No Strict Construction	40
	Section 10.11 Entire Agreement	40

iii


*Exhibits:*
Exhibit A — Form of Joinder
Exhibit B — Form of Certificate of Designation of the Preferred Stock
Exhibit C — Form of Certificate of Designation of the Series A-1 Preferred Stock
Exhibit D — Form of Management Services Agreement
*Schedules:*
Schedule 1 — Purchasers

THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT (this “Agreement”) is dated as of May 31, 2002, by and among Williams Controls, Inc., a Delaware corporation (the “Company”), American Industrial Partners Capital Fund III, L.P., a Delaware limited partnership (the “Purchasers Representative”), and each other person who agrees to be bound by the provisions hereof as a “Purchaser” by executing a joinder agreement (a “Joinder”), substantially in the form attached hereto as Exhibit A (together with the Purchasers Representative, each, a “Purchaser”, and collectively, the “Purchasers”). Capitalized terms used herein are defined in Article II hereof.

NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the parties hereto agree as follows:

ARTICLE I
PURCHASE AND SALE; CLOSING; PURCHASERS REPRESENTATIVE

Section 1.1 Purchase and Sale of the Shares. At the Closing, subject to the terms and conditions set forth herein, the Company shall issue and sell to the Purchasers, and the Purchasers shall severally but not jointly purchase from the Company, free and clear of all Liens (other than transfer restrictions imposed by federal or state securities laws), an aggregate of not more than 150,000, but not less than 125,000, shares (the “Shares”) of the Company’s newly issued Series B Preferred Stock, 15% Redeemable Convertible Series, par value $.01 per share (the “Preferred Stock”), for a purchase price of $100 per share. The exact aggregate number of Shares, and the number of Shares each Purchaser shall purchase, shall be determined in accordance with Section 1.4 hereof.

Section 1.2 The Closing. Subject to the satisfaction or waiver of the closing conditions set forth in Article VII, the closing of the purchase and sale of the Shares (the “Closing”) shall take place at the offices of Kirkland & Ellis, 655 Fifteenth Street, N.W., Washington, D.C. 20005 at a time and on a date (not later than July 31, 2002) agreed upon by the Company and the Purchasers Representative, contemporaneously with the execution and delivery of the Transaction Documents. At the Closing, the Company shall issue and deliver to each Purchaser a stock certificate duly executed and registered in the name of such Purchaser evidencing ownership of the number of Shares to be purchased by such Purchaser as set forth opposite such Purchaser’s name on Schedule 1 hereto, as such Schedule 1 is amended from time to time before the Closing in accordance with Section 1.4.

Section 1.3 Purchasers Representative. (a) By the execution and delivery of this Agreement, each of the Purchasers hereby irrevocably constitutes and appoints the Purchasers Representative as the true and lawful agent and attorney-in-fact of the Purchasers with full power of substitution to act in the name, place and stead of the Purchasers in accordance with the terms and provisions set forth in this Agreement (and only in this Agreement). Such powers include, without limitation, the following:

(i) to act on behalf of the Purchasers in any litigation or arbitration involving this Agreement, any Transaction Document or any instrument or agreement executed in connection herewith or therewith (whether prior to, at or after the Closing);

(ii) to act for the Purchasers with regard to matters pertaining to indemnification referred to in this Agreement, including the power to compromise any indemnity claims on behalf of the Purchasers;

(iii) to execute and deliver all ancillary agreements, certificates and documents, and any amendments or modifications thereto, that the Purchasers Representative deems necessary or appropriate in connection with the consummation of the transactions contemplated by this Agreement; and

(iv) to amend or modify this Agreement and to do or refrain from doing any further act or deed on behalf of the Purchasers that the Purchasers Representative deems necessary or appropriate in its sole discretion relating to the subject matter of this Agreement as fully and completely as the Purchasers could do if personally present.

(b) The appointment of the Purchasers Representative shall be deemed coupled with an interest and shall be irrevocable, and the Company and any other Person may conclusively and absolutely rely, without inquiry, upon any action of the Purchasers Representative in all matters referred to herein.

(c) The Purchasers Representative shall act for the Purchasers on all matters set forth in this Agreement in the manner that the Purchasers Representative believes to be in the bests interests of the Purchasers and consistent with the obligations under this Agreement, but the Purchasers Representative shall not be responsible to the Purchasers for any loss or damages that the Purchasers may suffer by the performance of the Purchasers Representative. Notwithstanding anything in this Section 1.4 to the contrary, the Purchasers Representative shall not take any actions related to its duties hereunder that would result in a benefit to the Purchasers Representative (in its capacity as a Purchaser) without providing the same benefit to the other Purchasers; provided, however, that the Purchasers Representative shall be entitled to any benefits specifically set forth in this Agreement (including, but not limited to, the Break-up Fee, if applicable, as provided in Section 9.3 hereof, expense reimbursement, as provided in Section 10.1 hereof, and the Closing Fee, as provided in Section 10.2 hereof) and an Affiliate of the Purchasers Representative shall enter the Management Services Agreement with the Company, as provided in Section 10.2 hereof. EACH PURCHASER HEREBY AGREES SEVERALLY AND JOINTLY TO INDEMNIFY THE PURCHASERS REPRESENTATIVE AND ITS OFFICERS, EMPLOYEES, AFFILIATES, CONTROLLING PERSONS, 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 THE PURCHASERS REPRESENTATIVE OR ANY ITS OFFICERS, EMPLOYEES, AFFILIATES, CONTROLLING PERSONS, AGENTS OR REPRESENTATIVES OR THEIR RESPECTIVE SUCCESSORS OR ASSIGNS PURSUANT TO THIS AGREEMENT.

(d) The Purchasers Representative shall remain the Purchasers Representative hereunder until its resignation. Upon such resignation, the holders of a majority of the then

outstanding Shares shall elect a successor Purchasers Representative, who shall remain the Purchasers Representative until his, her or its resignation.

Section 1.4 Additional Purchasers. As of the date hereof, Schedule 1 to this Agreement sets forth the number of Shares the Purchasers Representative, in its capacity as a Purchaser, desires to purchase in accordance with the terms and conditions hereof (including the satisfaction or waiver of Section 7.1). The Company may, from time to time between the date hereof and the Closing, offer to sell additional Shares to any Person (including the Purchasers Representative) in accordance with the terms of this Agreement (and only this Agreement, as the same be amended or modified from time to time); provided, that the Company shall not sell any such additional Shares without the prior written consent of the Purchasers Representative, which consent may be withheld in its sole discretion, except that the Purchasers Representative has consented to the sale of up to an aggregate of 25,000 Shares to Dolphin Offshore Partners, L.P. and any of its Affiliates (collectively, “Dolphin”) and Eubel Brady & Suttman Asset Management, Inc. and any of its Affiliates (collectively, “Brady”), so long as Dolphin and Brady each purchase at least 5,000 Shares. As a condition to becoming a Purchaser hereunder, each additional Purchaser shall (a) execute a Joinder, by which such additional Purchaser (i) agrees to be bound by all of the terms and conditions of this Agreement, and (ii) shall be treated as having been a party to this Agreement as of the date hereof, (b) execute a Joinder to a shareholders agreement to be entered into by and among the Company, the Purchasers Representative and each other Purchaser (the “Stockholders Agreement”) and (c) execute a Joinder to a registration rights agreement to be entered into by and among the Company, the Purchasers Representative and each other Purchaser (the “Registration Rights Agreement”). Schedule 1 to this Agreement shall automatically be modified to reflect such increase, and the Company shall be bound, subject to the satisfaction (or waiver) of the conditions set forth in Section 7.2, to sell (and such additional Purchasers shall be bound severally but not jointly, subject to the satisfaction (or waiver by the Purchasers Representative) of the conditions set forth in Section 7.1 to purchase) such additional Shares in accordance with terms hereof. If the Company desires to sell additional Shares to an existing Purchaser, such sale shall be subject to all provisions this Section 1.4 (including the requirement for the Purchasers Representative’s consent), and the Purchaser who agrees, subject to the terms hereof, to purchase additional Shares shall be treated as an additional Purchaser with respect to such number of Shares (except such Purchaser need not execute a Joinder).

ARTICLE II
DEFINITIONS

Section 2.1 Definitions. For the purposes of this Agreement, the following terms have the meanings set forth below:

“Active Subsidiaries” has the meaning set forth in Section 3.3 hereof.

“Affiliate” of any particular Person means any other Person controlling, controlled by or under common control with such particular Person, where “control” means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through the ownership of voting securities, contract or otherwise.

"Affiliated Group” means an “affiliated group” as defined in Section 1504 of the Code, or any similar group defined under local, state or foreign Tax law for which the Company or any of its Subsidiaries is or has been a member.

“Agreement” has the meaning set forth in the preface hereof.

“Another Transaction” has the meaning set forth in Section 5.5 hereof.

“Board” means the Company’s board of directors.

“Brady” has the meaning set forth in Section 1.4 hereof.

“Break-up Fee” has the meaning set forth in Section 9.3 hereof.

“Bridge Notes” means the Company’s 12% Secured Subordinated Debentures due March 1, 2002.

“CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended.

“Certificate of Designation” means the Certificate to Provide for the Designation, Preferences, Rights, Qualifications, Limitations or Restrictions Thereof, of the Preferred Stock, attached hereto as Exhibit B.

“Closing” has the meaning set forth in Section 1.2 hereof.

“Closing Date” means the date on which the Closing occurs.

“Closing Fee” has the meaning set forth in Section 10.2 hereof.

“COBRA” has the meaning set forth in Section 3.13(a) hereof.

“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.

“Common Stock” means, collectively, the Company’s Common Stock, par value $.01 per share and any other class or series of stock of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company.

“Company” has the meaning set forth in the preface hereof.

“Company Reports” has the meaning set forth in Section 3.5(a) hereof.

“Conversion Shares” means shares of Common Stock issued or issuable upon conversion of the Preferred Stock.

“Convertible Notes” means the Company’s 7.5% Convertible Subordinated Debentures due March 31, 2003.

“Credit Agreement” means that certain Credit Agreement among the Company, Ajay Sports, Inc., Leisure Life, Inc., Palm Springs Golf, Inc., Ajay Leisure Products, Inc., Agrotec Williams, Inc., Aptek Williams, Inc., Geofocus, Inc., Hardee Williams, Inc., Kenco/Williams, Inc., 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., and Wells Fargo Bank, National Association, dated July 11, 1997, as the same has been and will be amended from time to time.

“Disclosure Schedule” means the disclosure schedule delivered by the Company to Purchasers in accordance with Section 3.23 hereof containing certain information and data required to be disclosed by this Agreement. The Disclosure Schedule identifies the information and data disclosed with reference to the sections of this Agreement and shall be attached to and form a part of the Agreement.

“Division Sale” has the meaning set forth in Section 5.5 hereof.

“Dolphin” has the meaning set forth in Section 1.4 hereof.

“Environmental and Safety Requirements” means all federal, state, local and foreign statutes, regulations, ordinances and other provisions having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations and all common law concerning public health and safety, worker health and safety and pollution or protection of the environment, including without limitation all such standards of conduct and bases of obligations relating to the presence, use, production, generation, handling, transport, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any hazardous materials, substances or wastes, chemical substances or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum products or by-products, asbestos, polychlorinated biphenyls (or PCBs), noise or radiation, each as amended and as now or hereafter in effect.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“ERISA Affiliate” means each entity that is treated as a single employer with the Company for purposes of Section 414 of the Code.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any similar federal law then in force.

“Exclusivity Period” has the meaning set forth in Section 5.5 hereof.

“Final Disclosure Schedule” has the meaning set forth in Section 3.23(a) hereof.

“Financial Statements” has the meaning set forth in Section 3.5(b) hereof.

“GAAP” means United States generally accepted accounting principles.

“Inactive Subsidiaries” has the meaning set forth in Section 3.3 hereof.

“Indebtedness” means at a particular time, without duplication, (i) any indebtedness for borrowed money or indebtedness issued in substitution for or exchange of indebtedness for borrowed money, (ii) any indebtedness evidenced by any note, bond, debenture or other debt security, (iii) any indebtedness for the deferred purchase price of property or services with respect to which a Person is liable, contingently or otherwise, as obligor or otherwise (other than trade payables and other current liabilities incurred in the ordinary course of business), (iv) any commitment by which a Person assures a creditor against loss (including, without limitation, contingent reimbursement obligations with respect to letters of credit), (v) any indebtedness guaranteed in any manner by a Person (including, without limitation, guarantees in the form of an agreement to repurchase or reimburse), (vi) any obligations under capitalized leases with respect to which a Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, or with respect to which obligations a Person assures a creditor against loss, (vii) any indebtedness secured by a Lien on a Person’s assets, (viii) all obligations and liabilities under foreign-exchange or currency swap contracts or similar agreements designed to protect against fluctuations in currency values, (ix) all obligations and liabilities under or with respect to any interest rate swap, cap, collar, or similar agreement or arrangement designed to protect against fluctuations in interest rates, (x) all obligations under take or pay or, similar agreements or under commodities agreements, and (xi) any unsatisfied obligation for “withdrawal liability” to a “multiemployer plan” as such terms are defined under ERISA.

“Indemnified Party” has the meaning set forth in Section 8.5(a) hereof.

“Indemnifying Party” has the meaning set forth in Section 8.5(a) hereof.

“Intellectual Property” shall mean all of the following: (i) patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice); (ii) trademarks, service marks, trade dress, trade names, corporate names, logos, slogans and Internet domain names, together with all goodwill associated with each of the foregoing; (iii) copyrights and copyrightable works; (iv) registrations, applications and renewals for any of the foregoing; (v) trade secrets, confidential information and know-how (including but not limited to ideas, formulae, compositions, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, business and marketing plans, and customer and supplier lists and related information); and (vi) computer software (including but not limited to data, data bases and documentation).

“IRS” means the United States Internal Revenue Service.

“Joinder” has the meaning set forth in the preface hereto.

“Knowledge” shall mean, with respect to the Company, the knowledge or awareness assuming after reasonable inquiry of Thomas Ziegler, Dennis E. Bunday, Thomas Dunlap, Ronald J. Velat, Mark S. Koenen, or Robert Beasley.

“Latest Balance Sheet” means the unaudited consolidated balance sheet as of March 31, 2002 for the Company and its Subsidiaries.

“Lease” means any lease, sublease, license, concession or other agreement (written or oral) pursuant to which the Company or any Subsidiary thereof holds any leasehold or subleasehold estate and other right to use or occupy any land, buildings, structures, improvements, fixtures or other interest in real property.

“Liability” means any obligation or liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes.

“Lien” means any mortgage, deed of trust, pledge, hypothecation, security interest, encumbrance, lien or charge of any kind or nature whatsoever.

“Loss” means, with respect to any Person, any diminution in value, consequential or other damage, liability, demand, claim, action, cause of action, cost, damage, deficiency, Tax, penalty, fine or other loss or expense, whether or not arising out of a third party claim, including all interest, penalties, reasonable attorneys’ fees and expenses and all amounts paid or incurred in connection with any action, demand, proceeding, investigation or claim by any third party (including any governmental entity or any department, agency or political subdivision thereof) against or affecting such Person or which, if determined adversely to such Person, would give rise to, evidence the existence of, or relate to, any other Loss and the investigation, defense or settlement of any of the foregoing.

“Management Services Agreement” means the Management Services Agreement, dated as of the date hereof, by and between the Company and American Industrial Partners or one of its Affiliates, substantially in the form attached hereto as Exhibit D.

“Material Adverse Effect” means any material adverse effect in the business, condition (financial or otherwise), operations, results of operations, employee relations, customer or supplier relations, assets or future prospects of the Company and its Subsidiaries, taken as a whole, including without limitation, the loss or impending loss of a key customer.

“Most Recent Financial Statements” means the unaudited consolidated financial statements as of March 31, 2002 for the Company and its Subsidiaries.

“Ordinary Course of Business” means the ordinary course of the Company’s and its Subsidiaries’ businesses consistent with past practice (including, without limitation, with respect to collection of accounts receivable, purchases of inventory and supplies, repairs and maintenance, payment of accounts payable and accrued expenses, levels of capital expenditures and operation of cash management practices generally).

“Owned Real Property” means all land, together with all buildings, structures, improvements and fixtures located thereon, and all easements and other rights and interests appurtenant thereto, owned by the Company or any Subsidiary thereof.

“Permitted Liens” means (i) statutory liens for current property Taxes and assessments not yet due and payable, including, without limitation, liens for ad valorem Taxes and statutory liens not yet due and payable arising other than by reason of any default on the part of the Company, and liens for property Taxes being contested in good faith by the Company by appropriate proceedings and with respect to which adequate reserves have been established by the Company in accordance with GAAP and (ii) easements, covenants, conditions, restrictions and other similar matters on real property, leasehold estates or personalty that do not in any material respect detract from the value thereof and do not individually or in the aggregate in any material respect interfere with the present use of the property subject thereto.

“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.

“Plans” has the meaning set forth in Section 3.13(a) hereof.

“Preferred Stock” has the meaning set forth in Section 1.1 hereof.

“Purchaser” and “Purchasers” has the meaning set forth in the preface hereto.

“Purchasers Representative” has the meaning set forth in the preface hereto.

“Registration Rights Agreement” has the meaning set forth in Section 1.4 hereof.

“Representative” has the meaning set forth in Section 6.10(a) hereof.

“Securities Act” means the Securities Act of 1933, as amended, or any similar federal law then in force.

“SEC” means the United States Securities and Exchange Commission and any governmental body or agency succeeding to the functions thereof.

“Series A-1 Certificate of Designation” means the Certificate to Provide for the Designation, Preferences, Rights, Qualifications, Limitations or Restrictions Thereof, of the Series A-1 Preferred Stock, in the form attached hereto as Exhibit C.

“Series A Preferred Stock” has the meaning set forth in Section 3.2(a) hereof.

“Series A-1 Preferred Stock” means the preferred stock designated by the Series A-1 Certificate of Designation.

“Shares” has the meaning set forth in Section 1.1 hereof.

“Stockholder Approval” has the meaning set forth in Section 6.3 hereof.

“Stockholders Agreement” has the meaning set forth in Section 1.4 hereof.

“Subsidiary” means, with respect to any Person, (i) any corporation, a majority of the total voting power of shares of stock of which is entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) any limited liability company, partnership, association or other business entity, a majority of the limited liability company, partnership or other similar ownership interest of which is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of partnership, association or other business entity gains or losses or shall be or control the managing member or managing general partner of such limited liability company, partnership, association or other business entity.

“Tail” has the meaning set forth in Section 9.3 hereof.

“Tax” or “Taxes” means (i) any federal, state, local, or foreign income, gross receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer, registration, value added, excise, natural resources, severance, stamp, occupation, premium, windfall profit, environmental, customs, duties, real property, personal property, capital stock, social security, unemployment, disability, payroll, license, employee or other withholding, or other tax of any kind whatsoever, including any interest, penalties or additional amounts in respect of the foregoing and (ii) any Liability of the Company for the payment of any amounts of the type described in clause (i) as a result of any express or implied obligation to indemnify or otherwise assume or succeed to the liability of another Person.

“Tax Returns” means returns, declarations, reports, claims for refund, information returns or other documents (including any related or supporting schedules, statements or information) filed or required to be filed in connection with the determination, assessment or collection of Taxes of any party or the administration of any laws, regulations or administrative requirements relating to any Taxes.

“Third Party Claim” has the meaning set forth in Section 8.5(a) hereof.

“Transaction Documents” means all documents and instruments to be executed or adopted by the Company, the Purchasers Representative and/or the Purchasers in connection herewith, including without limitation the Stockholders Agreement and the Registration Rights Agreement.

“Treasury Regulations” means the United States Treasury Regulations promulgated under the Code, and any reference to any particular Treasury Regulation section shall be interpreted to include any final or temporary revision of or successor to that section regardless of how numbered or classified.

“Updated Disclosure Schedule” has the meaning set forth in Section 3.23(b) hereof.

“WARN Act” has the meaning set forth in Section 3.12(b) hereof.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

As a material inducement to each Purchaser to enter into this Agreement and purchase the Shares hereunder, the Company hereby represents and warrants to each Purchaser as follows:

Section 3.1 Organization, Corporate Power and Licenses. The Company is a corporation duly organized, validly existing and in good standing under the laws of Delaware and is qualified to do business in every jurisdiction in which its ownership of property or conduct of business requires it to qualify, except where the failure to so qualify would not reasonably be expected to have a Material Adverse Effect. The Company possesses all requisite corporate power and authority and all material licenses, permits and authorizations necessary to own and operate its properties, to carry on its businesses as now conducted and as presently proposed to be conducted and to carry out the transactions contemplated by this Agreement and the other Transaction Documents.

Section 3.2 Capitalization.

(a) As of the date hereof, the authorized capital stock of the Company consists of: (i) 50,000,000 shares of Common Stock, of which 19,928,522 shares are outstanding, and (ii) 50,000,000 shares of preferred stock, par value $0.01 per share, of which 80,000 shares are designated as Series A Preferred Stock, 71/2 % Redeemable Convertible Series (the “Series A Preferred Stock”) (of which 78,200 shares are outstanding), and 2,000 shares are designated as 10% Mandatory Convertible Preferred Stock (of which no shares are outstanding). Schedule 3.2 of the disclosure schedule to this Agreement (the “Disclosure Schedule”) lists the names of all of the holders of the Bridge Notes, Convertible Notes and Series A Preferred Stock as of the date hereof and the respective amounts of such securities held by each Person listed thereon. As of the Closing, and upon the acceptance for filing of the Certificate of Designation and the Series A-1 Certificate of Designation and the elimination of the 10% Mandatory Convertible Preferred Stock, the authorized capital stock of the Company shall consist of: (i) 50,000,000 shares of Common Stock, and (ii) 50,000,000 shares of preferred stock, par value $0.01 per share, of which 80,000 shares are designated as Series A Preferred Stock, 80,000 shares are designated as Series A-1 Preferred Stock and 150,000 shares are designated as Preferred Stock. At the time of the Closing, all of the outstanding capital stock shall be validly issued, fully paid and nonassessable and will have been issued in compliance with all applicable securities laws (including the provisions of the Securities Act and the rules and regulations promulgated thereunder). Except as set forth on Section 3.2 of the Disclosure Schedule, as of the Closing, neither the Company nor any of its Subsidiaries has granted or issued any options, convertible securities, warrants, calls, pledges, transfer restrictions (except restrictions imposed by federal and state securities laws), Liens, rights of first offer, rights of first refusal, antidilution provisions or commitments of any character relating to any issued or unissued shares of capital stock of the Company other than as contemplated in this Agreement and the Transaction Documents.

(b) Except as provided for herein, there are no statutory or, to the Company’s Knowledge, contractual stockholders’ preemptive rights or rights of refusal with respect to the issuance of the Shares. Except as provided in Section 3.2 of the Disclosure Schedule, to the Company’s Knowledge, other than the Stockholders Agreement, there are and will be no

agreements among the Company’s shareholders with respect to the voting or transfer of the Company’s capital stock or with respect to any other aspect of the Company’s affairs.

Section 3.3 Subsidiaries. Section 3.3 of the Disclosure Schedule correctly sets forth the name of each Subsidiary, the jurisdiction of its incorporation or formation and the Persons owning the outstanding securities of such Subsidiary. Section 3.3 of the Disclosure Schedule also identifies those Subsidiaries that actively conduct business (the “Active Subsidiaries”) and those Subsidiaries that do not actively conduct business (the “Inactive Subsidiaries”). Each Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction under which it was incorporated or formed, possesses all requisite power and authority and all material licenses, permits and authorizations necessary to own its properties and to carry on its businesses as now being conducted and as presently proposed to be conducted in the future, and is qualified to do business in every jurisdiction in which its ownership of property or conduct of business requires it to qualify except where the failure to so qualify would not reasonably be expected to have a Material Adverse Effect. Except as set forth in Section 3.3 of the Disclosure Schedule, all of the outstanding securities of a Subsidiary which are owned by the Company or another Subsidiary are owned free and clear of any Lien and are not subject to any option or right to purchase any such shares. Except as set forth in Section 3.3 of the Disclosure Schedule, neither the Company nor any of its Subsidiaries own or hold the right to acquire any shares of stock or any other security or interest in any other Person.

Section 3.4 Authorization; No Breach; Consents.(a) The Company has all requisite power and authority and has taken all required corporate and other action necessary (other than receipt of the consent of holders of two-thirds of the outstanding shares of Series A Preferred Stock as described in Section 7.1(e), which the Company shall use its reasonable best efforts to obtain prior to June 14, 2002) to authorize and to permit it to execute and deliver this Agreement and the Transaction Documents and to carry out the terms hereof and thereof and (other than receipt of the Stockholder Approval, which the Company shall seek to obtain in accordance with Section 6.3) to issue and deliver the Conversion Shares, and, assuming receipt of the consent of the holders of two-thirds of the outstanding shares of the Series A Preferred Stock, none of such actions will (i) violate or conflict with any provision of the Certificate of Incorporation of the Company, the By-Laws of the Company or of any applicable law, regulation, order, judgment or decree or rule of any stock exchange where the Common Stock is listed, or (ii) except as set forth on Section 3.4 of the Disclosure Schedule, result in the breach of or constitute a default (or an event which, with notice or lapse of time or both would constitute a default) under any agreement, instrument or understanding to which the Company is a party or by which it is bound or by which it will become bound as a result of the transaction contemplated by this Agreement other than any such breach or default that would not reasonably be expected to have a Material Adverse Effect. This Agreement and the Transaction Documents each constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws of general application related to the enforcement of creditor’s rights generally and except as rights to indemnity thereunder may be limited by applicable federal securities laws.

(b) The Shares have been duly authorized and, when issued and delivered in accordance with this Agreement, will be validly issued, fully paid and nonassessable, and will be

free of any Liens (other than any restrictions on transfer under state and federal securities laws and Liens created by the Purchasers). Subject to receipt of the Stockholder Approval, when issued, the Conversion Shares will be duly authorized, validly issued, fully paid and nonassessable, and will be free of any Liens (other than any restrictions on transfer under state and federal securities laws and Liens created by the Purchasers). Subject to receipt of the Stockholder Approval, the Conversion Shares have been duly reserved for issuance upon conversion of the Shares. Neither the issuance and delivery of the Shares nor the issuance and delivery of any Conversion Shares is subject to any preemptive right of any stockholder of the Company or to any right of first refusal or other similar right in favor of any Person which has not been waived.

(c) The Company has not violated any applicable federal or state securities laws in connection with the offer, sale and issuance of any of its capital stock. Assuming the accuracy of the Purchasers’ representations contained herein, neither the offer, sale and issuance of the Shares hereunder nor the issuance and delivery of any Conversion Shares requires registration under the Securities Act or any state securities laws.

Section 3.5 SEC Reports; Financial Statements.

(a) Except as set forth on Schedule 3.5 of the Disclosure Schedule, the Company has filed all forms, reports and documents required to be filed by it with the SEC and has heretofore made available to the Purchasers (other than preliminary materials), in the form filed with the SEC, (i) its Annual Reports on Form 10-K for the fiscal years ended December 31, 2000 and December 31, 2001, respectively, (ii) all proxy statements relating to the Company’s meetings of stockholders (whether annual or special) held since January 1, 2000, and (iii) all other forms, reports and other registration statements filed by the Company with the SEC after January 1, 2000 and before the Closing Date, including, without limitation, the Form 10-Q for the quarter ended March 31, 2002, when filed (the forms, reports and other documents referred to in clauses (i), (ii) and (iii) above, together with any amendments or supplements thereto filed before the Closing Date, being referred to herein, collectively, as the “Company Reports”). The Company Reports (x) were prepared, in all material respects, in accordance with the applicable requirements of the Securities Act and the Exchange Act, as the case may be, and the rules and regulations thereunder, and (y) did not at the time they were filed contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. No Subsidiary is required to file any form, report or other document with the SEC.

(b) Each of the financial statements (including, in each case, any notes thereto) contained in the Company Reports (the “Financial Statements”) complies as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto and was prepared in all material respects in accordance with GAAP applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto or, in the case of unaudited statements, as permitted by Rule 10-01 of Regulation S-X promulgated by the SEC) and each fairly presented in all material respects (subject to, in the case of the unaudited statements, to normal, recurring audit adjustments, none of which are material) the consolidated financial position, results of

operations, stockholders’ equity and cash flows of the Company and its Subsidiaries as at the respective dates thereof and for the respective periods indicated therein.

Section 3.6 Absence of Undisclosed Liabilities. Except as set forth on Schedule 3.6 of the Disclosure Schedule, the Company and its Subsidiaries have no Liabilities except (i) obligations under executory contracts or commitments described in Section 3.17 of the Disclosure Schedule or under executory contracts and commitments not required to be described in Section 3.17 of the Disclosure Schedule (but not Liabilities for breaches thereof), (ii) Liabilities reflected on the liabilities side of the Latest Balance Sheet and (iii) Liabilities which have arisen after the date of the Latest Balance Sheet in the Ordinary Course of Business or otherwise in accordance with the terms and conditions of this Agreement (none of which is a Liability resulting from, arising out of, or relating to any breach of contract, breach of warranty, tort, infringement or violation of law or environmental matter, including those arising under Environmental and Safety Requirements).

Section 3.7 Absence of Certain Developments. Except as set forth on Section 3.7 of the Disclosure Schedule or expressly contemplated by this Agreement, since the date of the Latest Balance Sheet, (a) the Company has been operated in the Ordinary Course of Business consistent with past practice in all material respects and the Company and the Active Subsidiaries have taken reasonable efforts to preserve their businesses in tact, to keep available the services of their personnel and to preserve the goodwill of their suppliers, customers and others having business relations with the Company and the Active Subsidiaries, (b) the Company has not taken any action which, if taken subsequent to the execution of this Agreement and on or prior to the Closing Date without the consent of the Purchasers Representative, would constitute a breach of the Company’s agreement set forth in Section 5.3, and (c) there has not been any event or change which has caused or could reasonably be expected to have a Material Adverse Effect.

Section 3.8 Properties.

(a) Section 3.8 of the Disclosure Schedule sets forth the address and description of each Owned Real Property. With respect to each Owned Real Property: (i) except as set forth in Section 3.8 of the Disclosure Schedule, the Company or a Subsidiary thereof (as the case may be) has good and marketable fee simple title to such Owned Real Property, which shall be free and clear of all Liens as of the Closing, except for Permitted Liens, (ii) except as set forth in Section 3.8 of the Disclosure Schedule, Company or a Subsidiary thereof has not leased or otherwise granted to any Person the right to use or occupy such Owned Real Property or any portion thereof; and (iii) there are no outstanding options, rights of first offer or rights of first refusal to purchase such Owned Real Property or any portion thereof or interest therein. There are no proceedings in eminent domain or other similar proceedings pending or, to the Knowledge of the Company, threatened, affecting any portion of the Owned Real Property. There exists no writ, injunction, decree, order or judgment outstanding, nor any litigation, pending or threatened, relating to the ownership, lease, use, occupancy or operation by any Person of any Owned Real Property. The current use of the Owned Real Property does not violate in any material respect any instrument of record or agreement affecting such Owned Real Property. There is no violation of any covenant, condition, restriction, easement, agreement or order of any governmental authority having jurisdiction over any of the Owned Real Property that affects

such Owned Real Property or the use or occupancy thereof, except a violation which would not result in material Liabilities to the Company or any of its Subsidiaries or otherwise reasonably be expected to have a Material Adverse Effect. No damage or destruction has occurred with respect to any of the Owned Real Property that, individually or in the aggregate, has had or resulted in, or will have or result in, material Liabilities to the Company or any of its Subsidiaries or otherwise reasonably be expected to have a Material Adverse Effect.

(b) Section 3.8 of the Disclosure Schedule sets forth the address of each leased real property, and a true and complete list of all Leases (including all amendments, extensions, renewals, guaranties and other agreements with respect thereto) for each such leased real property (including the date and name of the parties to such Lease document). The Company has delivered to Purchasers a true and complete copy of each such Lease document, and in the case of any oral Lease, a written summary of the material terms of such Lease. Except as set forth in Section 3.8 of the Disclosure Schedule, with respect to each of the Leases: (i) such Lease is legal, valid, binding, enforceable and in full force and effect; (ii) the Company’s or its Subsidiary’s possession and quiet enjoyment of the real property under such Lease has not been disturbed, and to the Company’s Knowledge, there are no disputes with respect to such Lease; (iii) neither the Company or Subsidiary thereof nor any other party to the Lease is in breach or default under such Lease, and no event has occurred or circumstance exists which, with the delivery of notice, the passage of time or both, would constitute such a breach or default, or permit the termination, modification or acceleration of rent under such Lease; and (iv) the Company and its Subsidiaries have not subleased, licensed or otherwise granted any Person the right to use or occupy such leased real property or any portion thereof.

Section 3.9 Assets. Except as set forth on Section 3.9 of the Disclosure Schedule, the Company and its Subsidiaries have good and marketable title to, or a valid leasehold interest in, the material properties and assets used by them, located on their premises or shown on the Latest Balance Sheet or acquired thereafter, free and clear of all Liens (other than Permitted Liens), except for sales of inventory in the Ordinary Course of Business since the date of the Latest Balance Sheet. Except as described on Section 3.9 of the Disclosure Schedule, the material properties and assets used by the Company and its Subsidiaries are in good operating condition in all material respects, reasonable wear and tear excepted, and are fit for use in the Ordinary Course of Business. The Company and its Subsidiaries validly own or lease all buildings, machinery, equipment, and other tangible assets necessary for the conduct of their businesses as presently conducted.

Section 3.10 Tax Matters. Except as set forth on Section 3.10 of the Disclosure Schedule:

(a) the Company, its Subsidiaries and each Affiliated Group have timely filed all material Tax Returns which are required to be filed, and all such Tax Returns are true, complete and accurate in all material respects and have been prepared in all material respects in compliance with applicable law;

(b) all Taxes due and payable by the Company, its Subsidiaries and each Affiliated Group, whether or not shown on a Tax Return, have been paid by the Company, its Subsidiaries and each Affiliated Group, respectively, and no Taxes are delinquent;

(c) the amount accrued as a current liability for taxes on the Latest Balance Sheet shall be sufficient to pay in full all Taxes for taxable periods (or portions thereof) of the Company, its Subsidiaries and each Affiliated Group ending on or before the date of the Latest Balance Sheet, whether or not such Taxes are due on or before such date and, since the date of the Latest Balance Sheet, the Company has not incurred any Liability for Taxes other than in the Ordinary Course of Business;

(d) there is no action, suit, taxing authority proceeding or audit now in progress, pending or, to the Knowledge of the Company, threatened against or with respect to the Company, any of its Subsidiaries or any Affiliated Group and neither the Company, any of its Subsidiaries, nor any Affiliated Group reasonably expect any taxing authority to claim or assess any additional Taxes in respect of the Company or any of its Subsidiaries for any period, except in each case which, if adversely determined, would not result in material Liabilities to the Company or any of its Subsidiaries or otherwise reasonably be expected to have a Material Adverse Effect;

(e) the Company and its Subsidiaries have not been members of an Affiliated Group, other than one in which the Company was the ultimate parent, and the Company and its Subsidiaries have no liability for Taxes of any Person other than under Treasury Regulations Section 1.1502-6 or any similar provision of local, state or foreign Tax law;

(f) the Company, its Subsidiaries and each Affiliated Group have withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, independent contractor or other third party;

(g) the Company and its Subsidiaries have not consented to extend to a date later than the date hereof the time in which any Tax may be assessed or collected by any taxing authority; and no Affiliated Group has consented to extend to a date later than the date hereof the time in which any Tax may be assessed or collected by any taxing authority with respect to a taxable period during which the Company or any of its Subsidiaries was a member of the Affiliated Group;

(h) the Company and its Subsidiaries are not a party to or bound by any Tax allocation or Tax sharing agreement and have no current or potential contractual obligation to indemnify any other Person with respect to Taxes; and

(i) the Company, each Subsidiary and each Affiliated Group have not made any payments, and are not and will not become obligated (under any contract entered into on or before the Closing) to make any payments, that will be non-deductible under Section 280G of the Code (or any corresponding provision of state, local or foreign income Tax law).

Section 3.11 Brokerage. Except as set forth in Section 3.11 of the Disclosure Schedule and the fee payable to American Industrial Partners or one of its Affiliates as provided in Section 10.2, there are no claims for brokerage commissions, finders’ fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement binding upon the Company or any of its Subsidiaries. The Company shall pay, and hold each Purchaser harmless against, any Liability, Loss or expense (including, without

limitation, reasonable attorneys’ fees and out-of-pocket expenses) arising in connection with any such claim.

Section 3.12 Employees.

(a) Except as set forth on Section 3.12 of the Disclosure Schedule, to the Knowledge of the Company, no key executive employee and no group of employees or independent contractors of the Company or any of its Subsidiaries has any plans to terminate his, her or its employment or relationship as an independent contractor with the Company or such Subsidiary. Except as set forth in Section 3.12 of the Disclosure Schedule, no organizational effort is presently being made or, to the Knowledge of the Company, threatened by or on behalf of any labor union with respect to any employees of the Company or any of its Subsidiaries and none of their employees are represented by any labor union. Except as set forth in Section 3.12 of the Disclosure Schedule and, in each case, where the failure to comply would not result in material Liabilities to the Company or any of its Subsidiaries or otherwise reasonably be expected to have a Material Adverse Effect, the Company and its Subsidiaries are in compliance with all applicable laws and contracts respecting labor and employment, including but not limited to employment practices, terms and conditions of employment, wages and hours, immigration, tax and other payroll withholding, and layoffs, and are not engaged in any unfair labor practice. To the Knowledge of the Company, there is no reasonable basis for any unfair labor practice or other employment-related complaint or claim to be asserted against the Company or any of its Subsidiaries, and there is no labor strike, dispute, slowdown or stoppage actually pending or, to the Knowledge of the Company, threatened, against the Company or any of its Subsidiaries. Except as set forth on Section 3.12 of the Disclosure Schedule, the Company and its Subsidiaries have no labor contracts with any representative of any of the Company’s or any of its Subsidiaries’ employees.

(b) With respect to this transaction, any notice required under any law or collective bargaining agreement has been given, and all bargaining obligations with any employee representative have been, or prior to the Closing will be, satisfied. Except as set forth on Section 3.12 of the Disclosure Schedule, neither the Company nor any of its Subsidiaries has implemented any plant closing or mass layoff of employees that could implicate the Worker Adjustment Retraining Notification Act of 1988, as amended, or any similar applicable foreign, state or local law, regulation or ordinance (jointly, the “WARN Act”).

Section 3.13 ERISA and ERISA Affiliates. Except as set forth on Section 3.13 of the Disclosure Schedule:

(a) the Company and its Subsidiaries do not maintain or contribute to or have any actual or potential liability with respect to any (a) deferred compensation or bonus or retirement plans or arrangements, (b) qualified or nonqualified defined contribution or defined benefit plans or arrangements which are employee pension benefit plans (as defined in Section 3(2) of ERISA), (c) employee welfare benefit plans, (as defined in Section 3(1) of ERISA), stock option or stock purchase plans, or material fringe benefit plans or programs whether in writing or oral and whether or not terminated, or (d) any other material employee benefit plan, program, policy or arrangement. The plans, arrangements, programs and agreements set forth on Section 3.13 of the Disclosure Schedule are referred to collectively as the “Plans” and each a “Plan.”

Neither the Company nor any ERISA Affiliate has ever contributed to any multiemployer pension plan (as defined in Section 3(37) of ERISA), and neither the Company nor any ERISA Affiliate has ever maintained or contributed to any defined benefit plan (as defined in Section 3(35) of ERISA). The Company does not maintain or contribute to any Plan which provides health, accident or life insurance benefits to former employees, their spouses or dependents, or to any other Person, other than health care continuation coverage provided in accordance with Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the Code (“COBRA”);

(b) the Plans (and related trusts and insurance contracts) comply in form and in operation with their terms, the requirements of applicable laws and regulations, including ERISA and the Code and the nondiscrimination rules thereof, and the terms of any applicable collective bargaining agreements. All contributions, premiums or payments which are due on or before the Closing Date under each Plan have been paid. Each Plan which is intended to be qualified under Section 401(a) of the Code has received from the IRS a determination letter stating that such Plan is qualified under Section 401(a) of the Code, and nothing has occurred since the date of such determination that could adversely affect the qualification of such Plan; and each such Plan has been or will be timely amended for the requirements of the Tax legislation commonly known as “GUST” and submitted to the IRS for a favorable determination letter on the GUST requirements within the remedial amendment period prescribed by GUST;

(c) all required reports and descriptions (including Form 5500 annual reports, summary annual reports and summary plan descriptions) with respect to the Plans have been properly and timely filed with the appropriate government agency and distributed to participants as required. The Company and the ERISA Affiliates have complied with the requirements of COBRA;

(d) with respect to each Plan, (a) there have been no prohibited transactions as defined in Section 406 of ERISA or Section 4975 of the Code, (b) no fiduciary (as defined in Section 3(21) of ERISA) has any liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of such Plan, and (c) no actions, investigations, suits or claims with respect to such Plan or assets thereof (other than routine claims for benefits) are pending or threatened, and the Company has no Knowledge of any facts which would give rise to or could reasonably be expected to give rise to any such actions, suits or claims;

(e) with respect to each of the Plans, the Company has furnished to each Purchaser true and complete copies of (a) the plan documents, summary plan descriptions and summaries of material modifications and other material employee communications, (b) the Form 5500 annual report (including all schedules and other attachments) for the most recent three years, (c) all related trust agreements, insurance contracts or other funding agreements which implement such plans and (d) all contracts relating to each such plan, including, without limitation, service provider agreements, insurance contracts, investment management agreements and record keeping agreements;

(f) the Company has not incurred and has no Knowledge of any basis upon which it could reasonably incur any Liability to the Pension Benefit Guaranty Corporation (other than routine premium payments) or otherwise under Title IV of ERISA (including any

withdrawal liability) or under the Code with respect to any employee pension benefit plan (as defined in Section 3(2) of ERISA) that the Company or any ERISA Affiliate maintains or ever has maintained or to which any of them contributes, ever has contributed, or ever has been required to contribute; and

(g) the market value of assets under each Plan which is an employee pension benefit plan (as defined in Section 3(2) of ERISA) other than a “multiemployer plan” (as defined in Section 3(37) of ERISA) equals or exceeds the present value of all vested and nonvested liabilities thereunder determined in accordance with the Pension Benefit Guaranty Corporation methods, factors, and assumptions applicable to such plan terminating on the date for determination.

Section 3.14 Compliance with Laws. Except as set forth in Section 3.14 of the Disclosure Schedule, the Company and its Subsidiaries are, and at all times have been, in compliance with all applicable laws, regulations and ordinances of any governmental entity, and no claims have been filed against the Company or any of its Subsidiaries alleging a violation of any such laws or regulations, and the Company and its Subsidiaries have not received notice of any such violations, except, in each case, where the failure to comply would not result in material Liabilities to the Company or any of its Subsidiaries or otherwise reasonably be expected to have a Material Adverse Effect.

Section 3.15 Environmental, Health, and Safety Matters. Except as set forth in Section 3.15 of the Disclosure Schedule:

(a) the Company, its Subsidiaries and their respective Affiliates have complied and are in compliance with all Environmental and Safety Requirements (including without limitation all permits and licenses required thereunder).

(b) the Company, its Subsidiaries and their respective Affiliates have not received any written or oral notice, report or other information regarding any actual or alleged violation of Environmental and Safety Requirements, or any Liabilities or potential Liabilities, including any investigatory, remedial or corrective obligations, relating to any of them or their facilities arising under Environmental and Safety Requirements;

(c) none of the following exists at any property or facility owned or operated by the Company or any of its Subsidiaries or any of their respective Affiliates: (i) underground storage tanks, (ii) asbestos-containing material in any form or condition, (iii) materials or equipment containing polychlorinated biphenyls, or (iv) landfills, surface impoundments, or disposal areas;

(d) neither the Company, any of its Subsidiaries, nor any of their predecessors (either as an entity or as the owner or lessee of any real property) or Affiliates has treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, or released any substance, including without limitation any hazardous substance, or owned or operated any property or facility (and no such property or facility is contaminated by any such substance) in a manner that has given or would give rise to Liabilities, including without limitation any Liability for response costs, corrective action costs, personal injury, property damage, natural resources

damages or attorney fees, pursuant to CERCLA, the Solid Waste Disposal Act, as amended or any other Environmental and Safety Requirements;

(e) neither this Agreement nor the consummation of the transactions contemplated hereby will result in any obligations for site investigation or cleanup, or notification to or consent of government agencies or third parties, pursuant to any of the so-called “transaction-triggered” or “responsible property transfer” Environmental and Safety Requirements;

(f) the Company, its Subsidiaries and their Affiliates have not, either expressly or by operation of law, assumed, undertaken or otherwise become subject to any Liability, including without limitation any Liability for corrective or remedial action, of any other Person relating to Environmental and Safety Requirements; and

(g) no facts, events or conditions relating to the past or present facilities, properties or operations of the Company, any of its Subsidiaries or any of their predecessors or Affiliates will prevent, hinder or limit continued compliance with Environmental and Safety Requirements, give rise to any investigatory, remedial or corrective Liabilities pursuant to Environmental and Safety Requirements, or give rise to any other Liabilities pursuant to Environmental and Safety Requirements, including without limitation any Liability relating to onsite or offsite releases or threatened releases of hazardous materials, substances or wastes, personal injury, property damage or natural resources damage.

Section 3.16 Affiliated Transactions. Since January 1, 2000, except for those agreements or transactions listed on Section 3.16 of the Disclosure Schedule or contemplated by this Agreement, neither the Company nor any of its Subsidiaries has (a) paid (other than payments made in the ordinary course to employees), loaned or advanced any amount to, (b) sold, transferred or leased any properties or assets to or (c) entered into or continued any agreement, arrangement or understanding (written or otherwise) with, any of its officers, directors, employees or Affiliates or any individual related by blood, marriage or adoption to any such Person or entity in which any such Person owns a beneficial interest.

Section 3.17 Contracts and Commitments. Section 3.17 of the Disclosure Schedule lists the following agreements to which the Company or any of its Subsidiaries is a party or by which any of their assets are bound:

(a) any indenture, mortgage, note, bond or other evidence of Indebtedness, any loan, security, credit, factoring or similar agreement under which the Company or any of its Subsidiaries has borrowed or may borrow money or issued any note, bond, indenture or other evidence of Indebtedness for more than $50,000 individually or $100,000 in the aggregate or under which the Company or any of its Subsidiaries has imposed (or may impose) a Lien on any of its respective assets, tangible or intangible;

(b) any confidentiality, non-solicitation or non-competition agreement or any agreement which restricts, limits or prohibits the Company or any of its Subsidiaries from entering into any new, or expanding any existing, line of business or any agreement which

contains geographic or other limitations, prohibitions or restrictions on the Company’s or any of its Subsidiaries’ ability to conduct business activities;

(c) any agreement under which the Company or any of its Subsidiaries could have Liabilities after the Closing with any current or former directors, officers, and employees in the nature of an employment agreement, a consulting agreement or a severance agreement;

(d) any collective bargaining agreement with any labor union;

(e) any agreement under which the Company or any of its Subsidiaries could have Liabilities in the future relating to the acquisition or disposition of material assets or properties by way of merger, consolidation, purchase, sale or otherwise, or granting to any Person a right at such Person’s option to purchase or acquire any material asset or property, of the Company or any of its Subsidiaries or any interest therein (not including dispositions of inventory in the Ordinary Course of Business);

(f) any agreement for the construction, acquisition or modification of any land, building, structure, improvement, fixture or other fixed asset, or for the incurrence of any other capital expenditure involving amounts in excess of $100,000 in the aggregate;

(g) any agreement with the Company or any of its Subsidiaries, on the one hand, and any officer, director, employee or Affiliate of the Company or any of its Subsidiaries, on the other hand;

(h) any settlement, conciliation or similar agreement; and

(i) any agreement not otherwise required to be disclosed pursuant to this Section 3.17 the consequences of a default or termination thereunder would result in material Liabilities to the Company or any of its Subsidiaries or otherwise reasonably be expected to have a Material Adverse Effect.

The Company has made available to the Purchasers Representative a correct and complete copy of each written agreement listed in Section 3.17 of the Disclosure Schedule and a written summary setting forth the terms and conditions of each oral agreement listed in Section 3.17 of the Disclosure Schedule. Except as set forth in Section 3.17 of the Disclosure Schedule, all such agreements are valid, binding and enforceable obligations of the Company or its Subsidiaries, as applicable, in accordance with their terms, and except as specifically contemplated by this Agreement, will remain in full force and effect as to all parties thereof following the Closing. Neither the Company nor any of its Subsidiaries is in default in the observance or the performance of any material term or obligation to be performed by it under any such agreement, and to the Knowledge of the Company, no other Person is in default in the observance or the performance of any material term or obligation to be performed by such Person under any such agreement.

Section 3.18 Intellectual Property.

(a) Section 3.18 of the Disclosure Schedule contains a complete and accurate list of all (a) patented or registered Intellectual Property owned by the Company or any of its

Subsidiaries, (b) pending patent applications and applications for registrations of other Intellectual Property filed by the Company or any of its Subsidiaries, (c) material unregistered trade names and corporate names owned or used by the Company or any of its Subsidiaries (with any such trade names and corporate names used pursuant to a license being specifically designated as “licensed”) and (d) material unregistered trademarks, service marks, copyrights, and computer software owned or used by the Company or any of its Subsidiaries (with any such trademarks, service marks, copyrights, and computer software used pursuant to a license being specifically designated as “licensed”). Section 3.18 of the Disclosure Schedule also contains a complete and accurate list of all licenses and other rights granted by the Company or any of its Subsidiaries to any third party with respect to any Intellectual Property and all material licenses and other rights granted by any third party to the Company or any of its Subsidiaries with respect to any Intellectual Property, in each case identifying the subject Intellectual Property. All of the material licenses set forth in Section 3.18 of the Disclosure Schedule are valid and binding obligations of the Company or any of its Subsidiaries, and to the Knowledge of the Company, the other parties thereto, and are enforceable against the Company or any of its Subsidiaries, and to the Knowledge of the Company, the other parties thereto, in accordance with their respective 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.

(b) Except as set forth in Section 3.18 of the Disclosure Schedule, the Company or a Subsidiary owns and possesses all right, title and interest in and to, or has the right to use pursuant to a valid license, all Intellectual Property necessary for the operation of the businesses of the Company and its Subsidiaries as presently conducted (any such Intellectual Property that is used pursuant to a valid license and set forth in Section 3.18 of the Disclosure Schedule being specifically designated as “licensed”). The Company and its Subsidiaries have not infringed, misappropriated or otherwise conflicted with, and the operation of the Company’s and its Subsidiaries’ businesses as currently conducted or as currently proposed to be conducted will not infringe, misappropriate or otherwise conflict with, any Intellectual Property of any third party. The Company and its Subsidiaries have no Knowledge of any facts which indicate a likelihood of any of the foregoing, and the Company and its Subsidiaries have not received any notices regarding any of the foregoing (including, without limitation, any demands or offers to license any Intellectual Property from any third party).

(c) To the Company’s Knowledge, no third party has infringed, misappropriated or otherwise conflicted with any Intellectual Property owned by the Company or its Subsidiaries, and the Company and its Subsidiaries are not aware of any facts that indicate a likelihood of any of the foregoing.

(d) No loss or expiration of any of the Company’s Intellectual Property is threatened, pending or reasonably foreseeable, except for patents expiring at the end of their statutory terms (and not as a result of any act or omission by the Company, including, without limitation, a failure by the Company to pay any required maintenance fees).

Section 3.19 Litigation. Except as set forth in Section 3.19 of the Disclosure Schedule, there are no actions, suits, complaints, charges, proceedings, orders, investigations or claims (i) pending other than those filed but not yet served on the Company or any of its Subsidiaries or,

(ii) to the Company’s Knowledge, threatened against the Company, any of its Subsidiaries or any of their assets or properties which, if adversely determined, could result in material Liabilities to the Company or any of its Subsidiaries or otherwise reasonably be expected to have a Material Adverse Effect.

Section 3.20 Other Investors. Set forth on Section 3.20 of the Disclosure Schedule is a list of all stockholders of the Company who as of the date hereof own, and to the Company’s Knowledge based upon SEC filings of stockholders, after giving effect to the terms hereof and assuming all Shares are purchased by Purchasers, will own, more than 5% of the fully diluted common equity of the Company. Section 3.20 of the Disclosure Schedule also sets forth such percentage ownership.

Section 3.21 Guaranties. Except as set forth on Section 3.21 of the Disclosure Schedule, the Company has not guaranteed any obligations of any of its Subsidiaries and none of its Subsidiaries have guaranteed any obligations of any other Subsidiaries.

Section 3.22 Disclosure. Neither this Agreement nor the Disclosure Schedule nor any Transaction Document contain any untrue statement of a material fact or omit a material fact necessary to make each statement contained herein or therein not misleading.

Section 3.23 Delivery of Disclosure Schedule.

(a) Not later than June 12, 2002, the Company shall deliver to the Purchasers Representative a final Disclosure Schedule (the “Final Disclosure Schedule”), with appropriate attachments and exhibits, which would incorporate events and facts both as of the date hereof and as of the date of the delivery of the Final Disclosure Schedule. In consideration of the Purchasers entering into this Agreement without the benefit of the Final Disclosure Schedule, the Company hereby agrees that the Purchasers Representative (on behalf of the Purchasers) may accept or reject the Final Disclosure Schedule in its sole discretion, by delivering written notice of such decision to the Company not later than ten business days after receipt of such Final Disclosure Schedule; provided that if the Purchasers Representative does not deliver such notice within such ten business day period, then the Final Disclosure Schedule shall be deemed accepted. If the Purchasers Representative shall reject the Final Disclosure Schedule, then this Agreement shall be deemed terminated pursuant to Section 9.1, and the provisions set forth in Section 9.2 shall govern. If the Purchasers Representative shall accept or be deemed to accept the Final Disclosure Schedule, the Final Disclosure Schedule shall become part of this Agreement and shall replace the Original Disclosure Schedule in its entirety.

(b) If changes occur in the Company’s and its Subsidiaries’ businesses in the Ordinary Course of Business between the date of the delivery of the Final Disclosure Schedule and the Closing Date, the Company may update the Final Disclosure Schedule to reflect such changes. The Company shall prepare and deliver to the Purchasers Representative the updated Disclosure Schedule (the “Updated Disclosure Schedule”) not later than five business days prior to the Closing Date. The Purchasers Representative (on behalf of the Purchasers) may accept or reject the Updated Disclosure Schedule in its sole discretion, by delivering written notice of such decision to the Company not later than the day before the Closing Date; provided that if the Purchasers Representative does not deliver such notice by the day before the Closing Date, then

the Updated Disclosure Schedule shall be deemed accepted. If the Purchasers Representative shall reject the Updated Disclosure Schedule, then this Agreement shall be deemed terminated pursuant to Section 9.1, and the provisions set forth in Section 9.2 shall govern.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER As a material inducement to the Company to enter into this Agreement and sell the Shares, each Purchaser severally but not jointly hereby represents and warrants for itself only that:

Section 4.1 Organization and Power of Purchaser. Such Purchaser is duly organized, validly existing and in good standing under the laws of its state of incorporation or formation, as applicable, and is qualified to do business in every jurisdiction in which its ownership of property or conduct of business requires it to qualify, except where the failure to so qualify would not reasonably be expected to have a material adverse effect.

Section 4.2 Authorization; No Breach. Such Purchaser 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 such Purchaser, 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 such Purchaser of this Agreement, the purchase of Shares hereunder and the fulfillment of and compliance with the respective terms hereof and thereof by such Purchaser 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 such Purchaser is subject.

Section 4.3 Brokerage. Except as provided on Schedule 4.3 of the Disclosure Schedule, there are no claims for brokerage commissions, finders’ fees or similar compensation in connection with the transactions contemplated by this Agreement, based on any arrangement or agreement binding upon such Purchaser for which the Company or its Subsidiaries could become liable. Such Purchaser shall pay, and hold the Company harmless against, any Liability, Loss or expense (including, without limitation, reasonable attorneys’ fees and out-of-pocket expenses) arising in connection with any such claim.

Section 4.4 Purchaser’s Investment Representations. Such Purchaser hereby represents that it is acquiring the Shares purchased hereunder or acquired pursuant hereto for its own account with the present intention of holding such securities for purposes of investment, and that it has no intention of selling such securities in a public distribution in violation of the federal securities laws or any applicable state securities laws; provided that nothing contained herein shall prevent such Purchaser and subsequent holders of Shares from transferring such securities in compliance with the applicable federal and state securities laws, subject to the provisions of the Stockholders Agreement. Such Purchaser is an “accredited investor” as that term is defined in Regulation D promulgated under the Securities Act. The Purchaser Representative is a resident of the State of California, and each other Purchaser is a resident of the state identified on the Joinder executed and delivered by him, her or it.

ARTICLE V

PRE-CLOSING COVENANTSThe parties agree as follows with respect to the period between the execution of this Agreement and the Closing.

Section 5.1 General. Each of the parties will use its reasonable best efforts to take all action and to do all things necessary, proper, or advisable in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the closing conditions set forth in Article VII).

Section 5.2 Notices of Certain Events. The Company shall promptly notify the Purchasers Representative in writing of:

(a) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement;

(b) any notice or other communication from any governmental authority in connection with the transactions contemplated by this Agreement;

(c) the occurrence, or failure to occur, of any event which occurrence or failure would cause any representation and warranty of the Company contained in Article III of this Agreement to be untrue or inaccurate in any material respect (or, in the case of any such representation and warranty qualified by materiality or Material Adverse Effect, to be untrue or inaccurate in any respect) at any time from the date hereof to the Closing Date or that will result in the failure to satisfy any of the conditions specified in Article VII. Such notice (i) shall specify the representation or warranty so breached and (ii) will not be deemed to amend the Disclosure Schedule attached hereto unless so accepted as such by the Purchaser Representative in its sole discretion in writing prior to the Closing;

(d) any failure of the Company or any of its Subsidiaries to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it under this Agreement; and

(e) any notice or other communication from any Person regarding the loss or impending loss of a key customer.

Section 5.3 Operation of Business. From the date hereof until the Closing, the Company shall, and the Company shall cause each of the Active Subsidiaries to, conduct their respective businesses in the Ordinary Course of Business and to use their reasonable best efforts to preserve intact their business organizations and relationships with third parties and to preserve the goodwill of the suppliers, customers and others having business relations with the Company or such Subsidiaries. Neither the Company nor its Subsidiaries shall (x) take or agree or commit to take any action that would make any representation and warranty set forth in Article III hereof (other than those expressed as being made as at a specific date) inaccurate in any respect at, or as of any time prior to, the Closing, or (y) omit or agree or commit to omit to take any action necessary to prevent any such representation or warranty from being inaccurate in any respect at any such time. Without limiting the generality of the foregoing, except as otherwise

contemplated by this Agreement or described on Section 5.3 of the Disclosure Schedule or with the prior written consent of the Purchasers Representative, from the date hereof until the Closing, each of the Company and its Subsidiaries shall:

(a) not sell, assign, transfer, convey, pledge, mortgage, lease, license or otherwise dispose of or encumber any of its assets (including any Intellectual Property), or any interests therein, other than in the sale of inventory in the Ordinary Course of Business and consistent with past practice;

(b) not make any material change in its methods of management, marketing, accounting or operating (or practices relating to payments);

(c) report periodically to the Purchasers Representative concerning the status of its business, its assets and its operations and finances, including monthly consolidated and consolidating financial statements delivered on a timely basis;

(d) continue all of its existing policies of insurance (or comparable insurance) in full force and effect and at least at such levels as are in effect on the date hereof, up to and including the Closing Date (and not cancel any such insurance or take, or fail to take, any action that would enable the insurers under such policies to avoid liability for claims arising out of occurrences prior to the Closing Date);

(e) not enter into any transaction or make or enter into any contract or commitment or amend or terminate any material contract or commitment which is not in the Ordinary Course of Business, consistent with past practice;

(f) not incur any obligation or Liability, whether absolute, fixed or contingent, except in the Ordinary Course of Business and consistent with past practice;

(g) not sell, transfer, license or otherwise dispose of, or agree to sell, transfer, license or otherwise dispose of, or permit to lapse any of its Intellectual Property;

(h) not declare or pay any dividends in respect of its capital stock or redeem, purchase or otherwise acquire any of its capital stock;

(i) not terminate, discontinue, close or dispose of any plant, facility or business operation; provided, however, that the Company may sell the North Carolina facility currently owned by its Subsidiary, Agrotec Williams, Inc.;

(j) not implement any employee layoffs that could implicate the WARN Act;

(k) not form, or authorize, issue or sell capital stock or equity securities of, a Subsidiary;

(l) not hire or terminate, or make a material change to the compensation of, the Chief Executive Officer, Chief Operating Officer, or Chief Financial Officer;

(m) not enter into transactions with any related party (other than those conducted as of the date hereof and those that are on terms no less favorable to the Company than it could obtain on an arm’s length basis, as reasonably determined by Purchasers Representative);

(n) not adopt, or make any material deviations from, its annual budget;

(o) not issue any compensatory stock or options; and

(p) not enter into an agreement to do any of the foregoing.

Notwithstanding the foregoing, the Company may execute and deliver a settlement agreement with Thomas Itin without the consent of the Purchasers Representative, but only to the extent such settlement agreement is on terms substantially similar to the terms set forth in the term sheet delivered to and agreed upon by the Purchasers Representative prior to the date of such settlement.

Section 5.4 Full Access. From the date hereof until the Closing, the Company shall permit the Purchasers Representative and its agents and representatives to have reasonable access to the management personnel, premises, books and records of the Company and its Subsidiaries upon reasonable notice during regular business hours. The Purchasers Representative will hold all information regarding the Company gained in connection with such access in strict confidence, and, if this Agreement is terminated in accordance with Section 9.1, the Purchasers Representative will return to the Company all documents and other materials, in whatever media, obtained from the Company, whether so obtained before or after the execution of this Agreement.

Section 5.5 Exclusivity. From and after the date hereof until the earlier of (a) the Closing Date, and (b) the termination of this Agreement pursuant to Article IX (the “Exclusivity Period”), the Company and any Affiliate, officer, director, agent, or representative of the Company shall not, directly or indirectly: (i) enter into any written or oral agreement or understanding with any Person (other than the Purchasers and other Persons acceptable to the Purchasers Representative) regarding Another Transaction (as defined below); (ii) initiate or continue any negotiations or discussions with any person or entity (other than the Purchasers and other Persons acceptable to the Purchasers Representative) regarding the possibility of Another Transaction; (iii) submit, solicit, initiate, encourage, participate in, or facilitate any proposal or offer regarding Another Transaction; or (iv) except as otherwise required by law, provide any non-public financial or other confidential or proprietary information regarding the transactions contemplated hereby to any Person (other than to the Purchasers and other Persons acceptable to the Purchasers Representative) whom the Company knows, or has reason to believe, would have any interest in participating in Another Transaction. As used herein, “Another Transaction” means any issuance, sale, exchange, merger, combination, consolidation, recapitalization, or similar transaction involving any of the capital stock, equity interests, long-term debt arrangements, assets or business of the Company (other than sales of inventory in the ordinary course of business). Another Transaction shall be deemed to include the sale of either the Company’s Portland operations or the Company’s Florida operations (a “Division Sale”) even if one Person or group of related Persons does not purchase both operations. The Company shall

notify the Purchasers Representative in writing immediately if after the date hereof any Person (other than the Purchasers and other Persons acceptable to the Purchasers Representative) makes any proposal, offer, inquiry or makes or has any contact in respect to Another Transaction or a Division Sale. The parties hereto acknowledge that the Purchasers would be irreparably injured by a breach of this Section 5.5 and agree that the Purchasers Representative on behalf of all or some of the Purchasers shall be entitled, in addition to any other rights or remedies the Purchasers may have under law or by agreement, to equitable relief, including injunctive relief, in the event of a breach of this Section 5.5.

ARTICLE VI

POST-CLOSING COVENANTSThe parties agree as follows with respect to the period following the Closing.

Section 6.1 General. In case at any time after the Closing any further action is necessary to carry out the purposes of this Agreement, each of the parties will take such further action (including the execution and delivery of such further instruments and documents) as any other party reasonably may request, all at the sole cost and expense of the requesting party (unless the requesting party is entitled to indemnification therefore under Article VIII).

Section 6.2 Access. The Company shall permit the Purchasers Representative, their respective agents and representatives to have reasonable access to the management personnel, premises, books and records of the Company and its Subsidiaries upon reasonable notice during regular business hours.

Section 6.3 Stockholder Approval. The Company will take all reasonable action necessary in accordance with applicable laws, statutes, rules, regulations, determinations of any arbitrator, court, other Governmental Agency and stock exchange, and its Certificate of Incorporation and By-Laws to convene a meeting of stockholders to be held on or before September 30, 2002 to obtain the approval and authorization by the Company’s stockholders of an amendment of the Certificate of Incorporation in order to effect the increase in the number of authorized shares of Common Stock to 125,000,000 and such other matters as may be necessary or advisable to consummate the transactions contemplated by this Agreement (such approval by stockholders of such matters is herein referred to as, the “Stockholder Approval”). If the Company fails to obtain the Stockholder Approval at such meeting of stockholders, it shall use its reasonable best efforts to obtain the Stockholder Approval at each successive stockholders’ meeting until the Stockholder Approval is obtained.

Section 6.4 Reservation of Common Stock. Upon receipt of the Stockholder Approval, the Company shall reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purposes of issuance upon conversion of the Shares, such number of shares of Common Stock as are issuable upon the conversion of all outstanding Shares. All Conversion Shares shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all Taxes, Liens and charges. The Company shall take all such actions as may be necessary to assure that all such Conversion Shares may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which Conversion Shares may be listed (except for official notice of issuance which shall be immediately transmitted by the Company upon issuance).

Section 6.5 Public Filings. The Company shall use its reasonable best efforts to at all times file all reports (including annual reports, quarterly reports and the information, documentation and other reports) required to be filed by the Company under the Exchange Act and Sections 13 and 15 of the rules and regulations adopted by the SEC thereunder, and the Company shall use its reasonable best efforts to file each of such reports on a timely basis, and take such further action as any holder or holders of Shares (or Conversion Shares) may reasonably request, all to the extent required to enable such holders to sell Shares (and Conversion Shares) pursuant to Rule 144 adopted by the SEC under the Securities Act (as such rule may be amended from time to time) or any similar rule or regulation hereafter adopted by the SEC and upon the filing of each such report deliver a copy thereof to each holder of the Shares (or, if the Company is no longer subject to the requirements of the Exchange Act, provide reports in substantially the same form and at the same times as would be required if it were subject to the Exchange Act).

Section 6.6 Use of Proceeds. The Company shall use the proceeds of the sale of the Preferred Stock to pay off and satisfy in full the Bridge Notes immediately after Closing, and the balance shall be used for working capital purposes.

Section 6.7 Termination. All rights of the Purchasers and all obligations of the Company to the Purchasers under Sections 6.3, 6.5 and 6.8 shall terminate upon all Shares being redeemed or converted to Conversion Shares pursuant to their terms by the Company.

Section 6.8 Restriction on Payment of Dividends. From the date of the Closing and at all times thereafter, the Company shall refrain from declaring or issuing any dividends on any series or class of capital stock of the Company without the prior written consent of the holders of a majority of the Shares.

Section 6.9 Registration. The Company shall use its best efforts to register under the Securities Act all Conversion Shares within 270 days after the Closing, and to have such registration declared effective by the SEC within one year after the Closing.

Section 6.10 Indemnification.(a) The Company shall indemnify, to the full extent allowed by law, any Person who is a partner, shareholder, officer, director, agent or employee of any Purchaser (a “Representative”) who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal administrative or investigative, by reason of the fact that he is or was a director, officer or employees of the Company, or is or was serving at the request of the Company as a director, officer or employee of another corporation, partnership, joint venture, trust, or other enterprise, against Losses reasonably incurred by such Representative in connection with such action, suit or proceeding if he conducted himself in good faith and reasonably believed his actions to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that such Representative did not conduct himself in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Company and with respect to any criminal action or proceeding, had reasonable cause to believe his conduct was lawful.

(b) Expenses (including attorneys’ fees) incurred by any Representative in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Representative to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Company as authorized by this Section 6.10.

(c) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 6.10 shall continue as to a Person who has ceased to be a Representative or a director, officer, employee or agent of the Company and shall inure to the benefit of the heirs, executors and administrators of such a Person. All Representatives are third party beneficiaries of this Section 6.10.

ARTICLE VII

CONDITIONS TO OBLIGATION TO CLOSE

Section 7.1 Conditions to Purchasers’ Obligations. The obligations of the Purchasers under this Agreement are subject to the satisfaction or waiver by the Purchasers Representative (and only the Purchasers Representative) of the following conditions precedent on or before the Closing:

(a) the representations and warranties set forth in Article III shall be true and correct in all material respects at and as of the Closing, except to the extent that such representations and warranties are qualified by terms such as “material” and “Material Adverse Effect,” in which case such representations and warranties shall be true and correct in all respects at and as of the Closing; provided, that representations and warranties which were made as of a specific date shall be true and correct in all material respects at and as of such date, except to the extent that such representations and warranties are qualified by terms such as “material” and “Material Adverse Effect,” in which case such representations and warranties shall be true and correct in all respects at and as of such date.

(b) the Company shall have performed and complied in all respects with all of its covenants or obligations required by this Agreement to be performed or complied with by the Company on or prior to the Closing;

(c) the Company and its Subsidiaries shall have procured all of the third party consents specified in Section 3.4 (other than the receipt of the Stockholder Approval, which the Company will seek to obtain in accordance with Section 6.3);

(d) each of the Certificate of Designation and the Series A-1 Certificate of Designation shall have been filed with the Secretary of State of the State of Delaware, and shall be in full force and effect;

(e) holders of at least two-thirds of the issued and outstanding shares of Series A Preferred Stock shall have voted at a meeting in favor of the Certificate of Designation and the Series A-1 Certificate of Designation and the creation of the Preferred Stock and Series A-1 Preferred Stock, and the holders of at least 90% of the issued and outstanding Series A Preferred

Stock shall have accepted the Company’s offer to exchange their shares of Series A Preferred Stock for shares of Series A-1 Preferred Stock;

(f) if Purchasers Representative requests, the period, pursuant to which holders of Series A Preferred Stock who have accepted the Company’s offer to exchange can withdraw their acceptance, shall have expired;

(g) a Certificate of Elimination of the 10% Mandatory Convertible Preferred Stock shall have been filed with the Secretary of State of the State of Delaware and shall have become effective;

(h) the size of the Board shall have been increased to seven members, and the newly created directorship shall be a Class III directorship with the term of office to expire at the 2004 annual meeting of the stockholders of the Company;

(i) the Board shall have created an executive committee (consisting of three members) with the maximum authority granted to it as is permitted by the General Corporation Law of the State of Delaware;

(j) individuals designated by the holders of a majority of the Shares to be purchased hereby shall have been duly nominated and elected to serve as members of the Board, and such individuals shall constitute a majority of the members of the Board (including Gene Goodson, who will become Chairman of the Board) and a majority of the members of the executive committee of the Board (including Gene Goodson, who will become Chairman of the executive committee);

(k) the Purchasers Representative shall be satisfied in its sole discretion with the composition of the executive committee of the Board and with the chairpersons of the compensation committee, the audit committee and any additional committee of the Board;

(l) 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 (i) prevent consummation of any of the transactions contemplated by this Agreement, (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, (iii) affect adversely the right of the Purchasers to own the Shares, or (iv) affect materially and adversely the right of any of the Company and its Subsidiaries to own their assets and to operate their businesses (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect);

(m) the Company shall have paid the Closing Fee and any amounts due under the Management Services Agreement as of the Closing to American Industrial Partners or an Affiliate thereof, and shall have reimbursed the Purchasers Representative for its transaction expenses;

(n) the Company shall have entered into the Management Services Agreement;

(o) Persons other than the Purchasers Representative and its Affiliates shall have joined this Agreement as Purchasers and agreed to purchase at least 25,000 Shares pursuant to the terms and conditions hereof;

(p) there shall be an absence of (i) any general suspension of trading in, or limitation on prices for securities on any national securities exchange or in the over-the-counter market, (ii) the declaration of any banking moratorium or any suspension of payments in respect of banks or any material limitation (whether or not mandatory) on the extension of credit by lending institutions in the United States, or (iii) the commencement or escalation of a war or material armed hostilities or other international or national calamity involving the United States and having an adverse effect on the functioning of the financial markets in the United States;

(q) the Company shall have procured director and officer insurance in amounts and subject to terms and conditions acceptable to the Purchasers Representative in its sole discretion;

(r) the absence of any event or change since March 31, 2002 which has caused or could reasonably be expected to have a Material Adverse Effect;

(s) all confirmatory due diligence regarding customer calls shall have been completed and the results of such diligence shall be satisfactory to the Purchasers Representative in its sole discretion;

(t) all confirmatory due diligence regarding environmental issues shall have been completed and the results of such diligence shall be satisfactory to the Purchasers Representative in its sole discretion;

(u) the Purchasers Representative shall be satisfied in its sole discretion with the arrangement agreed upon by Caterpillar Inc. and the Company with regards to the obligations of the Company associated with Caterpillar Inc.;

(v) if Purchasers Representative requests, each of Dennis E. Bunday, Thomas Dunlap, Ronald Velat and Gene Goodson shall have entered into employment agreements with the Company on terms reasonably satisfactory to the Purchasers Representative, and such agreements shall be in full force and effect as of the Closing;

(w) the Company shall have duly executed and delivered the Transaction Documents to which it is a party;

(x) the Purchasers Representative shall be satisfied in its sole discretion that post-Closing the Company shall have no further liabilities or obligations pursuant to the Bridge Notes;

(y) the Purchasers Representative shall have obtained an opinion of certified public accountants or such other similar evidence acceptable to the Purchasers Representative to the effect that the Company will have at least $11,000,000 of net operating loss available for use without restriction pursuant to Section 382 of the Code immediately after Closing; and

(z) the Company shall have delivered to the Purchasers Representative the following documents and items:

(i) a fully executed and delivered amendment to the Credit Agreement (or the termination of the current Credit Agreement and a copy of a new credit agreement), in form and substance satisfactory to the Purchasers Representative in its sole discretion, in effect on the Closing Date;

(ii) a fully executed and delivered amendment to the Convertible Notes, in form and substance satisfactory to the Purchasers Representative in its sole discretion, in effect on the Closing Date;

(iii) if Purchasers Representative requests, fully executed and delivered amendments to any warrants of the Company outstanding as of the date hereof, in form and substance satisfactory to the Purchasers Representative in its sole discretion, in effect on the Closing Date;

(iv) the written opinion of Davis Wright Tremaine, LLP, counsel to the Company, in form and substance satisfactory to the Purchasers Representative in its sole discretion, dated as of the Closing Date;

(v) certificates evidencing ownership of the Shares purchased by each Purchaser, in each case duly executed and delivered by the Company;

(vi) a certificate of a duly authorized officer of the Company dated as of the Closing Date certifying that (A) the closing conditions described in Section 7.1(a) through Section 7.1(j) have been satisfied, and (B) the resolutions of the Board attached thereto have been duly adopted (which resolutions shall have, among other things, (w) authorized all of the transactions contemplated by this Agreement and the Transactions Documents, and approved the Transaction Documents (including, without limitation, the Preferred Stock Certificate of Designation and Series A-1 Preferred Stock Certificate of Designation), (x) authorized the Certificate of Elimination of the 10% Mandatory Convertible Preferred Stock, (y) created an executive committee of the Board and designated the directors who would serve as the initial members of the executive committee and the chairman of the executive committee and (z) elected four individuals designated by the holders of a majority of the Shares to be purchased hereby to fill the three vacancies and one newly created directorship on the Board);

(vii) the Company’s May 31, 2002 consolidated and consolidating financial statements;

(viii) the Company’s month-to-date sales figures by division as of three days prior to the Closing;

(ix) an amended and restated bylaws of the Company in effect as of the Closing, in form and substance satisfactory to the Purchasers Representative in its sole discretion; and

(x) such other documents relating to the transactions contemplated hereby as the Purchasers Representative may reasonably request.

Section 7.2 Conditions to the Company’s Obligations. The obligations of the Company under this Agreement are subject to the satisfaction or waiver by the Company of the following conditions precedent on or before the Closing:

(a) the representations and warranties set forth in Article IV shall be true and correct in all material respects at and as of the Closing, except to the extent that such representations and warranties are qualified by terms such as “material” and “Material Adverse Effect,” in which case such representations and warranties shall be true and correct in all respects at and as of the Closing; provided, that representations and warranties which were made as of a specific date shall be true and correct in all material respects at and as of such date, except to the extent that such representations and warranties are qualified by terms such as “material” and “Material Adverse Effect,” in which case such representations and warranties shall be true and correct in all respects at and as of such date;

(b) the Purchasers shall have performed and complied in all respects with all of their covenants or obligations required by this Agreement to be performed or complied with by the Purchasers on or prior to the Closing;

(c) 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 any of the transactions contemplated by this Agreement or (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect);

(d) the conditions described in Sections 7.1(z)(i), 7.1(z)(ii) and 7.1(z)(iii) shall have been satisfied;

(e) the forms, terms and conditions of the Stockholders Agreement and the Registration Rights Agreement shall be acceptable to the Company;

(f) the Purchasers Representative and the Purchasers shall have executed and delivered all Transaction Documents to which they are party; and

(g) holders of at least two-thirds of the issued and outstanding shares of Series A Preferred Stock shall have voted at a meeting in favor of the Certificate of Designation and the Series A-1 Certificate of Designation and the creation of the Preferred Stock and Series A-1 Preferred Stock.

ARTICLE VIII

REMEDIES FOR BREACHES OF THIS AGREEMENT

Section 8.1 Survival of Representations and Warranties. All of the representations and warranties of the Company contained in Article III shall survive the Closing hereunder (even

if the Purchasers or the Purchasers Representative knew or had reason to know of any misrepresentation or breach of warranty at the time of Closing) and continue in full force and effect for a period of two years thereafter; provided, however, that the representations and warranties contained in Sections 3.13 and 3.15 shall survive the Closing hereunder (even if the Purchasers or the Purchasers Representative knew or had reason to know of any misrepresentation or breach of warranty at the time of Closing) and continue in full force and effect for a period of five years thereafter; and provided further that the representations and warranties contained in Sections 3.2, 3.10 and 3.20 shall survive the Closing hereunder (even if the Purchasers or the Purchaser Representative knew or had reason to know of any misrepresentations or breach of warranty at the time of Closing) and continue in full force and effect indefinitely. All of the representations and warranties of the Purchasers contained in Article IV shall survive the Closing hereunder and continue in full force and effect for a period of two years thereafter.

Section 8.2 Indemnification Provisions for the Purchasers’ Benefit. In the event that:

(a) the Company breaches any of its representations or warranties contained in Sections 3.2, 3.4, 3.10, 3.11 or 3.20 or any of its covenants made in this Agreement or in any certificate or other instrument delivered pursuant to this Agreement; or

(b) the Company breaches any of its representations or warranties other than those listed above in clause (a) made in this Agreement or in any certificate or other instrument delivered pursuant to this Agreement;

and provided that the Purchasers Representative makes a written claim for indemnification against the Company within the survival period (as provided in Section 8.1), then the Company shall be obligated to indemnify the Purchasers from and against the entirety of any Losses the Purchasers may suffer (including any Losses the Purchasers may suffer after the end of any applicable survival period) resulting from, arising out of, relating to, in the nature of, or caused by the breach.

Section 8.3 Monetary Limitation. The Purchasers shall have no claim under Section 8.2(a) of this Agreement against the Company for any Losses unless and until the aggregate amount of all such Losses incurred or sustained by the Purchasers under Section 8.2(a) exceeds $250,000, at which time the Purchasers shall be entitled to claim reimbursement for all Losses incurred or sustained by the Purchasers under Section 8.2(a) relating back to the first dollar of such Losses. The Company’s aggregate liability for indemnification pursuant to Sections 8.2(a) and 8.2(b) of this Agreement shall in no event exceed an amount equal to (a) the amount paid by the Purchasers on the Closing Date in exchange for Shares, plus (b) accrued but unpaid dividends on such Shares as of the date the Company makes its first payment in connection with its indemnification duties hereunder in connection with the applicable breach.

Section 8.4 Indemnification Provisions for the Company’s Benefit. In the event a Purchaser breaches any of its representations, warranties, and covenants contained herein and provided that the Company makes a written claim for indemnification against such Purchaser within the survival period (as provided in Section 8.1), then such Purchaser (and only such

Purchaser) agrees to indemnify the Company from and against the entirety of any Losses suffered resulting from, arising out of, relating to, in the nature of, or caused by the breach.

Section 8.5 Matters Involving Third Parties.

(a) If any third party shall notify any party (the “Indemnified Party”) with respect to any matter (a “Third Party Claim”) which may give rise to a claim for indemnification against any other party (the “Indemnifying Party”) under this Article VIII, then the Indemnified Party shall promptly notify each Indemnifying Party thereof in writing; provided, however, that no delay on the part of the Indemnified Party in notifying any Indemnifying Party shall relieve the Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the Indemnifying Party thereby is prejudiced.

(b) Any Indemnifying Party will have the right to assume the defense of the Third Party Claim with counsel of his or its choice reasonably satisfactory to the Indemnified Party at any time within 15 days after the Indemnified Party has given notice of the Third Party Claim; provided, however, that the Indemnifying Party must conduct the defense of the Third Party Claim actively and diligently thereafter in order to preserve its rights in this regard; and provided further, that the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third Party Claim.

(c) So long as the Indemnifying Party has assumed and is conducting the defense of the Third Party Claim in accordance with Section 8.4(b) above, (i) the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party (not to be withheld unreasonably) unless the judgment or proposed settlement involves only the payment of money damages by one or more of the Indemnifying Parties and does not impose an injunction or other equitable relief upon the Indemnified Party, and (ii) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnifying Party (not to be withheld unreasonably).

(d) In the event none of the Indemnifying Parties assumes and conducts the defense of the Third Party Claim in accordance with Section 8.4(b), however, (i) the Indemnified Party may defend against, and consent to the entry of any judgment or enter into any settlement with respect to, the Third Party Claim in any manner he, she or it reasonably may deem appropriate (and the Indemnified Party need not consult with, or obtain any consent from, any Indemnifying Party in connection therewith), and (ii) the Indemnifying Parties will remain responsible for any adverse consequences the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim to the fullest extent provided in this Article VIII.

ARTICLE IX

TERMINATION

Section 9.1 Termination. This Agreement may be terminated prior to the Closing as follows:

(a) by mutual written agreement of the Purchasers Representative and the Company;

(b) by either the Purchasers Representative or the Company (provided, that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein) if there shall have been a breach or misrepresentation of any of the representations or warranties set forth in this Agreement on the part of the other party, which breach is not cured within 10 days following written notice to the party committing such breach or which breach, by its nature, cannot be cured prior to the Closing, and which breach, individually or together with all other such breaches, would reasonably be expected to have a Material Adverse Effect, in the case of breaches by the Company, or a material adverse effect on the Purchasers’ ability to consummate the transactions contemplated hereby, in the case of breaches by the Purchasers;

(c) by the Purchasers Representative if it shall have determined that one or more conditions set forth in Section 7.1 cannot be fulfilled or satisfied prior to July 31, 2002;

(d) by the Company if it shall have determined that one or more conditions set forth in Section 7.2 cannot be fulfilled or satisfied prior to July 31, 2002;

(e) by the Purchasers Representative on any day on or after July 31, 2002 (or by such later date as shall be mutually agreed to by the Purchasers Representative and the Company in writing), unless the Closing has not occurred due to a material failure of the Purchasers to perform or observe their agreements as set forth in this Agreement required to be performed or observed by their on or before the Closing Date;

(f) by the Company on any day on or after July 31, 2002 (or by such later date as shall be mutually agreed to by the Purchasers Representative and the Company in writing), unless the Closing has not occurred due to a material failure of the Company to perform or observe their agreements as set forth in this Agreement required to be performed or observed by them on or before the Closing Date; and

(g) by the Purchasers Representative pursuant to Section 3.23 hereof if it shall have decided, in its sole discretion, to reject the Final Disclosure Schedule or the Updated Disclosure Schedule.

Section 9.2 Effect of Termination or Breach. If this Agreement is terminated in accordance with Section 9.1 hereof and the transactions contemplated hereby are not consummated, this Agreement shall become null and void and of no further force and effect, except (i) for this Section 9.2 and for the provisions of Sections 1.3, 6.10, 9.3, 10.1, 10.4, 10.8 and 10.9 (which shall survive), and (ii) that the termination of this Agreement for any cause shall not relieve any party hereto from any liability which at the time of termination had already accrued to any other party hereto or which thereafter may accrue in respect of any act or omission of such party prior to such termination.

Section 9.3 Break-up Fee. If prior to the end of the Exclusivity Period or within 60 days thereafter (the “Tail”), the Company enters into a definitive agreement (or a non-binding letter of intent or similar agreement that leads to a definitive agreement) with any Person (other

than the Purchasers Representative or its Affiliates) to effect Another Transaction or a Division Sale, then in addition to any other liability the Company may have under this Agreement or at law, the Company shall pay the Purchasers Representative the “Break-up Fee”. The amount of such Break-up Fee shall be determined as follows: (i) in the event that (A) the Closing does not occur because the conditions set forth in Section 7.1(e) or 7.1(t) cannot be satisfied before July 31, 2002 (as acknowledged in good faith by the Purchasers Representative in writing within five days of written request by the Company prior to the end of the Exclusivity Period), (B) the Company has not received a written or oral offer during the Exclusivity Period that in any way leads to a definitive agreement with any Person (other than the Purchasers Representative or its Affiliates), (C) the Company has not breached any provision of Section 5.5 hereof and (D) the Company signs a definitive agreement for Another Transaction or Division Sale on or after the 31st day but on or prior to the 60th day after the expiration of the Exclusivity Period, then the Break-up Fee shall be $250,000; and (ii) in all other events, the Break-up Fee shall be $1,000,000. The Break-up Fee shall be due upon the closing of Another Transaction or a Division Sale. This provision shall not limit any party’s right to include expenses in any claim for damages against any other party who breaches any legally binding provision of this Agreement.

ARTICLE X

MISCELLANEOUS

Section 10.1 Expenses. The Company shall be required to periodically reimburse the Purchasers Representative for all out-of-pocket expenses as paid or incurred by or on behalf of the Purchasers Representative through the termination of the Exclusivity Period, including expenses incurred on or before the date hereof, in connection with conducting due diligence investigations and negotiating this Agreement and the other Transaction Documents, including without limitation, out-of-pocket costs for travel and lodging and reasonable fees and expenses of attorneys, accountants, consultants (including those of Kenneth Dabrowski and his associates) and other representatives. The Purchasers Representative may request that the Company pay certain accounting and other due diligence related professional fees and expenses directly. After the Closing, the Company agrees to reimburse the Purchasers Representative for all reasonable fees and expenses (including reasonable legal fees) incurred in connection with any future amendment to, waiver of or the enforcement by the Purchasers Representative of any of the Purchasers’ rights arising under this Agreement or any of the Transaction Documents, or in connection with the review of any proxy statement prepared in connection with any meeting of the Company’s stockholders at which the Company shall seek to obtain the Stockholder Approval.

Section 10.2 Closing Fee and Management Services Agreement. On the Closing Date, in consideration for the services American Industrial Partners (an Affiliate of the Purchasers Representative) and its Affiliates performed in structuring and arranging the transactions contemplated by this Agreement and the Transaction Documents, the Company shall pay to American Industrial Partners (or an Affiliate) a transaction fee in an amount equal to $750,000 (the “Closing Fee”), by wire transfer of immediately available funds. In addition, the Company shall enter into a Management Services Agreement with American Industrial Partners (or an Affiliate) in the form attached hereto as Exhibit D.

Section 10.3 Consent to Amendments. This Agreement may not be amended, modified or supplemented, except by a written instrument signed by the Company and the Purchasers Representative.

Section 10.4 Successors and Assigns. Prior to the Closing, except as otherwise expressly provided herein, none of the parties may assign this Agreement or the rights or obligations under this Agreement, except with the prior written consent of the Company and the Purchasers Representative; provided, however that each of the Purchasers (and their permitted assigns) may assign this Agreement or their rights or obligations hereunder prior to the Closing to any Affiliate that certifies to the Company that the representations and warranties set forth in Article IV are true and correct as to such Affiliate. After the Closing, subject to compliance with applicable securities laws, the Stockholders Agreement and any other binding legal or contractual restrictions, the Purchasers (and their permitted assigns) may assign and transfer their Shares, and, whether or not any express assignment has been made, those provisions of this Agreement which are for the Purchasers’ benefit as purchasers or holders of Shares shall also be for the benefit of, and enforceable by, any subsequent holder of such Shares. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and permitted assigns of the parties hereto whether so expressed or not.

Section 10.5 Severability. Whenever possible, each provision of this Agreement shall 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 shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.

Section 10.6 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 shall constitute one and the same Agreement.

Section 10.7 Descriptive Headings; Interpretation. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a substantive part of this Agreement. The use of the word “including” in this Agreement shall be by way of example rather than by limitation. The singular includes the plural, and the plural includes the singular. All pronouns refer to the masculine, feminine or neuter, as the context may require.

Section 10.8 Governing Law. All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement and the exhibits and schedules hereto (including the Disclosure Schedule) shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.

Section 10.9 Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given (a) when delivered personally to the recipient, (b) on the day following the date on which the same shall have been sent to the recipient by reputable overnight

courier service (charges prepaid), (c) when delivered via facsimile (with appropriate confirmation of receipt and a copy delivered via certified or registered mail in accordance with this Section), or (d) on the third day following the date on which the same shall have been mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid. Such notices, demands and other communications shall be sent to the Purchasers and to the Company at the addresses indicated below:


		If to the Purchasers Representative or to the Purchasers prior to the Closing:

		c/o American Industrial Partners 551 Fifth Avenue, Suite 3800 New York, NY 10176 Facsimile: 212-986-5099 Attention: Kirk Ferguson

		with a copy (which shall not constitute notice) to:

		Kirkland & Ellis 655 Fifteenth Street, N.Y. Washington, DC 20005 Facsimile: 202-879-5200 Attention: Michael T. Edsall and Robert G. Marks

		If to the Company:

		Williams Controls, Inc. 14100 SW 72^nd Avenue Portland, OR 97224 Facsimile: 503-624-3812 Attention: Dennis Bunday

		with a copy (which shall not constitute notice) to:

		Davis Wright Tremaine LLP 1300 S.W. Fifth Avenue, Suite 2300 Portland, OR 97201 Facsimile: (503) 778-5299 Attention: James C. Waggoner

		If to any Purchaser after the Closing:

		at the address on the Company’s books and records

or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party.

Section 10.10 No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.

Section 10.11 Entire Agreement. This Agreement (including the Disclosure Schedule and the exhibits attached hereto) and the Transaction Documents embody the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.

[SIGNATURE PAGES FOLLOWS]

IN WITNESS WHEREOF, the parties hereto have executed this Series B Preferred Stock Purchase Agreement on the date first written above.


		COMPANY:

		WILLIAMS CONTROLS, INC.

		By: /s/ Thomas K. Ziegler Name: Thomas K. Ziegler
		Title: President and Chief Executive Officer


		PURCHASERS REPRESENTATIVE:

		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: /s/ Kirk R. Ferguson Name: Kirk R. Ferguson Title: Authorized Person

		By: /s/ Nathan L. Belden Name: Nathan L. Belden Title: Authorized Person


		PURCHASER:

		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: /s/ Kirk R. Ferguson Name: Kirk R. Ferguson Title: Authorized Person

		By: /s/ Nathan L. Belden Name: Nathan L. Belden Title: Authorized Person

JOINDER TO
SERIES B PREFERRED STOCK PURCHASE AGREEMENT

This Joinder (this “Joinder”) is made as of the date written below by the undersigned (the “Joining Party”) in favor of and for the benefit of William Controls, Inc. and the other parties to the Series B Preferred Stock Purchase Agreement, dated as of May 31, 2002 (the “Purchase Agreement”). Capitalized terms used but not defined herein shall have the meanings given such terms in the Purchase Agreement.

The Joining Party hereby acknowledges, agrees and confirms that, by his, her or its execution of this joinder, the Joining Party (a) shall, subject to the terms and conditions of the Purchase Agreement, purchase 20,000 Shares for $2,000,000 at the Closing, (b) agrees to be bound by all of the terms and conditions of the Purchase Agreement as if he, she or it were an original party thereto as a Purchaser, and (c) shall be treated as having been a party to the Purchaser Agreement as of May 31, 2002.

The Joining Party hereby represents and warrants that he, she or it is a resident of the State of __________.

IN WITNESS WHEREOF, the undesigned has executed this Joinder as a Purchaser as of the date written below.

Date: 6/21/02


	DOLPHIN OFFSHORE PARTNERS, L.P.

	By: /s/ Peter Salas Name: Peter Salas Title: General Partner

ACKNOWLEDGED AND AGREED TO
AS OF THE DATE FIRST WRITTEN ABOVE

COMPANY:

WILLIAMS CONTROLS, INC.

By: /s/ Dennis Bunday

Name: Dennis Bunday
Title: Chief Financial Officer

PURCHASERS REPRESENTATIVE:

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: /s/ Kirk R. Ferguson

Name: Kirk R. Ferguson
Title: Authorized Person

By: /s/ Nathan L. Belden

Name: Nathan L. Belden
Title: Authorized Person

EXHIBIT A

FORM OF JOINDER TO
SERIES B PREFERRED STOCK PURCHASE AGREEMENT

This Joinder (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 Series B Preferred Stock Purchase Agreement, dated as of May 31, 2002 (the “Purchase Agreement”). Capitalized terms used but not defined herein shall have the meanings given such terms in the Purchase Agreement.

The Joining Party hereby acknowledges, agrees and confirms that, by his, her or its execution of this Joinder, the Joining Party (a) shall, subject to the terms and conditions of the Purchase Agreement, purchase Shares for $ at the Closing, (b) agrees to be bound by all of the terms and conditions of the Purchase Agreement as if he, she or it were an original party thereto as a Purchaser, and (c) shall be treated as having been a party to the Purchaser Agreement as of May 31, 2002.

The Joining Party hereby represents and warrants that he, she or it is a resident of the State of .

IN WITNESS WHEREOF, the undersigned has executed this Joinder as a Purchaser as of the date written below.


Date:

		NAME:

ACKNOWLEDGED AND AGREED TO
AS OF THE DATE FIRST WRITTEN ABOVE

COMPANY:

WILLIAMS CONTROLS, INC.

By:
      Name:
      Title:

PURCHASERS REPRESENTATIVE:

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 B

FORM OF CERTIFICATE OF DESIGNATION OF THE
PREFERRED STOCK

EXHIBIT C

FORM OF CERTIFICATE OF DESIGNATION OF THE
SERIES A-1 PREFERRED STOCK

EXHIBIT D

FORM OF MANAGEMENT SERVICES AGREEMENT

SCHEDULE 1

PURCHASERS



Name	Shares		Amount

American Industrial Partners Capital Fund III, L.P.		130,000	$	13,000,000

Dolphin Offshore Partners, L.P.		20,000	$	2,000,000

EX-4 6 w61956exv4.htm SHAREHOLDERS AGREEMENT exv4

EXHIBIT 4

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

Exhibits

Exhibit A — Joinder Agreement

SHAREHOLDERS AGREEMENT

This Shareholders Agreement (this “Agreement”) is entered into as of July 1, 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.

“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.

“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.

“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

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.

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

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.

(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

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,

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 72^nd Avenue

        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

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]

IN WITNESS WHEREOF, the parties hereto have executed this Shareholders Agreement as of the date first above written.

WILLIAMS CONTROLS, INC.

By: /s/ Dennis Bunday
Name: Dennis Bunday
Title: Chief Financial Officer

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: /s/ Kirk R. Ferguson
Name: Kirk R. Ferguson
Title: Authorized Person

By: /s/ Nathan L. Belden
Name: Nathan L. Belden
Title: Authorized Person

EUBEL, BRADY SUTTMAN ASSET MANAGEMENT

By: /s/ Mark E. Brady
Name: Mark E. Brady
Title: Secretary and Chief Operating Officer

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 1, 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 Joiner, 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 the date written below.

DOLPHIN OFFSHORE PARTNERS, L.P.

By: /s/ Peter Salas

Name: Peter Salas

Title: General Partner

Address:

129 East 17^th Street

New York, New York 10003

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:

EX-5 7 w61956exv5.htm REGISTRATION RIGHTS AGREEMENT exv5

EXHIBIT 5

REGISTRATION RIGHTS AGREEMENT

This REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of July 1, 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:

1. 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.

2. Shelf Registrations.

(a) 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 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.

(b) 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.

(c) 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 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.

(d) 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).

(e) 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.

3. Piggyback Registrations.

(a) 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., 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.

(b) 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.

(c) 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.

(d) 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.

(e) 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.

4. 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):

(a) 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;

(b) 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., service of process which is not limited solely to securities law violations) in any such jurisdiction);

(c) 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;

(d) 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.

(e) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement;

(f) 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);

(g) 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 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;

(h) 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;

(i) 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;

(j) 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;

(k) 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

(l) 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 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.

5. Registration Expenses.

(a) 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.

(b) 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.)

6. Indemnification.

(a) 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 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.

(b) 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.

(c) 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 party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim.

(d) 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.

7. 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.

8. 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:

(a) 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;

(b) 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

(c) 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 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.

9. Obligations Of The Holders Of Registrable Securities.

(a) 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.

(b) 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.

(c) 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) or Section 4(j) or receipt of notice that no supplement or amendment is required.

(d) 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).

10. 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:

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.

11. Miscellaneous.

(a) 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.

(b) 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.

(c) 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.

(d) 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) 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.

(e) 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.

(f) 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.

(g) 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.

(h) Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

(i) 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.

(j) 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.

* * * * *

IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date first above written.


	WILLIAMS CONTROLS

	By: /s/ Dennis Bunday

		Name: Dennis Bunday
		Title: Chief Financial Officer


	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: /s/ Kirk R. Ferguson
	Name: Kirk R. Ferguson
	Title: Authorized Person

	By: /s/ Nathan L. Belden
	Name: Nathan L. Belden
	Title: Authorized Person


	DOLPHIN OFFSHORE PARTNERS, L.P.

	By: /s/ Peter Salas
	Name: Peter Salas Title: General Partner

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 “Joining 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

EX-6 8 w61956exv6.htm VOTING AGREEMENT exv6

EXHIBIT 6

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


	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

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]

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: /s/ Michael N. Taglich Name: Michael N. Taglich Title: President

ACKNOWLEDGED AND AGREED TO AS OF
THE DATE FIRST WRITTEN ABOVE:

AMERICAN INDUSTRIAL PARTNERS CAPITAL
FUND III, L.P.

By:
Its: American Industrial Partners III, L.P.
General Partner

By:
Its: American Industrial Partners III Corporation
General Partner

By:

Name:
Title: /s/ Kirk R. Ferguson
Kirk R. Ferguson
Authorized Person

By:

Name:
Title: /s/ Nathan L. Belden
Nathan L. Belden
Authorized Person

EX-7 9 w61956exv7.htm MANAGEMENT SERVICES AGREEMENT exv7

EXHIBIT 7

MANAGEMENT SERVICES AGREEMENT

MANAGEMENT SERVICES AGREEMENT, as of July 1, 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

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Fee shall be reduced by 50% beginning the first day of any quarterly 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 In-

-3-

demnitee 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 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

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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.

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:

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       Kirkland & Ellis
       655 Fifteenth Street, N.W.

       Suite 1200
       Washington, D.C. 20005
       Telecopy: (202) 879-5200
       Telephone: (202) 879-5127
       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: /s/ Dennis Bunday
		Name: Dennis Bunday
		Title: Chief Financial Officer


AMERICAN INDUSTRIAL PARTNERS


By: /s/ Kirk R. Ferguson
		Name: Kirk R. Ferguson
		Title: Authorized Person


By: /s/ Nathan L. Belden
		Name: Nathan L. Belden
		Title: Authorized Person

-----END PRIVACY-ENHANCED MESSAGE-----

		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.


By: Its:		American Industrial Partners III, L.P. General Partner


By: Name: Title:		/s/ Kirk R. Ferguson Kirk R. Ferguson Authorized Person


By: Name: Title:		/s/ Nathan L. Belden Nathan L. Belden Authorized Person

	(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 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.

	Kirkland & Ellis 655 Fifteenth Street, N.W.
	Suite 1200 Washington, D.C. 20005 Telecopy: (202) 879-5200 Telephone: (202) 879-5127 Attention: Robert G. Marks