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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): June 30, 1998
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WILLIAMS CONTROLS, INC.
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(Exact name of Company as specified in its charter)
Delaware 0-18083 84-1099587
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File No.) Identification No.)
14100 S.W. 72ND Avenue, Portland, OR 97224
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(Address of Principal Executive Offices)
(503) 684-8600
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name or former address, if changed since last report.)
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Item 5. Other Events.
On June 30, 1998, Williams Controls, Inc. (the "Registrant") restructured
its credit facility with Wells Fargo Bank, National Association to remove Ajay
Sports, Inc. and its subsidiaries ("Ajay") as borrowers under the credit
facility. The credit facility as restructured provides for a maximum borrowing
capacity of approximately $22.3 million, consisting of a revolving credit
facility of up to $16.5 million, a $3.1 million term loan and a $2.7 real estate
loan. Under the restructured facility, all joint and several liability, cross
collateral agreements and guarantees of the Registrant with respect to the
portion of the Wells Fargo credit facility allocable to Ajay prior to the
restructuring have been terminated.
In connection with the restructuring of the Wells Fargo bank credit
facility, the Registrant entered into an agreement with Ajay under which the
Registrant has agreed to make certain additional advances to Ajay of $1 million.
These additional advances when combined with certain liabilities assumed from
Ajay by the Registrant and potential additional payments to a bank on Ajay's
behalf, if required to be made, could result in Ajay owing the Registrant up to
approximately $8.65 million. On June 30, 1998, the Registrant converted $5
million of this debt into 6,000,000 shares of a newly created series of
preferred stock of Ajay, the Series D Cumulative Convertible Non-Voting
Preferred Stock, and accepted a secured promissory note for the unconverted
portion of the debt. The note is secured by a lien on Ajay's assets which is
junior to the lien held by Ajay's bank lenders. The Registrant continues to own
approximately 17.7% of the outstanding common stock of Ajay and holds options to
purchase an additional 11.1 million shares. In addition, the Registrant
continues to have rights to joint manufacturing facilities in Wisconsin and
Mexico, which were negotiated in 1994.
These transactions are the result of the Registrant's efforts to refocus on
the Registrant's core transportation-related businesses and follows the sale of
its unprofitable Kenco subsidiary earlier in this fiscal year.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
10.1 First Amendment, dated June 30, 1998, to Credit Agreement entered
into as of July 11, 1997, by and among the Registrant and its
subsidiaries and Wells Fargo Bank, National Association.
10.2 Replacement Term Loan Promissory Note, dated June 30, 1998, made
by Registrant payable to Wells Fargo Bank.
10.3 Agreement, dated June 30, 1998, by and among the Registrant and
Ajay Sports, Inc. and its subsidiaries ("Ajay").
2
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10.4 Secured Promissory Note dated June 30, 1998 made by Ajay payable
to the Registrant.
10.5 Certificate of Designations of Rights and Preferences of the Ajay
Series D Cumulative Convertible Non-Voting Preferred Stock owned
by the Registrant.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed for and on its behalf by the
undersigned hereunto duly authorized.
WILLIAMS CONTROLS, INC.
Dated: July 15, 1998 By /s/ Gerard A. Herlihy
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Gerard A. Herlihy,
Chief Financial Officer and
Chief Administrative Officer
By /s/ William N. Holmes
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William N. Holmes,
Corporate Controller and
Principal Accounting Officer
3
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FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT is entered into as of June 30,
1998, by and among WILLIAMS CONTROLS, INC., a Delaware corporation, AGROTEC
WILLIAMS, INC., a Delaware corporation, APTEK WILLIAMS, INC., a Delaware
corporation, GEOFOCUS, INC., a Florida corporation, HARDEE WILLIAMS, INC., a
Delaware corporation, KENCO/WILLIAMS, INC., a Delaware corporation, NESC
WILLIAMS, INC., a Delaware corporation, PREMIER PLASTIC TECHNOLOGIES, INC., a
Delaware corporation, WACCAMAW WHEEL WILLIAMS, INC., a Delaware corporation,
WILLIAMS CONTROLS INDUSTRIES, INC., a Delaware corporation, WILLIAMS
TECHNOLOGIES, INC., a Delaware corporation, WILLIAMS WORLD TRADE, INC., a
Delaware corporation, WILLIAMS AUTOMOTIVE, INC., a Delaware corporation,
TECHWOOD WILLIAMS, INC., a Delaware corporation, (each individually referred to
as "Borrower" and all collectively referred to as "Borrowers"), and WELLS FARGO
BANK, NATIONAL ASSOCIATION ("Bank").
RECITALS
Borrowers, together with Ajay Sports, Inc., Leisure Life, Inc., Palm
Springs Golf, Inc. and Ajay Leisure Products, Inc. (collectively, the "Ajay
Companies"), are parties to that certain Credit Agreement with Bank entered into
as of July 11, 1997 ("Agreement"). Borrowers and the Ajay Companies desire to
amend the Agreement to delete the Ajay Companies as parties to the Agreement.
Bank is willing to delete the Ajay Companies as parties to the Agreement,
provided that the amount of credit provided for under the Agreement is reduced
and certain other terms and conditions are modified.
All capitalized terms used herein and not otherwise defined herein will
have the meaning attributed to them in the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises of
the parties contained herein, Borrowers and Bank hereby agree as follows:
1. DELETION OF CERTAIN PARTIES. Ajay Sports, Inc., Leisure Life,
Inc., Palm Springs Golf, Inc. and Ajay Leisure Products, Inc. are
hereby deleted as parties to the Agreement.
2. REVISION TO SECTION 1.1 OF AGREEMENT.
(a) Section 1.1 of the Agreement is hereby amended to add the
following new defined term:
"BORROWER" means any one of the following corporations: Williams
Controls, 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., and Techwood
Williams, Inc., and "Borrowers" refers collectively to all
of these corporations.
(b) Section 1.1 of the Agreement is hereby amended as follows:
(i) The definition of "Aggregate Working Capital" is
amended in its entirety to read as follows:
"Aggregate Working Capital" means, as of any date, an amount
equal to the amount (which may be a negative number) by
which Williams Parent's consolidated current assets exceed
its consolidated current liabilities (exclusive of the
Revolving Loans).
(ii) The defined term "Ajay Parent" is deleted.
(iii)The definition of "A/R Advance Rate" is amended in its
entirety to read as follows:
"A/R Advance Rate" means, the following (or such other rates
as Bank may designate from time to time in its sole
discretion) with respect to the Eligible Accounts of each
Borrower listed below: (i)70% for Hardee Williams, Inc. and
Agrotec Williams, Inc.; (ii)80% for Premier Plastics
Technologies, Inc. and (iii)85% for Williams Controls
Industries, Inc., Aptek Williams, Inc., NESC Williams, Inc.,
GeoFocus, Inc. and Waccamaw Wheel Williams, Inc.
(iv) The reference in the defined term "Available Credit" to
$26,000,000 is hereby amended to be $16,500,000.
(v) The reference in item (ii)(a) of the defined term
"Borrowing Base" to $15,000,000 is hereby amended to be
$8,000,000.
(vi) The definition of "Subsidiary" is amended to delete the
words "or Ajay Parent."
3. REVISION TO SECTION 3.1(a). The reference in Section 3.1(a) to
$26,000,000 is hereby amended to be $16,500,000.
4. REVISION TO SECTION 3.2. The reference in Section 3.2(iii) to
$4,000,000 is hereby amended to be $3,000,000.
5. REVISION TO SECTION 3.3; Term Loan I Promissory Note.
(a) Contemporaneously herewith, Borrowers have reduced the
outstanding principal balance of Term Loan I by $525,000,
and as of the date hereof, the outstanding principal balance
of Term Loan I is $3,148,452.34. The second sentence of
Section 3.3(a) is hereby amended in its entirety to read as
follows:
Borrower shall repay the principal of Term Loan I in monthly
principal payments of $42,456.65 each on the first day of
each month beginning July 1, 1998.
(b) The Term Loan I Promissory Note dated July 11, 1997 in the
original principal amount of $4,430,000 is being replaced
with a Replacement Term Loan Promissory Note in the form of
the promissory note attached hereto as EXHIBIT A.
6. REPAYMENT OF TERM LOAN II. Contemporaneously herewith, Borrowers
have repaid Term Loan II in full.
7. REVISION TO SECTION 3.6(c). The reference in Section 3.6(c) to
$7,500 is hereby amended to be $4,500 and the reference in
Section 3.6(c) to $10,000 is hereby amended to be $6,000.
8. REVISION TO SECTION 3.6(d). The reference in Section 3.6(d) to
$26,000,000 is hereby amended to be $16,500,000.
9. REVISION TO SECTION 6.2(c). The references in Section 6.2(c) to
"Ajay Parent" are hereby deleted.
10. Deletion of Section 6.6(b). Section 6.6(b) is hereby deleted.
11. REVISION TO SECTION 6.25. The second sentence of Section 6.25 is
hereby deleted.
12. REVISION TO SECTIONS 8.4(b), (c) (e) and (f). Sections 8.4(b),
(e) and (f) are hereby deleted. The reference in Section 8.4(c)
to 15 days is hereby amended to be 35 days
13. REVISION TO SECTION 8.18. Section 8.18 is hereby amended in its
entirety to read as follows:
(a) Williams Parents' Tangible Net Worth (computed without
regard to deferred income taxes) shall at all times exceed
$18,000,000.
(b) Aggregate Working Capital shall at all times exceed
$12,000,000.
14. REVISION TO SECTION 9.4(a). Item (iii) of Section 9.4(a) is
hereby amended in its entirety to read as follows:
(iii)the 7.5% quarterly dividend payable on all Series A
Convertible, Redeemable, Preferred Stock issued and
outstanding as of the date of the First Amendment hereto;
15. REVISION TO SECTION 9.5(a). The reference in Section 9.5(a) to
$1,000,000 is hereby amended to be $650,000.
16. REVISION TO SECTION 9.6. Section 9.6 is hereby amended to delete
"and" at the end of item (b), to replace the period at the end of
item (c) with "; and" and to add the following new item (d):
(d) Investments in Ajay Sports, Inc. existing as of the date of
the First Amendment hereto and Investments in Ajay Sports,
Inc. in an amount not greater than (x) $1,000,000 plus (y)
the amount of all mandatory payments which Ajay Sports, Inc.
is required and permitted to make pursuant to its July 14,
1997 Promissory Note in the initial principal amount of
$2,340,000 to United States National Bank of Oregon, which
note is the subject of that certain Intercreditor Agreement
dated as of July 11, 1997 among Borrowers, Bank, Ajay
Sports, Inc. and its subsidiaries and United States National
Bank of Oregon.
17. REVISION TO SECTION 9.14. Section 9.14 is hereby amended in its
entirety to read as follows:
Make any capital expenditures (which term shall include
Capitalized Lease Obligations) at any time except (i) in the ordinary
course of business, (ii) in an amount collectively for Borrowers not
in excess of $6,000,000 for the 24-month period ending September 30,
1999, and (iii) in an amount collectively for Borrowers not in excess
of $2,500,000 in any fiscal year of Williams Parent ending after
September 30, 1999.
18. REVISION TO SECTION 9.15. Section 9.15 is hereby amended by
adding the following sentence at the end of such section:
The foregoing and Section 9.6 to the contrary notwithstanding,
Borrower may advance to Ajay Sports, Inc., from time to time, such
amount as is necessary to permit Ajay Sports, Inc. to make all
payments which it is required to make pursuant to its July 14,1997
Promissory Note in the original principal amount of $2,340,000 which
is the subject of the Intercreditor Agreement dated July 11, 1997
among Borrowers, the Ajay Companies, Bank and United States National
Bank of Oregon to the extent that making any such advance does not
otherwise create a Default hereunder.
19. REVISION TO SECTION 10.1(n). Section 10.1(n) is hereby amended in
its entirety to read as follows:
Thomas W. Itin or any two members of Borrower's Senior
Management shall cease, for any reason, to be employed by
Borrower on a full-time basis in his present capacity unless such
person is replaced within 90 days by another person acceptable to
Bank. Senior Management means Gerard A. Herlihy, Dennis Knowlton,
Timothy Marker and Ron Velat; or.
20. REVISION TO SECTION 11.3. The telecopy number for Bank set forth
in Section 11.3 is hereby amended to read as follows: (626)
844-9063.
21. ADDITION OF SECTION 11.17. A new Section 11.17 is hereby added to
the Agreement to read as follows:
SECTION 11.17 YEAR 2000 COMPLIANCE.
Borrower shall perform all acts reasonably necessary to ensure
that (i) Borrower and any business in which Borrower holds a
substantial interest and (ii) all customers, suppliers and vendors
that are material to Borrower's business, become Year 2000 Compliant
in a timely manner. Such acts shall include, without limitation,
performing a comprehensive review and assessment of all of Borrower's
systems and adopting a detailed plan, with itemized budget, for the
remediation, monitoring and testing of such systems. As used in this
paragraph, "Year 2000 Compliant" means, in regard to any entity, that
all software, hardware, firmware, equipment, goods or systems utilized
by or material to the business operations or financial condition of
such entity, will properly perform the date sensitive functions
before, during and after the year 2000. Borrower shall, immediately
upon request, provide to Bank such certifications or other evidence of
Borrower's compliance with the terms of this paragraph as Bank may
from time to time require.
22. WELLS CREDIT. All references in the Agreement to Bank's
Commercial Finance Division are hereby amended to refer to Bank's
group known as Wells Credit.
23. EFFECTIVE DATE. This First Amendment shall be effective on the
date first above written.
24. RATIFICATION. Except as otherwise provided in this First
Amendment, all of the provisions of the Agreement are hereby
ratified and confirmed and shall remain in full force and effect.
25. ONE AGREEMENT. The Agreement, as modified by the provisions of
this First Amendment, shall be construed as one agreement.
26. OREGON STATUTORY NOTICE.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK
AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT
FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY BORROWER'S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE
ENFORCEABLE.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be executed as of the date first written above.
WILLIAMS CONTROLS, INC. AGROTEC WILLIAMS, INC.
By /s/ Gerard A. Herlihy By /s/ Gerard A. Herlihy
---------------------------- ----------------------------
Chief Financial Officer and Chief Financial Officer and
Chief Administrative Officer Chief Administrative Officer
APTEK WILLIAMS, INC. GEOFOCUS, INC.
By /s/ Gerard A. Herlihy By /s/ Gerard A. Herlihy
---------------------------- ----------------------------
Chief Financial Officer and Chief Financial Officer and
Chief Administrative Officer Chief Administrative Officer
HARDEE WILLIAMS, INC. KENCO/WILLIAMS, INC.
By /s/ Gerard A. Herlihy By /s/ Gerard A. Herlihy
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Chief Financial Officer and Chief Financial Officer and
Chief Administrative Officer Chief Administrative Officer
NESC WILLIAMS, INC. PREMIER PLASTIC TECHNOLOGIES, INC.
By /s/ Gerard A. Herlihy By /s/ Gerard A. Herlihy
---------------------------- ----------------------------
Chief Financial Officer and Chief Financial Officer and
Chief Administrative Officer Chief Administrative Officer
WACCAMAW WHEEL WILLIAMS, INC. WILLIAMS CONTROLS INDUSTRIES, INC.
By /s/ Gerard A. Herlihy By /s/ Gerard A. Herlihy
---------------------------- ----------------------------
Chief Financial Officer and Chief Financial Officer and
Chief Administrative Officer Chief Administrative Officer
WILLIAMS TECHNOLOGIES, INC. WILLIAMS WORLD TRADE, INC.
By /s/ Gerard A. Herlihy By /s/ Gerard A. Herlihy
---------------------------- ----------------------------
Chief Financial Officer and Chief Financial Officer and
Chief Administrative Officer Chief Administrative Officer
WILLIAMS AUTOMOTIVE, INC. TECHWOOD WILLIAMS, INC.
By /s/ Gerard A. Herlihy By /s/ Gerard A. Herlihy
---------------------------- ----------------------------
Chief Financial Officer and Chief Financial Officer and
Chief Administrative Officer Chief Administrative Officer
WELLS FARGO BANK, NATIONAL ASSOCIATION
By /s/ Angelo Samperisi
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Vice President
CONSENT TO DELETION OF PARTIES
Ajay Sports, Inc., Leisure Life, Inc., Palm Springs Golf, Inc. and Ajay
Leisure Products, Inc. each hereby consents to being deleted as a party to the
Agreement.
AJAY SPORTS, INC. LEISURE LIFE, INC.
By /s/ Duane Stiverson By /s/ Duane Stiverson
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Chief Financial Officer Chief Financial Officer
PALM SPRINGS GOLF, INC. AJAY LEISURE PRODUCTS, INC.
By /s/ Duane Stiverson By /s/ Duane Stiverson
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Chief Financial Officer Chief Financial Officer
REPLACEMENT TERM LOAN I PROMISSORY NOTE
$3,148,452.34 June 30, 1998
FOR VALUE RECEIVED, the undersigned, WILLIAMS CONTROLS, INC. a Delaware
corporation, AGROTEC WILLIAMS, INC., a Delaware corporation, APTEK WILLIAMS,
INC., a Delaware corporation, GEOFOCUS, INC., a Florida corporation, HARDEE
WILLIAMS, INC., a Delaware corporation, KENCO/WILLIAMS, INC., a Delaware
corporation, NESC WILLIAMS, INC., a Delaware corporation, PREMIER PLASTIC
TECHNOLOGIES, INC., a Delaware corporation, WACCAMAW WHEEL WILLIAMS, INC., a
Delaware corporation, WILLIAMS CONTROLS INDUSTRIES, INC., a Delaware
corporation, WILLIAMS TECHNOLOGIES, INC., a Delaware corporation, WILLIAMS WORLD
TRADE, INC., a Delaware corporation, WILLIAMS AUTOMOTIVE, INC., a Delaware
corporation, TECHWOOD WILLIAMS, INC., a Delaware corporation, (each individually
referred to as "Borrower" and all collectively referred to as "Borrowers")
hereby jointly and severally promise to pay to the order of Wells Fargo Bank,
National Association ("Bank") the principal sum of Three Million One Hundred
Forty-Eight Thousand Four Hundred Fifty-Two and 34/100 Dollars ($3,148,452.34)
on the earlier of (A) in monthly principal payments of $42,456.65 each on the
first day of each month beginning July 1, 1998 and the outstanding principal
balance on the Maturity Date or (B) as otherwise required pursuant to the terms
of the Credit Agreement referred to below.
This promissory note is one of the Notes referred to in, and subject to the
terms of, that certain Credit Agreement among Borrowers and Bank dated as of
July 11, 1997 as amended by the First Amendment to Credit Agreement of even date
herewith (as further amended, modified or supplemented from time to time, the
"Credit Agreement"). This promissory note replaces that certain Term Loan I
Promissory Note dated July 11, 1997 (the original of which is attached hereto)
in the original principal amount of $4,430,000 executed by Borrowers, Ajay
Sports, Inc., Leisure Life, Inc., Palm Springs Golf, Inc. and Ajay Leisure
Products, Inc. This promissory note is not a novation; it is executed for the
purpose of evidencing the changed terms set forth in the First Amendment to
Credit Agreement of even date herewith. Capitalized terms used herein shall have
the respective meanings assigned to them in the Credit Agreement.
Borrower further promises to pay interest on the outstanding principal
balance hereof at the interest rates, and payable on the dates, set forth in the
Credit Agreement. All payments of principal and interest hereunder shall be made
to Bank at Bank's office in lawful money of the United States and in same day or
immediately available funds.
Bank is authorized but not required to record the date and amount of each
payment of principal and interest hereunder, and the resulting unpaid principal
balance hereof, in Bank's internal records, and any such recordation shall be
prima facie evidence of the accuracy of the information so recorded; provided
however, that Bank's failure to so record shall not limit or otherwise affect
Borrower's obligations hereunder and under the Credit Agreement to repay the
principal hereof and interest hereon.
The Credit Agreement provides, among other things, for acceleration (which
in certain cases shall be automatic) of the maturity hereof upon the occurrence
of certain stated events, in each case without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by
Borrowers.
Borrowers' obligations evidenced by this promissory note are secured by the
collateral described in the Loan Documents. The Loan Documents describe the
rights of Bank and any other holder hereof with respect to the collateral.
In the event of any conflict between the terms of this promissory note and
the terms of the Credit Agreement, the terms of the Credit Agreement shall
control.
This promissory note shall be governed by and construed in accordance with
the laws of the State of Oregon.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES, AND COMMITMENTS MADE BY BANK
AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT
FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S
RESIDENCE, MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE
ENFORCEABLE.
WILLIAMS CONTROLS, INC. AGROTEC WILLIAMS, INC.
By /s/ Gerard A. Herlihy By /s/ Gerard A. Herlihy
---------------------------- ----------------------------
Chief Financial Officer and Chief Financial Officer and
Chief Administrative Officer Chief Administrative Officer
APTEK WILLIAMS, INC. GEOFOCUS, INC.
By /s/ Gerard A. Herlihy By /s/ Gerard A. Herlihy
---------------------------- ----------------------------
Chief Financial Officer and Chief Financial Officer and
Chief Administrative Officer Chief Administrative Officer
HARDEE WILLIAMS, INC. KENCO/WILLIAMS, INC.
By /s/ Gerard A. Herlihy By /s/ Gerard A. Herlihy
---------------------------- ----------------------------
Chief Financial Officer and Chief Financial Officer and
Chief Administrative Officer Chief Administrative Officer
NESC WILLIAMS, INC. PREMIER PLASTIC TECHNOLOGIES, INC.
By /s/ Gerard A. Herlihy By /s/ Gerard A. Herlihy
---------------------------- ----------------------------
Chief Financial Officer and Chief Financial Officer and
Chief Administrative Officer Chief Administrative Officer
WACCAMAW WHEEL WILLIAMS, INC. WILLIAMS CONTROLS INDUSTRIES, INC.
By /s/ Gerard A. Herlihy By /s/ Gerard A. Herlihy
---------------------------- ----------------------------
Chief Financial Officer and Chief Financial Officer and
Chief Administrative Officer Chief Administrative Officer
WILLIAMS TECHNOLOGIES, INC. WILLIAMS WORLD TRADE, INC.
By /s/ Gerard A. Herlihy By /s/ Gerard A. Herlihy
---------------------------- ----------------------------
Chief Financial Officer and Chief Financial Officer and
Chief Administrative Officer Chief Administrative Officer
WILLIAMS AUTOMOTIVE, INC. TECHWOOD WILLIAMS, INC.
By /s/ Gerard A. Herlihy By /s/ Gerard A. Herlihy
---------------------------- ----------------------------
Chief Financial Officer and Chief Financial Officer and
Chief Administrative Officer Chief Administrative Officer
AGREEMENT
---------
Agreement entered into this 30th day of June, 1998 by and among Williams
Controls, Inc., a Delaware corporation ("Williams"), Ajay Sports, Inc., a
Delaware corporation ("ASI"), Ajay Leisure Products, Inc., a Delaware
corporation ("ALP"), Leisure Life, Inc., a Tennessee corporation ("LLI"), and
Palm Springs Golf, Inc., a Colorado corporation ("PSG"). Hereinafter, ASI, ALP,
LLI and PSG are collectively referred to as "Ajay."
RECITALS
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WHEREAS, Williams and its subsidiaries and Ajay are all borrowers under a
credit agreement dated July 11, 1997 (the "Credit Agreement") with Wells Fargo
Bank, National Association ("Bank"), under which Credit Agreement all borrowers
are jointly and severally liable for all amounts owed thereunder to Bank.
WHEREAS, Williams and Ajay have had discussions with the Bank and are in
the process of separating their respective loans with the Bank (the "New Wells
Fargo Loans").
WHEREAS, Ajay currently owes Williams approximately $4,564,000 (the
"Advances") and in accordance with this Agreement, and as hereinafter provided,
the parties anticipate that Williams will make additional advances to Ajay of up
to $4,088,000 (the "Additional Advances"), resulting in a total of up to
$8,652,000. Together, the Advances and the Additional Advances are referred to
collectively as the "Ajay/Williams Debt."
WHEREAS, Williams has agreed to convert $5,000,000 of the Ajay/Williams
Debt into preferred stock of Ajay (the "Debt Conversion") to assist Ajay in
obtaining its separate loan from the Bank.
WHEREAS, the parties desire to enter into this agreement to provide the
terms for the Additional Advances, the Debt Conversion and repayment of the
remaining Ajay/Williams Debt.
AGREEMENT
---------
1. Williams has assumed Ajay's obligations under two promissory
notes of which Ajay is maker and which are owed to Enercorp, Inc.
($200,000) and First Equity Corporation ($748,000), pursuant to
assumption agreements attached as Schedule 1. The $948,000 is
included in the Additional Advances.
2. Ajay is the primary obligor under that certain Promissory Note
dated July14, 1997 in the principal amount of $2,340,000 owed to
United States National Bank of Oregon (the "US Bank Note").
Williams and its subsidiaries are guarantors of obligations of
Ajay under the US Bank Note. Williams has made certain payments
on the US Bank Note, the amounts of which are included in the
Advances. In addition, Williams may make additional payments
under the US Bank Note of up to $2,140,000, which amount is
included in the Additional Advances. At such time as the US Bank
Note has been fully repaid, the Additional Advances amount shall
be adjusted to reflect the actual additional amounts advanced by
Williams in payment of the US Bank Note.
3. Williams has agreed to make an additional final loan of
$1,000,000 to Ajay, the full amount of which is included in the
Additional Advances. This final loan will be made in a
combination of Williams common stock and cash.
3.1 Williams Common Stock. On the date of the closing of the New
Wells Fargo Loans (the "Issue Date"), Williams will issue to Ajay
shares of Williams common stock valued at $500,000 (the "Williams
Stock"). The number of shares to be issued will be calculated by
multiplying the per share closing price of the Williams common
stock as reported by the Nasdaq National Market on the business
day immediately preceding the closing date of the New Wells Fargo
Loans by 90% and dividing the product of that equation into
$500,000 with any fraction being rounded to the nearest full
share. (For example if the closing price is $3.00 per share, the
calculation would be as follows: $3.00 X 90% = $2.70;
$500,000/$2.70 =185,185 shares.) The stock certificate evidencing
the Williams Stock shall be delivered to Ajay within 30 days
after the Issue Date. The Williams Stock will be included in a
selling shareholder registration statement on Form S-3 to be
filed by Williams within 90 days after the closing of the New
Wells Fargo Loans. Williams makes no guaranty regarding the
amount of proceeds that Ajay may receive from its sale of the
Williams Stock.
3.2 Cash. Williams will advance $500,000 cash to Ajay within 30 days
after the closing of the New Wells Fargo Loans.
4. The Advances consist of loans and advances Ajay has received from
Williams in the amount of $4,564,000 now due and owing to
Williams and the Additional Advances consist of additional
amounts of up to $4,088,000 which will or may be advanced at
future dates by Williams to Ajay under the terms of this
Agreement. The Additional Advances include the $948,000
(referenced in paragraph 1 above), up to $2,140,000 (referenced
in paragraph 2 above), and the $1,000,000 (referenced in
paragraph 3 above).
5. Williams will convert $5,000,000 of the Ajay/Williams Debt into
6,000,000 shares of Series D Cumulative Convertible Non-Voting
Preferred Stock of Ajay (the "Series D Preferred Stock"). The
certificate of designations of rights and preferences for the
Series D Preferred Stock in the form to be filed by Ajay with the
Delaware Secretary of State is attached as Schedule 5. A stock
certificate evidencing the Series D Preferred Stock will be
issued to Williams within 30 days after the Debt Conversion date.
6. Ajay will make a promissory note payable to Williams for the full
amount of the unconverted portion of the Ajay/Williams Debt (the
"Promissory Note"). The Promissory Note in the principal amount
of up to $3,652,000 is attached as Schedule 6.
7. The Promissory Note will be secured by a lien against the assets
of Ajay. Ajay hereby reconfirms the security interest in its
assets granted to Williams under that certain Security Agreement
dated effective July 14, 1997, a copy of which is attached as
Schedule 7, and nothing contained herein shall be deemed to
modify or otherwise diminish the security interest granted to
Williams thereunder. This Security Agreement shall evidence the
lien securing the Promissory Note and Ajay will cause financing
statements to be prepared reflecting Ajay as debtor and of
Williams and its subsidiaries, as creditor, and will be filed on
the earlier of (i) date the US Bank Note is fully repaid, or (ii)
receipt of approval from US Bank for filing at an earlier date.
Financing statements will be filed for Leisure Life, Inc. in
Tennessee with the Tennessee Secretary of State, and for Ajay
Sports, Inc., Ajay Leisure Products, Inc. and Palm Springs Golf,
Inc. in Wisconsin with the Wisconsin Secretary of State.
8. For three years after the date of this Agreement, Ajay will pay
an administrative fee to Williams of $90,000 per year, payable
$7,500 per month in arrears with the first payment due on July
31, 1998.
9. While all or any part of the Ajay/Williams Debt is outstanding,
Ajay shall provide Williams with (i) internally prepared
financial statements and any other available reports regarding
Ajay's financial position on a monthly basis, (ii) copies of its
quarterly reports on Form 10-Q, annual reports on Form 10-K,
current reports on Form 8-K and other periodic reports filed by
Ajay with the Securities and Exchange Commission, and (iii)
copies of any materials sent to Ajay's stockholders.
10. If any non-essential provision in this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any
way be affected or impaired thereby.
11. If an ambiguity or a question of intent or interpretation arises,
this Agreement shall be construed as if drafted jointly by the
parties 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. The word "including"
shall mean including without limitation. The parties intend that
each provision contained herein shall have independent
significance.
12. This Agreement, together with all of the other agreements
referenced herein and all ancillary documents related to all of
such agreements constitute the entire agreement of the parties
with respect to the subject matter hereof and supersede all prior
agreements.
13. This Agreement may be amended, modified, or supplemented only by
a written instrument executed by the parties against which
enforcement of the amendment, modification or supplement is
sought.
14. This Agreement may be executed in two or more counterparts, all
of which taken together shall constitute one instrument.
Executed and delivered as of the date first above written by the parties
hereto through their duly authorized officers.
AJAY SPORTS, INC.
By /s/ Duane R. Stiverson
----------------------------
Duane R. Stiverson,
Chief Financial Officer
AJAY LEISURE PRODUCTS, INC.
By /s/ Duane R. Stiverson
----------------------------
Duane R. Stiverson,
Chief Financial Officer
LEISURE LIFE, INC.
By /s/ Duane R. Stiverson
----------------------------
Duane R. Stiverson,
Chief Financial Officer
PALM SPRINGS GOLF, INC.
By /s/ Duane R. Stiverson
----------------------------
Duane R. Stiverson,
Chief Financial Officer
WILLIAMS CONTROLS, INC.
By /s/ Gerard A. Herlihy
----------------------------
Gerard A. Herlihy,
Chief Financial Officer
Consented to by the undersigned as of the date first above written, in his
capacity as guarantor of certain obligations of Ajay to Williams.
/s/ Thomas W. Itin
----------------------------
Thomas W. Itin, Individually
SECURED PROMISSORY NOTE
-----------------------
Up to $3,652,000 June 30, 1998
FOR VALUE RECEIVED, the undersigned, AJAY SPORTS, INC., a Delaware
corporation ("Maker"), promises to pay to the order of William Controls, Inc.
(the "Holder"), at 14100 SW 72nd Avenue, Portland, Oregon 97224, (or at such
other place as Holder shall designate in writing), in lawful money of the United
States of America, the principal sum of $3,652,000, or such lesser amount as
shall equal the aggregate outstanding principal balance of all advances made to
Maker by Holder under the Agreements dated June 30, 1998 between Maker and
Holder, from time to time, at such times and on such terms and conditions as are
set forth herein.
This Note arises out of the loans and advances from Holder to Maker in the
amount of $4,564,000, plus other amounts to be advanced under that certain
agreement dated June 30, 1998, by and among Maker and Holder
1. TERM. This Note shall mature on August 1, 2001, on which date all unpaid
principal and interest shall become due and payable in full.
2. INTEREST. Simple interest on the outstanding principal balance shall accrue
on the outstanding balance at a rate of 16% per annum on the basis of a
365-day year (the "Interest Rate"), unless there shall exist an uncured
Event of Default, as herein defined. During the existence of an uncured
Event of Default, simple interest at the rate of four percentage points
above the Interest Rate; provided, that, the rate shall not exceed 18% per
annum and shall be computed on the outstanding principal amount on the
basis of a 365-day year multiplied by the number of actual days the Event
of Default remains uncured (the "Default Interest Rate"). After September
1, 1998, the Interest Rate shall be calculated in accordance with the
formula set forth in Schedule 2 if (i) the outstanding principal on the
Note changes by an aggregate of $100,000 or more, or (ii) the value of the
Maker's outstanding Secured Series D Convertible Preferred Stock changes by
an aggregate of $100,000 or more.
3. PAYMENTS OF PRINCIPAL AND INTEREST.
(a) Commencing August 1, 1999 and continuing through maturity of this
Note, the Maker shall, subject to certain bank loan limitations, make
annual principal payments in an amount equal to 20% of Maker's cash
flow for the fiscal year preceding the principal payment due. For
purposes of this Note, cash flow is defined as net income after
payment of preferred stock dividends plus depreciation, amortization
and other non-cash charges.
(b) Commencing August 1, 1998 and continuing through maturity of this
Note, the Maker shall make monthly interest payments in the amount set
forth in Paragraph 2, above. Monthly interest payments shall be due
and received by Holder on the first day of each calendar month for the
preceding calendar month.
4. PREPAYMENTS. Maker may prepay the entire outstanding indebtedness of Maker
to Holder at any time, or may from time to time make partial prepayments on
the outstanding principal balance of this Note. All prepayments may be made
without penalty. No partial prepayments shall excuse, delay or reduce any
other payments due under this Note thereafter.
5. REIMBURSEMENT OF COLLECTION COSTS. Maker agrees to reimburse Holder for all
reasonable costs, including reasonable attorneys' fees, incurred to collect
this Note if not paid when due.
6. EVENT OF DEFAULT. The occurrence of any one of the following events shall
constitute an Event of Default hereunder:
(a) The Maker shall fail to pay any amount due hereunder within seven days
after written notice of such failure by Holder.
(b) The Maker shall commence a voluntary case under the federal bankruptcy
laws, shall seek to take advantage of any insolvency laws, shall make
an assignment for the benefit of creditors, shall apply for, consent
to or acquiesce in the appointment of, or taking possession by, a
trustee, receiver, custodian or similar official or agent for itself
or any substantial part of its property, or shall take any action
authorizing or seeking to effect any of the foregoing.
(c) A trustee, receiver, custodian or similar official or agent shall be
appointed for the Maker or any substantial part of its property, or
all or any substantial part of the property of the Maker is condemned,
seized or otherwise appropriated by any governmental authority.
(d) The Maker shall have an order or decree for relief in any voluntary or
involuntary case under the federal bankruptcy laws entered against it,
or any involuntary petition seeking reorganization, liquidation,
readjustment, arrangement, composition, or other similar relief as to
it under the federal bankruptcy laws, or any similar law for the
relief of debtors, shall be brought and shall be consented to or shall
remain undismissed.
Not in limitation of any other right under any other agreement or at law or in
equity, if any Event of Default hereunder shall have occurred, the Holder hereof
may, upon notice to the Maker and expiration of a seven day period to cure the
Event of Default, declare all obligations under this Note to be, and thereupon
the same shall become, immediately due and payable by the Maker.
7. SECURITY. The outstanding principal amount of this Note shall be secured
pursuant to the terms of that certain Security Agreement, dated July 14,
1997, between Holder and its subsidiaries, Maker, Ajay Leisure Products,
Inc., Ajay Leisure De Mexico C.V. De S.A., Palm Springs Golf, Inc. and
Leisure Life, Inc. granting a security interest in favor of the Holder in
all of Maker's right title and interest to and in the property listed
below. The Holder's security interest in such property shall be evidenced
by the filing of an appropriate form under the Uniform Commercial Code as
adopted in the State of Oregon:
All assets of Maker and its subsidiaries.
8. WAIVER OF PRESENTMENT. The Maker waives presentment, protest and notice of
dishonor.
9. APPLICABLE LAW; Jurisdiction. The provisions of this Note will be construed
in accordance with the laws of the State of Oregon. Upon an Event of
Default, this Note may be enforced in any court of competent jurisdiction
in the State of Oregon and the Maker and Holder shall each submit to the
jurisdiction of such court regardless of their residence or where this Note
or any endorsement hereof may be executed.
10. NOTICES. Any notice, request, demand, consent, approval or other
communication required or permitted hereunder shall be in writing and shall
be given to:
(a) Holder at:
Williams Controls, Inc.
Attn: Gerard A. Herlihy
14100 SW 72nd Avenue
Portland, Oregon 97224
(b) Maker at:
Ajay Sports, Inc.
Attn: Clarence H. Yahn
1501 E. Wisconsin Avenue
Delavan, Wisconsin 53115
11. OTHER. The provisions of this Note shall be severable and the invalidity of
a provision or term herein shall not invalidate or render unenforceable the
remainder of this Note. If at any time the Interest Rate hereunder exceeds
the maximum rate of interest that may be charged under Oregon law, then the
rate of interest charged hereunder shall automatically be reduced to such
maximum legal rate.
MAKER:
AJAY SPORTS, INC.
By: /s/ Clarence H. Yahn
--------------------------------
Clarence H. Yahn, Vice President
SCHEDULE 2
----------
New Interest Rate = (Z-[(P)(D)])-M
---------------
N
P = the dollar value of the issued and outstanding Series D.
N = the outstanding principal sum on this Note.
D = the then current dividend rate on the Series D.
M = fees of $170,000.
Z = (N+P) x .0875
CERTIFICATE OF
DESIGNATIONS OF RIGHTS AND PREFERENCES OF THE SERIES D
CUMULATIVE CONVERTIBLE NON-VOTING PREFERRED STOCK
OF AJAY SPORTS, INC.
__________
Pursuant to Section 151 of the
Delaware General Corporation Law
__________
Ajay Sports, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Company"), DOES HEREBY CERTIFY that the following
resolutions were duly adopted by the Board of Directors of the Company at a
meeting duly held on June 30, 1998:
RESOLVED, that the Board of Directors, pursuant to the authority vested in
it by the provisions of the Company's Restated Certificate of Incorporation, as
amended to date, hereby establishes a series of preferred stock, consisting of
6,000,000 shares, which shall be designated as the "Series D Cumulative
Convertible Non-Voting Preferred Stock" (the "Series D Preferred Stock") and
shall have the powers, preferences, rights, qualifications, limitations and
restrictions as set forth in Exhibit A attached hereto;
RESOLVED FURTHER, that the appropriate officers of the Company are hereby
authorized and directed to prepare, execute and file an appropriate Certificate
of Designations of Rights and Preferences of Series D Preferred Stock with the
Delaware Secretary of State as soon as is practicable; and
RESOLVED FURTHER, that the appropriate officers of the Company are hereby
authorized and directed to prepare, execute and issue certificates representing
such shares of Series D Preferred Stock at such time as the Company has received
the consideration therefor, such shares to be issued as restricted securities as
defined in Rule 144 under the Securities Act of 1933, as amended, such
certificates to be issued only upon execution by the holders of an appropriate
investment letter as approved by counsel for the Company, and such share
certificates to be impressed with a customary legend denoting the restrictions
upon transfer on such shares.
IN WITNESS WHEREOF, the undersigned hereby acknowledges under penalty of
perjury that the execution of this instrument is the undersigned's act and deed,
that the undersigned is an authorized officer of the Company, that the
undersigned has read this Designation of Rights and Preferences and all
attachments thereto and knows the contents thereof and the facts stated therein
are true.
AJAY SPORTS, INC.
Date: June 30, 1998 By /s/ Clarence H. Yahn
--------------------------------
Clarence H. Yahn, Vice President
ATTEST:
/s/ Robert R. Hebard
- -------------------------------------
Robert R. Hebard, Corporate Secretary
EXHIBIT A
DESIGNATIONS OF PREFERENCES AND RELATIVE RIGHTS OF THE
SERIES D CUMULATIVE CONVERTIBLE NON-VOTING PREFERRED STOCK
OF AJAY SPORTS, INC.
Pursuant to the authority vested with the Board of Directors of Ajay
Sports, Inc. (the "Company") in the Company's Restated Certificate of
Incorporation, as amended, the Company hereby designates 6,000,000 shares
of its authorized but unissued $.01 par value preferred stock as the SERIES
D CUMULATIVE CONVERTIBLE NON-VOTING PREFERRED STOCK (the "Series D
Preferred Stock"), for issuance in accordance with such actions of the
Board of Directors as may be required under Delaware law, and which shall
have the following rights and preferences:
DIVIDENDS.
DIVIDEND PREFERENCE AND PRIORITY. Dividends on the Series D Preferred
Stock shall rank equally in preference and priority to the rights of the
holders of the Company's Series B Cumulative Convertible Preferred Stock
(the "Series B Preferred Stock") and the Series C 10% Cumulative
Convertible Preferred Stock (the "Series C Preferred Stock") to receive
dividends under operative documents which designated and defined the Series
B Preferred Stock and the Series C Preferred Stock. Except as required
under the terms of the Series B and Series C Preferred Stock, dividends on
the Series D Preferred Stock shall be paid before any dividends or other
distributions may be declared, paid, or set aside to be paid on any other
shares of capital stock of the Company.
INCREASING DIVIDEND RATES. From the date of issue through July 31,
2001, no dividends will accrue or become payable on the Series D Preferred
Stock. Thereafter, the holder of the Series D Preferred Stock will be
entitled to receive, out of assets legally available for such purpose,
dividends per annum based on a stated value of $.8333 per share of Series D
Preferred Stock, payable in cash as follows:
FROM AUGUST 1, 2001 THROUGH JULY 31, 2002, at the rate of
17% per annum, or $.142 per share per annum.
FROM AUGUST 1, 2002 THROUGH THE DATE OF OPTIONAL REDEMPTION
OR CONVERSION, at the rate of 24% per annum, or $.20 per
share per annum.
PAYMENT OF DIVIDENDS. Dividends shall be paid annually in cash to the
holders of record of the Series D Preferred Stock on July 31 of the
applicable year, with the first dividend payment due on July 31, 2002.
Except as provided under the terms of the Series B Preferred Stock, no
dividend or other distribution shall be declared, ordered, or paid upon any
other class of capital stock of the Company, nor shall any sums be set
aside for or applied to the purchase or redemption of any shares of any
other class of capital stock of the Company, unless and until all
accumulated unpaid dividends ("Unpaid Dividends") due on the Series D
Preferred Stock shall have been paid in full or a dividend or other
distribution shall have been declared and a sum sufficient for full payment
of the Unpaid Dividends set apart therefor.
Holders of the Series D Preferred Stock shall not be entitled to any
dividend, whether payable in cash, property, or stock, in excess of full
cumulative dividends as provided for in this Certificate. If any dividends
payable on the Series D Preferred Stock shall not be paid for any reason,
the right of the holders of such shares of Series D Preferred Stock to
receive payment of such dividend shall not lapse or terminate, but all
Unpaid Dividends shall accumulate and shall be paid at the applicable
dividend rate, but without interest, to the holders of the Series D
Preferred Stock, at the time of conversion or redemption.
LIQUIDATION PREFERENCE.
Upon the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, prior to any distribution of assets with
respect to any other shares of capital stock of the Company as a result of
such liquidation, distribution or winding up of the Company, the holders of
the Series D Preferred Stock shall be entitled to receive out of the assets
of the Company a distribution of $.8333 plus any Unpaid Dividends for each
share of Series D Preferred Stock held, on an equal preference basis with
the Series B Preferred Stock and Series C Preferred Stock, subject to any
prior rights of the holders of the Company's Series B and Series C
Preferred Stock.
OPTIONAL CONVERSION.
Subject to the additional rights conferred under subparagraph (d) of
"Anti-dilution Adjustments" and the limitations contained under "Optional
Redemption" in this Certificate below, at option of the holder, the Series
D Preferred Stock shall be convertible, in whole or in part, into shares of
common stock, $.01 par value per share (the "Common Stock"), of the Company
based on a stated value of $.8333 for each share of Series D Preferred
Stock and $.25 per share of Common Stock (the "Conversion Price"). The
holders of Series D Preferred Stock who desire to convert shares of Series
D Preferred Stock to shares of Common Stock shall give the Company 30 days
prior written notice of the intention to convert, which notice shall
specify that all or a part of the shares of Series D Preferred Stock held
by such holder shall be converted to shares of Common Stock. The conversion
shall be deemed to be effective on the 30th calendar day after the date of
the written notice of conversion, unless an earlier effective date shall be
agreed to by the holders and the Company.
ANTI-DILUTION ADJUSTMENTS.
The Conversion Price shall be adjusted as follows:
(a) STOCK SPLITS; STOCK DIVIDENDS. If the Company 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.
Additionally, if 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. Notwithstanding anything to the contrary set forth in this
paragraph, if the Company shall divide or otherwise make a distribution to
its holders of Common Stock of the securities the Company owns in any
subsidiaries or other entities (collectively, the "Subsidiary Securities"),
the Company shall treat the holders of the Series D Preferred Stock as if
they had converted their Series D Preferred Stock into Common Stock as of
the record date for the dividend or distribution, and the Company shall
distribute the Subsidiary Securities to the holders of the Series D
Preferred Stock and the Conversion Price shall not change as a result
thereof.
(b) ISSUANCE OF ADDITIONAL SECURITIES. If the Company shall (i) issue,
sell or otherwise distribute shares of Common Stock for a consideration per
share in cash or property, or (ii) issue or re-price options, warrants or
other similar rights to purchase Common Stock that are exercisable at a
price less than the then effective Conversion Price, other than options
subject to the Company's stock option plans existing on the date the Series
D Preferred Stock was created and any options, warrants or other similar
rights held by the holder of the Series D Preferred Stock, (iii) issue,
sell or otherwise distribute rights to subscribe for securities convertible
into or exchangeable for Common Stock, at a price less than the then
effective Conversion Price, the Conversion Price then in effect shall
automatically be adjusted. The adjustment shall be calculated by
multiplying the then effective Conversion Price by a fraction, the
numerator of which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to such issuance, sale or other distribution
and the number of shares of Common Stock which the aggregate consideration
received or to be received by the Company for such issuance, sale or other
distribution would purchase at the then effective 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
other distribution. Consideration other than cash shall be valued in good
faith by the Board of Directors, and this valuation shall be conclusive and
set forth in a resolution of the Board of Directors.
Notwithstanding anything herein to the contrary, no adjustment shall
be made to the Conversion Price upon: (x) the exercise of any outstanding
options, warrants or other rights to purchase Common Stock or upon
conversion of any securities or other rights convertible into Common Stock,
which options, warrants, securities or other rights were outstanding on the
date the Series D Preferred Stock was created; or (y) unless and until the
Company issues, sells or otherwise distributes the greater of 1,000,000
shares of Common Stock in any one transaction or 2,000,000 shares of Common
Stock in the aggregate in a series of transactions.
(c) REORGANIZATION OR RECLASSIFICATION. If any capital reorganization
or reclassification of the capital stock of the Company, or any
consolidation or merger of the Company with another corporation or entity,
or the sale of all or substantially all of the Company's assets to another
corporation or other entity shall be effected in such a way that holders of
shares of Common Stock shall be entitled to receive cash, stocks,
securities, other evidence of equity ownership or assets with respect to or
in exchange for shares of Common Stock then, except as otherwise provided
below in this paragraph, as a condition of such reorganization,
reclassification, consolidation, merger or sale lawful and adequate
provisions shall be made whereby the holders of Series D Preferred Stock
shall thereafter have the right to receive, upon the basis and terms and
conditions specified herein, the cash, shares of stock, securities, other
evidence of equity ownership or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of Common Stock immediately theretofore
purchasable and receivable upon the conversion of Series D Preferred Stock
had such reorganization, reclassification, consolidation, merger or sale
not taken place. In addition, appropriate provisions shall be made with
respect to the rights and interests of the holders of the Series D
Preferred Stock so that the provisions of this subparagraph (c) shall
continue thereafter to be applicable to the extent reasonably possible in
relation to any shares of stock, securities, other evidence of equity
ownership or assets thereafter deliverable upon the conversion of the
Series D Preferred Stock. Specifically, without limitation, provisions
shall be made for an immediate adjustment by reason of such consolidation
or merger, of the Conversion Price to the value for the Common Stock
reflected by the terms of such consolidation or merger if the per share
value reflected is less than the then effective Conversion Price.
Subject to the terms of the Series B and Series C Preferred Stock, in
the event of a merger or consolidation of the Company with or into another
corporation or other entity as a result of which the number of shares of
Common Stock of the surviving corporation or entity issuable to holders of
Common stock of the Company, is greater or lesser than the number of shares
of Common Stock of the Company outstanding immediately prior to such merger
or consolidation, then the Conversion Price in effect immediately prior to
such merger or consolidation shall be adjusted in the same manner as though
there were a subdivision or combination of the outstanding shares of Common
Stock of the Company as provided in subparagraph (b) in this section above.
The Company shall not effect any consolidation, merger or sale,
unless, prior thereto, the surviving entity shall assume by written
instrument executed and mailed or delivered to the holders of the Series D
Preferred Stock, the obligation to deliver to the holders of the Series D
Preferred Stock the shares of stock, securities, other evidence of equity
ownership or assets as, in accordance with the foregoing provisions, the
Series D Preferred Stock holders may be entitled to receive or otherwise
acquire.
As a condition to any purchase, tender or exchange offer made to and
accepted by the holders of more than 50% of the outstanding shares of
Common Stock of the Company, the holders of Series D Preferred Stock shall
have been given a reasonable opportunity to elect to receive, at the time
of conversion of the Series D Preferred Stock, the securities or other
property then issuable with respect to the number of shares of Common Stock
of the Company into which the Series D Preferred Stock is convertible in
accordance with such offer.
(d) CHANGE OF CONTROL. As a condition precedent to any transaction in
which the Company consolidates or merges with any other corporation or
transfers all or substantially all of its assets to any other corporation
so that the Company is not the surviving corporation, then the Company
shall cause adequate provision to be made so that the holders of the Series
D Preferred Stock (i) shall be entitled to receive, upon conversion after
effectiveness of the transaction, the kind and amount of securities or
other property receivable in the transaction by the holders of the Common
Stock to the same extent as if the conversion had occurred immediately
prior to the effectiveness of the transaction, and (ii) to the extent
reasonably possible, shall continue to have same rights as conferred
hereunder with respect to any shares, evidences of indebtedness or other
securities or assets thereafter deliverable upon conversion of the Series D
Preferred Stock. Regardless of any provisions being made, the holders of
the Series D Preferred Stock shall have the right to convert the Series D
Preferred Stock into shares of Common Stock immediately prior to the change
of control transaction at a price equal to the lesser of (x) the Conversion
Price plus any Unpaid Dividends, or (y) the price per share of Common Stock
payable in the change of control transaction.
(e) ADJUSTMENT TO CONVERSION PRICE. The term "Conversion Price" as
used herein shall mean the Conversion Price specified in this certificate,
until the occurrence of an event stated in this Certificate and thereafter
shall mean said price, as adjusted from time to time as provided herein.
(f) RECORD OF CONVERSION PRICE. Whenever the shares of Common Stock or
other types of securities or assets receivable upon conversion of the
Series D Preferred Stock shall be adjusted as provided in this Certificate,
the Company 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 Company'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 of the Series D Preferred Stock. 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 D Preferred Stock on any day during normal
business hours.
(g) NOTICE. In case:
(i) the Company shall declare a dividend (or any distribution) on its
Common Stock payable in Common Stock of the Company; or
(ii) the Company shall declare a dividend (or any other distribution)
on its Common Stock payable in cash; or
(iii) any reclassification of Common Stock or any consolidation,
merger, conveyance of the property of the Company as an entirety, or
substantially as an entirety, dissolution, liquidation or winding up shall
be effected by the Company; the Company shall mail, or cause its transfer
agent to mail, a notice to the holders of record of the Series D Preferred
Stock, at least 30 but not more than 60 days prior to the applicable record
date with respect to such transaction. The notice shall include (A) the
date on which a record is to be taken for the purpose of the dividend,
distribution or rights, or, if no record will be taken, the date as of
which the holders of Common Stock of record will be determined for
entitlement to such dividend, distribution or right, or (B) the date on
which the reclassification, consolidation, merger, conveyance, dissolution,
liquidation or winding up is expected to become effective, and the date
that holders of Common Stock of record are expected to be entitled to
exchange the certificates representing their shares of Common Stock for
securities or other property deliverable upon the reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding up.
OPTIONAL REDEMPTION.
The Company shall have the right and option upon not less than 30 nor more
than 45 days'prior written notice (the "Redemption Notice") to the holders of
the Series D Preferred Stock to call, redeem and acquire any or all of the
shares of Series D Preferred Stock at a price equal to the stated value of
$.8333 per share, plus any Unpaid Dividends (the "Redemption Price"), at any
time to the extent such shares have not been previously converted to Common
Stock pursuant to the terms described above; provided, however, that the holders
of the Series D Preferred Stock shall have the right to convert their shares of
Series D Preferred Stock into Common Stock in accordance with the terms
described above under "Conversion" at any time prior to the redemption date
specified in the notice (the "Redemption Date"). If the Series D Preferred Stock
is converted prior to the Redemption Date, this call option shall be deemed not
to have been exercised by the Company with respect to the shares of Series D
Preferred Stock so converted. The Redemption Notice shall require the holders to
surrender, on or before the Redemption Date, to the Company or its agent
designated in the Redemption Notice, certificates representing the shares of
Series D Preferred Stock being redeemed. Notwithstanding the fact the
certificates representing the shares of Series D Preferred Stock called for
redemption have not been surrendered for redemption and cancellation on or after
the Redemption Date, such shares shall be deemed to have been redeemed and all
rights of the holders thereof shall have no rights in the Series D shares
redeemed other than the right to receive payment of the Redemption Price.
VOTING RIGHTS.
The holders of the Series D Preferred Stock shall have no voting rights
except to the extent required by the Delaware General Corporation Law.
PREEMPTIVE RIGHTS.
The Series D Preferred Stock shall have no preemptive rights as to any
series of preferred stock issued
subsequent to it.
APPOINTMENT OF BOARD MEMBERS.
If the Company does not pay the Dividend or fails to achieve pre-tax
earnings of $500,000 in calendar 2001 or 2002, the holders of the Series D
Preferred Stock shall be entitled to appoint a majority of the members of the
Board of Directors of the Company.
REGISTRATION RIGHTS.
At the request of the holder of the Series D Preferred Stock, the Company
shall register the shares of Common Stock issued or issuable upon conversion of
the Series D Preferred Stock with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"). In addition, if the Company proposes to file a registration statement
with the Commission under the Securities Act with respect to an offering of
securities of the Company (other than a registration statement on Form S-4 or
S-8 or any successor form, or a registration statement to be filed solely in
connection with an exchange offer, a business combination transaction or an
offering of securities solely to the existing stockholders or employees of the
Company), then the Company shall give the holder of the Series D Preferred Stock
notice of its intention and an opportunity to include all or a portion of the
shares of Common Stock issuable upon conversion of the Series D Preferred Stock
in the proposed registration statement.
NOTICES.
Any notice, request, demand, consent, approval or other communication
required or permitted hereunder shall be in writing and shall be given to:
(a) the Company at Ajay Sports, Inc., Attn: Clarence H. Yahn, Chief
Operating Officer, 1501 E. Wisconsin Avenue, Delavan, Wisconsin 53115; and
(b) the holder of the Series D Preferred Stock at Williams Controls, Inc.,
Attn: Gerard A. Herlihy, Chief Financial Officer, 14100 SW 72nd Avenue,
Portland, Oregon 97224.
