EXECUTIVE EMPLOYMENT
AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this
“Agreement”) is made and entered into, effective as of
the date signed by both parties, by and between Williams Controls,
Inc., a Delaware corporation (the “Company”), and
Patrick W. Cavanagh (“Executive”).
BACKGROUND
A.
Executive has many
years of experience in the truck parts industry, and the Company
desires to retain Executive as President and Chief Executive
Officer on the terms described in this Agreement.
B.
Executive desires
to accept employment with the Company on the terms described in
this Agreement.
C.
The Company and
Executive anticipate that Executive’s hire date will be
October 4, 2004, or such sooner date as agreed upon by Executive
and the Company’s Chairman of the Board.
AGREEMENT
In consideration
of the provisions of this Agreement, the Company and Executive
agree as follows:
I. DUTIES
1.1
Title and
Responsibilities. Executive shall serve as
President and Chief Executive Officer of the Company, with the
responsibilities and duties typical of that position, as well as
such other responsibilities and duties as may be assigned to him
from time to time by the Company’s Board of Directors (the
“Board”). Executive shall devote his best efforts and
full business time to the business and interests of the
Company.
1.2
Company
Policies. Executive agrees to perform
his job consistent with all Company policies and ethical business
practices.
II.
COMPENSATION
2.1
Base
Salary. The Company shall pay
Executive a base salary (“Base Salary”) of $240,000 per
year, payable in installments according to the Company’s
usual payroll practices. Up to 7% of Executive’s Base Salary
may be paid, in the Company’s complete discretion, in the
form of the Company’s common stock (the “Common
Stock”), which payment will occur in a single transfer of
stock near the end of the second quarter of the Company’s
fiscal year, with the shares of Common Stock valued based on the
average trading price for the 30 days immediately preceding
payment. In addition, commencing September 30, 2005, the Board will
annually review Executive’s Base Salary.
2.2
Annual
Bonus. At the end of each full
fiscal year of the Company, Executive will be eligible for bonus
compensation, which will be calculated in three stages and in the
aggregate referred to as the “Annual Bonus.” The bonus
potential described below starts October 1, 2004, applicable for
the 2005 fiscal year of the Company.
(i)
First
Stage . As soon as practicable
following the commencement of Executive’s employment with the
Company, Executive and members of the Board will agree on objective
performance targets, the accomplishment of which will entitle
Executive to a bonus payment of 60% of his Base Salary. This is the
first stage of the Annual Bonus. The parties intend that similar
objective targets will be agreed to around the start of each fiscal
year of the Company, which goals will apply toward calculating the
first stage of the Annual Bonus for that fiscal year.
(ii)
Second
Stage . Executive and members of
the Board will also agree on factors indicative of an extraordinary
performance, the accomplishment of which will make Executive
eligible for an increase in his annual bonus up to an amount of 40%
of his Base Salary. The parties acknowledge that while the first
stage of the Annual Bonus (up to 60% of Base Salary) will be based
on yearly Company performance, the second stage of the Annual Bonus
(up to an additional 40% of Base Salary) will include other
measures that the Board and Executive deem important for the
Company’s success.
(iii)
Third
Stage . Executive’s Annual
Bonus may be increased by a third stage, equal to an additional 50%
of his Base Salary, based on the Board’s assessment of the
achievement of growth and improvement objectives established by the
Board at the start of the Company’s fiscal year. Based on all
three stages, the Annual Bonus may reach, in the aggregate, a total
Annual Bonus package of 150% of Executive’s Base
Salary.
(iv)
Company Stock
Component . To the extent the Annual
Bonus exceeds, 100% of Executive’s Base Salary for any fiscal
year, the Board may, in its sole discretion, satisfy its payment
obligations for any amounts over 100% of Base Salary by paying in
the form of cash or in shares of Common Stock, with the shares of
Common Stock valued based on the average trading price for the 30
days immediately preceding payment of the Annual Bonus. Payment of
the Annual Bonus, if any, shall be paid within 90 days following
the close of the Company’s fiscal year.
2.3
Stock
Options . In partial consideration of
Executive’s execution of this Agreement, Executive shall
receive options for 1,000,000 shares of the Company’s Common
Stock under any stock option plan adopted by the Company from time
to time. The exercise price associated with each option granted to
Executive shall be the greater of $1.00 per share or the average
price of the Common Stock based on the average trading price of the
Common Stock for the 30 days immediately preceding
Executive’s hire date. The options shall be nonqualified
stock options with a term of 10 years. The options will vest and
become exercisable based on a gradual vesting schedule, with 20% of
the options becoming vested for each 12 months of employment that
Executive completes with the Company, with the options becoming
fully vested upon a “Sales Event,” as defined below, or
in the event that there is a triggering of any
“drag-along” or “tag-along” rights
associated with shares of Common Stock owned by
Executive.
The option
agreement issued to Executive will also include any accelerated
vesting rights held by other executives of the Company. The parties
acknowledge that the Company is engaged in a recapitalization
transaction, prior to which, and for a short time afterward, the
Company will be unable to issue stock options to Executive. Once
options are issued, the options shall reflect in the corresponding
vesting schedule that vesting starts on Executive’s hire
date, and not with the date on which the options are ultimately
granted. In addition, the parties acknowledge that if the fair
market value of the stock increases, the exercise price associated
with Executive’s stock options shall nevertheless be the
greater of $1.00 per share or the average sale price for a share of
Common Stock on the Executive’s hire date, even if that price
is less than the value of Common Stock on the date the options are
granted.
For purposes of
this Agreement, a “Sales Event” shall mean (i) a sale
of all or substantially all of the Company’s assets, (ii) a
sale (or series of related sales) of the Company’s stock
after which voting control of the Company is held by persons who
were not shareholders of the Company prior to the sale, if in
connection with the sale, or thereafter, Executive is terminated
for reasons other than Cause or leaves the Company for Good Reason
(as such terms are defined below), or (iii) a tender offer, merger,
consolidation, reorganization or other similar event that shifts
voting control of the Company (or any successor entity) to persons
who were not shareholders of the Company prior to the
transaction.
2.4
Other
Benefits .
(i)
The Company shall
provide Executive with any additional employee benefits generally
extended to other full-time salaried employees of the Company, on
the same terms generally available to the Company’s full-time
salaried employees. In addition, in conjunction with
Executive’s potentially variable start date, as expressed in
Section C. of the Background section of this Agreement, if
Executive is required to elect COBRA coverage under his current
employer’s group health plan before becoming eligible for
coverage under the Company’s group health plan, the Company
will reimburse Executive for the COBRA premium amount or pay the
amount for him.
(ii)
The Company shall
pay or reimburse Executive for all travel and entertainment
expenses incurred by Executive in connection with his duties on
behalf of the Company, subject to proper documentation and the
reasonable approval of the Company.
(iii)
Executive will be
eligible for enhanced physicals at the Mayo Clinic (or another
comparable facility of his choosing), at the expense of the
Company, similar to the program offered by Executive’s former
employer.
(iv)
Executive will
receive “Personal Time Off” (or “PTO”) of
six weeks upon commencement of employment, and will subsequently
accrue additional PTO at a monthly rate equivalent to six weeks per
year. The parties agree that to the extent possible, Executive will
be reasonably available during vacation times to receive calls,
emails, etc., and to conduct business as may reasonably be
required.
(v)
As a signing
bonus, and to compensate Executive for possibly missing a retention
incentive and fiscal 2004 bonus with his current employer, the
Company shall pay Executive a one-time bonus in late November 2004
of $60,000, paid in an equivalent number of shares of the
Company’s Common Stock (based on the average trading price
for the 30 days immediately preceding
payment).
If his current
employer pays this 2004 bonus, then the Company shall not be
obligated to pay the $60,000. As a further one-time bonus in lieu
of Executive receiving a retention bonus from his current employer,
the Company will pay Executive $200,000 as follows: $100,000 in
Common Stock (with the value measured as described above) and
$100,000 in cash if Executive’s current employer pays him his
2004 bonus; or $50,000 in Common Stock and $150,000 in cash if his
current employer does not pay his 2004 bonus. The Company will pay
these amounts at approximately the time that Executive would have
received his retention bonus award from his current employer had he
remained employed, provided that none of these bonuses will be paid
if, prior to the time of payment by the Company, (a) Executive has
been terminated by the Company for Cause (as defined below), or (b)
Executive has terminated his employment for reasons other than
death, disability or grounds that constitute Good Reason (as such
terms are defined below).
(vi)
In addition, and
in connection with the bonus payments described above, Executive
has agreed to purchase $25,000 worth of Common Stock on the open
market, during both the first and second year of his employment
with the Company.
(vii)
The Company will
assist Executive in relocating to the Portland, Oregon area, with
the specific terms of the reimbursement to match as closely as
feasible the policies of Executive’s present employer. The
Company will not necessarily use a third party in this assistance
as is the policy of Executive’s current employer. The details
will be worked out between Executive, the Company’s Chairman
of the Board and the Company’s CFO.
III.
TERMINATION
O
