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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 OF EMPLOYMENT
3.1 By Executive.
(i
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