-----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, KMenTI3vI4zWXOqujLIBikgtwIN8R+SyopwadgxFa0j94MxgtcKpiGC+vZZHr/zT sEtnCIShKS4jtyxeGn4fJw== 0001206774-09-002368.txt : 20091215 0001206774-09-002368.hdr.sgml : 20091215 20091215165215 ACCESSION NUMBER: 0001206774-09-002368 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20090930 FILED AS OF DATE: 20091215 DATE AS OF CHANGE: 20091215 FILER: 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: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-33066 FILM NUMBER: 091242229 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 10-K 1 williamscontrols_10k.htm ANNUAL REPORT

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________________

FORM 10-K

(Mark One) 
[ x ]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
  For the fiscal year ended: September 30, 2009 
 
  OR 
 
[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______to______
Commission file number 0-18083
________________

Williams Controls, Inc.
(Exact name of registrant as specified in its charter)

 Delaware  84-1099587
 (State or other jurisdiction of  (I.R.S. Employer Identification No.)
 incorporation or organization)  
 
 14100 SW 72nd Avenue  
 Portland, Oregon  97224
 (Address of principal executive office)  (Zip code)

Registrant’s telephone number, including area code:
(503) 684-8600

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.01 par value)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [    ] No [ X ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [    ] No [ X ]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes [ X ] No [    ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).      Yes [    ] No [    ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [    ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act
Large accelerated filer [    ]  Accelerated filer [    ] 
Non-accelerated filer [    ]  Smaller reporting company [ X ] 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)     Yes [    ] No [ X ]


The aggregate market value of voting common shares (based upon the closing price of the shares as reported on the NASDAQ Global Market) of Williams Controls, Inc. held by non-affiliates was approximately $18,992,255 as of March 31, 2009.

As of December 1, 2009, there were 7,270,820 shares of Common Stock outstanding.

Documents Incorporated by Reference

The Registrant has incorporated by reference into Part III of this Form 10-K portions of its
Proxy Statement for the Annual Meeting of Stockholders to be held February 24, 2010.


Williams Controls, Inc.

Index to 2009 Form 10-K

Page
Part I      
       Item 1. Business 4-8
       Item 1A. Risk Factors 8-11
       Item 1B. Unresolved Staff Comments 11
       Item 2. Properties 11
       Item 3. Legal Proceedings 12
       Item 4. Submission of Matters to a Vote of Security Holders 12
 
Part II
       Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and 13
Issuer Purchases of Equity Securities
       Item 6. Selected Financial Data 14
       Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 14-22
       Item 7A. Quantitative and Qualitative Disclosures About Market Risk 23
       Item 8. Financial Statements and Supplementary Data 24
       Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 52
       Item 9A. Controls and Procedures 52
       Item 9B. Other Information 52
 
Part III
       Item 10. Directors, Executive Officers and Corporate Governance 53
       Item 11. Executive Compensation 53
       Item 12. Security Ownership of Certain Beneficial Owners and Management and Related 53
Stockholder Matters
       Item 13. Certain Relationships and Related Transactions, and Director Independence 53
       Item 14. Principal Accountant Fees and Services 53
 
Part IV
       Item 15. Exhibits and Financial Statement Schedules 54
 
Signatures 55


WILLIAMS CONTROLS, INC.
FORM 10-K

PART I
(Dollar amounts in thousands, unless otherwise indicated)

ITEM 1. BUSINESS

     We are a Delaware corporation formed in 1988. The following are our wholly-owned subsidiaries:

     Active Subsidiaries – Williams Controls Industries, Inc. (“Williams”); Williams (Suzhou) Controls Co. Ltd. (“Williams Controls Asia”); Williams Controls Europe GmbH (“Williams Controls Europe”); and Williams Controls India Private Limited (“Williams Controls India”).

     Inactive Subsidiaries – Aptek Williams, Inc. (“Aptek”); Premier Plastic Technologies, Inc. (“PPT”); ProActive Acquisition Corporation (“ProActive”); WMCO-Geo, Inc. (“GeoFocus”); NESC Williams, Inc. (“NESC”); Williams Technologies, Inc. (“Technologies”); Williams World Trade, Inc. (“WWT”); Techwood Williams, Inc. (“TWI”); Agrotec Williams, Inc. (“Agrotec”) and our 80% owned subsidiaries Hardee Williams, Inc. (“Hardee”) and Waccamaw Wheel Williams, Inc. (“Waccamaw”).

General

     We design, manufacture and sell electronic throttle controls and pneumatic controls, and we have begun selling electronic sensors for heavy trucks, transit buses and off-road equipment. Electronic throttle controls send a signal proportional to throttle position to adjust the speed of electronically controlled engines. The use of electronically controlled engines is influenced primarily by emissions regulations, because these engines generally produce lower emissions. The original applications of electronic engines and electronic throttle controls were in heavy trucks and transit buses in the United States and Europe in the late 1980’s. As a result of the continuing implementation of more stringent emissions standards worldwide, demand for electronically controlled engines and electronic throttle control systems is expanding both geographically and into lower horsepower engines. China, India and Russia are in the process of implementing more stringent emissions standards for heavy trucks and transit buses. Additionally, worldwide emissions regulations have been enacted that continue to increase the use of electronic throttle controls in off-road equipment. We also produce a line of pneumatic control products, which are generally sold to the same customer base as our electronic throttle controls. These pneumatic products are used for vehicle control system applications such as power take-off’s and air-control applications. We believe that the demand for our products will be driven primarily by worldwide emissions legislation and the economic cycles for heavy trucks, transit buses and off-road equipment.

     Electronic sensors are a significant component of our electronic throttle controls. We have been producing electronic sensors for use in our electronic throttle control systems since 2005. Prior to 2005, we purchased contacting sensors for use in our heavy truck, transit bus and off-road product lines from third parties. In addition to internal use, we also have begun selling sensors as separate product lines. The two principal sensor technologies are contacting and non-contacting. As part of our sensor strategy, we have a license to use certain non-contacting sensor technology from Moving Magnet Technology S.A. During fiscal 2006 we began production of both contacting and non-contacting sensors. During 2006 and 2007, we converted a majority of our sensor usage to our internally produced sensors.

     Adjustable foot pedals are devices which move the throttle, brake and, if applicable, the clutch pedal, closer or further away from the vehicle driver to compensate for driver heights. We have a licensing agreement for an adjustable pedal technology, which allows us to sell adjustable pedals in the medium and heavy truck and transit bus markets. We consider adjustable foot pedals to be a value added adjunct to our primary electronic throttle control product line.

     We sell our products world-wide. During the year ended September 30, 2009, approximately 63% of our products were sold in the United States and an additional 9% of our products were sold to customers in Canada and Mexico for vehicles that are produced, in part, for the United States market. Approximately 28% of our products were sold to other international markets. We sell the majority of our products directly to large heavy truck, transit bus and off-road original equipment manufacturers worldwide. Our largest customers include The Volvo Group, Paccar, Inc., Daimler Trucks NA, Navistar International Corporation, Caterpillar, Inc., and Hyundai Motor, Co. We also sell our products through a network of independent distributors and representatives, which sell to smaller original equipment manufacturers and to truck and bus owners as replacement parts.

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     While we are a leader in the market for electronic throttle control systems for heavy trucks, transit buses and off-road equipment, the markets for our products are highly competitive worldwide. The existing and developing world-wide heavy truck, transit bus and off-road markets will require competitive world-wide manufacturing capabilities. We believe our operating facilities in Portland, Oregon and Suzhou, China have us well positioned to meet the needs of these markets. In addition to our manufacturing facilities, we have sales offices in Shanghai, China and Munich, Germany and exclusive distributor relationships in Japan, Korea and India to serve those markets.

Realignment of Operations

     In fiscal 2006 and 2007, the Company realigned its manufacturing operations as part of ongoing efforts to focus on its core product competencies and improve its global competitiveness. This realignment consisted of outsourcing all of our die casting and machining operations from our Portland, Oregon manufacturing facility to high-quality third party suppliers, primarily in Asia, and relocating of our assembly operations for most of our pneumatic products from the Portland facility to our manufacturing facility in Suzhou, China.

Competition

     We are a worldwide market leader for electronic throttle control systems for heavy trucks, transit buses and off-road vehicles. We also are the largest domestic producer in the market. We have a much smaller portion of the European and Asian markets. The markets for our products are highly competitive, with many of our competitors having substantial financial resources and significant technological capabilities. Our competitive position varies among our product lines.

     The major competitors for our electronic throttle controls include AB Eletronik GmbH, Kongsberg Automotive, Siemens VDO Automotive AG, Felsted Products, LLC, Hella KGaA Hueck & Co., Heinrich Kubler AG (“KSR”), Comesys, Ltd., Alion and GoFa. Other companies, including Dura Automotive Systems, Inc. and CTS Corporation compete in the passenger car and light truck market and may attempt to compete in the heavy truck and transit bus market in the future.

     We also manufacture pneumatic control systems for the diesel heavy truck, transit bus and off-road vehicle markets. The market for these pneumatic control systems is highly competitive and characterized by many competitors. Many of the customers for these products are the same customers as for our heavy truck and transit bus electronic throttle control systems.

     When choosing among competing electronic throttle control systems, we believe purchasers of these systems focus on price, quality, value added engineering and reputation. In addition, we believe attainment of the TS 16949 quality certification and the ISO 14001 Environmental Management System certification are critical to qualifying as a supplier. Our manufacturing facilities in Portland and Suzhou have attained the TS 16949 and ISO 14001 certifications and our entire product line is produced using these standards.

Marketing and Distribution

     We sell our products to customers primarily in the heavy truck, transit bus and off-road equipment industries. For the years ended September 30, 2009, 2008 and 2007, The Volvo Group accounted for 16%, 19% and 17%; Paccar, Inc. accounted for 9%, 11% and 14%; and Daimler Trucks NA accounted for 9%, 9% and 13%. Approximately 37%, 46% and 41% of net sales in fiscal 2009, 2008 and 2007 respectively, were to customers outside of the United States, primarily in Canada, Belgium, Sweden, Mexico and Korea, and, to a lesser extent, in other European countries, South America, Pacific Rim nations and Australia. We market our products from our sales facilities in Portland, Oregon, Shanghai, China, Munich, Germany and through distributor networks.

     In fiscal 2009, 2008 and 2007, approximately 83%, 86% and 84%, respectively, of our sales were from sales of electronic throttle controls, with the remainder being sales of pneumatic control systems.

5


Environmental

     We produce minimal quantities of hazardous waste in our operations and we are subject to federal and state air, water and land pollution control laws and regulations. Compliance with these laws generally requires operating costs and capital expenditures. Substantial liability may result from the failure to properly handle hazardous waste.

     The soil and groundwater at the Company’s Portland, Oregon facility contains certain contaminants, which were deposited from approximately 1968 through 1995. Some of this contamination has migrated offsite to neighboring properties. The Company has retained an environmental consulting firm to investigate the extent of the contamination and to determine what remediation may be required and to assist management in estimating the associated costs. During fiscal 2004, the Company entered into the Oregon Department of Environmental Quality’s voluntary clean-up program and during fiscal 2004 the Company established a liability of $950 for this matter. At September 30, 2007, the Company recorded an additional liability of $546 based on remaining costs estimates determined by the Company with the help of an environmental consulting firm. As of September 30, 2009, the total liability recorded is $1,001 and is recorded in accrued expenses in the accompanying consolidated balance sheet. The Company asserted and settled a contractual indemnity claim against Dana Corporation (“Dana”), from which it acquired the property, and contribution claims against the other prior owner of the property, as well as businesses previously located on the property (including Blount, Inc. (“Blount”) and Rosan, Inc. (“Rosan”)) under the Federal Superfund Act and the Oregon Cleanup Law. During 2008, the Company entered into a settlement agreement with Dana, Blount and Rosan in which it received total cash payments from Dana, Blount and Rosan of $735 and shares of Dana stock equal to approximately $337 at the time of settlement, and assumed the full obligation to, and risks associated with, completing the remediation.

Government Regulation

     Our vehicle component products must comply with the National Traffic and Motor Vehicle Safety Act of 1966, as amended, and regulations promulgated there under, which are administered by the National Highway Traffic Safety Administration (“NHTSA”). If, after an investigation, NHTSA finds that we are not in compliance with any of its standards or regulations, among other things, it may require that we recall products found not to be in compliance, and repair or replace such products. During fiscal 2009, we had no product recalls. We are not aware of any instances of non-compliance with the statute and applicable regulations.

Product Research and Development

     We conduct engineering, research and development and quality control activities to maintain and improve the performance, reliability and cost-effectiveness of our products. Our engineering staff works closely with our customers to design and develop new products and to adapt existing products for new applications. During fiscal 2009, 2008 and 2007, the Company spent $3,981, $4,015 and $3,145, respectively, on these activities. We anticipate that these expenses may increase with expansion into markets and new products.

Patents, Trademarks and Licenses

     We believe our products generally have strong name recognition in their respective markets. We own numerous patents, primarily under the “Williams” name, which expire at various times. We believe that, in the aggregate, the rights under our patents are generally important to our operations. We do not, however, consider any patent or group of patents to be of material importance to our total business.

     During fiscal 2003 the Company obtained an exclusive license agreement for use in our adjustable pedal product lines. This initial agreement was for an initial period of three years and contained annual renewal provisions if certain sales thresholds were met. With the general economic decline in fiscal 2009 and the significant decline in recreational vehicle sales, a primary market for adjustable pedals, the contractual thresholds have not been met and the license has reverted to a non-exclusive license. The Company is obligated to make royalty payments based on the number of units it sells. Additionally, as part of the sale of our passenger car and light truck product lines to Teleflex Incorporated on September 30, 2003, we obtained the right to use certain of Teleflex’s (now Kongsberg Automotive) adjustable pedal patents in exchange for Teleflex receiving fully paid licenses for certain of our patents.

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     In fiscal 2005, we entered into an agreement with Moving Magnet Technology SA (“MMT”) to license non-contacting Hall effect sensor technology. We use this license to internally produce non-contacting sensors for use in our electronic throttle controls. We make royalty payments based on the number of units sold, which includes minimum yearly royalties beginning in year three of this agreement. This agreement is for a period of ten years and is renewed annually based on written mutual agreement. This agreement may be terminated by the licensor after four years if certain sales thresholds are not met.

Raw Materials; Reliance on Single Source Suppliers

     We purchase certain of our component parts that are derived from raw materials, including brass, aluminum, steel, plastic, rubber and zinc, which currently are widely available at reasonable terms, but are subject to volatility of prices due to fluctuations in the commodity markets. Although prices for zinc, aluminum and energy commodities were relatively constant, and in some cases declined, in fiscal 2009, future demand and other factors, such as currency fluctuations, supply shortages or disruptions, may result in price increases causing higher costs for some of our components. Although historically commodities and component prices have increased, we have not been subject to supply constraints as a result of these factors. We manufacture certain foot pedals using a contact position sensor manufactured for Caterpillar, Inc., by a third party sensor manufacturer, which is used on Caterpillar engines. Caterpillar supplies this sensor and requires that its sensor be used on all Caterpillar engines; therefore, we do not consider the Caterpillar sensor supply to be at risk.

Product Warranty

     We warrant our products to the first purchaser and subsequent owners against malfunctions occurring during the warranty period resulting from defects in material or workmanship, subject to specified limitations. The warranty on vehicle components is limited to a specified time period, mileage or hours of use, and varies by product, application and customer. We have established a warranty liability based upon our estimate of the future cost of warranty and related service costs. We regularly monitor our warranty liability for adequacy in response to historical experience and other factors.

Employees

     As of September 30, 2009, we employed approximately 115 employees in our Portland, Oregon facility, of which approximately 46 were engaged in manufacturing and approximately 69 were involved in sales, engineering and administrative functions. As of September 30, 2009, we employed 95 employees in China, of which approximately 58, were engaged in manufacturing and approximately 37 were engaged in sales, engineering and administrative functions. We also employed 2 employees in Europe as of September 30, 2009. Our hourly employees engaged in manufacturing in the Portland, Oregon facility are represented by the International Union, United Automobile Workers of America and Amalgamated Local 492 (the “UAW”). In February 2009, we signed a new labor agreement which will expire on August 31, 2013. As of September 30, 2009, we employed a total of 34 people pursuant to this labor agreement.

Forward-Looking Statements

     This report on Form 10-K contains forward-looking statements within the meaning of Section 21D of the Securities Exchange Act of 1934, as amended. Forward-looking statements include all statements other than those that expressly connote an assertion of historical fact. Among others, this report includes forward looking statements that describe our plans and intentions regarding future courses of action and the possible outcomes of those intentions, and that set forth our expectations regarding our prospective financial condition, results of operations, and cash flows. Forward-looking statements can sometimes be identified by the use of forward-looking terminology, such as “may”, “will”, “should”, “expect”, “anticipate”, “estimate”, “continue”, “plans” and “intends”. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such forward-looking statements are subject to risks and uncertainties that could cause us to deviate from our current plans, and could cause our actual results to differ materially from those indicated by the forward-looking statements. Some of the factors that could cause our performance to differ from, or our results to fall short of our expectations are described in the section of this report entitled “Section 1A: Risk Factors,” and in our other reports to and filings with the Securities and Exchange Commission from time to time. These risks and uncertainties are beyond our control and, in many cases, we cannot predict the risks and uncertainties that could cause our actual results to differ materially from those indicated by the forward-looking statements.

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     The forward-looking statements are made as of the date hereof, and, except as otherwise required by law, we cannot undertake to update or revise these statements.

     Investors are cautioned to consider the risk factors identified below when considering forward-looking statements. If any of these items actually occur, our business, results of operations, financial condition or cash flows could be materially adversely affected.

Available Information

     The Company maintains a website on the Internet at www.wmco.com. The Company makes available free of charge through its website its reports and other communications filed or furnished pursuant to Sections 13 (a) and 14 (a) of the Exchange Act. The information on our website is not part of this report and is not otherwise to be considered filed with or furnished to the SEC.

ITEM 1A. RISK FACTORS

     An investment in our common stock involves a high degree of risk. You should carefully consider the risks discussed below and the other information in this report on Form 10-K before deciding whether to invest in our common stock.

Risks related to our business:

A significant portion of our sales are derived from a limited number of customers, and results of operations could be adversely affected and stockholder value harmed if we lose any of these customers.

     A significant portion of our revenues historically have been derived from a limited number of customers. Further, each of these customers is a manufacturer of heavy trucks or components, and the world-wide truck and off-road industries have been subject to significant financial stress and uncertainty in recent months. Were any of these customers to place some or all of their business with one or more of our competitors, we may face a material adverse impact upon our revenues, net income, cash flows and financial condition.

Reduced consumer or corporate spending due to weakness in the financial and credit markets and uncertainties in the economy, domestically and internationally, may adversely affect our revenues and operating results.

     We depend on demand from the original equipment manufacturer component of the heavy truck markets for the end market applications that use our products. All of these markets have been and may continue to be affected by the recent instability in global financial markets that have caused extreme economic disruption in recent months. Accordingly, our business may be adversely impacted by reductions in consumer or corporate demand for our products as a result of uncertain conditions in the macroeconomic environment, such as volatile energy prices, inflation, fluctuations in interest rates, difficulty securing credit, volatility in security prices and the corresponding uncertainties surrounding equity finance markets, diminished liquidity and other economic factors. Demand for our products declined significantly in fiscal 2009, which impacted overall sales and net income.

     Negative economic conditions also may materially impact our customers, suppliers and other parties with which we do business. Economic and financial market conditions that adversely affect our customers may cause them to terminate existing purchase orders or to reduce the volume of products they purchase from us in the future. In connection with the sale of products, we normally do not require collateral as security for customer receivables and do not purchase credit insurance. We may have significant balances owing from customers who operate in cyclical industries or who may not be able to secure sufficient credit in order to honor their obligations to us. Failure to collect a significant portion of amounts due on those receivables could have an adverse effect on our results of operations and financial condition.

     Adverse economic and financial markets conditions also may cause our suppliers to be unable to provide materials and components to us or may cause suppliers to make changes in the credit terms they extend to us, such as shortening the required payment period for our amounts owing them or reducing the maximum amount of trade credit available to us. While we have not yet experienced changes of this type, they could significantly affect our liquidity and could have an adverse effect on our results of operations and financial condition. If we are unable to successfully anticipate changing economic and financial markets conditions, we may be unable to effectively plan for and respond to those changes, and our business could be negatively affected.

8


Demand for equipment on which our products are installed may decrease, which could adversely affect our revenues and stockholder value.

     We sell our products primarily to manufacturers of heavy trucks, transit buses and off-road equipment. If demand for our customers’ vehicles or equipment decreases, demand for our products would decrease as well. This decrease in demand would adversely impact our revenues and stockholder value.

Our products could be recalled, which could increase our costs and decrease our revenues.

     Our vehicle component products must comply with the National Traffic and Motor Vehicle Safety Act of 1966, as amended, and regulations promulgated thereunder, which are administered by the National Highway Traffic Safety Administration (“NHTSA”). If NHTSA finds that we are not in compliance with its standards or regulations, it may, among other things, require that we recall products found not to be in compliance, and repair or replace such products. Such a recall could increase our costs and adversely impact our reputation in our industry, both of which would adversely affect our revenues, profit margins, results of operations and stockholder value.

We purchase component parts from suppliers and changes in the relationships with such suppliers, as well as increases in the costs of raw materials that comprise our component and/or the component parts, would adversely affect our ability to produce and market our products, which would adversely affect our profit margins, results from operations and stockholder value.

     We purchase component parts from suppliers to be used in the manufacturing of our products. If a supplier fails to provide necessary component parts, we may be unable to produce, or may face delays or cost increases in producing, certain products. These potentialities could result in a decrease in revenue, a loss of timeliness in product deliveries, and adverse impacts on our reputation in our industry. Also, if prices of raw materials that comprise our component parts and/or the component parts increase and we are not able to pass on such increase to our customers, our profit margins would decrease. Finally, if our suppliers (or any alternative suppliers from which we choose or are required to acquire components) delivers products that do not meet our specifications or cause us to fail to meet our product standards, we may face losses in revenues, reputational harm, and potentially other adverse business consequences. The occurrence of any of these events could adversely affect our results of operations and stockholder value.

Our products could be subject to product liability claims by customers and/or consumers, which would adversely affect our profit margins, results of operations and stockholder value.

     The majority of our products are used on heavy trucks and transit buses. If our products are not properly designed or built and/or personal injuries or property damages are attributed to the performance of our equipment, we could be subject to claims for damages based on theories of product liability and other legal theories. We maintain liability insurance for these personal injury and property damage risks, but not for claims that do not involve personal injury or property damage. The costs and resources to defend such claims could be substantial, and if such claims are successful, we could be responsible for paying some or all of the damages. Also, our reputation could be adversely affected, regardless of whether such claims are successful. Any of these results would adversely affect our profit margins, results of operations and stockholder value. We are currently named as a co-defendant in a product liability case that seeks class action, which is not covered by our liability insurance. Refer to ITEM 3 – LEGAL PROCEEDINGS.

Our defined benefit pension plans are under-funded and, therefore, we may be required to increase our contributions to the plans, which would adversely affect our cash flows.

     We maintain two defined benefit pension plans among the retirement plans we sponsor. No new employees are being admitted to participate in these two plans. Participants in these two plans are entitled to a fixed formula benefit upon retirement. Although we make regular contributions to these two plans in accordance with minimum ERISA funding requirements, investment earnings may be less than expected, and we may be required to increase contributions to the under-funded plan(s), which would adversely affect our cash flows.

9


The market price of our stock has been and may continue to be volatile, which could result in losses for stockholders.

     Our common stock is currently listed on the NASDAQ Global Market and is thinly traded. Volatility of thinly traded stocks is typically higher than the volatility of more liquid stocks with higher trading volumes. The market price of our common stock has been and, in the future, could be subject to significant fluctuations as a result of the foregoing, as well as variations in our operating results, announcements of technological innovations or new products by us or our competitors, announcements of new strategic relationships by us or our competitors, general conditions in our industries or market conditions unrelated to our business and operating results. Any of these results could adversely impact stockholder value.

Current economic conditions could adversely affect our operations.

     Financial markets in the United States and abroad have experienced extreme disruption, including severely diminished liquidity and credit availability. These conditions and the current economic downturn have impaired our ability to access credit markets and there can be no assurance that these conditions will not adversely affect our business in the future, particularly if there is further deterioration in the world financial markets and major economies.

     At September 30, 2009, we had on hand cash and cash equivalents of $9,245. During the fourth quarter of fiscal 2009, we voluntarily cancelled our revolving loan facility with GE Capital, which as of June 30, 2009 had a zero balance. We believe our cash on hand will be sufficient to meet our working capital needs on a short-term and longer-term basis without the necessity of borrowing, or attempting to borrow from a revolving loan facility. However, were we to require additional borrowing capacity, we may be unable to locate such capacity on acceptable terms or at all.

Risks related to environmental laws:

The soil and groundwater at our Portland, Oregon facility contains certain contaminants that may require us to incur substantial expense to investigate and remediate, which would adversely affect our profit margins, results from operations and stockholder value.

     The soil and groundwater at our Portland, Oregon facility contain certain contaminants. Some of this contamination has migrated offsite to neighboring properties and potentially to other properties. We have retained an environmental consulting firm to investigate the extent of the contamination and to determine what remediation will be required and the associated costs. In fiscal 2004, we entered the Oregon Department of Environmental Quality’s voluntary clean-up program and during fiscal 2004 established a liability of $950 for this matter. At September 30, 2007, we recorded an additional liability of $546 and as of September 30, 2009, this liability totaled $1,001. Our overall costs ultimately may exceed our estimates, or we may be forced to increase the amount of our estimates, either or both of which could adversely affect our financial condition, results of operations or cash flows.

Risks related to foreign operations:

     In addition to our operations in the United States, we currently operate in China, and have a sales presence in other countries such as Japan, Korea and a number of countries in the European Union, and we market our products and technologies in those and other international markets, including both industrialized and developing countries. Our combined international operations are subject to various risks common to international activities, such as:

  • our ability to maintain good relations with our overseas employees and distributors and to collect amounts owed from our overseas customers;

  • exposure to currency fluctuations;

  • potential difficulties in enforcing contractual obligations;

  • complying with a wide variety of laws and regulations, including product certification, environmental, and import and export laws;

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  • the challenges of operating in disparate geographies and cultures;

  • political and economic instability; and

  • restrictions on our ability to repatriate dividends from our subsidiaries, particularly from our Chinese subsidiary.

Fluctuations in the value of currencies could adversely affect our international sales, which would result in reduced revenues and stockholder value.

     We sell products in Canada, Belgium, Sweden, Mexico, South America, the Pacific Rim nations, Australia, China and certain member nations of the European Union; we purchase components from suppliers in China, Mexico and Europe; we have a manufacturing and sales operation in China; and we maintain a sales and technical center in Germany. For the years ended September 30, 2009, 2008 and 2007, foreign sales were approximately 37%, 46%, and 41% of net sales, respectively. Although currently a majority of our sales and purchases are made in U.S. dollars, an increasing amount of our purchases and sales are made in Chinese RMB and we anticipate that over time more of our purchases of component parts and sales of our products will be denominated in foreign currencies. We do not presently engage in any hedging of foreign currency risk. In the future, our operations in the foreign markets will likely become subject to fluctuations in currency values between the U.S. dollar and the currency of the foreign markets. Our results of operations and stockholder value could be adversely affected if currency of any of the foreign markets increases in value relative to the U.S. dollar.

Complying with the laws applicable to the United States and foreign markets may become more difficult and expensive in the future, which could adversely affect our results of operations and stockholder value.

     Our operations in the United States and foreign markets are subject to the laws of such markets. Compliance with these laws may become more difficult and costly in the future. In addition, these laws may change and such change may require us to change our operations. Any of these results could adversely affect our results from operations and stockholder value by increasing expenses and reducing revenues, thereby reducing profits.

Political and economic instability in the foreign markets may make doing business there more difficult and costly, which could adversely affect our results from operations and stockholder value.

     Economic and political instability may increase in the future in foreign markets. Such instability may make it more difficult to do business in those countries, may make it more expensive to operate and could disrupt supplies of components into our Portland or Suzhou facilities. If our operations were nationalized by the government of China, this could cause us to write off the value of our operations in such foreign markets and eliminate revenues generated by such operations. Any of these results could result in onetime charges or increased expenses as well as lower revenues, which would adversely affect our results of operations and harm stockholder value.

ITEM 1B. UNRESOLVED STAFF COMMENTS

     None.

ITEM 2. PROPERTIES

     We own a 120,000 square foot manufacturing facility and office building in Portland, Oregon. We believe the Portland facility is adequate for our existing needs and the needs for the foreseeable future. This manufacturing facility is equipped with the machinery and equipment necessary to manufacture and assemble our products. We believe that this facility has been maintained adequately.

     We lease approximately 63,000 square feet in Suzhou, China for our Williams Controls Asia operation, approximately 500 square feet for our Shanghai, China sales office, and approximately 1,400 square feet for our Williams Controls Europe sales operation. We believe that these facilities will be adequate to meet our existing needs and our needs for the foreseeable future.

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ITEM 3. LEGAL PROCEEDINGS

     We are a party to various pending judicial and administrative proceedings arising in the ordinary course of business. Our management and legal counsel have reviewed the probable outcome of these proceedings, the costs and expenses reasonably expected to be incurred, the availability and limits of our insurance coverage, and our established liabilities. While the outcome of the pending proceedings cannot be predicted with certainty, based on our review, we believe that any unrecorded liability that may result is not likely to have a material effect on our liquidity, financial condition or results of operations.

     On October 1, 2004, the Company was named as a co-defendant in a product liability case (Cuesta v. Ford, et al), brought in the Oklahoma State District Court located in Bryant, Oklahoma. The complaint seeks an unspecified amount of damages on behalf of the class based on allegations that certain of our products, as incorporated into certain models of Ford motor vehicles, are in some way defective. Following a number of procedural and appellate actions, the court has certified a class action, but no trial date has yet been set. Management believes the claim to be without merit and intends to continue to defend vigorously against this action, but there can be no assurance that the ultimate outcome of the lawsuit will be favorable to the Company or that the defense or the suit or its outcome will not have a material adverse effect on the Company’s business, financial condition and results of operations. The Company cannot reasonably estimate the possible loss or range of loss at this time. In addition, the Company has incurred and may incur future litigation expenses in defending against this litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2009.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Prices of Common Stock

     Our common stock is traded on the NASDAQ Global Market under the symbol “WMCO.” The following table sets forth the high and low closing prices of our common stock for each fiscal quarter for the past two fiscal years as reported on the NASDAQ Global Market:

2009 2008
High       Low       High       Low
First Quarter $    13.02 $    6.21 $    18.05 $    16.25
Second Quarter $ 7.81   $ 4.15 $ 16.75 $ 13.24
Third Quarter $ 7.25 $ 4.95   $ 14.30   $ 12.40
Fourth Quarter $ 9.40 $ 5.90 $ 13.48 $ 11.96

Dividend Policy

     There were 356 record holders of our common stock as of December 1, 2009. We have never paid a dividend with respect to our common stock and currently have no plans to pay a dividend on our common stock at this time.

Performance Graph

     The graph below compares the cumulative total stockholder return of our common stock with the cumulative total return of the NASDAQ Composite Index and a peer group of companies primarily traded on the NASDAQ Stock Market in the Standard Industry Classification Code 3714 (motor vehicle parts and accessories) (the “Peer Group”). The graph shows the value for the period beginning October 1, 2004 and ending September 30, 2009. The graph assumes that $100 was invested on September 30, 2004.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Williams Controls, Inc., The NASDAQ Composite Index
And A Peer Group

Total Return Analysis
9/30/04       9/30/05       9/30/06       9/30/07       9/30/08       9/30/09
Williams Controls, Inc. $    100.00   $    126.50 $    211.17 $    300.33 $    214.67 $    149.67
NASDAQ Composite $ 100.00 $ 113.78   $ 121.50   $ 143.37   $ 109.15   $ 112.55
Peer Group $ 100.00 $ 101.65 $ 124.20 $ 193.02 $ 127.85 $ 131.58

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ITEM 6. SELECTED FINANCIAL DATA (Dollars in thousands - except per share amounts)

Consolidated Statement of Operations Data: Year ended September 30
2009       2008       2007       2006       2005
Net sales $    38,809 $    65,781 $    68,924 $    74,634 $    67,416
Net income (loss) (2,009 )   7,830     7,937   9,549 7,495
Net income (loss) per common share – basic (0.27 ) 1.04 1.06 1.29   0.96
Net income (loss) per common share – diluted   (0.27 ) 1.01 1.03   1.25 0.94
Cash dividends per common share

Consolidated Balance Sheet Data: September 30
2009       2008       2007       2006       2005
Current Assets $    25,315 $    29,540 $    21,266 $    24,037 $    20,138
Current Liabilities 8,918 10,293 10,082   17,697 17,616
Working Capital   16,397   19,247 11,184   6,340   2,522
Total Assets 37,595 40,608     32,303 35,749   33,505
Long-Term Liabilities 8,587   4,667 5,052 9,790 15,308
Stockholders’ Equity 20,090 25,648 17,169 8,262 581

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in thousands – except share and per share amounts)

     This section summarizes the significant factors affecting our consolidated results of operations, financial condition and liquidity position for the three year period ended September 30, 2009. This section should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this document, and readers should note that dollar figures in this section, other than per-share data, are presented in thousands. Statements in this report that relate to future results and events are based on our current expectations. Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties. For a discussion of factors affecting our business, see “ITEM 1 – BUSINESS” in this Annual Report on Form 10-K. Further, this section includes forward-looking statements which should be read in conjunction with the section entitled “Item 1A – Risk Factors.”

Overview

     During fiscal 2009, the pervasive and severe world-wide economic downturn had a material impact on our industry and business. We saw our net sales decrease $26,972 or 41.0% as our customers struggled with lower demand for their products and reducing inventory overhangs. We experienced significant declines in sales to our NAFTA truck customers during fiscal 2009, decreasing approximately 43% from the prior year. Sales to European and Asian customers were down even more dramatically by 60% and 44%, respectively.

     Gross margin dollars declined during fiscal 2009 due to the lower sales volumes and gross margin percentages declined primarily because overhead costs did not decline as rapidly as sales volumes, even though certain expense such as materials and labor generally fluctuated with sales volumes. Sales prices for our products and component purchases remained relatively constant during the year. Although the future remains unclear, based on comments in the popular press and available industry forecast data, it appears possible this industry downturn may continue for some time into the future. In response to this significant negative shift in the world-wide economic situation and demand for our products, during fiscal 2009 we reduced operational costs at an annualized rate of approximately $2,200. In fiscal 2009, our cash position has increased $185 over the prior year primarily through cost management efforts and reductions in inventory to balance inventory levels with sales volumes. We have not reduced our commitment to or spending on new product development and technology for existing and new customers. Although no assurances can be given, management believes that it is likely that our $9,245 in cash will be adequate to sustain the Company through this continuing economic downturn.

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     As we move forward into fiscal 2010 and beyond, we will continue to work closely with our existing and potential customers to design and develop new products and adapt existing products to new applications, and to improve the performance, reliability and cost-effectiveness of our products.

Results of Operations

Financial Summary
(Dollars in Thousands)

2008 to 2007 to
2009       2008       2007       2009       2008
Net sales $    38,809 $    65,781 $    68,924 (41.0 %) (4.6 )%
Cost of sales 30,173 42,960 45,152 (29.8 %) (4.9 )%
Gross profit 8,636 22,821 23,772   (62.2 %) (4.0 )%
Research and development 3,981 4,015 3,145 (0.8 %) 27.7 %
Selling 2,425 2,727 2,163 (11.1 %) 26.1 %
Administration 5,522 5,500 5,898 0.4 % (6.7 )%
Gain from settlement of environmental claims (1,072 ) NM NM
Realignment of operations 737    NM    NM
Operating income (loss) $ (3,292 ) $ 11,651 $ 11,829
 
As a percentage of net sales:    
       Cost of sales 77.7 % 65.3 % 65.5 %
       Gross margin 22.3 % 34.7 % 34.5 %  
       Research and development   10.3 %   6.1 % 4.6 %
       Selling 6.2 % 4.1 % 3.1 %
       Administration 14.2 % 8.4 %   8.6 %
       Gain from settlement of environmental claims   (1.6 %)    
       Realignment of operations 1.1 %
       Operating income (loss) (8.5 %) 17.7 % 17.2 %

NM – not meaningful

Comparative Years Ended September 30, 2009, 2008 and 2007

Percent Change
2008 to 2007 to
For the Year Ended September 30:       2009       2008       2007       2009       2008
Net sales $    38,809   $    65,781   $    68,924      (41.0 %)      (4.6 %)

     Net sales decreased $26,972 for the year ended September 30, 2009 as compared to the year ended September 30, 2008. The decrease in sales results from volume reductions in essentially all of our principal markets, which we believe were due to the continued declining world economic climate and the impact that decline has had on our customers and the end markets for their products. During fiscal 2009, we have seen a significant reduction in the number of units of trucks, busses and off-road vehicles built world-wide due to the significant recessionary pressures in the United States and many parts of the rest of the world. All of our large truck OEM customers have reduced build rates, and many have taken extensive down-time in 2009. It is uncertain how protracted the current economic downturn in both the general economy and the truck and off-road markets will be world-wide and the impact it will have on us for fiscal 2010 and beyond although we do not anticipate volumes returning to pre-fiscal 2009 levels in fiscal 2010.

     In the North American market, sales to heavy truck customers were down 43% compared to fiscal 2008, which is the direct result of the overall reduction in truck build rates in North America. Our share of that market and unit pricing remained essentially unchanged from the prior year. The sales declines to our European truck customers were even more dramatic, decreasing 64% over the prior year. On a year over year basis, sales to Asia decreased 44%. Net sales to off-road customers decreased 39% as that market also experienced reduced production rates in response to the lower levels of construction activity world-wide. We expect that electronic throttle control sales generally will continue to vary directly with future changes in the economy in general and the economic climate affecting new purchases of heavy trucks, transit buses and off-road vehicles in particular. These variations are largely dependent upon, and are expected to vary directly with, production volumes in the various geographic markets in which we serve. Additionally, competitive pricing may reduce margins and gross sales.

15


     Net sales decreased $3,143 for the year ended September 30, 2008 as compared to the year ended September 30, 2007, primarily due to an overall decrease in the build rates of heavy trucks in the North American market. Sales to NAFTA truck customers declined 34% when compared to the same period in fiscal 2007 due primarily to timing of truck sales in the United States resulting from changes in emission standards for truck engines. The Company’s share of this market and unit pricing remained essentially unchanged from the prior year. Sales to our Asian and European truck customers increased approximately 51% and 8%, respectively, compared to the twelve months ended September 30, 2007. World-wide sales in the off-road market declined approximately 4%. The increases in sales to Asian and European truck customers helped to offset a portion of the decline from the North American truck market and world-wide off-road market.

Percent Change
  2008 to 2007 to
For the Year Ended September 30:      2009      2008      2007      2009      2008
Gross profit $    8,636 $    22,821 $    23,772     (62.2 %)     (4.0 %)

     Gross profit was $8,636, or 22.3%, of net sales for the year ended September 30, 2009, a decrease of $14,185 from the gross profit of $22,821, or 34.7%, of net sales in the comparable fiscal 2008 period.

     The gross profit decline in fiscal 2009 is primarily driven by the 41% net decrease in sales of electronic throttle control systems to our heavy truck, transit bus and off-road customers. Our business is not entirely scalable, which means that certain overhead costs will not vary directly in proportion to sales volumes, particularly during periods of declining sales revenues. However, direct production costs such as materials and labor generally fluctuate with sales volumes. Additionally, gross profit was negatively impacted in fiscal 2009 due to settlement of outstanding labor issues and severance costs totaling approximately $320; recording a write down to the value of our remaining capitalized license fee related to adjustable pedal technology of $116 due to the significant decline in business in the recreational vehicle industry; and an overall increase in warranty costs. Offsetting some of these increases in costs were overall reductions in salary cost related to our cost reduction program in fiscal 2009.

     Gross profit was $22,821, or 34.7%, of net sales for the year ended September 30, 2008, a decrease of $951 from the gross profit of $23,772, or 34.5%, of net sales in the comparable fiscal 2007 period.

     The 4% decrease in gross profit in fiscal 2008 is primarily driven by the 34% net decrease in sales of electronic throttle control systems to North American heavy truck customers offset in part by higher European and Asian sales volumes. Beginning in late fiscal 2008, we began to see a decline in the order rates from some of our principal truck OEM’s due to recessionary pressures in the United States and other portions of the world. During fiscal 2007, we substantially completed our realignment of operations, as discussed in Note 1 in the Notes to Consolidated Financial Statements, and as a result of this realignment we experienced an overall reduction in labor costs and net material costs due to continued efforts in global sourcing and the production of our own internally developed contacting and non-contacting sensors. Overhead expenses decreased between periods, but increased slightly as a percentage of sales.

Percent Change
2008 to 2007 to
For the Year Ended September 30:      2009      2008      2007      2009    2008
Research and development $    3,981 $    4,015 $    3,145     (0.8 %)     27.7 %

     Research and development expenses were essentially unchanged when compared to the year ended September 30, 2008. The Company’s research and development expenditures generally will fluctuate based on the programs and products under development at any given point in time, and that fluctuation often does not coincide with sales cycles. Although our sales are down 41%, our cash flows have been negatively impacted and we instituted temporary Company-wide salary reductions in fiscal 2009, we feel it remains important that we continue our commitment to and spending for new product development and technology for existing and new customers and programs. Overall, we expect research and development expenses to increase to more normalized levels once the temporary cost reductions are eliminated.

16


     Research and development expenses increased $870 for the year ended September 30, 2008 compared to the same period in fiscal 2007. The increase in research and development expense is primarily attributable to operating our Conceptual Development Center, which was completed in mid fiscal 2007.

Percent Change
  2008 to 2007 to
For the Year Ended September 30:      2009      2008      2007      2009      2008
Selling $    2,425 $    2,727 $    2,163     (11.1 %)     26.1 %

     Selling expenses decreased $302 for the year ended September 30, 2009 as compared to the same period in fiscal 2008 mainly due to lower overall travel expenses, reduction in salary costs as a result of our cost reduction program and reductions in sales commission expenses as a result of lower commission sales.

     Selling expenses increased $564 in fiscal 2008 as compared to the same period in fiscal 2007. The increase in selling expenses is mainly due to higher overall salaries and expanded selling and marketing efforts, including expenses associated with sales and marketing related travel in the European, Russian, Chinese, South American and Australian markets and increased emphasis in off-road markets world-wide.

Percent Change
  2008 to 2007 to
For the Year Ended September 30:      2009      2008      2007      2009      2008
Administration $    5,522 $    5,500 $    5,898     0.4 %     (6.7 %)

     Administration expenses for the year ended September 30, 2009 were essentially unchanged when compared to the same period in fiscal 2008. Increases in administration expenses include a $297 non-cash compensation expense recognized in conjunction with our unfunded deferred compensation plan during fiscal 2009 and an overall increase in bad debt expense of $169. As the economic downturn progressed during fiscal 2009, we have experienced more past due accounts and collection difficulties with certain customers and accordingly have increased our collection efforts and bad debt reserves. Off-setting some of these increases in administration expenses were reductions in salary costs and director fees resulting from implementing certain cost cutting measures during fiscal 2009, including temporary Company-wide salary reductions and a 20% reduction in fees paid to the members of the Company’s Board of Directors. In addition, audit fees related to our compliance with Section 404 of the Sarbanes-Oxley Act decreased. At September 30, 2009, we are not required to be audited under the requirements of Section 404 of the Sarbanes-Oxley Act due to our public float decreasing below the required level for an audit, however we have maintained all of our internally generated internal control measures. This change resulted in a corresponding decrease in audit fees related to such services. Currently all companies will be required to comply with Sarbanes-Oxley beginning with fiscal years ending on or after June 15, 2010 and based on those current regulations, we anticipate that our public accountants will again be required to audit our system of internal controls over financial reporting for fiscal 2010.

     Administration expenses for the year ended September 30, 2008 decreased $398 as compared to the same period in fiscal 2007. The decrease in administration expenses is primarily due to a reduction in legal fees, including those associated with the class action lawsuit, which is also discussed in Note 10 in the Notes to Consolidated Financial Statements. Overall, legal fees decreased approximately 48%. Administration expense increased for design changes to our compensation structure, employee recruitment and relocation costs. Included in administration expenses for the year ended September 30, 2007 was the recording of an additional $546 of environmental liability as discussed in Note 10 in the Notes to Consolidated Financial Statements.

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Percent Change
  2008 to 2007 to
For the Year Ended September 30:      2009      2008      2007      2009      2008
Gain from settlement of environmental claims $    $    (1,072 ) $        NM        NM   

     As part of our contractual indemnity claim against Dana and contribution claims against Blount and Rosan, as described in Note 10 in the Notes to Consolidated Financial Statements, during fiscal 2008 we received cash payments totaling $735 from Dana, Blount and Rosan and shares in Dana equal to approximately $337 at the time of settlement. As of September 30, 2008, we recorded a gain of $1,072 in operating expenses in the accompanying consolidated financial statements.

Percent Change
  2008 to 2007 to
For the Year Ended September 30:      2009      2008      2007      2009      2008
Realignment of operations $    $    $    737     NM        NM   

     We recorded expenses of $737 for the year ended September 30, 2007 related to our realignment of operations as discussed in Note 1 in the Notes to Consolidated Financial Statements. As the realignment was complete in fiscal 2007, no realignment expense was recorded in fiscal years 2009 and 2008.

Percent Change
      2008 to 2007 to
For the Year Ended September 30:      2009      2008      2007      2009      2008
Interest income $    (26 ) $    (64 ) $    (136 ) (59.4 %)  (52.9 %)
Interest expense   $    19   $    140   $    868       (86.4 %)       (83.9 %)

     Interest expense has continued to decrease over the last three years due to the decrease in overall borrowing. In fiscal 2009, interest expense decreased $121 compared to the same period in fiscal 2008 and in fiscal 2008 was $728 lower than fiscal 2007. As of September 30, 2009, all of our debt has been fully paid off and we have cancelled our revolving loan facility with GE Capital.

Percent Change
  2008 to 2007 to
For the Year Ended September 30:      2009      2008      2007      2009      2008
Loss on impairment of investments $    317 $    $        NM        NM   

     Loss on impairment of investments is a non-cash, other-than-temporary impairment charge relating to common stock of Dana during the first quarter of fiscal 2009. The impairment charge assumes no income tax benefit given the uncertainty of the Company’s ability to generate future taxable investment gains required to utilize these investment losses. Prior to recording the impairment charge, the decline in market value was carried net of tax in other comprehensive loss. Following the recording of this impairment charge, all subsequent changes in market value of our short-term investments is recorded net of tax in other comprehensive income (loss).

Percent Change
      2008 to 2007 to
For the Year Ended September 30:      2009      2008      2007      2009      2008
Other (income) expense, net $    84 $    (205 ) $    (1,147 )     NM        NM   

     Other expense of $84 in fiscal 2009 primarily consisted of losses related to the disposal of certain fixed assets. Other income of $205 in fiscal 2008 consisted primarily of a $109 gain related to the sales and disposal of certain fixed assets and foreign currency gains. Other income was $1,147 in fiscal 2007 and consisted primarily of a $769 gain from the extinguishment of old outstanding accounts payable balances of various insolvent subsidiaries as discussed in Note 5 in the Notes to Consolidated Financial Statements and a $120 gain from the extinguishment of old and disputed outstanding accounts payable balances related to an active subsidiary. Also included in other income in fiscal 2007 is a $170 gain related to the sales and disposal of certain fixed assets.

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Percent Change
  2008 to 2007 to
For the Year Ended September 30:      2009      2008      2007      2009      2008
Income tax expense (benefit) $    (1,677 ) $    3,950 $    4,307     (142.5 %)     (8.3 %)

     In fiscal 2009, the Company recorded an income tax benefit of $1,677 compared to income tax expense of $3,950 in fiscal 2008 and $4,307 in fiscal 2007. The overall tax rate was 45.5% in fiscal 2009 compared to 33.5% and 35.2% in fiscal 2008 and 2007, respectively. The increase in the effective tax rate is primarily due to the mix of pretax earnings/losses between domestic and foreign jurisdictions, primarily in China. The mix of earnings combined with lower tax rates in our foreign jurisdictions caused the tax rate to exceed prior year levels. Additionally, a favorable R&D credit adjustment was recorded due to a change in United States tax law and the initial recording of our Chinese deferred tax assets during fiscal 2009 which combined to increase the tax rate by 4.0%. This increase was partially offset by a valuation allowance against an unrealized investment loss and an unfavorable Domestic Production Activities Deduction adjustment related to the federal net operating loss carry-back. The decrease in tax rate from fiscal 2008 to fiscal 2007 is primarily due to an increase in the United States Domestic Production Activities Deduction and a larger percentage of the Company’s earnings being taxed at the lower Chinese tax rate. Refer to Note 9 in the Notes to Consolidated Financial Statements for further details of changes in our overall tax rate.

Financial Condition, Liquidity and Capital Resources

     At September 30, 2009, we had on hand cash and cash equivalents of $9,245. During the fourth quarter of fiscal 2009, we cancelled our revolving loan facility with GE Capital, which as of the day of termination had a zero balance. We believe our cash on hand will be sufficient to meet our working capital needs on a short-term and longer-term basis without the necessity of borrowing, or attempting to borrow from a revolving credit facility. However, were we to require additional borrowing capacity, we may be unable to locate such capacity on acceptable terms or at all.

     Cash generated from operations was $4,238 for the year ended September 30, 2009, a decrease of $5,708 from the cash generated from operations of $9,946 for the year ended September 30, 2008. Net income (loss) plus non-cash charges for depreciation and stock based compensation contributed cash of $719 in fiscal 2009 and contributed cash of $10,305 for the year ended September 30, 2008. The decline in profitability due to the reduced sales volumes was the primary factor in the reduced cash generated by operating activities.

     Changes in working capital items generated cash of $3,566 for the year ended September 30, 2009 compared to a $408 use of cash in the corresponding prior year period. Timing of collections on receivables and lower sales levels resulted in lower receivables, which increased cash by $1,876 during fiscal 2009, compared to a use of cash of $1,563 in the prior year period. Inventories were reduced by $2,676 for the year ended September 30, 2009 compared to $937 in fiscal 2008 to match inventory volumes with lower sales volumes in fiscal 2009. Accounts payable decreased in fiscal 2009, primarily due to the lower sales and inventory purchases. Cash flows from operations for the years ended September 30, 2009 and 2008 included payments to fund our pension plans of $183 and $1,307, respectively. Although we have made reductions to our cost structure during fiscal 2009 in response to our lower sales volumes, due to the uncertain world-wide economic market and product demand from our customers we may experience periods of negative cash flow from operations.

     Cash used in investing activities was $1,861 for the year ended September 30, 2009 and $1,680 for the year ended September 30, 2008 and was comprised primarily of purchases of equipment for both periods. We expect our cash use for investing activities to at least remain constant and potentially increase in the future as we continue to purchase capital equipment to expand and support our operations worldwide. We currently anticipate spending approximately $3,000 in capital expenditures for the year ended September 30, 2010.

     Cash used in financing activities was $2,192 for the year ended September 30, 2009, compared to cash used in financing activities of $827 for the year ended September 30, 2008. In October 2008, we announced a share repurchase plan whereby the Company can, but is under no obligation, to repurchase up to $5 million of the Company’s common stock. Repurchases may be made in the open market or through bock trades, in compliance with Securities and Exchange Commission guidelines, subject to market conditions, applicable legal requirements and other factors. In fiscal 2009, we purchased 310,893 shares of common stock at a total value of $2,357, which comprises all of the cash usage for financing activities for the year. The use of cash for financing activities for fiscal 2008 primarily relates to debt payments of $1,000, slightly offset by cash proceeds of $173 from the exercise of stock options.

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Contractual Obligations as of September 30, 2009

     At September 30, 2009, our contractual obligations consisted of operating lease obligations and a license agreement. We do not have any letters of credit or debt guarantees outstanding at September 30, 2009. Maturities of these contractual obligations consist of the following:

Payments due by period
  Less than 1 – 3 3 – 5
       Total         1 year        years        years
Operating leases   $   1,643   $   571   $   1,056   $   16
MMT license - minimum        
       royalties   300 50     150 100
    $ 1,943   $ 621   $ 1,206   $ 116

     Certain liabilities, including those related to our pension and post-retirement benefit plans, are reported in the accompanying consolidated balance sheets but are not reflected in the table above due to the absence of stated maturities. We have net obligations at September 30, 2009 related to our pension plans and post-retirement medical plan of $5,703 and $2,819, respectively. We funded $183 to our pension plans in fiscal 2009 and we expect to make payments of $747 in fiscal 2010 to fund our pension plans.

     A debtor can only relieve itself of a liability if it has been extinguished and accordingly, a liability is considered extinguished if (a) the debtor pays the creditor and is relieved of its obligation for the liability or (b) the debtor is legally released from being the primary obligor under the liability, either judicially or by the creditor. During the year ended September 30, 2007, the Company was judicially released from and reversed $889 of old accounts payable resulting in a gain, which has been recorded in other (income) expense in the accompanying consolidated statements of operations. No amounts were released and reversed during fiscal 2009 and 2008. The Company expects to reverse amounts in future periods based on the recognition of the liabilities being judicially released of $90 in fiscal 2010; and a total of $65 in fiscal 2011 – 2016.

Critical Accounting Policies and Estimates

     Management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales, cost of sales and expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies and the related judgments and estimates affect the preparation of our consolidated financial statements.

Revenue recognition

     Revenue is recognized at the time of product shipment, which is when title and risk of loss transfers to customers, and when all of the following have occurred: a firm sales agreement is in place, pricing is fixed or determinable, and collection is reasonably assured. Revenues are reported net of estimated returns, rebates and customer discounts. Discounts and rebates are recorded during the period they are earned by the customer.

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Product Warranty

     We provide a warranty covering defects arising from products sold. The product warranty liability is based on historical return rates of products and amounts for significant and specific warranty issues. The warranty is limited to a specified time period, mileage or hours of use, and varies by product, application and customer. The Company has recorded a warranty liability which, in the opinion of management, is adequate to cover such costs. While we believe our estimates are reasonable, they are subject to change and such change could be material.

Legal

     We are involved in various claims, lawsuits and other proceedings from time to time. Such litigation involves uncertainty as to possible losses we may ultimately realize when one or more future events occur or fail to occur. In connection with such claims and lawsuits, we estimate the probability of losses based on advice of legal counsel, the outcomes of similar litigation, legislative development and other factors. Due to the numerous variables associated with these judgments and assumptions, both the precision and reliability of the resulting estimates of the related loss contingencies are subject to substantial uncertainties. We regularly monitor our estimated exposure to these contingencies and, as additional information becomes known, may change our estimates significantly. We expense legal expenses related to claims in the period incurred. A significant change in our estimates, or a result that materially differs from our estimates, could have a significant impact on our financial position, results of operations and cash flows.

Environmental Costs

     We estimate the costs of investigation and remediation for certain soil and groundwater contaminants at our Portland, Oregon facility. The ultimate costs to the Company for the investigation, remediation and monitoring of this site cannot be predicted with certainty due to the often unknown magnitude of the pollution or the necessary cleanup, the varying costs of alternative cleanup methods, the amount of time necessary to accomplish such cleanups and the evolving nature of cleanup technologies and governmental regulations. The Company has recognized a liability for environmental remediation costs for this site in an amount that management believes is probable and reasonably estimable. When the estimate of a probable loss is within a range, the minimum amount in the range is accrued when no estimate within the range is better than another. In making these judgments and assumptions, the Company considers, among other things, the activity to-date at the site and information obtained through consultation with applicable regulatory authorities and third party consultants and contractors. The Company regularly monitors its exposure to environmental loss contingencies. As additional information becomes known, it is at least reasonably possible that a change in the estimated liability accrual will occur in the near future.

Pensions and Post-Retirement Benefit Obligations

     Pension and post-retirement benefit obligations and net period benefit cost are calculated using actuarial models. The most important assumptions that affect these computations are the discount rate, expected long-term rate of return on plan assets, and healthcare cost trend rates. We evaluate these assumptions at least annually. Other assumptions involve demographic factors such as retirement, mortality and turnover. These assumptions are evaluated at least annually and are updated to reflect our experience. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors.

     Our discount rate assumption is intended to reflect the rate at which retirement benefits could be effectively settled based upon the assumed timing of the benefit payments. To determine our discount rate, we discounted the expected benefit payments using the Citigroup Pension Liability Index yield curve. The equivalent level interest rate that produces the same present value of benefits was then determined. Our assumed rate does not differ significantly from this benchmark rate. We assumed a discount rate of 5.50% to determine our pension benefit obligations at September 30, 2009 and a rate of 6.97% to determine our net periodic benefit cost in fiscal 2009. A 1.0% decrease in these discount rates would have increased our pension benefit obligations at the end of fiscal 2009 by $1,679 and increased our net periodic benefit cost in 2009 by $126. A 1.0% increase in discount rates would have decreased our pension obligations at September 30, 2009 by $1,395 and decreased our net periodic benefit cost in 2009 by $109. To determine the discount rate for our post-retirement benefit plan, we also discounted the expected benefit payments using the Citigroup Pension Liability Index yield curve and assumed a discount rate of 5.50% to determine our post-retirement benefit obligations at September 30, 2009 and a rate of 6.80% to determine our post-retirement benefit cots in fiscal 2009. A 1.0% decrease in discount rate for our post-retirement benefit plan would have increased our post-retirement benefit obligation at September 30, 2009 by $298 and increased our post-retirement benefit expense in 2009 by $6. A 1.0% increase in discount rate would have decreased our post-retirement benefit obligation at September 30, 2009 by $251 and decreased our post-retirement benefit expense in 2009 by $6.

21


     To determine the expected long-term rate of return on pension plan assets, we consider the current asset allocations and the historical and expected returns on various categories of plan assets obtained from our investment portfolio manager. Information regarding our asset allocations is included in Note 8 of the Notes to Consolidated Financial Statements. A 1.0% increase or decrease in the assumed rate of return on plan assets would have impacted net periodic benefit cost in fiscal 2009 by $114. Our post-retirement plan does not contain any plan assets.

     We assumed healthcare cost trend rates for our post-retirement plan of 5.0% - 9.0% in 2009, decreasing gradually to 5.0% in 2017 and remaining at 5.0% thereafter. A 1.0% increase in assumed healthcare cost trend rates would have increased our post-retirement benefit obligation at September 30, 2009 by $261 and increased post-retirement benefit expense in 2009 by $18. A 1.0% decrease in assumed healthcare cost trend rates would have decreased the post-retirement benefit obligation by $223 at the end of fiscal 2009 and decreased post-retirement benefit expense in 2009 by $15.

Share Based Compensation Expense

     We measure compensation cost for all outstanding unvested share-based awards, and awards we grant, modify, repurchase or cancel in the future, at fair value and recognize compensation over the requisite service period for awards expected to vest. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results differ from our estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when calculating fair value including estimated stock price volatility, expected term and expected forfeitures. Factors considered in estimating forfeitures include the types of awards, employee class, and historical experience. Actual results may differ substantially from these estimates.

Income Taxes

     For each jurisdiction that we operate in, we are required to estimate our annual effective tax rate together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet. We must also assess the likelihood that our deferred tax assets will be recovered from future taxable income and unless we believe that recovery is more likely than not, a valuation allowance is established. Our income tax provision on the consolidated statement of operations is impacted by changes in the valuation allowance. This process is complex and involves significant management judgment in determining our provision for income taxes, deferred tax assets and liabilities and any valuation allowances recorded against our net deferred tax assets.

Recently Issued Accounting Standards

     In December 2008, the FASB issued authoritative guidance to require employers to provide additional disclosures about plan assets of a defined benefit pension or other post-retirement plan. These disclosures should principally include information detailing investment policies and strategies, the major categories of plan assets, the inputs and valuation techniques used to measure the fair value of plan assets and an understanding of significant concentrations of risk within plan assets. This guidance will be effective for the Company beginning in fiscal 2010 (October 1, 2009). Upon initial application, this guidance is not required to be applied to earlier periods that are presented for comparative purposes. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

     In December 2007, the FASB issued authoritative guidance to affirm that the acquisition method of accounting (previously referred to as the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This guidance defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. Among other requirements, this guidance requires the acquiring entity in a business combination to recognize the identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree at their acquisition-date fair values, with limited exceptions, acquisition-related costs generally will be expensed as incurred. This guidance requires certain financial statement disclosures to enable users to evaluate and understand the nature and financial effects of the business combination. This guidance must be applied prospectively to business combinations that are consummated on or after October 1, 2009. Accordingly, the Company will record and disclose business combinations under the revised standard for transactions consummated, if any, on or after October 1, 2009. In addition, adjustments of certain income tax balances related to acquired deferred assets, including those acquired prior to the adoption of this new authoritative guidance, shall be reported as an increase or decrease to income tax expense.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and changes in the market value of investments. The Company’s primary market risk results from fluctuations in interest rates.

Interest Rate Risk

     The Company had a revolving loan agreement with its primary lender GE Capital, which originally expired on September 29, 2009; however, during the fourth quarter of fiscal 2009, the Company cancelled this revolving loan agreement. As of September 30, 2009, there was no balance outstanding on any loan or revolving loan agreements.

Foreign Currency Risk

     We sell our products to customers in the heavy truck, transit bus and off-road equipment industries. For the fiscal years ended September 30, 2009 and 2008, the Company had foreign sales of approximately 37% and 46% of net sales, respectively. All worldwide sales in fiscal 2009 and 2008, with the exception of $2,009 and $3,265, respectively, were denominated in U.S. dollars. During fiscal 2005, we established a manufacturing facility in Suzhou, China and we opened sales offices in Shanghai, China and Munich, Germany. We purchase components internationally for use in both our products whose sales are denominated in U.S. dollars and other currencies. Although the Company is expanding its international exposure, it does not believe that changes in future exchange rates would have a material effect on its financial position, results of operations, or cash flows at this time. As a result, the Company has not entered into forward exchange or option contracts for transactions to hedge against foreign currency risk. The Company will continue to assess its foreign currency risk as its international operations, international purchases and sales increase.

Investment Risk

     The Company does not use derivative financial or commodity instruments. The Company’s financial instruments include cash and cash equivalents, short-term investments, accounts receivable, accounts payable and long-term obligations. The Company’s cash and cash equivalents, short-term investments, accounts receivable and accounts payable balances are short-term in nature, and, thus, the Company believes they are not exposed to material investment risk.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Williams Controls, Inc.
Index to Consolidated Financial Statements

     Page
Report of Independent Registered Public Accounting Firm 25
Consolidated Balance Sheets at September 30, 2009 and 2008 26
Consolidated Statements of Operations for the years ended September 30, 2009, 2008 and 2007 27
Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2009, 2008 and 2007   28
Consolidated Statements of Comprehensive Income (Loss) for the years ended September 30, 2009, 2008 and 2007 29
Consolidated Statements of Cash Flows for the years ended September 30, 2009, 2008 and 2007 30
Notes to Consolidated Financial Statements 31

See pages 56-57 for Index to Exhibits

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of
Williams Controls, Inc.:

     We have audited the accompanying consolidated balance sheets of Williams Controls, Inc. as of September 30, 2009 and 2008 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended September 30, 2009. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Williams Controls, Inc. as of September 30, 2009 and 2008, and the consolidated results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2009, in conformity with accounting principles generally accepted in the United States of America.

/s/ Moss Adams LLP
Portland, Oregon
December 15, 2009

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Williams Controls, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except per share information)

September 30, September 30,
     2009      2008
ASSETS
Current Assets:
       Cash and cash equivalents $   9,245 $   9,060  
       Short-term investments 286 263
       Trade accounts receivable, net 6,677 10,438
       Other accounts receivable 2,720 835
       Inventories 5,539   8,215
       Deferred income taxes 579 428
       Prepaid expenses and other current assets 269 301
              Total current assets 25,315   29,540
 
Property, plant and equipment, net   8,893   9,096
Deferred income taxes   3,019 1,446
Other assets, net 368 526
              Total assets $ 37,595 $ 40,608
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
       Accounts payable $ 2,990 $ 4,784
       Accrued expenses 5,703 5,224
       Current portion of employee benefit obligations 225 285
              Total current liabilities 8,918 10,293
 
Long-term Liabilities:
       Employee benefit obligations 8,297 4,322
       Other long-term liabilities 290 345
 
Commitments and contingencies
 
Stockholders’ Equity:
       Preferred stock ($.01 par value, 50,000,000 authorized)
              Series C (No shares were issued and outstanding at September 30,
              2009 and 2008, respectively)
       Common stock ($.01 par value, 12,500,000 authorized;
              7,270,820 and 7,534,642 issued and outstanding at
              September 30, 2009 and 2008, respectively) 73 75
       Additional paid-in capital 36,643 35,744
       Accumulated deficit (6,776 ) (4,729 )
       Treasury stock (332,593 and 21,700 shares at September 30, 2009 and 2008) (2,734 ) (377 )
       Accumulated other comprehensive loss (7,116 ) (5,065 )
              Total stockholders’ equity 20,090 25,648
              Total liabilities and stockholders’ equity $ 37,595 $ 40,608

See accompanying notes to Consolidated Financial Statements.

26


     Williams Controls, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except share and per share information)

For the year ended September 30,
     2009      2008      2007
Net sales $   38,809 $   65,781 $   68,924  
Cost of sales 30,173 42,960 45,152
 
Gross profit 8,636 22,821 23,772
 
Operating expenses
       Research and development 3,981 4,015 3,145
       Selling 2,425 2,727     2,163
       Administration 5,522 5,500   5,898
       Gain from settlement of environmental claims (1,072 )
       Realignment of operations 737
              Total operating expenses   11,928   11,170 11,943
 
Operating income (loss) (3,292 )   11,651 11,829
 
Other (income) expenses:
       Interest income (26 ) (64 ) (136 )
       Interest expense 19   140 868
       Loss on impairment of investments 317
       Other (income) loss, net 84 (205 ) (1,147 )
              Total other (income) expenses   394 (129 ) (415 )
 
Income (loss) before income taxes (3,686 ) 11,780 12,244
Income tax (benefit) expense (1,677 ) 3,950 4,307
 
Net income (loss) $ (2,009 ) $ 7,830 $ 7,937
 
Net income (loss) per common share – basic $ (0.27 ) $ 1.04 $ 1.06
 
Weighted average shares used in per share calculation – basic 7,315,343 7,522,885 7,467,161
 
Net income (loss) per common share – diluted $ (0.27 ) $ 1.01 $ 1.03
 
Weighted average shares used in per share calculation – diluted 7,315,343 7,747,920 7,739,627

See accompanying notes to Consolidated Financial Statements.

27


Williams Controls, Inc.
Consolidated Statements of Stockholders’ Equity
(Dollars in thousands)

Other
Additional   Comprehensive
Common Stock Paid-in Accumulated Treasury Income Stockholders’
     Shares      Amount      Capital      Deficit      Stock      (Loss)      Equity
Balance, September 30, 2006    7,432,844 $   74 $   34,014 $   (20,414 ) $   (377 ) $         (5,035 ) $     8,262
Net income 7,937 7,937
Exercise of stock options 54,778 1 259 260
Share based compensation 7,860 626 626
Foreign currency translation adjustment 54 54
Impact of implementing
       authoritative guidance
       regarding pension and
       post-retirement benefits (749 )   (749 )
Change in pension liability adjustment 779 779
Balance, September 30, 2007   7,495,482 75   34,899 (12,477 ) (377 ) (4,951 )   17,169
Net income 7,830 7,830
Exercise of stock options 37,198     173 173
Share based compensation 1,962     672     672
Adjustment to record
       uncertain tax positions (82 ) (82 )
Foreign currency translation adjustment 172 172
Change in pension liability adjustment (220 ) (220 )
Unrealized loss, net of tax (66 ) (66 )
Balance, September 30, 2008 7,534,642 75 35,744 (4,729 ) (377 ) (5,065 ) 25,648
Net loss (2,009 ) (2,009 )
Exercise of stock options 41,666 165 165
Share based compensation 5,405 732 732
Repurchase of common stock (310,893 ) (2 ) 2 (2,357 ) (2,357 )
Foreign currency translation adjustment 6 6
Change in pension liability adjustment (2,271 ) (2,271 )
Unrealized gain or loss of
       available-for-sale securities 214 214
Effect of changing pension
       plan measurement date (38 ) (38 )
Balance, September 30, 2009 7,270,820 $ 73 $ 36,643 $ (6,776 ) $ (2,734 ) $ (7,116 ) $ 20,090

See accompanying notes to Consolidated Financial Statements.

28


Williams Controls, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in thousands)

For the year ended September 30,
     2009      2008      2007
Net income (loss) $ (2,009 ) $ 7,830 $ 7,937
Change in pension liability adjustment, net of tax of ($1,387),  
       ($384) and $455 in 2009, 2008 and 2007, respectively     (2,271 )   (220 ) 779
Unrealized (gain) loss, net of tax of $126 and ($39) in 2009 and 2008, respectively 214   (66 )
Foreign currency translation adjustments 6 172 54
 
Comprehensive income (loss) $ (4,060 ) $ 7,716 $ 8,770

See accompanying notes to Consolidated Financial Statements.

29


Williams Controls, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)

For the year ended September 30,
     2009      2008      2007
Cash flows from operating activities:
       Net income (loss) $   (2,009 ) $   7,830 $   7,937
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
       Depreciation and amortization 1,996 1,803   2,005
       Deferred income taxes (444 ) 495 638
       Share based compensation 732 672 537
       Loss on impairment of investments 317
       Gain on settlement of liabilities     (889 )
       Gain from stock settlement of environmental claims   (337 )
       (Gain) loss from sale and disposal of fixed assets 80   (109 ) (170 )
       Changes in operating assets and liabilities:
              Receivables, net   1,876 (1,563 ) 889
              Inventories   2,676   937 766
              Prepaid expenses and other current assets 32 (4 ) 36
              Accounts payable and accrued expenses (1,315 ) 1,132 (2,260 )
              Other 297 (910 ) (1,070 )
 
Net cash provided by operating activities 4,238 9,946 8,419
 
Cash flows from investing activities:
       Payments for property, plant and equipment (1,876 ) (1,791 ) (2,230 )
       Proceeds from sale of property, plant and equipment 15 111 182
 
Net cash used in investing activities (1,861 ) (1,680 ) (2,048 )
 
Cash flows from financing activities:
       Repayments of debt (1,000 ) (7,540 )
       Repurchase of common stock (2,357 )
       Net proceeds from exercise of stock options 165 173 260
 
Net cash used in financing activities (2,192 ) (827 ) (7,280 )
 
Net increase (decrease) in cash and cash equivalents 185 7,439 (909 )
Cash and cash equivalents at beginning of year 9,060 1,621 2,530
 
Cash and cash equivalents at end of year $ 9,245 $ 9,060 $ 1,621
 
Supplemental disclosure of cash flow information:
       Interest paid $ 4 $ 91 $ 644
       Income taxes paid 171 2,284 4,052
 
Supplemental disclosure of non-cash investing and financing activities:
       Pension liability adjustment $ (2,271 ) $ (220 ) $ (120 )

See accompanying notes to Consolidated Financial Statements.

30


Notes to Consolidated Financial Statements
Years Ended September 30, 2009, 2008 and 2007
(Dollars in thousands, except share and per share amounts)

Note 1. Organization and Basis of Presentation

Organization:

     Williams Controls, Inc., including its wholly-owned subsidiaries as follows and hereinafter referred to as the “Company,” “Registrant,” “we,” “our,” or “us”:

Active SubsidiariesWilliams Controls Industries, Inc. (“Williams”); Williams (Suzhou) Controls Co. Ltd. (“Williams Controls Asia”); Williams Controls Europe GmbH (“Williams Controls Europe”); and Williams Controls India Private Limited (“Williams Controls India”)

Inactive subsidiariesAptek Williams, Inc. (“Aptek”); Premier Plastic Technologies, Inc. (“PPT”); ProActive Acquisition Corporation (“ProActive”); WMCO-Geo (“GeoFocus”); NESC Williams, Inc. (“NESC”); Williams Technologies, Inc. (“Technologies”); Williams World Trade, Inc. (“WWT”); Techwood Williams, Inc. (“TWI”); Agrotec Williams, Inc. (“Agrotec”) and our 80% owned subsidiaries Hardee Williams, Inc. (“Hardee”) and Waccamaw Wheel Williams, Inc. (“Waccamaw”).

Basis of Presentation:

     The consolidated financial statements include all of the accounts of Williams Controls, Inc. and its subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

     The preparation of consolidated financial statements in conformity with US generally accepted accounting principles requires management to make estimates and assumptions, based upon all known facts and circumstances, that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of issuance of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however, actual results could differ materially from these estimates. Estimates are used in accounting for, among other things, allowance for doubtful accounts, excess and obsolete inventory, useful lives for depreciation and amortization, future cash flows associated with impairment testing for long-lived assets, pension and post-retirement benefit obligations, product warranty, share-based compensation expense, income taxes and commitments and contingencies.

Concentration of Risk and Sales by Customer:

     For the years ended September 30, 2009, 2008 and 2007, The Volvo Group accounted for 16%, 19% and 17%: Paccar, Inc. accounted for 9%, 11% and 14%: and Daimler Trucks NA accounted for 9%, 9% and 13%, respectively. Approximately 37%, 46% and 41% of net sales in fiscal 2009, 2008 and 2007, respectively, were to customers outside of the United States, primarily in Belgium, Canada, China, France, Korea, Mexico and Sweden, and, to a lesser extent, in other European countries, South America, Pacific Rim nations and Australia. At September 30, 2009 and 2008, The Volvo Group represented 28% and 25%, Bendix Commercial Vehicle Systems represented 11% and 8%, Daimler Trucks NA represented 9% and 8%, Navistar International Corporation represented 9% and 8%, and Paccar, Inc. represented 4% and 9%, of trade accounts receivable, respectively.

Realignment of operations:

     The realignment of operations (“the Plan”) which was begun in fiscal 2006, was essentially completed by the end of the Company’s fiscal year ended September 30, 2007. The Plan included realigning its manufacturing operations as part of an ongoing effort to focus on its core product competencies and improve its global competitiveness. The Plan consisted of outsourcing all of the Company’s die casting and machining operations from its Portland, Oregon manufacturing facility to high-quality suppliers, primarily in Asia, and relocating of the Company’s assembly operations for the majority of its pneumatic products from the Portland facility to its manufacturing facility in Suzhou, China. The total costs of the plan were approximately $1.5 million and included costs related to hourly and salaried termination benefits of $605; supplier and parts qualification of $100; refurbishment of tools of $150; accelerated depreciation on certain assets of $240; and general administrative and other costs of $400. Certain of these costs are classified in financial statement line items other than realignment of operations expense. The Company recorded realignment expense of $737, for the twelve month period ended September 30, 2007, which was recorded in operating expenses in the accompanying consolidated statements of operations. No realignment expense was recorded in fiscal 2009 or 2008.

31


Note 2. Significant Accounting Policies

Cash and Cash Equivalents:

     Cash and cash equivalents include highly liquid investments with original maturities of three months or less.

Short-term Investments:

     Short-term investments consist of equity securities and are classified as available-for-sale securities and recorded at fair value with any unrealized gains and losses reported, net of tax, in other comprehensive income (loss). The carrying value of available-for-sale securities approximates fair value due to their short maturities.

Trade Accounts Receivable:

     The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change. Trade accounts receivable are presented net of an allowance for doubtful accounts of $246 and $47 at September 30, 2009, and September 30, 2008, respectively.

Inventories:

     Inventories are valued at the lower of cost or market. Cost is determined using standard costs, which approximate the first in, first out, or FIFO method. Cost includes the acquisition of purchased components, parts and subassemblies, labor and overhead. Market with respect to raw materials is replacement cost and, with respect to work-in-process and finished goods, is net realizable value. The Company periodically reviews its inventories for excess or slow moving items and makes provisions as necessary to properly reflect inventory value.

Property, Plant and Equipment:

     Property, plant and equipment are stated at cost, net of accumulated depreciation. Property, plant and equipment are depreciated using the straight-line method over the estimated useful lives of the assets. The principal estimated lives are: 31.5 years for buildings, 5 to 12 years for machinery and equipment, and 3 to 5 years for office furniture and equipment. Maintenance and repairs are expensed as incurred.

Impairment of Long-Lived Assets:

     Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the estimated undiscounted future cash flows of the operation to which the assets relate, to the carrying value of such assets. If the carrying value of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying value of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying value or fair value less costs to sell.

Deferred Income Taxes:

     Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statement of operations in the period that includes the enactment date. Valuation allowances are established as necessary to reduce deferred tax assets unless realization of the assets is considered more likely than not.

32


Product Warranty:

The Company establishes a product warranty liability based on a percentage of product sales. The liability is based on historical return rates of products and amounts for significant and specific warranty issues, and is included in accrued expenses on the accompanying consolidated balance sheets. Warranty is limited to a specified time period, mileage or hours of use, and varies by product, application and customer. The Company has recorded a liability, which in the opinion of management, is adequate to cover such warranty costs. Warranty payments can vary significantly from year to year depending on the timing of the settlement of warranty claims with various customers. Following is a reconciliation of the changes in the Company’s warranty liability for the years ended September 30, 2009, 2008 and 2007.

Year ended September 30,       2009       2008       2007
Balance at beginning of period $    762 $    1,712 $    1,720  
       Payments (995 ) (1,359 )   (1,076 )
       Warranty claims accrued   984     810   1,228
       Adjustments and changes in estimates (401 ) (160 )
Balance at end of period $ 751 $ 762 $ 1,712

     During fiscal 2008, the Company recorded a reduction of warranty liability of $324 related to warranty claims with one customer. The Company reviewed its assumptions for its warranty liability with this one customer, which covers a period in excess of one year, and determined a reduction in liability was necessary. This reduction in the liability has been recorded as a reduction of cost of sales in the accompanying condensed consolidated statement of operations. Warranty payments in fiscal 2008 were higher than historical rates as the Company settled and paid a significant number of claims dating back to fiscal 2006 with one customer.

     During fiscal 2007, the Company recorded an adjustment for additional warranty liability of $239 related to warranty claims with one customer. The Company reviewed its assumptions for its warranty liability with this one customer, which covers a period in excess of one year, and determined an additional liability was required. This additional liability was recorded in cost of sales in the accompanying condensed consolidated statement of operations. At September 30, 2007, the Company also made an adjustment to reverse the $400 warranty liability related to is former passenger car and light truck product lines, as the warranty return period had expired.

Environmental Costs:

     Liabilities for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, or if an amount is likely to fall within a range and no amount within that range can be determined to be the better estimate, the minimum amount of the range is recorded. Liabilities for environmental matters exclude claims for recoveries from prior owners or operators until it is probable that such recoveries will be realized.

Revenue Recognition:

     Revenue is recognized at the time of product shipment, which is when title and risk of loss transfers to customers, and when all of the following have occurred: a firm sales agreement is in place, pricing is fixed or determinable, and collection is reasonably assured. Revenues are reported net of estimated returns, rebates and customer discounts.

Research and Development Costs:

     Research and development costs are expensed as incurred. Research and development costs consist primarily of employee costs, cost of consumed materials, depreciation and engineering related costs.

33


Pensions and Post-retirement Benefit Obligations:

     The Company provides various benefits to certain current and former employees through defined benefit plans and retirement healthcare benefit plans. For financial reporting purposes, net periodic benefit cost and related obligations are calculated using a number of significant actuarial assumptions, including a discount rate assumption and a long-term rate of return on assets assumption. Changes in net periodic benefit cost and funding status may occur in the future due to changes in these assumptions. The funded status of defined pension and postretirement plans recognized in the statement of financial position is measured as the difference between the fair market value of the plan assets and the benefit obligation. For a defined benefit pension plan, the benefit obligation is the projected benefit obligation; for any other defined benefit postretirement plan, such as a retiree health care plan, the benefit obligation is the accumulated benefit obligation. Any over-funded status is recognized as an asset and any underfunded status is recognized as a liability.

     Projected benefit obligation is the actuarial present value as of the measurement date of all benefits attributed by the plan benefit formula to employee service rendered before the measurement date using assumptions as to future compensation levels if the plan benefit formula is based on those future compensation levels. Accumulated benefit obligation is the actuarial present value of benefits (whether vested or unvested) attributed by the plan benefit formula to employee service rendered before the measurement date and based on employee service and compensation, if applicable, prior to that date. Accumulated benefit obligation differs from projected benefit obligation in that it includes no assumption about future compensation levels.

Earnings (Losses) Per Share:

     Basic EPS is based on the weighted-average number of common shares outstanding during the period. Diluted EPS is based on the weighted-average number of common shares outstanding and the dilutive impact of common equivalent shares outstanding.

     Following is a reconciliation of basic EPS and diluted EPS:

Year Ended Year Ended
September 30, 2009 September 30, 2008
Per Share Per Share
      Loss       Shares       Amount       Income       Shares       Amount
Basic EPS – $    (2,009 )    7,315,343 $    (0.27 ) $    7,830    7,522,885 $    1.04
Effect of dilutive securities – Stock options 225,035
 
Diluted EPS – $ (2,009 ) 7,315,343 $ (0.27 ) $ 7,830 7,747,920 $ 1.01
 
Year Ended
September 30, 2007
Per Share
Income Shares Amount
Basic EPS – $ 7,937 7,467,161 $ 1.06
Effect of dilutive securities – Stock options 272,466
 
Diluted EPS – $ 7,937 7,739,627 $ 1.03  

     At September 30, 2009, 2008 and 2007, the Company had options covering 598,769, 111,658 and 100,912 shares, respectively, which were not considered in the diluted EPS calculation since they would have been antidilutive.

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Share Based Compensation:

     The Company uses the Black-Scholes option pricing model to value its stock option grants. Share-based compensation expense is recognized on a straight-line basis over the requisite service period, which equals the vesting period. When determining share-based compensation expense, the Black-Scholes option pricing model takes into account highly subjective and complex assumptions. The expected life of options granted is derived from the vesting period of the award, as well as historical exercise behavior, and represents the period of time that options granted are expected to be outstanding. Expected volatilities are based on historical volatility looking back over a period equal to the expected life. The risk-free interest rate is equal to the U.S. Treasury constant maturity with a remaining term equal to the expected life of the option on the date of grant. The Company is required to estimate forfeitures in calculating the expense related to share-based compensation. In addition, the Company is also required to reflect the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash inflow.

Contingencies:

     Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s management and legal counsel evaluate the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be recorded in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. All legal costs to defend against such contingent liabilities are expensed as incurred.

Fair Value of Financial Instruments:

     The carrying amounts reflected in the accompanying consolidated balance sheet for cash and cash equivalents, short-term investments, accounts receivable, other accounts receivable, prepaid expenses and other current assets, accounts payable (excluding accounts payable related to certain insolvent subsidiaries as discussed in Note 5), and accrued expenses approximate fair value due to the short-term nature of the instruments.

Foreign Currency Translation:

     Assets and liabilities of non-domestic subsidiaries denominated in local currencies are translated into U.S. dollars at the rate of exchange at the balance sheet date and income and expenses are translated at the average rates of exchange prevailing during the year. The resulting translation adjustments are reported as a component of accumulated other comprehensive loss in stockholders’ equity.

Recently Adopted Accounting Standards:

     In June 2009, the Financial Accounting Standards Board (“FASB”) established the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the United States Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. While the Codification did not have a material impact on the Company’s consolidated financial statements upon adoption, our disclosures have been revised to describe accounting concepts and policies rather than cite specific topics of U.S. GAAP.

     In May 2009, the FASB issued authoritative guidance to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events, whether that evaluation date is the date of issuance or the date the financial statements were available to be issued, and alerts all users of financial statements that an entity has not evaluated subsequent events after that evaluation date in the financial statements being presented. The guidance is effective for financial statements issued for fiscal years and interim periods ending after June 15, 2009. The guidance became effective for the Company on June 30, 2009. The adoption of this guidance had no impact on its consolidated financial statements. Refer to Note 15 for disclosure of the Company’s subsequent events for the current reporting period.

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     In April 2009, the FASB issued authoritative guidance that principally requires publicly traded companies to provide disclosures about fair value of financial instruments in interim financial information. The adoption of this disclosure-only guidance became effective for the Company beginning in the third quarter of fiscal 2009 and the adoption of this guidance did not impact our consolidated financial statements.

     Also in April 2009, the FASB issued authoritative guidance that amends the other-than-temporary impairment guidelines in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This guidance does not amend existing recognition and measurement guidance related to other-than-temporary impairment on equity securities. This guidance became effective for the Company beginning in the third quarter of fiscal 2009 and the adoption did not impact our consolidated financial statements.

     In September 2006, the FASB issued authoritative guidance which defines fair value, establishes a framework for measuring fair value, and requires additional disclosures about a company’s financial assets and liabilities that are measured at fair value. This guidance does not change existing guidance on whether or not an instrument is carried at fair value. In February 2008, the FASB issued authoritative guidance which delayed the effective date of this guidance for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), to fiscal years, and interim periods within those fiscal years, beginning after November 15, 2008. In October 2008, the FASB issued additional authoritative guidance which clarifies the application of determining fair value when the market for a financial asset is inactive. Specifically, this guidance clarifies how (1) management’s internal assumptions should be considered in measuring fair value when observable data are not present, (2) observable market information from an inactive market should be taken into account, and (3) the use of broker quotes or pricing services should be considered in assessing the relevance of observable and unobservable data to measure fair value. On October 1, 2008, the Company adopted the measurement and disclosure impact of this guidance only with respect to financial assets and liabilities. The adoption increased its fair value disclosures but had no impact on its financial position or results of operations. Refer to Note 6 for disclosure of the Company’s fair value measurements.

     On October 1, 2009, the Company adopted the measurement and disclosure of fair value with respect to non-financial assets and liabilities. The adoption had no impact on its financial position and results of operations and would have required no additional disclosures in these consolidated financial statements if adopted as of September 30, 2009.

Recently Issued Accounting Standards:

     In December 2008, the FASB issued authoritative guidance to require employers to provide additional disclosures about plan assets of a defined benefit pension or other post-retirement plan. These disclosures should principally include information detailing investment policies and strategies, the major categories of plan assets, the inputs and valuation techniques used to measure the fair value of plan assets and an understanding of significant concentrations of risk within plan assets. This guidance will be effective for the Company beginning in fiscal 2010 (October 1, 2009). Upon initial application, this guidance is not required to be applied to earlier periods that are presented for comparative purposes. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

     In December 2007, the FASB issued authoritative guidance to affirm that the acquisition method of accounting (previously referred to as the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This guidance defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. Among other requirements, this guidance requires the acquiring entity in a business combination to recognize the identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree at their acquisition-date fair values, with limited exceptions, acquisition-related costs generally will be expensed as incurred. This guidance requires certain financial statement disclosures to enable users to evaluate and understand the nature and financial effects of the business combination. This guidance must be applied prospectively to business combinations that are consummated on or after October 1, 2009. Accordingly, the Company will record and disclose business combinations under the revised standard for transactions consummated, if any, on or after October 1, 2009. In addition, adjustments of certain income tax balances related to acquired deferred assets, including those acquired prior to the adoption of this new authoritative guidance, shall be reported as an increase or decrease to income tax expense.

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Note 3. Inventories

     Inventories consist of the following at September 30:

      2009       2008
Raw material  $    4,247 $    5,578
Work in process   39 53
Finished goods 1,253 2,584
$ 5,539 $ 8,215

Note 4. Property, Plant and Equipment

     Property, plant and equipment consist of the following at September 30:

      2009       2008
Land and land improvements $    828 $    828  
Buildings 4,484   4,009
Machinery and equipment   12,429 11,889
Office furniture, computers & software 4,980 4,689
Construction in progress 760   675
23,481 22,090
Less accumulated depreciation (14,588 ) (12,994 )
$ 8,893 $ 9,096  

     Depreciation expense for the years ended September 30, 2009, 2008 and 2007 was $1,996, $1,763 and $1,793, respectively.

Note 5. Settlement of Accounts Payable

     Included in the accompanying consolidated balance sheet is approximately $155 of accounts payable related to closed insolvent subsidiaries of the Company. A debtor can only relieve itself of a liability if it has been extinguished and accordingly, a liability is considered extinguished if (a) the debtor pays the creditor and is relieved of its obligation for the liability or (b) the debtor is legally released from being the primary obligor under the liability, either judicially or by the creditor. During the year ended September 30, 2007, the Company was judicially released from and reversed $889 of old accounts payable resulting in a gain, which has been recorded in other (income) expense in the accompanying consolidated statements of operations. No amounts were released and reversed during fiscal year 2008 or 2009. The Company expects to reverse amounts in future periods based on the recognition of the liabilities being judicially released of $90 in fiscal 2010; and a total of $65 in fiscal 2011 – 2016.

Note 6. Fair Value Measurement

     Financial assets and liabilities recorded at fair value in the consolidated balance sheet are categorized based upon a fair value hierarchy established by U.S. GAAP, which prioritizes the inputs used to measure fair value into the following levels:

Level 1 –  observable inputs such as quoted prices in active markets for identical assets or liabilities;
       
Level 2 – inputs, other than the quoted market prices in active markets, which are observable, either directly or indirectly; and
 
Level 3 – unobservable inputs for which there is little or no market data available, which require the reporting entity to develop its own assumptions.

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     The following table presents information about financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2009:

Fair Value as of
      September 30, 2009       Level 1       Level 2       Level 3
Cash and cash equivalents $ 9,245 $    9,245 $    $   
Short-term investments   286   286      
       Total financial assets and liabilities $ 9,531 $ 9,531 $   $

     We use a market approach to determine the fair value of cash and cash equivalents and short-term investments. Cash and cash equivalents include highly liquid investments with original maturities of three months or less. Short-term investments consist of available-for-sale securities. There were no assets and liabilities measured at fair value on a nonrecurring basis as of September 30, 2009.

     In the first quarter of fiscal 2009, the Company recorded a non-cash, mark-to-market impairment charge of approximately $317 relating to its investment in Dana Holding CP (“Dana”). The decision to record the impairment charge was based on the continued decline in the market value of the Dana stock, as well as the contraction of the market in which Dana operates. The Company recorded no income tax benefit on this impairment charge given the uncertainty of the Company’s ability to generate future taxable investment gains required to utilize these investment losses. Prior to the Company recording the impairment charge, the decline in market value was carried net of tax in other comprehensive loss. Following the recording of this impairment charge, all subsequent changes in market value of the Company’s short-term investments have been recorded net of tax in other comprehensive income (loss).

Note 7. Debt

     During the fourth quarter of fiscal 2009, the Company voluntarily cancelled its revolving loan facility with GE Capital, which as of the day of termination had a zero balance.

Note 8. Employee Benefit Plans

     The Company maintains two pension plans, an hourly employee plan and a salaried employee plan. The hourly plan covers certain of the Company’s union employees. The salaried plan covers certain salaried employees. Annual net periodic pension costs under the pension plans are determined on an actuarial basis. The Company’s policy is to fund these costs over 15 years and obligations arising due to plan amendments over the period benefited. The assets and liabilities are adjusted annually based on actuarial results.

     The Company also provides health care and life insurance benefits for certain of its retired employees (“Post Retirement Plan”). These benefits are subject to deductibles, co-payment provisions and other limitations. The Company may amend or change the Post Retirement Plan periodically. The Company has elected to amortize the accumulated post retirement benefit obligation (“APBO”) at October 1, 1993 over twenty years as a component of post retirement benefit expense.

     In 2003, the Company modified the provisions of the salaried plan to limit the number of eligible employees to those currently in the plan at the time of the modification and to limit benefits under the plan to those earned to that date. As part of the 2003 contract and strike settlement agreement with the union hourly workers, the hourly plan was also modified in 2003 to limit participation in the plan to those employees in the plan at August 31, 2002.

     On September 30, 2007, the Company adopted the authoritative guidance for employee benefit plans which provides guidance on expense recognition for employee benefit compensation. As part of the initial recognition of this guidance, the Company was required to recognize the overfunded or underfunded status of its defined benefit plans as an asset or liability, respectively, in its consolidated balance sheet. For the Company’s pension plans, the funded status is measured as the difference between the projected benefit obligation and the fair value of plan assets. For the Company’s post retirement plan, the funded status is measured as the difference between the accumulated postretirement benefit obligation and the fair value of plan assets. Actuarial gains or losses, and prior service costs or credits that have not yet been included in net periodic benefit expense as of the adoption date are recognized in stockholders’ equity as components of the ending balance of accumulated other comprehensive income (loss), net of tax. In future periods, the Company will recognize changes in the funded status that are not components of the current-period net periodic benefit expense as a component of other comprehensive income (loss) in the year the change occurs. This guidance also requires plans assets and obligations to be measured as of the end of the Company’s fiscal year rather than at an earlier measurement date, as allowed under previous accounting standards. The Company adopted this additional guidance as of September 30, 2009 and has changed its measurement date from August 31st to September 30th for its plans. This change in measurement date resulted in a reduction to retained earnings of $38, net of tax.

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Pension Plans

     The following table reports the changes in the projected benefit obligation, the fair value of plan assets, and the determination of the amounts recognized in the consolidated balance sheets for the Company’s pension plans at September 30:

Salaried Plan Hourly Plan
September 30,         2009       2008       2009       2008
Accumulated benefit obligation $    5,254 $    4,695 $    9,146 $    7,641
Change in projected benefit obligation:    
Benefit obligation at beginning of year $ 4,695 $ 4,894 $ 7,641 $ 7,613
Service cost     59   66
Interest cost 340 296 555 460
Actuarial (gain) loss 591 (153 ) 1,518 36
Benefits paid (372 ) (342 ) (627 ) (534 )
Benefit obligation at end of year $ 5,254 $ 4,695 $ 9,146 $ 7,641
 
Change in plan assets:
Fair value of plan assets at beginning of year $ 4,291 $ 4,579 $ 6,593 $ 6,825
Actual return on plan assets (552 ) (383 ) (819 ) (568 )
Employer contributions 42 437 141 870
Benefits paid (372 ) (342 ) (627 ) (534 )
Fair value of plan assets at end of year $ 3,409 $ 4,291 $ 5,288 $ 6,593
Funded status at end of year $ (1,845 ) $ (404 ) $ (3,858 ) $ (1,048 )

     Weighted-average assumptions used to determine benefit obligations at September 30:

Salaried Plan Hourly Plan
      2009       2008       2009       2008
Discount rate 5.50 % 6.97 % 5.50 % 6.97 %
Rate of compensation increase

     The amounts included in accumulated other comprehensive losses that have not yet been recognized in net periodic benefit cost as of September 30, 2009 and 2008 consist of the following:

Salaried Plan Hourly Plan
      2009       2008       2009       2008
Actuarial loss $    3,206 $    1,875 $    5,343 $    2,883
Prior service cost     32 49
$ 3,206 $ 1,875 $ 5,375 $ 2,932

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     Amounts in fiscal 2010 that will be amortized from accumulated other comprehensive loss into net periodic benefit cost include the following:

Salaried Hourly
      Plan       Plan
Actuarial loss   $    131   $    179
Prior service cost         14
    $ 131   $ 193

     Net periodic benefit cost for the years ended September 30 includes the following:

Salaried Plan Hourly Plan
Year ended September 30:         2009       2008       2007       2009       2008       2007
Service cost $    $    $    $    59   $    66 $    118
Interest cost 340 296   294 555   460 447
Expected return on plan assets (301 )   (310 )     (272 )     (464 ) (470 )     (401 )
Amortization of prior service cost       17   21   47
Curtailment   69
Recognized net actuarial loss 114 64 91 341 166 249
 
Net periodic benefit cost $ 153 $ 50 $ 113 $ 508 $ 243 $ 529  

     Weighted-average assumptions used to determine Net Periodic Benefit Cost for the years ended September 30:

Salaried Plan Hourly Plan
      2009       2008       2007       2009       2008       2007
Discount rate       6.97 %        6.25 %        5.85 %        6.97 %        6.25 %        5.85 %   
Expected return on plan assets 6.75 %   6.75 %   6.75 %   6.75 %   6.75 % 6.75 %
Rate of compensation increase  

     The overall expected long-term rate of return assumptions for fiscal 2009 were developed using historical and future return expectations of multiple asset classes, which were analyzed to develop a risk-free real rate of return and risk premiums for each asset class. The overall rate for each asset class was developed by combining a long-term inflation component, the risk-free real rate of return, and the associated risk premium. The weighted average rate was developed based on those overall rates and the target asset allocation of the plan.

     Plan Assets:

     The Company’s pension plan weighted-average asset allocations at September 30, 2009 and 2008, by asset category are as follows:

Salaried Plan Hourly Plan
Target Target
      2009       2008       Allocation       2009       2008        Allocation
Asset Category:    
       Equity securities 43 % 45 % 39 % 43 % 45 % 39 %
       Debt securities   52 % 49 %   55 % 52 %   49 % 55 %
       Real estate 5 %   6 % 6 % 5 % 6 % 6 %
       Total     100 %     100 % 100 %     100 %     100 % 100 %

     The Company’s investment strategy is to build an efficient, well-diversified portfolio based on a long-term, strategic outlook of the investment markets. The investment markets outlook utilizes both historical-based and forward-looking return forecasts to establish future return expectations for various asset classes. These return expectations are used to develop a core asset allocation based on the specific needs of the plan. The core asset allocation utilizes multiple investment managers in order to maximize the plan’s return while minimizing risk.

     Cash Flows:

     The Company expects to recognize $570 in expense in fiscal 2010 related to its pension plans and make payments of $747 in fiscal 2010.

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     Based on current data and assumptions, the following benefit payments, which reflect expected future service, as appropriate, are expected to be paid over the next 10 fiscal years:

Benefit Payments
Year ending:       Salaried Plan       Hourly Plan
       2010 $    370 $    620
       2011 360 600
       2012   360   590
       2013   350 610
       2014 340   620
       Years 2015-2019 1,830 3,030

Post Retirement Plan

     The following table sets forth the changes in benefit obligation and the determination of the amounts recognized in the consolidated balance sheets for the Post Retirement Plan at September 30:

September 30,         2009       2008
Change in benefit obligation:
Benefit obligation at beginning of year $    3,155 $    3,988
Service cost 3 5  
Interest cost 222 237
Actuarial (gain) loss (141 ) (792 )
Benefits paid (350 ) (283 )
Other (70 )
 
Benefit obligation at end of year $ 2,819 $ 3,155
 
Change in plan assets:  
Fair value of plan assets at beginning of year $ $
Employer contributions   350 283
Benefits paid (350 )   (283 )
 
Fair value of plan assets at end of year $ $
 
Funded status at end of year $ (2,819 ) $ (3,155 )

     Weighted-average assumptions used to determine benefit obligations at September 30:

      2009       2008
Discount rate        5.50 %        6.80 %   
Rate of compensation increase

     The amounts included in accumulated other comprehensive losses that have not yet been recognized in net periodic benefit cost as of September 30, 2009 and 2008 consist of the following:

      2009       2008
Actuarial loss   $    485     $    650  
Prior service credit   (604 )   (675 )
Transition obligation     79       101  
Actuarial loss $ (40 ) $ 76

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     Amounts in fiscal 2010 that will be amortized from accumulated other comprehensive loss into net periodic benefit cost include the following:

Actuarial loss       $   14
Prior service credit     (136 )
Transition obligation 20  
$ (102 )

     Net periodic post retirement benefit cost for the years ended September 30 included the following:

Year ended September 30:         2009       2008       2007
Service cost $   3 $   5 $   6
Interest cost 222       237 220
Amortization     (95 ) (34 )     (22 )
Net periodic post retirement benefit cost $ 130 $ 208 $ 204  

     Weighted-average assumptions used to determine net post retirement benefit cost for the years ended September 30:

      2009       2008       2007
Discount rate        6.80 %          6.17 %          5.80 %   

     Based on current data and assumptions, the following benefit payments, which reflect expected future service, as appropriate, are expected to be paid over the next 10 fiscal years:

      Benefit
Year ending:   Payments
        2010   $   225
        2011   223
        2012     230
        2013 225
        2014     209
        Years 2015-2019 998

     The assumed health care cost trend rate used in measuring the benefit obligation ranged between 5.0%-9.0% in the first year, declining gradually to 5.0% in 2017 and remaining at 5.0% thereafter.

     If the assumed medical costs trends were increased by 1%, the benefit obligation as of September 30, 2009 would increase by $261, and the aggregate of the services and interest cost components of the net post retirement benefit cost would be increased by $18. If the assumed medical costs trends were decreased by 1%, the benefit obligation as of September 30, 2009 would decrease by $223, and the aggregate of the services and interest cost components of the net post retirement benefit cost would be decreased by $15.

     As part of the strike settlement agreement entered into in August 2003, the Company modified the provisions of the Post Retirement Plan to limit the number of eligible employees to those currently in the plan at August 31, 2002. The plan was further modified so that the benefits for any plan participant who had not retired under the union pension plan as of September 17, 2003 would be limited to a one-time lump sum payment under the plan of $6 at the time of a qualified retirement under the union pension plan.

Other Benefit Plans

     The Company sponsors a matching 401(k) plan for salaried employees and certain union employees, in which eligible employees may elect to contribute a portion of their compensation. The Company suspended the employer match in March 2009 as part of its actions to more closely align operating costs with reduced sales volumes. The employer match was reinstated effective October 1, 2009. Employer matching contributions in fiscal 2009, 2008 and 2007 were $129, $276 and $230, respectively.

     In December 2008, the Company adopted the 2008 Deferred Compensation Plan (the “Plan”). The purpose of the Plan is to (i) provide deferred compensation to select senior management employees of the Company (“Eligible Executives”) and members of the Company’s board of directors, (ii) permit Eligible Executives to elect to defer a percentage of their base compensation and/or bonus compensation, and (iii) permit members of the Company’s board of directors to elect to defer a portion of their board fees. The initial Eligible Executives are Patrick W. Cavanagh, President and Chief Executive Officer, and Dennis E. Bunday, Executive Vice President and Chief Financial Officer. As of September 30, 2009, Mr. Cavanagh and Mr. Bunday have been awarded un-funded, fully-vested deferred compensation of $200 and $75, respectively. Payment of the deferred compensation has not been scheduled.

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Note 9. Income Taxes

     The provision for income tax expense is as follows for the years ended September 30:

2009 2008 2007
Current:                              
       Federal $    (1,312 ) $    2,957 $    3,208
       State   (18 )   467   445
       Foreign   97     31   16
  (1,233 )   3,455   3,669
Deferred:                
       Federal   (69 )   428   560
       State   (233 )   67   78
       Foreign   (142 )    
    (444 )   495   638
Total $ (1,677 ) $ 3,950 $ 4,307

     The reconciliation between the effective tax rate and the statutory federal tax rate on income or loss as a percent is as follows:

Provision         2009       2008       2007
Statutory federal income tax rate     34.0 %        34.0 %        34.0 %   
State taxes, net of federal income tax benefit 3.6 2.6 2.8  
Change in deferred tax assets due to change
       in state tax law 2.1   4.8
Abandonment of state net operating losses       4.8
Impact of foreign operations 9.5 (3.0 ) (0.4 )
Effect of change in valuation allowance (1.3 ) (0.5 ) (9.8 )
Share based compensation (3.7 ) 1.1 0.6
Section 199 deduction (1.4 ) (1.5 ) (0.9 )
Extraterritorial income exclusion (0.8 )
Research and development credits 2.1 0.2 (1.1 )
Other 0.6 0.6 1.2
45.5 % 33.5 % 35.2 %

     At September 30, 2009, the Company had recorded a federal and state income tax receivable of $1,188 and a foreign income tax payable of $90, which are included in other accounts receivable and accrued expenses, respectively, in the accompanying consolidated balance sheets.

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     The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at September 30, 2009 and 2008 are as follows:

      2009       2008
Deferred tax assets:
Inventories $    104 $    147
Warranty liability 262 265
Accrual for compensated absences 111 149
Share based compensation 372 256
Accrual for retiree medical benefits 990 1,087
Loss from investment in affiliate (Ajay Sports, Inc.) 3,889 3,845
Tax gain on sale/leaseback 655 648
Accrued environmental obligations 373 376
Accrued other liabilities 317 293
Pension plan comprehensive loss adjustment 2,001 501
State net operating loss carryforwards 207 92
Other 133 56
Total deferred tax assets 9,414 7,715
Less valuation allowance (5,241 ) (5,216 )
 
Deferred tax assets, net of valuation allowance 4,173 2,499
 
Deferred tax liabilities:
Plant and equipment 575 625
 
Net deferred income tax assets $ 3,598 $ 1,874
 
Current deferred income tax assets $ 1,280 $ 1,316
Long-term deferred income tax assets 8,330 6,412
Long-term deferred income tax liabilities (771 ) (638 )
Valuation allowance (5,241 ) (5,216 )
  $ 3,598 $ 1,874  

     At September 30, 2009, the Company has approximately $4,432 of state net operating loss carry-forwards, which are available to the Company in certain state tax jurisdictions and begin to expire in 2016, if not utilized. The Company has recorded a valuation allowance against state net operating losses that it does not believe are more-likely-than-not to be utilized.

     As of September 30, 2009, the Company had unrecognized tax benefits of $81, of which $54 will favorably affect the effective tax rate, if recognized. Additionally, at September 30, 2009, interest and penalties related to the unrecognized tax benefits were $12. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company believes that it is reasonably possible that unrecognized tax benefits could decrease by $12 within the 12 months of this reporting date.

     Following is a reconciliation of the Company’s unrecognized tax benefits at September 30:

      2009       2008
Beginning Balance $    104   $    109  
       Additions based on tax positions related to the current year     6
       Additions based on tax positions of prior years 63
       Reductions for tax positions of prior years    (23 )  
       Settlements (74 )
Ending Balance $ 81 $ 104  

     During the fourth quarter of fiscal 2008, the Company settled with the State of Oregon on all outstanding examination issues for tax years September 30, 2006 and prior. The settlement did not have a material adverse effect on the Company’s results of operations. The settlement liability was paid in October 2008. The Company is not currently under examination in any other states or foreign jurisdictions.

44


     The Company is subject to income taxes in the United States and foreign jurisdictions, which are subject to examination. The Company is no longer subject to U.S. federal, state or foreign income tax examinations for tax years ended before September 30, 2006, September 30, 2005 and December 31, 2006, respectively. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating loss or credit carryforward amount.

     In the ordinary course of the Company’s business there are transactions where the ultimate tax determination is uncertain. The Company believes that is has adequately provided for income tax issues not yet resolved with federal, state, local and foreign tax authorities. If an ultimate tax assessment exceeds the Company’s estimate of tax liabilities, an additional charge to expense would result.

     Earnings of a foreign subsidiary or affiliate are subject to U.S. taxation when effectively repatriated. U.S. income taxes and foreign withholding taxes have not been provided on undistributed earnings of foreign subsidiaries. The Company intends to reinvest these earnings indefinitely in its foreign subsidiaries. It is not practical to determine the amount of income tax payable in the event the Company repatriated all undistributed foreign earnings. However, if these earnings were distributed to the U.S. in the form of dividends or otherwise, the Company would be subject to additional U.S. income taxes and foreign withholding taxes.

     The Company’s subsidiary in China is entitled to a five-year tax holiday, pursuant to which it was exempted from paying the enterprise income tax for calendar 2007, the year in which it first had positive earnings, and calendar 2008. Additionally, the Company is subject to reduced enterprise income tax rates of 10%, 11% and 12% for the calendar years 2009, 2010 and 2011, respectively.

Note 10. Commitments and Contingencies

     The Company and its subsidiaries are parties to various pending judicial and administrative proceedings arising in the ordinary course of business. The Company’s management and legal counsel have reviewed the probable outcome of these proceedings, the costs and expenses reasonably expected to be incurred, the availability and limits of the Company’s insurance coverage, and the Company’s established liabilities. While the outcome of the pending proceedings cannot be predicted with certainty, based on its review, the Company believes that any unrecorded liability that may result is not more than likely to have a material effect on the Company’s liquidity, financial condition or results of operations.

     The soil and groundwater at the Company’s Portland, Oregon facility contains certain contaminants, which were deposited from approximately 1968 through 1995. Some of this contamination has migrated offsite to neighboring properties. The Company has retained an environmental consulting firm to investigate the extent of the contamination and to determine what remediation will be required and the associated costs. During fiscal 2004, the Company entered into the Oregon Department of Environmental Quality’s voluntary clean-up program and during fiscal 2004 the Company established a liability of $950 for this matter. At September 30, 2007, the Company recorded an additional liability of $546 based on remaining costs estimates determined by the Company with the help of an environmental consulting firm. As of September 30, 2009, the total liability recorded is $1,001 and is recorded in accrued expenses in the accompanying condensed consolidated balance sheet. The Company asserted and settled a contractual indemnity claim against Dana Corporation (“Dana”), from which it acquired the property, and contribution claims against the other prior owner of the property as well as businesses previously located on the property (including Blount, Inc. (“Blount”) and Rosan, Inc. (“Rosan”)) under the Federal Superfund Act and the Oregon Cleanup Law. During 2008, the Company entered into a settlement agreement with Dana, Blount and Rosan under which it received total cash payments from Dana, Blount and Rosan of $735, and shares of Dana stock equal to approximately $337 at the time of settlement, and assumed the full obligation to, and risks associated with, completing the remediation. The Company has recorded a total gain of $1,072 in the consolidated financial statements for the receipt of the cash and stock in fiscal year 2008.

     On October 1, 2004, the Company was named as a co-defendant in a product liability case (Cuesta v. Ford, et al), brought in the Oklahoma State District Court in Bryant, Oklahoma. The complaint seeks an unspecified amount of damages on behalf of the class based on allegations that certain of our products, as incorporated into certain models of Ford motor vehicles, are in some way defective. Following a number of procedural and appellate actions, the court has certified a class action, but no trial date has yet been set. Management believes the claim to be without merit and intends to continue to defend vigorously against this action, but there can be no assurance that the ultimate outcome of the lawsuit will be favorable to the Company or that the defense of the suit or its outcome will not have a material adverse effect on the Company’s business, financial condition and results of operations. The Company cannot reasonably estimate the possible loss or range of loss at this time. In addition, the Company has incurred and may incur future litigation expenses in defending against this litigation.

45


     The Company leases certain facilities under non-cancelable operating leases. In addition, the Company leases certain equipment used in their operations. Future minimum lease payments under all non-cancelable operating leases are approximately as follows for annual periods ending September 30,

2010        $    571
2011 571
2012 439
2013 46
2014   16
       Total $ 1,643

     Rent expense under operating leases was $623, $707 and $436 for the years ended September 30, 2009, 2008 and 2007, respectively.

Note 11. Share Based Compensation

     The Company currently has two qualified stock option plans. The Restated 1993 Stock Option Plan (the “1993 Plan”) reserves an aggregate of 870,000 shares of the Company’s authorized common stock for the issuance of stock options. These shares may be granted to employees, officers and directors of and consultants to the Company. Under the terms of the 1993 Plan, the Company may grant “incentive stock options” or “non-qualified options” with an exercise price of not less than the fair market value on the date of grant. Options granted under the 1993 Plan have a vesting schedule, which is typically five years, determined by the Compensation Committee of the Board of Directors and expire ten years after the date of grant. At September 30, 2009 and 2008, the Company had 137,283 and 123,867 shares, respectively, available for future grants under the 1993 Plan. The non-employee Director Plan (the “1995 Plan”) reserves an aggregate of 86,666 shares of the Company’s common stock for issuance of stock options. These shares may be granted to non-employee directors of the Company. Under this plan the non-employee directors are each automatically granted 1,666 options at a price equal to the market value on the date of grant which is the date of the Annual Meeting of Stockholders each year, exercisable for 10 years after the date of the grant. These options are exercisable as to 25% of the shares thereby on the date of grant and as to an additional 25%, cumulatively on the first, second and third anniversaries of the date of grant. At September 30, 2009 and 2008 there were 20,024 and 28,354 shares, respectively, available for grant under the 1995 Plan.

     As of September 30, 2009, there was $1,300 of total unrecognized compensation costs related to nonvested stock options. That cost is expected to be recognized over a weighted average period of 2.9 years.

     The Company’s share-based compensation expenses were recorded in the following expense categories for the years ended September 30, 2009, 2008 and 2007:

       2009        2008        2007
Cost of sales $    124 $    111 $    74
Research and development 79 73 30
Selling   74 76   62
Administration 455   412 371
Total share-based compensation expense $ 732 $ 672 $ 537
Total share-based compensation
       expense (net of tax) $ 620 $ 572 $ 454

     Included in the above breakdown of share-based compensation expense and as part of the employment agreement with Patrick W. Cavanagh, President and Chief Executive Officer, the Company has the option to pay Mr. Cavanagh up to 7% of his annual base salary in shares of common stock of the Company and exercised that option for each of fiscal years 2009, 2008 and 2007. In the third quarter of fiscal 2009, the Company elected to pay 7% of Mr. Cavanagh’s fiscal 2009 salary in common stock of the Company and issued 3,839 shares of restricted common stock at $5.10 per share. In the third quarter of fiscal 2008, the Company elected to pay 7% of Mr. Cavanagh’s fiscal 2008 salary in common stock of the Company by issuing him 1,364 shares of restricted common stock at $13.34 per share. In the third quarter of fiscal 2007, the Company elected to pay 7% of Mr. Cavanagh’s fiscal 2007 salary in common stock of the Company by issuing him 989 shares of restricted common stock at $16.98 per share.

46


     Also during the third quarter of fiscal 2009, the Company paid $5 of Dennis E. Bunday’s, Executive Vice President and Chief Financial Officer, and $3 of Mark S. Koenen’s, Vice President of Sales and Marketing, salary in common stock of the Company and issued 979 and 587 shares, respectively, of restricted common stock at $5.10 per share. All of the payments of base salary in stock to Mr. Bunday and Mr. Koenen were pursuant to each of their respective employment agreements. During the third quarter of fiscal 2008, the Company paid $5 of Mr. Bunday’s and $3 of Mr. Koenen’s salary in common stock of the Company by issuing them 374 and 224 shares, respectively, of restricted common stock at $13.34 per share. During the third quarter of fiscal 2007, the Company paid $5 of Mr. Bunday’s and $3 of Mr. Koenen’s salary in common stock of the Company by issuing them 294 and 176 shares, respectively, of restricted common stock at $16.98 per share.

     During the first quarter of fiscal 2007, the Company paid bonuses related to fiscal year 2006. As part of the employment agreement with Patrick W. Cavanagh, President and Chief Executive Officer, the Company has the option to pay Mr. Cavanagh a portion of his bonus in shares of common stock of the Company as approved by the Board of Directors. The Company paid $89 of Mr. Cavanagh’s bonus related to fiscal year 2006 in shares of common stock, consisting of 6,401 shares at a price of $13.91 per share.

     The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants issued during the years ended September 30, 2009, 2008 and 2007.

      2009       2008       2007
Risk-free interest rate 2.03% 3.55% 4.46%
Expected dividend yield   0% 0% 0%
Expected term 5.8 years 6.4 years   6.4 years
Expected volatility 46% 68% 80%

     Using the Black-Scholes methodology, the total value of options granted during the years ended September 30, 2009, 2008 and 2007, was $23, $712 and $1,526, respectively, which would be amortized over the vesting period of the options. The weighted average grant date fair value of stock options granted during the years ended September 30, 2009, 2008 and 2007 was $2.32, $8.79 and $12.40 per share, respectively.

     The Company uses the US Treasury (constant maturity) interest rate on the date of grant as the risk-free interest rate. The expected term of options granted represents the weighted average period the stock options are expected to remain outstanding. Expected volatilities are based on the historical volatility of the Company’s common stock and fluctuate based on the changes in price of the Company’s common stock looking back over an equivalent period as the expected term of the new option grant.

     The following table summarizes stock options outstanding as of September 30, 2009:

             Weighted Average
Shares   Exercise Price
Outstanding at September 30, 2008       645,521     $    9.17
Granted 9,996   5.13
Exercised   (41,666 )     3.96
Forfeited (15,082 ) 11.48
Outstanding at September 30, 2009   598,769     $ 9.40
Exercisable at September 30, 2009 417,629 $ 7.76

47


     At September 30, 2009, the weighted average remaining contractual term of options outstanding and options exercisable was 5.9 years and 5.1 years, respectively.

     The aggregate intrinsic value of options outstanding and options exercisable at September 30, 2009 was $1,184 and $1,090, respectively (the intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option). The intrinsic value of all stock options exercised during the years ended September 30, 2009, 2008 and 2007 was $138, $421 and $640, respectively. Cash received from the exercise of stock options for the years ended September 30, 2009, 2008 and 2007 was $165, $173 and $260, respectively.

     Stock option activity during the periods indicated under the 1993 Plan is as follows:

Shares Available Shares Subject
For Grant       To Options       Option Prices
Outstanding at September 30, 2006 138,449 545,436 $    3.96 – 17.25
Granted (113,068 ) 113,068 14.03 – 18.05
Exercised (54,778 ) 3.96 – 15.00
Forfeited 30,090 (30,090 ) 3.96 – 15.00
 
Outstanding at September 30, 2007 55,471 573,636 3.96 – 18.05
Newly authorized 120,000
Granted (71,000 ) 71,000 13.17 – 15.46
Exercised (37,198 ) 3.96 – 14.03
Forfeited 19,396 (19,396 ) 3.96 – 17.25
 
Outstanding at September 30, 2008 123,867 588,042 3.96 – 18.05
Exercised (41,666 ) 3.96
Forfeited 13,416 (13,416 ) 3.96 – 14.03
 
Outstanding at September 30, 2009    137,283        532,960     $ 3.96 – 18.05

     Stock option activity during the periods indicated under the 1995 Plan is as follows:

Shares Available Shares Subject
For Grant       To Options       Option Prices
Outstanding at September 30, 2006    25,014    40,819 $    3.96 –16.13
Granted (9,996 ) 9,996 17.69
Forfeited 1,666 (1,666 ) 15.94
 
Outstanding at September 30, 2007 16,684 49,149 3.96 –17.69
Newly authorized 20,000
Granted (9,996 ) 9,996 15.25
Forfeited 1,666 (1,666 ) 14.64
 
Outstanding at September 30, 2008 28,354 57,479 3.96 –17.69
Granted (9,996 ) 9,996 5.13
Forfeited 1,666 (1,666 ) 16.13
 
Outstanding at September 30, 2009 20,024     65,809     $ 3.96 –17.69

48


     The following table summarizes information about stock options under both plans outstanding at September 30, 2009:

Options Outstanding Options Exercisable
Number Weighted
Outstanding Average Weighted Number Weighted
Range of at Remaining Average Exercisable at Average
Exercise September 30, Contractual Exercise September 30, Exercise
Prices 2009   Life – Years   Price   2009   Price
$    3.96 –   5.13      184,821    4.3   $    4.33      177,321 $    4.30
7.20 – 13.57   277,822   6.1   9.08   180,223   8.13
14.03 – 18.05 136,126   7.6   16.94 60,085     16.89
$ 3.96 – 18.05 598,769 5.9 $ 9.40 417,629 $ 7.76

     At September 30, 2008 and 2007, 362,833 and 316,655 options, respectively, were exercisable at weighted average exercise prices of $6.80 and $6.01 per share, respectively.

Note 12. Geographic Information

     Geographic information for revenues are allocated between the United States and International countries, depending on whether the shipments are to customers within the United States or located outside the United States. Revenues for each geographic location are as follows:

Year ended September 30,         2009       2008       2007
North America (NAFTA):
       United States $    24,289 $    35,240 $    40,545
       Canada 2,146 3,700 5,280
       Mexico 1,257 2,817 3,351
  $ 27,692 $ 41,757 $ 49,176
Europe:
       Belgium $ 2,411 $ 5,544 $ 5,340
       France 1,220 3,256 2,694
       Sweden 1,290 4,038 4,219
       Other 1,016 1,924 1,226
  $ 5,937 $ 14,762 $ 13,479
Asia:
       Korea $ 1,961 $ 3,800 $ 2,743
       China 2,086 3,262 1,270
       Other 806 1,539 1,691
$ 4,853 $ 8,601 $ 5,704
 
Other: 327 661 565
Consolidated net sales $ 38,809 $ 65,781 $ 68,924
 
Foreign sales $ 14,520 $ 30,541 $ 28,379
United States sales   24,289   35,240   40,545
Consolidated net sales $ 38,809   $ 65,781 $ 68,924

49


     During the years ended September 30, 2009, 2008 and 2007, the Company operated in two geographic reportable segments as shown in the table below.

Year ended September 30,         2009       2008       2007
Revenue – External Customers:
       United States $    36,800 $    62,516 $    68,034  
       China 2,009 3,265 890
$ 38,809 $ 65,781 $ 68,924
Revenue – Intersegments:
       United States $ 480 $ 1,472 $ 3,288
       China 7,217 12,177 9,452
       Other 602 626 512
       Eliminations (8,299 ) (14,275 ) (13,252 )
$ $ $
Income before income taxes:
       United States $ (4,585 ) $ 10,642 $ 12,059
       China 860 1,085 143
       Other 39 53 42
$ (3,686 ) $ 11,780 $ 12,244
Total assets:
       United States $ 31,745 $ 34,579 $ 27,945
       China 5,723 5,887 4,242
       Other 127 142   116
$ 37,595 $ 40,608 $ 32,303
Long-lived assets:    
       United States $ 7,823 $ 8,257 $ 8,141
       China   1,384     1,316 1,391
       Other 54 48   44
$ 9,261 $ 9,621 $ 9,576

Note 13. Employment Agreements

     In January 2008, the Company entered into an employment agreement with Scott J. Thiel, Vice President of Engineering and Development. The contract specifies an initial base salary per year, plus a bonus based on parameters established by the board of directors. The agreement also provides for a one-year severance payment under certain circumstances in the event the Company terminates his employment.

     In March 2007, the Company entered into employment agreements with Dennis E. Bunday, its Executive Vice President and Chief Financial Officer, Mark S. Koenen, Vice President of Sales and Marketing and Gary A. Hafner, Vice President of Manufacturing. The contracts specify an initial base salary per year, plus bonuses based on parameters established by the board of directors. The agreements also provide for a one-year severance payment under certain circumstances in the event the Company terminates their employment.

     On October 1, 2004, the Company entered into an employment agreement with Patrick W. Cavanagh for the position of President and Chief Executive Officer. The contract specifies an initial base salary per year, bonus parameters established by the board of directors, relocation assistance and stock options grants to be made in fiscal 2005. The agreement also provides for severance payments under certain circumstances in the event the Company terminates his employment.

Note 14. Stock Repurchase Program

     In October 2008, the Company’s Board of Directors authorized the purchase, from time to time, of up to $5,000 of shares of the Company’s common stock. Repurchases may be made in the open market or through block trades, in compliance with Securities and Exchange Commission guidelines, subject to market conditions, applicable legal requirements and other factors. The Company has no obligation to repurchase shares under the repurchase program and the timing, actual number and price of shares to be purchased will depend on the performance of the Company’s stock price, general market conditions, and various other factors within the discretion of management. As of September 30, 2009, the Company has repurchased 310,893 shares of common stock at a total value of $2,357. The Company purchased no shares under the share repurchase program in the third and fourth quarters of fiscal 2009.

Note 15. Subsequent Events

     In May 2009, the FASB issued authoritative guidance which requires disclosure of the date through which subsequent events have been evaluated, as well as whether the date is the date the financial statements were issued or the date the financial statements were available to be issued. The Company has evaluated subsequent events through December 15, 2009, the date the financial statements were issued. The Company noted no significant subsequent events have occurred through this date requiring adjustment to the financial statements or disclosures.

50


Note 16. Quarterly Data (unaudited)

     The following table summarizes the Company’s quarterly financial data for the past two fiscal years ended September 30, 2009 and 2008:

First Second Third Fourth
2009       Quarter       Quarter       Quarter       Quarter       Annual
       Net sales $    10,691 $    9,131 $    8,444 $    10,543 $    38,809
       Cost of sales 8,137 7,908 6,536 7,592 30,173
       Gross profit $ 2,554 $ 1,223 $ 1,908 $ 2,951 $ 8,636
       Operating expenses $ 3,463 $ 3,104 $ 2,541 $ 2,820 $ 11,928
Net income (loss) $ (841 ) $ (1,200 ) $ (333 ) $ 365 $ (2,009 )
Earnings per common share
       Basic $ (0.11 ) $ (0.17 ) $ (0.05 ) $ 0.05 $ (0.27 )
       Diluted $ (0.11 ) $ (0.17 ) $ (0.05 ) $ 0.05 $ (0.27 )

First Second Third Fourth
2008       Quarter       Quarter       Quarter       Quarter       Annual
       Net sales $    14,972 $    16,484 $    17,137 $    17,188 $    65,781
       Cost of sales 10,085 10,858 10,965 11,052 42,960
       Gross profit $ 4,887 $ 5,626 $ 6,172 $ 6,136 $ 22,821
       Operating expenses   $ 3,089 $ 2,004 $ 3,010 $ 3,067 $ 11,170
Net income $ 1,156 $ 2,480 $ 2,197 $ 1,997 $ 7,830
Earnings per common share
       Basic $ 0.15 $ 0.33   $ 0.29   $ 0.27 $ 1.04
       Diluted $ 0.15   $ 0.32 $ 0.28 $ 0.26   $ 1.01

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     Not applicable.

ITEM 9A(T). CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

     The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Design and Evaluation of Internal Controls Over Financial Reporting

Report of Management

     Our management is responsible for establishing and maintaining adequate internal control over financial reporting. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

     Under the supervision and with the participation of our management, we assessed the effectiveness of our internal control over financial reporting as of September 30, 2009. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework. Based on our assessment we believe that, as of September 30, 2009, the Company’s internal control over financial reporting are effective based on those criteria.

     This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

     There has been no change in the Company’s internal control over financial reporting that occurred during our fiscal quarter ended September 30, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

     Not applicable.

52


PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

     Information with respect to our directors and executive officers is incorporated herein by reference to the sections entitled “Election of Directors” and “Management” in our proxy statement for our 2010 Annual Meeting of Stockholders (the “2009 Proxy Statement”) to be filed with the Securities and Exchange Commission no later than 120 days after the end of our fiscal year ended September 30, 2009.

ITEM 11. EXECUTIVE COMPENSATION

     The section of our 2009 Proxy Statement entitled “Executive Compensation” is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

     The section of our 2009 Proxy Statement entitled “Securities Ownership of Certain Beneficial Owners and Management” is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

     The section of our 2009 Proxy Statement entitled “Certain Relationships and Related Party Transactions” is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The section of our 2009 Proxy Statement entitled “Independent Registered Public Accounting Firm” is incorporated herein by reference.

53


PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

     (a) The following documents are filed as part of this report:

          

(1) Financial Statements - See “Index to Financial Statements” at Item 8 on page 24 of this Annual Report on Form 10-K.

(2) Financial Statement Schedules - All financial statement schedules are omitted either because they are not required, not applicable or the required information is included in the financial statements or notes thereto.

(3) Exhibits - See “Exhibit Index” beginning on page 56.

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

WILLIAMS CONTROLS, INC.

Date:      December 15, 2009  By      / s / PATRICK W. CAVANAGH 
      Patrick W. Cavanagh, Director, President and
      Chief Executive Officer 

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Date:      December 15, 2009  By      / s / R. EUGENE GOODSON 
      R. Eugene Goodson, Chairman of the Board 
 
Date:  December 15, 2009  By  / s / PATRICK W. CAVANAGH 
      Patrick W. Cavanagh, Director, President and
      Chief Executive Officer 
 
Date:  December 15, 2009  By  / s / DENNIS E. BUNDAY 
      Dennis E. Bunday, Executive Vice President,
      Chief Financial Officer and
Principal Accounting Officer 
 
Date:  December 15, 2009  By  / s / H. SAMUEL GREENAWALT 
      H. Samuel Greenawalt, Director 
 
Date:  December 15, 2009  By  / s / DOUGLAS E. HAILEY 
      Douglas E. Hailey, Director 
 
Date:  December 15, 2009  By  / s / CARLOS P. SALAS 
      Carlos P. Salas, Director 
 
Date:  December 15, 2009  By  / s / PETER E. SALAS 
      Peter E. Salas, Director 
 
Date:  December 15, 2009  By  / s / DONN J. VIOLA 
      Donn J. Viola, Director 

55


Williams Controls, Inc.
Exhibit Index

     Exhibit    
     Number     Description
   

3.01(a)

       

Certificate of Incorporation of the Registrant, as amended (Incorporated by reference to Exhibit 3.01 (a) to the Registrant’s quarterly report on Form 10-Q for the quarter ended December 31, 2006)

 

3.01(b)

Certificate of Amendment to Certificate of Incorporation of the Registrant, dated February 27, 1995 (Incorporated by reference to Exhibit 3.01 (b) to the Registrant’s quarterly report on Form 10-Q for the quarter ended December 31, 2006)

 

3.01(c)

Certificate of Amendment to Certificate of Incorporation of the Registrant, dated October 28, 2004 (Incorporated by reference to Exhibit 3.01 (c) to the Registrant’s quarterly report on Form 10-Q for the quarter ended December 31, 2006)

 

3.01(d)

Certificate of Amendment to Certificate of Incorporation of the Registrant, dated February 22, 2005 (Incorporated by reference to Exhibit 3.01 (d) to the Registrant’s quarterly report on Form 10-Q for the quarter ended December 31, 2006)

 

3.01(e)

Certificate of Amendment to Certificate of Incorporation of the Registrant, dated March 2, 2006 (Incorporated by reference to Exhibit 3.01 (e) to the Registrant’s quarterly report on Form 10-Q for the quarter ended December 31, 2006)

 
3.02 Restated By-Laws of the Registrant as amended July 1, 2002 (Incorporated by reference to Exhibit 3.6 to the Registrant's quarterly report on Form 10-Q, Commission File No. 000-18083, for the quarter ended June 30, 2002)
 
4.01 Specimen Unit Certificate (including Specimen Certificate for shares of Common Stock and Specimen Certificate for the Warrants) (Incorporated by reference to Exhibits 1.1 and 1.2 to the Registrant's Registration Statement on Form 8-A, Commission File No. 000-18083, filed with the Commission on November 1, 1989)
 
4.07 Certificate to Provide for the Designation, Preferences, Rights, Qualifications, Limitations or Restrictions Thereof, of the Series C Preferred Stock, 15% Redeemable Non-Convertible Series (Incorporated by reference to the Registrant’s report on Form 8-K, filed on September 29, 2004)
 
10.01(a)

Form of Indemnification Agreement for H. Samuel Greenawalt (Incorporated by reference to Exhibit 10.1(c) to the Registrant's annual report on Form 10-K for the fiscal year ended September 30, 1993, Commission File No. 0-18083, filed with the Commission on November 1, 1989)

 
10.01(b)

Form of Indemnification Agreement for Douglas E. Hailey (Incorporated by reference to Exhibit 10.1(a) to the Registrant's quarterly report on Form 10-Q for the quarter ended December 31, 2001)

 
10.02 The Registrant’s 1995 Stock Option Plan for Non-Employee Directors (Filed herewith)
 
10.03 The Registrant’s Restated 1993 Stock Option Plan (Filed herewith)
 
10.05 Management Services Agreement, dated as of July 1, 2002, by and among American Industrial Partners, a Delaware general partnership, and the Company (Incorporated by reference to Exhibit (d)(ix) to the Schedule TO-I/A filed on July 5, 2002)

56



     10.10        Credit Agreement, dated September 27, 2004, among Williams, Williams Controls Industries, Inc., a wholly-owned subsidiary of Williams, and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services, Inc. (Incorporated by reference to the Registrant’s report on Form 8-K, filed on September 29, 2004)
                     
10.11   Amended and Restated Management Services Agreement, dated September 30, 2004, among Williams, American Industrial Partners and Dolphin Advisors, LLC (Incorporated by reference to the Registrant’s report on Form 8-K, filed on September 29, 2004)
 
10.12   Employment Agreement with Dennis E. Bunday, Executive Vice President and Chief Financial Officer (Incorporated by reference to the Registrant’s report on Form 10-K, filed on December 14, 2007)
 
10.13   Employment Agreement with Patrick W. Cavanagh, President and Chief Executive Officer (Incorporated by reference to the Registrant’s report on Form 10-K, filed on December 14, 2006)
 
10.14   Revised Code of Ethics (Incorporated by reference to the Registrant’s report on Form 8-K, filed on October 3, 2006)
 
10.15   Employment Agreement with Mark S. Koenen, Vice President of Sales and Marketing (Incorporated by reference to the Registrant’s report on Form 10-K, filed on December 14, 2007)
 
10.16   Employment Agreement with Gary A. Hafner, Vice President of Manufacturing (Incorporated by reference to the Registrant’s report on Form 10-K, filed on December 14, 2007)
 
10.17   Employment Agreement with Scott J. Thiel, Vice President of Engineering and Development (Filed Herewith)
 
21.01   Schedule of Subsidiaries (Filed Herewith)
 
23.01   Consent of Moss Adams LLP, Independent Registered Public Accounting Firm (Filed herewith)
 
31.01   Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) (Filed herewith)
 
31.02   Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) (Filed herewith)
 
32.01   Certification of Patrick W. Cavanagh Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
32.02   Certification of Dennis E. Bunday Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

57


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M_6O169HEA:E:=IEA87>L7JHMYJUS9VD5O/J5VL?[M;F^EC> MZG6/Y!+*X7Y<5IT`%%%%`!1110`4444`%%%%`!1110`4444`%%%%`!1110`4 M444`%%%%`!1110`4444`%%%%`!1110`4444`%%%%`!1110`4444`%%%%`!11 M10`4444`%%%%`!1110`4444`%%%%`!1110`4444`%%%%`!1110`4444`%%%% @`!1110`4444`%%%%`!1110`4444`%%%%`!1110!__]D_ ` end EX-10.02 3 exhibit10-02.htm THE REGISTRANT'S 1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS

Exhibit 10.02

WILLIAMS CONTROLS, INC.
1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS

     1. Purpose; Restrictions on Amount Available Under the Plan.

     This 1995 Formula Stock Option Plan (the "Plan") is intended to encourage stock ownership by directors of WILLIAMS CONTROLS, INC. (the "Corporation") who are not employees of the Corporation and thereby to induce qualified persons to be willing to serve in such capacity. It is intended that options granted under this Plan shall constitute "non-statutory stock options" ("Options").

     2. Definitions. As used in this Plan, the following words and phrases shall have the meanings indicated:

     (a) "Disability" shall mean a Recipient's inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months.

     (b) "Market Value" per share as of a particular date shall mean the last sale price of the Corporation's Common Stock as reported on a national securities exchange or on the NASDAQ National Market System or, if a last sale reporting quotation is not available for the Corporation's Common Stock, the average of the bid and asked prices of the Corporation's Common Stock as reported by NASDAQ or on the electronic bulletin board, or if not so reported, as listed in the National Quotation Bureau, Inc.'s "Pink Sheets" or, if such quotations are unavailable, the value determined by the Board in accordance with their discretion in making a bona fide, good faith determination of fair market value. Market Value shall be determined without regard to any restriction other than a restriction which, by its terms, will never lapse.

     (c) "Internal Revenue Code" shall mean the United States Internal Revenue Code of 1986, as amended from time to time (codified at Title 26 of the United States Code) (the "Internal Revenue Code"), and any successor legislation.

     3. Administration.

     (a) The Plan shall be administered by the Board of Directors (the "Board"), but this Plan is intended to be a "formula plan" as that term is defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "1934 Act"). It is intended, therefore, that Options granted hereunder qualify as exempt purchases under Rule 16b-3 of the 1934 Act.

     (b) The Board shall have the authority in its discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including (without limitation) the authority to: determine who qualifies for the receipt of Options; to determine the purchase price of the shares of Common Stock covered by each Option pursuant to the formula (the "Option Price"); to interpret the Plan; to prescribe, amend and rescind rules and regulations relating to the Plan provided such actions are consistent with this Plan; and to make all other determinations deemed necessary or advisable for the administration of the Plan.

     (c) Because this Plan is intended to be a formula plan, Options granted under the Plan need not be evidenced by duly adopted resolutions of the Board.

     (d) The Board shall endeavor to administer the Plan and grant Options hereunder in a manner that is compatible with the obligations of persons subject to Section 16 of the 1934 Act, although compliance with Section 16 is the obligation of the Recipient, not the Corporation. Neither the Board nor the Corporation assumes any responsibility for a Recipient's compliance with his obligations under Section 16 of the 1934 Act.


     (e) No member of the Board shall be liable for any action taken or determination made in good faith with respect to the Plan or any Option granted hereunder.

     4. Eligibility.

     Only directors of the Corporation who are not employees of the Corporation are eligible to receive Options granted pursuant hereto. A Recipient shall be eligible to receive more than one grant of an Option during the term of the Plan, on the terms and subject to the restrictions herein set forth.

     5. Stock Reserved.

     (a) The stock subject to Options hereunder shall be shares of the Corporation's Common Stock, $.01 par value per share ("Common Stock"). Such shares may, in whole or in part, be authorized but unissued shares or shares that shall have been or that may be reacquired by the Corporation. The aggregate number of shares of Common Stock as to which Options may be granted from time to time under the Plan shall not exceed 86,666. The limitation established by the preceding sentences shall be subject to adjustment as provided in Section 6(g) hereof.

     (b) If any outstanding Option under the Plan for any reason expires or is terminated without having been exercised in full the shares of Common Stock allocable to the unexercised portion of such Option shall become available for subsequent grants of Options under the Plan, unless the Plan shall have been terminated.

     6. Terms and Conditions of Options. Each Option granted pursuant to the Plan shall be evidenced by a written Option Agreement between the Corporation and the Recipient, which agreement shall be substantially in the form of Exhibit "A" attached hereto as modified from time to time by the Board in its discretion, and which shall comply with and be subject to the following terms and conditions:

     (a) Grant. Each Recipient who is a director and not an employee of the Corporation on the date of the Corporation's annual (or special in lieu of annual) meeting of stockholders (the "Date of Grant") shall be automatically granted an Option to acquire 1,666 shares of Common Stock exercisable at the Option Price described in paragraph 6(c), exercisable for ten years from the Date of Grant, subject to the other terms and conditions hereof.

     (b) Vesting. Subject to earlier termination or acceleration as provided herein, each Option granted under this Plan is subject to the following vesting schedule: (i) 25% of the Option shall be exercisable on the Date of Grant; (ii) cumulatively an additional 25% of the Option shall become exercisable on the first anniversary of the Date of Grant; (ii) cumulatively an additional 25% of the Option shall become exercisable on the second anniversary of the Date of Grant; and (iii) cumulatively the remaining 25% of the Option shall become exercisable on the third anniversary of the Date of Grant.

     (c) Option Price. Options granted under this Plan will have an Option Price equal to 100% of the Market Price on the Date of Grant. The Option Price shall be subject to adjustment as provided in Section 6(g) hereof. 


     (d) Method of Exercise and Medium and Time of Payment. (i) An Option may be exercised, as to any or all whole shares of Common Stock as to which the Option has become exercisable. (ii) Each exercise of an Option granted hereunder, whether in whole or in part, shall be by written notice to the Secretary of the Corporation designating the number of shares as to which the Option is exercised, and shall be accompanied by payment in full of the Option Price for the number of shares so designated, together with any written statements reasonably required by the Corporation in order to fulfill its obligations under any applicable securities laws. (iii) The Option Price shall be paid in cash, in shares of Common Stock having a market value equal to such Option Price or in property or in a combination of cash, shares and property, and (subject to approval of the Board of Directors) may be effected in whole or in part (A) with monies received from the Corporation at the time of exercise as a compensatory cash payment, or (B) with monies borrowed from the Corporation pursuant to repayment terms and conditions as shall be determined from time to time by the Board, in its discretion, separately with respect to each exercise of Options and each Recipient; provided, however, that each such method and time for payment and each such borrowing and terms and conditions of repayment shall be permitted by and be in compliance with applicable law. (iv) The Board of Directors shall have the sole and absolute discretion to determine whether or not property other than cash or Common Stock may be used to satisfy the Option Price and, if so, to determine the value of the property received.

     (e) Termination. Except as provided in this Section 6(d) and in Section 6(e) hereof, an Option may not be exercised unless the Recipient is then a director of the Corporation, and unless the Recipient has remained continuously as a director of the Corporation since the Date of Grant of the Option.

     (i) If the Recipient ceases to be director of the Corporation because the Recipient resigned or declined to stand for reelection as a director, all Options of such Recipient that are exercisable at the time of such cessation shall terminate three months after the date of such cessation.

     (ii) If the Recipient ceases to be a director of the Corporation because the Recipient is removed for cause, all Options granted to such Recipient but not thereto exercised shall terminate on the effective date of the Recipient's removal. 

     (iii) Nothing in the Plan or in any Option granted pursuant hereto shall confer upon an individual any right to continue as a director of the Corporation.

     (f) Death, Disability or Retirement of Recipient. If a Recipient shall die while a director of the Corporation or if the Recipient's directorship shall terminate by reason of Disability, all Options theretofore granted to such Recipient (whether or not otherwise exercisable; unless earlier terminated in accordance with their terms), may be exercised by the Recipient or by the Recipient's estate or by a person who acquired the right to exercise such Option by bequest or inheritance or otherwise by reason of the death or Disability of the Recipient, at any time within one year after the date of death or Disability of the Recipient.

     (g) Transferability Restriction. Options granted under the Plan shall not be transferable other than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder. Options may be exercised, during the lifetime of the Recipient, only by the Recipient and thereafter only by his legal representative. Any attempted sale, pledge, assignment, hypothecation or other transfer of an Option contrary to the provisions hereof and the levy of any execution, attachment or similar process upon an Option shall be null and void and without force or effect and shall result in termination of the Option.

     (ii) As a condition to the transfer of any shares of Common Stock issued upon exercise of an Option granted under this Plan, the Corporation may require an opinion of counsel, satisfactory to the Corporation, to the effect that such transfer will not be in violation of the Securities Act of 1933 or any other applicable securities laws or that such transfer has been registered under federal and all applicable state securities laws.


     (iii) Further, the Corporation shall be authorized to refrain from delivering or transferring shares of Common Stock issued under this Plan until the Board of Directors determines that such delivery or transfer will not violate applicable securities laws and the Recipient has tendered to the Corporation any federal, state or local tax owed by the Recipient as a result of exercising the Option, or disposing of any Common Stock, when the Corporation has a legal liability to satisfy such tax. 

     (iv) The Corporation shall not be liable for damages due to delay in the delivery or issuance of any stock certificate for any reason whatsoever, including, but not limited to, a delay caused by listing requirements of any securities exchange or the National Association of Securities Dealers, or any registration requirements under the Securities Act of 1933, the 1934 Act, or under any other state or federal law, rule or regulation. 

     (v) The Corporation is under no obligation to take any action or incur any expense in order to register or qualify the delivery or transfer of shares of Common Stock under applicable securities laws or to perfect any exemption from such registration or qualification. 

     (vi) The Corporation will have no liability to any Recipient for refusing to deliver or transfer shares of Common Stock if such refusal is based upon the foregoing provisions of this Paragraph.

     (h) Effect of Certain Changes.

     (ii) If there is any change in the number of outstanding shares of Common Stock through the declaration of stock dividends, or through recapitalization resulting in stock splits, or combinations or exchanges of such shares, the number of shares of Common Stock available for Options, the number of such shares covered by outstanding Options, and the price per share of such Options, shall be proportionately adjusted by the Board to reflect any increase or decrease in the number of issued shares of Common Stock; provided, however, that any fractional shares resulting from such adjustment shall be eliminated. 

     (iii) In the event of the proposed dissolution or liquidation of the Corporation, in the event of any corporate separation or division, including, but not limited to, split-up or spin-off, or in the event of a merger or consolidation of the Corporation with another corporation, the Board may provide that the holder of each Option then exercisable shall have the right to exercise such Option (at its then Option Price) solely for the kind and amount of shares of stock and other securities, property, cash or any combination thereof which would be receivable upon such dissolution, liquidation, or corporate separation or division, or merger or consolidation by a holder of the number of shares of Common Stock for which such Option might have been exercised immediately prior to such event; or the Board may provide, in the alternative, that each Option granted under the Plan shall terminate as of a date to be fixed by the Board; provided, however, that not less than 30 days' written notice of the date so fixed shall be given to each Recipient, who shall have the right, during the period of 30 days preceding such termination, to exercise the Options as to all or any part of the shares of Common Stock covered thereby, including shares as to which such Options would not otherwise be exercisable.

     (iv) Paragraph (ii) of this Section 6(g) shall not apply to a merger or consolidation in which the Corporation is the surviving corporation and shares of Common Stock are not converted into or exchanged for stock, securities of any other corporation, cash or any other thing of value. Notwithstanding the preceding sentence, in case of any consolidation or merger of another corporation into the Corporation in which the Corporation is the surviving corporation and in which there is a reclassification or change (including a change which results in the right to receive cash or other property) of the shares of Common Stock (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in such shares into two or more classes or series of shares), the Board may provide that the holder of each Option then exercisable shall have the right to exercise such Option solely for the kind and amount of shares of stock and other securities (including those of any new direct or indirect parent of the Corporation), property, cash or any combination thereof receivable upon such reclassification, change, consolidation or merger by the holder of the number of shares of Common Stock for which such Option might have been exercised.


     (v) Notwithstanding paragraph (ii) of this Section 6(g), in the event of any merger or consolidation in which the Corporation is not the surviving corporation or any sale or transfer by the Corporation of all or substantially all its assets or any tender offer or exchange offer for or the acquisition, directly or indirectly, by any person or group of all or a majority of the then outstanding voting securities of the Corporation, all Options granted under the Plan shall become exercisable in full, notwithstanding any other provision of the Plan or of any outstanding Options granted thereunder, including provisions providing for staggered vesting of options, on and after (i) the fifteenth day prior to the effective date of such merger, consolidation, sale, transfer or acquisition or (ii) the date of commencement of such tender offer or exchange offer, as the case may be. Notwithstanding the foregoing, in no event shall any Option be exercisable after the date of termination of the exercise period of such Option specified in Sections 6(d) or 6(e), as applicable.

     (vi) In the event of a change in the Common Stock of the Corporation as presently constituted, which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of the Plan 

     (vii) To the extent that the foregoing adjustments relate to stock or securities of the Corporation, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. (vi) Except as expressly provided in this Section 6(g), the Recipient shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger, consolidation or split-up or spin-off of assets or stock of another corporation; and any issue by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to the Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or part of its business or assets.

     (viii) Neither a person to whom an Option is granted, nor such person's legal representative, heir, legatee or distributee, shall be deemed to be the holder of, or to have any rights of a holder with respect to, any shares of Common Stock subject to such Option, until after the Option is exercised and the shares are issued to the person exercising such Option.


     (ix) Upon exercise of an Option at a time when there is no registration statement in effect under the Securities Act of 1933 relating to the shares issuable upon exercise, shares may be issued to the Recipient only if the Recipient represents and warrants in writing to the Corporation that the shares purchased are being acquired for investment and not with a view to the distribution thereof. A form of subscription agreement is attached hereto as Exhibit B.

     (x) No shares shall be issued upon the exercise of an Option unless and until there shall have been compliance with any then applicable requirements of the Securities and Exchange Commission, or any other regulatory agency having jurisdiction over the Corporation. 

     (xi) No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distribution or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 6(g) hereof.

     (xii) Other Provisions. Option Agreements authorized under the Plan shall contain such other provisions, including, without limitation, the imposition of restrictions upon the exercise of an Option, as the Board shall deem advisable.

     7. Agreement by Recipient Regarding Taxes.

     (a) Each Recipient agrees that the Corporation, to the extent permitted or required by law, shall deduct a sufficient number of shares due to the Recipient upon exercise of the Option to allow the Corporation to pay federal, state and local taxes of any kind required by law to be withheld upon the exercise of such Option from any payment of any kind otherwise due to the Recipient. The Corporation shall not be obligated to advise any Recipient of the existence of any tax or the amount which the Corporation will be so required to withhold.

     (b) Each Option Recipient must acknowledge the possible availability of an election under Section 83(b) of the Code, or any successor provision.

     8. Term of Plan. Options may be granted pursuant to the Plan from time to time within a period of ten years following February 11, 2000, which amendment was subsequently approved by the shareholders on March 24, 2000.

     9. Amendment and Termination of the Plan.

     (a) The Board at any time and from time to time may terminate, modify or amend the Plan; provided, however, that any amendment that would:

     (ii) materially increase the number of securities issuable under the Plan to persons who are subject to Section 16(a) of the 1934 Act; or 

     (iii) grant eligibility to a class of persons who are subject to Section 16(a) of the 1934 Act not included within the terms of the Plan prior to the amendment;

     (iv) materially increase the benefits accruing under the Plan to persons who are subject to Section 16(a) of the 1934 Act; or

 


     (v) require shareholder approval under applicable state law, the rules and regulations of any national securities exchange on which the Corporation's securities then may be listed, the Internal Revenue Code or any other applicable law, shall be subject to the approval of the shareholders of the Corporation as provided in Section 10 hereof provided further that any such increase or modification that may result from adjustments authorized by Section 6(g) hereof or which are required for compliance with the 1934 Act, the Internal Revenue Code, the Employee Retirement Income Security Act of 1974, their rules or other laws or judicial order, shall not require approval of shareholders.

     (b) Except as provided in Section 6 hereof, no termination, modification or amendment of the Plan may adversely affect any Option previously granted, unless the written consent of the Recipient is obtained.

     10. Approval of Shareholders. The Plan shall take effect upon its adoption by the Board but shall be subject to approval at a duly called and held meeting of shareholders in conformance with the vote required by the Corporation's charter documents, resolution of the Board, any other applicable law and the rules and regulations thereunder, or the rules and regulations of any national securities exchange upon which the Corporation's Common Stock is listed and traded, each to the extent applicable. No Option granted prior to the approval of this Plan by the shareholders of the Corporation shall be effective until after such approval has been obtained.

     11. Assumption. The terms and conditions of any outstanding Options granted pursuant to this Plan shall be assumed by, be binding upon and inure to the benefit of any successor corporation to the Corporation and shall continue to be governed, to the extent applicable, by the terms and conditions of this Plan. Such successor corporation shall not otherwise be obligated to assume this Plan.

     12. Termination of Right of Action. Every right of action arising out of or in connection with the Plan by or on behalf of the Corporation, or by any shareholder of the Corporation against any past, present or future member of the Board, or against any employee, or by an employee (past, present or future) against the Corporation, will, irrespective of the place where an action may be brought and irrespective of the place of residence of any such shareholder, director or employee, cease and be barred by the expiration of three years from the date of the act or omission in respect of which such right of action is alleged to have risen.

     13. Adoption. This Plan was approved by the shareholders of the Corporation at a meeting on, February 22, 1995, and at that time made available 33,333 shares of Common Stock. The Plan was then amended to increase the available shares to 66,666, which amendment was approved by shareholders on March 24, 2000. The Plan was also amended to increase the available shares to 86,666, which amendment was approved by shareholders on February 27, 2008. (All applicable share counts have been restated for the 1 for 6 stock split approved by shareholders on March 2, 2006.)


EX-10.03 4 exhibit10-03.htm THE REGISTRANT'S RESTATED 1993 STOCK OPTION PLAN (FILED HEREWITH)

Exhibit 10.03

WILLIAMS CONTROLS, INC.
RESTATED 1993 STOCK OPTION PLAN

     This Williams Controls, Inc. Restated 1993 Stock Option Plan (this "Plan") is intended to encourage stock ownership by employees, officers and directors (whether or not they are employees) of and consultants to Williams Controls, Inc. (the "Corporation"), its divisions, Subsidiary corporations and Parent corporations, so that they may acquire or increase their proprietary interest in the Corporation, which will enable the Corporation to (i) induce qualified persons to become employees, officers or directors of, or consultants to, the Corporation; (ii) reward employees, directors, and consultants for past services to the Corporation; and (iii) encourage such persons to remain in the employ of, or associated with, the Corporation and to put forth maximum efforts for the success of the business of the Corporation. This Plan was originally adopted September 20, 1993, subsequently amended to increase the number of shares available under this Plan, and is now being restated, in its entirety, to incorporate various changes.

     It is intended that options granted by the Committee pursuant to Section 5(a) of this Plan shall constitute "incentive stock options" ("Incentive Stock options") within the meaning of Section 422 of the Code, and options granted by the Committee pursuant to Section 6(b) of this Plan shall constitute "non-qualified stock options" ("Non-qualified Stock Options").

     1. Definitions. As used in this Plan, the following words and phrases shall have the meanings indicated:

     (a) "Board" means the Board of Directors of the Corporation.

     (b) "Code" means Internal Revenue Code of 1986, as amended from to time.

     (c) "Committee" means the Compensation Committee appointed by the Board, if one has been appointed. If no Committee has been appointed, the term "Committee" shall mean the Board.

     (d) "Common Stock" means the Corporation's $.01 par value common stock.

     (e) "Disability" means a Recipient's inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months, or such other meaning ascribed in Section 22(e)(3) or any successor provision of the Code. If the Recipient has a disability insurance policy, the term "Disability" shall be as defined therein; provided that said definition is not inconsistent with the meaning ascribed in Section 22(e)(3) or any successor provision of the Code.

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     (f) "Exchange Act" means Securities Exchange Act of 1934, as amended from time to time.

     (g) "Fair Market Value" per share as of a particular date means the last sale price of the Corporation's Common Stock as reported on a national securities exchange or on the NASDAQ National Market System or, if the quotation for the last sale reported is not available for the Corporation's Common Stock, the average of the closing bid and asked prices of the Corporation's Common Stock as reported by NASDAQ or on the electronic bulletin board or, if none, the National Quotation Bureau, Inc.'s "Pink Sheets" or, if such quotations are unavailable, the value determined by the Committee in accordance with its discretion in making a bona fide, good faith determination of fair market value. Fair Market Value shall be determined without regard to any restriction other than a restriction which, by its terms, never will lapse.

     (h) "Option" means either an Incentive Stock Option or a Non-qualified Stock Option, or either or both of them.

     (i) "Option Price" means the purchase price of the shares of Common Stock covered by an Option determined in accordance with Section 6(c) hereunder.

     (j) "Parent" means any corporation which is a "parent corporation" as defined in Section 424(e) of the Code, with respect to the Corporation.

     (k) "Plan" means this Restated 1993 Stock Option Plan.

     (1) "Recipient" means any person granted an Option hereunder.

     (m) "Securities Act" means the Securities Act of 1933, as amended from time to time.

     (n) "Subsidiary" means any corporation which is a "subsidiary corporation" as defined in Section 424(f) of the Code, with respect to the Corporation.

     2. Administration.

     (a) The Plan shall be administered by the Committee. The Committee shall have the authority in its discretion, subject to and not inconsistent with the express provisions of this Plan, to administer this Plan and to exercise all the powers and authorities either specifically conferred under this Plan or necessary or advisable in the administration of this Plan, including the authority to grant Options; to determine which Options shall be Incentive Stock Options and which shall be Non-qualified Stock Options; to determine the vesting schedules and other restrictions, if any, relating to Options; to determine the Option Price; to determine the persons to whom, and the time or times at which, Options shall be granted; to determine the number of shares to be covered by each Option; to determine Fair Market Value per share; to interpret this Plan; to prescribe, amend and rescind rules and regulations relating to this Plan; to determine the terms and provisions of the Option agreements (which need not be identical) entered into in connection with Options granted under this Plan; and to make all other determinations deemed necessary or advisable for the administration of this Plan. The Committee may delegate to one or more of its members or to one or more agents such administrative duties as it may deem advisable, and the Committee or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under this Plan.

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     (b) Options granted under this Plan shall be evidenced by duly adopted resolutions of the Committee included in the minutes of the meeting at which they are adopted or in a unanimous written consent.

     (c) With respect to persons subject to Section 16 of the Exchange Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or any successor regulation under the Exchange Act. To the extent any provision of this Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. Any Option granted hereunder which would subject or subjects the Recipient to liability under Section 16(b) of the Exchange Act is void ab initio as if it had never been granted.

     (d) No member of the Committee or the Board shall be liable for any action taken or determination made in good faith with respect to this Plan or any Option granted hereunder.

     3. Eligibility.

     (a) Subject to certain limitations hereinafter set forth, Options may be granted to employees, officers and directors (whether or not they are employees) of, and consultants to, the Corporation. In determining the persons to whom Options shall be granted and the number of shares to be covered by each Option, the Committee shall take into account the duties of the respective persons, their present and potential contributions to the success of the Corporation and such other factors as the Committee shall deem relevant to accomplish the purposes of this Plan.

     (b) A Recipient shall be eligible to receive more than one grant of an Option during the term of this Plan, on the terms and subject to the restrictions herein set forth.

4. Stock Reserved.

     (a) The stock subject to Options hereunder shall be shares of Common Stock. Such shares, in whole or in part, may be authorized but unissued shares or shares that shall have been or that may be reacquired by the Corporation. The aggregate number of shares of Common Stock as to which Options may be granted from time to time under this Plan (the "Available Shares") shall not exceed 870,000 shares. This number was originally set at 250,000 and subsequently increased to 500,000 (shareholder approval on March 27, 1998), and then increased again to 750,000 (shareholder approval on February 26, 1999). The number was then again increased to 870,000 shares (shareholder approval on February 27, 2008). Notwithstanding the foregoing, no more than 870,000 shares of Common Stock shall be available for the grant of Incentive Stock Options under the Plan. All applicable share counts have been restated for the 1 for 6 stock split approved by shareholders on March 2, 2006. The number of Available Shares shall be subject to adjustment as provided in Section 6(i) hereof.

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     (b) If any outstanding Option under this Plan for any reason expires or is terminated without having been exercised in full, the shares of Common Stock allocable to the unexercised portion of such Option shall become available for subsequent grants of Options under this Plan, unless this Plan shall have been terminated.

     5. Stock Options

          (a) Incentive Stock Options.

     (1) Options granted pursuant to this Section 6(a) are intended to constitute Incentive Stock Options and shall be subject to the following special terms and conditions, in addition to the general terms and conditions specified in Section 6 hereof. Only employees of the Corporation (as the term "employees" is defined for the purposes of the Code) shall be entitled to receive Incentive Stock Options.

     (2) The aggregate Fair Market Value (determined as of the date the Incentive Stock Option is granted) of the shares of Common Stock with respect to which Incentive Stock Options granted under this and any other plan of the Corporation, or any Parent corporation or Subsidiary corporation, are exercisable for the first time by an Recipient during any calendar year may not exceed the amount set forth in Section 422(d) of the Code, as amended from time to time. On the date this Plan was adopted, the maximum dollar amount as to which Incentive Stock options could first become exercisable in any calendar year was $100,000.

     (3) Incentive Stock Options granted under this Plan are intended to satisfy all requirements for incentive stock options under Section 422 of the Code and final Treasury Regulations thereunder and, notwithstanding any other provision of this Plan, this Plan and all Incentive Stock Options granted under it shall be so construed, and all contrary provisions shall be so limited in scope and effect and, to the extent they cannot be so limited they shall be void, except as otherwise provided in Section 12 hereof.

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     (b) Non-qualified Stock Options. Options granted pursuant to this Section 5(b) are intended to constitute Non-qualified Stock Options and shall be subject only to the general terms and conditions specified in Section 6 hereof.

     6. Terms and Conditions of Options. Each Option granted pursuant to this Plan shall be evidenced by a written Option agreement between the Corporation and the Recipient, which agreement shall be in substantially the form of Exhibit A hereto as modified from time to time by the Committee in its discretion, and which shall comply with and be subject to the following terms and conditions

     (a) Number of Shares. Each Option agreement shall state the number of shares of Common Stock covered by the Option.

     (b) Type of Option. Each Option agreement shall specifically identify the portion, if any, of the option which constitutes an Incentive Stock Option and the portion, if any, which constitutes a Non-qualified Stock Option.

     (c) Option Price. Each Option agreement shall state the Option Price, which shall be determined by the Committee subject only to the following restrictions:

     (1) The Option Price of any Incentive Stock Option shall be not less than 100% of the Fair Market Value per share on the date of grant of the Option; provided, however, that any Incentive Stock Option granted under this Plan to a person owning more than ten percent of the total combined voting power of the Common Stock shall have an Option Price of not less than 110% of the Fair Market Value per share on the date of grant of the Incentive Stock Option.

     (2) Any Non-qualified Stock Option granted under the Plan shall be at a price no less than 80% of the Fair Market Value per share on the date of grant thereof.

     (3) The Option Price shall be subject to adjustment as provided in Section 6(i) hereof.

     (d) Term of Option. Each Option agreement shall state the period during and times at which the option shall be exercisable; provided, however:

     (1) The date on which the Committee adopts a resolution expressly granting an Option shall be considered the day on which such Option is granted, unless a future date is specified in the resolution; provided, however, the Recipient shall have no rights under the grant until the Recipient has executed an Option agreement with respect to such Option.

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     (2) Except as further restricted in paragraph 6(d)(3), the exercise period shall not exceed ten years from the date of grant of the Option.

     (3) Incentive Stock Options granted to a person owning more than ten percent of the total combined voting power of the Common Stock of the Corporation shall be for no more than five years.

     (4) The Committee shall have the authority to accelerate or extend the exercisability of any outstanding Option at such time and under such circumstances as it, in its sole discretion, deems appropriate. No exercise period may be extended to increase the term of the Option beyond ten years from the date of the grant.

     (5) The exercise period shall be subject to earlier termination as provided in Sections 6(f) and 6(g) hereof and, furthermore, shall be terminated upon surrender of the option by the holder thereof if such surrender has been authorized in advance by the Committee.

     (e) Method of Exercise and Medium and Time of Payment.

     (1) An Option may be exercised as to any or all whole shares of Common Stock as to which it then is exercisable.

     (2) Each exercise of an Option granted hereunder, whether in whole or in part, shall be by written notice to the secretary of the Corporation designating the number of shares as to which the Option is being exercised, and shall be accompanied by payment in full of the Option Price for the number of shares so designated, together with any written statements required by any applicable securities laws.

     (3) The Option Price shall be paid in cash, or as authorized by the Committee, in shares of Common Stock having a Fair Market Value equal to such Option Price or in property or in a combination of cash, shares and property and, subject to approval of the Committee, may be effected in whole or in part (A) with monies received from the Corporation at the time of exercise as a compensatory cash payment, or (B) with monies borrowed from the Corporation pursuant to repayment terms and conditions as shall be determined from time to time by the Committee, in its discretion, separately with respect to each exercise of an Option and each Recipient; provided, however, that each such method and time for payment and each such borrowing and the terms and conditions of repayment shall be permitted by and be in compliance with applicable law.

6


     (4) The Committee shall have the sole and absolute discretion to determine whether or not property other than cash or Common Stock may be used to purchase the shares of Common Stock hereunder and, if so, to determine the value of the property received.

     (5) Applicable withholding taxes shall be paid in the manner specified by Section 7 hereof.

     (f) Termination. Except as provided herein, an Option may not be exercised unless the Recipient then is an employee, officer or director of, or consultant to, the Corporation or a Subsidiary of or Parent to the Corporation, and unless the Recipient has remained continuously as an employee, officer or director of, or consultant to, the Corporation since the date of grant of the Option.

     (1) If the Recipient ceases to be an employee, officer or director of, or consultant to, the Corporation or a Subsidiary or Parent to the Corporation (other than by reason of death, Disability or retirement), other than for Cause (as defined below), all Options theretofore granted to such Recipient but not theretofore exercised shall terminate three months after the date the Recipient ceased to be an employee, officer or director of, or consultant to, the Corporation. In the event of a termination of employment or cessation of working relationship for Cause, all unexercised Options shall immediately terminate and expire. For purposes of this Plan, a termination or cessation for “Cause” means a termination of the Recipient’s employment or other working relationship as a result of (A) willful refusal to perform his or her obligations to the Company, (B) willful misconduct contrary to the interests of the Company, (C) Commission of a serious criminal act, whether denominated a felony, misdemeanor or otherwise, or (D) engaging in activities directly in competition or antithetical to the best interests of the Company. To the extent a Recipient is a party to an employment agreement or offer letter of employment with the Company that defines “cause” or a similar term, then the meaning set forth in that agreement shall also be considered “Cause” for purposes of this Plan.

     (2) Nothing in this Plan or in any Option granted hereunder shall confer upon an individual any right to continue in the employ of, or other relationship with, the Corporation or interfere in any way with the right of the Corporation to terminate such employment or other relationship between the individual and the Corporation.

7


     (g) Death, Disability or Retirement of Recipient. If a Recipient shall die while an employee, officer or director of, or a consultant to, the Corporation, or if the Recipient's employment, officer or director status, or consulting relationship, shall terminate by reason of Disability or retirement, all Options theretofore granted to such Recipient, whether or not otherwise exercisable, unless earlier terminated in accordance with their terms, may be exercised by the Recipient or by the Recipient's estate or by a person who acquired the right to exercise such options by bequest or inheritance or otherwise by reason of the death or Disability of the Recipient, at any time within one year after the date of death, Disability or retirement of the Recipient; provided, however, that in the case of Incentive Stock Options such one-year period shall be limited to three months in the case of retirement.

     (h) Transferability Restriction.

     (1) Options granted under this Plan shall not be transferable other than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, or the rules thereunder. Options may be exercised, during the lifetime of the Recipient, only by the Recipient and thereafter only by his or her legal representative.

     (2) Any attempted sale, pledge, assignment, hypothecation or other transfer of an Option contrary to the provisions hereof and the levy of any execution, attachment or similar process upon an Option shall be null and void and without force or effect and shall result in a termination of the Option.

     (3) (A) As a condition to the transfer of any shares of Common Stock issued upon exercise of an Option granted under this Plan, the Corporation may require an opinion of counsel, satisfactory to the Corporation, to the effect that such transfer will not be in violation of the Securities Act or any other applicable securities laws or that such transfer has been registered under federal and all applicable state securities laws. (B) Further, the Corporation shall be authorized to refrain from delivering or transferring shares of Common Stock issued under this Plan until the Committee determines that such delivery or transfer will not violate applicable securities laws and the Recipient has tendered to the Corporation any federal, state or local tax owed by the Recipient as a result of exercising the Option or disposing of any Common Stock when the Corporation has a legal liability to satisfy such tax.

8


(C) The Corporation shall not be liable for damages due to delay in the delivery or issuance of any stock certificate for any reason whatsoever, including, but not limited to, a delay caused by listing requirements of any securities exchange or the National Association of Securities Dealers, or any registration requirements under the Securities Act, the Exchange Act, or under any other state or federal law, rule or regulation. (D) The Corporation is under no obligation to take any action or incur any expense in order to register or qualify the delivery or transfer of shares of Common Stock under applicable securities laws or to perfect any exemption from such registration or qualification. (E) Furthermore, the Corporation will not be liable to any Recipient for failure to deliver or transfer shares of Common Stock if such failure is based upon the provisions of this paragraph.

     (i) Effect of Certain Changes.

     (1) If there is any change in the number of shares of Common Stock through the declaration of stock dividends, or through a recapitalization resulting in stock splits, or combinations or exchanges of such shares, the number of shares of Common Stock available for Options and the number of such shares covered by outstanding options, and the exercise price per share of the outstanding options, shall be proportionately adjusted by the Committee to reflect any increase or decrease in the number of issued shares of Common Stock; provided, however, that any fractional shares resulting from such adjustment shall be eliminated. A stock dividend on the Company’s Series B Preferred Stock, which stock is convertible into Common Stock, shall not be deemed an event that triggers an adjustment under this paragraph 6(i)(1).

     (2) In the event of the proposed dissolution or liquidation of the Corporation, or any corporate separation or division, including, but not limited to, split-up, split-off or spin-off, or a merger or consolidation of the Corporation with another corporation, the Committee may provide that the holder of each Option then exercisable shall have the right to exercise such Option (at its then current Option Price) solely for the kind and amount of shares of stock and other securities, property, cash or any combination thereof receivable upon such dissolution, liquidation, corporate separation or division, or merger or consolidation by a holder of the number of shares of Common Stock for which such Option might have been exercised immediately prior to such dissolution, liquidation, or corporate separation or division, or merger or consolidation; or in the alternative the Committee may provide that each option granted under this Plan shall terminate as of a date fixed by the Committee; provided, however, that not less than 30 days' written notice of the date so fixed shall be given to each Recipient, who shall have the right, during the period of 30 days preceding such termination, to exercise the Option as to all or any part of the shares of Common Stock covered thereby, including shares as to which such option would not otherwise be exercisable.

9


     (3) Paragraph (2) of this Section 6(i) shall not apply to a merger or consolidation in which the Corporation is the surviving corporation and shares of Common Stock are not converted into or exchanged for stock, securities of any other corporation, cash or any other thing of value. Notwithstanding the preceding sentence, in case of any consolidation or merger of another corporation into the Corporation in which the Corporation is the surviving corporation and in which there is a reclassification or change (including a change which results in the right to receive cash or other property) of the shares of Common Stock (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in such shares into two or more classes or series of shares), the Committee may provide that the holder of each Option then exercisable shall have the right to exercise such option solely for the kind and amount of shares of stock and other securities (including those of any new direct or indirect Parent of the Corporation), property, cash or any combination thereof receivable upon such reclassification, change, consolidation or merger by the holder of the number of shares of Common Stock for which such option might have been exercised.

     (4) Notwithstanding paragraph (2) of this Section 6(i), in the event of any merger or consolidation in which the Corporation is not the surviving corporation, or any sale or transfer by the Corporation of all or substantially all its assets, or any tender offer or exchange offer for, or the acquisition, directly or indirectly, by any person or group for more than 50% of the then outstanding voting securities of the Corporation (each such transaction referred to as a “Sales Event”), all Options granted under the Plan shall become exercisable in full, notwithstanding any other provision of this Plan or of any outstanding Options granted thereunder, including provisions providing for staggered vesting of options, on and after (i) the fifteenth day prior to the effective date of such merger, consolidation, sale, transfer or acquisition or (ii) the date of commencement of such tender offer or exchange offer, as the case may be. To the extent that Section 422(d) of the Code would not permit the provisions of the foregoing sentence to apply to any outstanding Incentive Stock Options, such Incentive Stock Options shall immediately upon the occurrence of the event described in the foregoing sentence, be treated for all purposes of this Plan as Non-qualified Stock Options and shall be immediately exercisable as such as provided in the foregoing sentence. Notwithstanding the foregoing, in no event shall any Option be exercisable after the date of termination of the exercise period of such Option specified in Section 6(d).

10


     (5) If there is a change in the Common Stock of the Corporation as presently constituted, which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of this Plan.

     (6) To the extent that the foregoing adjustments relate to stock or securities of the Corporation, such adjustments shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive, provided that each Incentive Stock Option granted pursuant to this Plan shall not be adjusted in a manner that causes such option to fail to continue to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code, except as otherwise provided in Section 6(i)(4) hereof.

     (7) Except as expressly provided in this Section 6(i), the Recipient shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger, or consolidation or split-up, split-off or spin-off of assets or stock of another corporation; and any issue by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to the Option. The grant of an Option under this Plan shall not affect in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations or changes of its capital or business structures or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or part of its business or assets.

     (j) Rights as Shareholder/Non-Distributive Intent.

     (1) Neither a person to whom an Option is granted, nor such person's legal representative, heir, legatee or distributee, shall be deemed to be the holder of, or to have any rights of a holder with respect to, any shares of Common Stock subject to such Option until after the Option is exercised and the shares are issued to the person exercising such Option.

11


     (2) Upon exercise of an Option at a time when there is no registration statement in effect under the Securities Act relating to the shares issuable upon exercise, shares may be issued to the Recipient only if the Recipient represents and warrants in writing to the Corporation that the shares purchased are being acquired for investment and not with a view to the distribution thereof and provides the Corporation with sufficient information to establish an exemption from the registration requirements of the Securities Act.

     (3) No shares shall be issued upon the exercise of an Option unless and until there shall have been compliance with any then applicable requirements of the Securities and Exchange Commission, or any other regulatory agencies having jurisdiction over the Corporation.

     (4) No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distribution or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 6(i) hereof.

     (k) Other Provisions. Option agreements evidencing Options granted under the Plan shall contain such other provisions, including, without limitation, (i) the imposition of restrictions upon the exercise of an Option, and (ii) in the case of an Incentive Stock Option, the inclusion of any condition not consistent with such Option qualifying as an Incentive Stock Option, as the Committee shall deem advisable.

     7. Agreement by Recipient Regarding Withholding Taxes. Each Recipient agrees that the Corporation, to the extent permitted or required by law, shall deduct a sufficient number of shares due to the Recipient upon exercise of the Option to allow the Corporation to pay federal, state and local taxes of any kind required by law to be withheld upon the exercise of such option from any payment of any kind otherwise due to the Recipient. The Corporation shall not be obligated to advise any Recipient of the existence of any tax or the amount which the Corporation will be so required to withhold.

     8. Term of Plan. Options may be granted under this Plan from time to time within a period of ten years from the date this Plan was last amended by the Board and the shareholders of the Company, pursuant to IRS regulations.

12


     9. Amendment and Termination of the Plan. The Committee at any time and from time to time may suspend, terminate, modify or amend this Plan. Except as provided in Section 6 hereof, no suspension, termination, modification or amendment of the Plan may adversely affect any option previously granted, unless the written consent of the Recipient is obtained.

     10. Assumption. Subject to Section 6, the terms and conditions of any outstanding Options granted under this Plan shall be assumed by, be binding upon and shall inure to the benefit of any successor corporation to the Corporation and continue to be governed by, to the extent applicable, the terms and conditions of this Plan. Such successor corporation may but shall not be obligated to assume this Plan.

     11. Termination of Right of Action. Every right of action arising out of or in connection with this Plan by or on behalf of the Corporation, or by any shareholder of the Corporation against any past, present or future member of the Board, or against any employee, or by an employee (past, present or future) against the Corporation, irrespective of the place where an action may be brought and of the place of residence of any such shareholder, director or employee, will cease and be barred by the expiration of three years from the date of the act or omission in respect of which such right of action is alleged to have risen or such shorter period as may be provided by law.

     12. Tax Litigation. The Corporation shall have the right, but not the obligation, to contest, at its expense, any tax ruling or decision, administrative or judicial, on any issue which is related to this Plan and which the Committee believes to be important to holders of Options granted under this Plan and to conduct any such contest or any litigation arising therefrom to a final decision.

     13. Adoption. This Plan was originally approved by the Board of Directors of the Corporation on September 20, 1993 and approved by the Corporation’s shareholders on March 15, 1994. This Plan was subsequently amended to increase the number of shares available for grant, with the Board approving an increase in the available shares to 750,000 on December 4, 1998 (and shareholder approval of the increase on February 26, 1999). This Plan was restated effective May 15, 2003 to incorporate various clarifying changes, which changes neither increased the number of shares available nor expanded the category of individuals that may be Recipients. This Plan was again amended to increase the number of shares available for grant, with the Board approving an increase in the available shares to 870,000 on December 5, 2007 (and shareholder approval of the increase on February 27, 2008). (All applicable share counts have been restated for the 1 for 6 stock split approved by shareholders on March 2, 2006.)

13


EX-21.01 5 exhibit21-01.htm SCHEDULE OF SUBSIDIARIES (FILED HEREWITH)

Exhibit 21.01

Subsidiaries

Williams Controls Industries, Inc., a Delaware Corporation
Aptek Williams, Inc., a Delaware Corporation
Premier Plastic Technologies, Inc., a Delaware Corporation
ProActive Acquisition Corporation, a Michigan Corporation
WMCO-Geo, Inc., a Florida Corporation
NESC Williams, Inc., a Delaware Corporation
Williams Technologies, Inc., a Delaware Corporation
Williams World Trade, Inc., a Delaware Corporation
Techwood Williams, Inc., a Delaware Corporation
Agrotec Williams, Inc. (“Agrotec”), a Delaware Corporation
Williams (Suzhou) Controls Co. Ltd.

Williams Controls Europe GmbH
Williams Controls India Private Limited

Hardee Williams, Inc. (80% Owned), a Delaware Corporation
Waccamaw Wheel Williams, Inc. (80% Owned), a Delaware Corporation

58


EX-23.01 6 exhibit23-01.htm CONSENT OF MOSS ADAMS LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Exhibit 23.01

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
Williams Controls, Inc.:

     We consent to the incorporation by reference in the Registration Statement file number 333-56591 on Form S-8 of our report dated December 15, 2009, relating to the financial statements appearing in this Annual Report on Form 10-K of Williams Controls, Inc. for the year ended September 30, 2009.

/s/ Moss Adams LLP
Portland, Oregon
December 15, 2009

59


EX-31.01 7 exhibit31-01.htm CERTIFICATION OF CHIEF EXECUTIVE OFFICER REQUIRED BY RULE 13A-14(A)

Exhibit 31.01

CERTIFICATION

I, Patrick W. Cavanagh, certify that:

     1. I have reviewed this report on Form 10-K of Williams Controls Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure control and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

     c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: December 15, 2009   /s/ PATRICK W. CAVANAGH  
  Patrick W. Cavanagh 
  Chief Executive Officer 

60


EX-31.02 8 exhibit31-02.htm CERTIFICATION OF CHIEF FINANCIAL OFFICER REQUIRED BY RULE 13A-14(A)

Exhibit 31.02

CERTIFICATION

I, Dennis E. Bunday, certify that:

     1. I have reviewed this report on Form 10-K of Williams Controls Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure control and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

     c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: December 15, 2009   /s/ DENNIS E. BUNDAY   
  Dennis E. Bunday 
  Chief Financial Officer 

61


EX-32.01 9 exhibit32-01.htm CERTIFICATION OF PATRICK W. CAVANAGH PURSUANT TO 18 U.S.C. SECTION 1350

Exhibit 32.01

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
REQUIRED BY RULE 13a-14(b) or RULE 15d-14(b)
AND SECTION 906 OF THE SARBANES-OXLEY ACT

OF 2002, 18 U.S.C. SECTION 1350

In connection with the Annual Report of Williams Controls, Inc (the "Company") on Form 10-K for the period ended September 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Patrick W. Cavanagh, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

      (1)       The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ PATRICK W. CAVANAGH 
Patrick W. Cavanagh 
Chief Executive Officer 
Williams Controls, Inc 
December 15, 2009 

62


EX-32.02 10 exhibit32-02.htm CERTIFICATION OF DENNIS E. BUNDAY PURSUANT TO 18 U.S.C. SECTION 1350

Exhibit 32.02

CERTIFICATION OF CHIEF FINANCIAL OFFICER
REQUIRED BY RULE 13a-14(b) or RULE 15d-14(b)
AND SECTION 906 OF THE SARBANES-OXLEY ACT

OF 2002, 18 U.S.C. SECTION 1350

In connection with the Annual Report of Williams Controls, Inc (the "Company") on Form 10-K for the period ended September 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Dennis E. Bunday, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

      (1)       The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ DENNIS E. BUNDAY 
Dennis E. Bunday 
Chief Financial Officer 
Williams Controls, Inc 
December 15, 2009 

63


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