News, views & analysis blogs by: Sue Kieffer


Sue Kieffer :
Muth files for Chapter 11 Protection


Sue Kieffer :
K.W. Muth and Muth Mirror Systems
File for Protection Under Chapter 11
Sheboygan, WI -- On Friday, October 6, 2006, K.W. Muth Company, Inc. and Muth
Mirror Systems, LLC of Sheboygan, Wisconsin, filed for protection under Chapter 11 in
Milwaukee. Muth submitted its plan of reorganization with the filing. The plan
provides for 100% payment, with interest, of all secured and unsecured creditors.
Muth’s primary lender, M&I Bank, is continuing to support and provide the same
financing to Muth, at the prime rate of interest, as before the filing. Muth expects to exit Chapter 11 in 12 months.
Muth manufactures Signal® mirrors for the global automotive industry. Muth’s
Signal® mirrors are commonly found on the outside mirrors of GM full-size SUVs and
pick-up trucks. Muth anticipates no interruption of the business; Muth will continue to
operate as it completes the reorganization process. All customer orders will be filled
and shipped on schedule, all suppliers will be paid, all jobs maintained, and all
tooling, prototype, and development work will continue on schedule. Muth employs 85
people in the Sheboygan area.
The recent downturn in the automotive industry has put financial pressure on
Muth as it has on other automotive suppliers. An additional significant financial burden
has been placed on Muth as a result of a lawsuit brought by Gentex Corporation
against Muth on June 29, 2006, in the Federal Court in the Eastern District of
Michigan. Gentex is a licensee of certain Signal® mirror patent rights which will
continue until the Muth-Gentex licensing Alliance Agreement expires in May of 2008.
Among other claims in the suit, Gentex seeks to invalidate one of Muth’s patents. It is
this same patent for which Gentex continues to pay Muth royalties as it has for the past
four years. The royalties are paid by Gentex for using Muth’s Signal® mirror
technology under the terms of the license agreement.
Without informing Muth, Gentex introduced a product which, in Muth’s opinion,
infringes on the Muth patents. Gentex subsequently sued Muth in Michigan. The
estimated time to complete this complex litigation is three years and it will cost millions
of dollars in legal fees. Muth independently filed a lawsuit against Gentex in Madison,
Wisconsin, for infringement of a separate patent. The Madison case is less complex
and is expected to conclude much faster, possibly in ten months, and will be less
expensive to litigate.
Muth’s patent litigation counsel estimated the legal cost and executive time
required by the Michigan case to be more than a small company like Muth can afford.
Gentex, a public corporation with a $2 billion market cap and $400 million in cash, can
endure the cost and staff time to litigate these legal battles. Muth has been financially
profitable for the past four years and is “in the black” through August of 2006. “But for”
this Michigan lawsuit, Muth would not have sought financial reorganization under
Chapter 11 – Muth simply cannot absorb legal expenses for the next three years.
Muth does not feel that Muth’s and Gentex’s customers should have to pay for such
non-productive overhead expenses. By making the business decision to seek
financial reorganization under Chapter 11, Muth has reduced its costs and now has
the opportunity to create new jobs, continue to invent and create new safety technologies, and continue to serve its customers.

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