SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year ended July 1, 1995.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________ to _____________
Commission File Number : 1-9716
DONNELLY CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-0493110
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
414 East Fortieth Street, Holland, Michigan 49423
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (616) 786-7000
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
Class A common stock American Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
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 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 the Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of voting stock held by non-affiliates of the
registrant was $83,747,472 as of August 31, 1995.
Number of share outstanding of each of the registrant's classes of common
stock, as of August 31, 1995.
4,184,587 share of Class A Common Stock par value, $.10 per share
3,582,915 share of Class B Common Stock par value, $.10 per share
<PAGE> 2
DOCUMENT INCORPORATE BY REFERENCE
Portions of the registrant's proxy statement for its annual meeting of
shareholders to be held October 20, 1995, are incorporated by reference into
Part III of this report.
Part I.
ITEM 1. BUSINESS
ITEM 1 (a) GENERAL DEVELOPMENT OF BUSINESS
The Company is primarily engaged in the design, manufacture, marketing
and sale of glass related and plastic molded products for the automotive
industry. The Company also supplies glass coatings for the transportation,
electronics and computer industries (either solely or through several joint
ventures).
During 1995, the Company continued to implement a strategic plan that
will position the Company as one of the world's major automotive suppliers.
As a result, the Company completed the disposition of three non-core
businesses: Appliance Products, Heavy Truck Mirrors, and the Company's
interest in a joint venture called OSD Envizion, which manufactured electronic
lenses for welding helmets. In the fourth quarter of fiscal 1995, the Company
completed an acquisition of an interest in Hohe GmbH & Co. KG ("Hohe"), a
German limited partnership. Based in Collenberg, Germany, Hohe serves many of
the main auto producers in Europe in exterior automotive mirrors, interior
mirrors, door handles, automotive tooling and electronic components related to
mirror systems. With the completion of the transaction, the Company and Hohe
together have become the world's largest producer of automotive mirror
systems.
Through the Company's joint venture with Asahi Glass Company, D&A
Technology, Inc. ("D&A"), the Company provided substantially all the modular
windows for General Motors' Saturn cars through the 1995 model year. Due to
the loss of the Saturn business, the Company anticipates dissolving the joint
venture in the first quarter of 1996 and acquiring Asahi's 40% interest in
D&A. The operation will be reduced in size and maintained as a division in
Tennessee. New modular window and sunroof business with other customers will
begin to replace the Saturn programs currently produced at this operation.
D&A represented 5% and 8% of the Company's combined consolidated net sales and
net income in 1995.
The Company was incorporated in Michigan in 1936. The Company's
corporate offices are located at 414 East Fortieth Street, Holland, Michigan,
49423, and its telephone number is (616) 786-7000. Unless otherwise noted or
indicated by the context, the term "Company" includes Donnelly Corporation,
its wholly owned subsidiaries and Donnelly Export Corporation, a shareholder
Domestic International Sales Corporation under the Internal Revenue Code owned
entirely by the holders of the Company's Class B Common Stock.
ITEM 1 (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company is primarily engaged in the research, design, development,
manufacture, marketing and sale of interior and exterior rearview mirrors,
interior lighting and interior trim products, and modular windows for world
automotive markets. Excluding the contributions of various coatings related
joint ventures, the Company's market focus is nearly exclusively automotive.
<PAGE> 3
ITEM 1. (c)NARRATIVE DESCRIPTION OF BUSINESS
PRODUCTS, SERVICES, MARKETS AND METHODS OF DISTRIBUTION
Automotive Products
Automotive Vision. The Company manufactures a wide range of interior and
exterior rearview mirror products.
Interior Rearview Mirrors. The Company began producing prismatic
day/night mirror glass in 1939 and has been a leading innovator of interior
rearview mirrors in the United States since that time. The Company now
supplies interior rearview mirror assemblies to General Motors Corporation,
Ford Motor Company and Chrysler Corporation (the "Big Three" automakers), the
North American facilities of foreign owned automakers (the "New Automotive
Manufacturers") and North American joint ventures between the Big Three
automakers and foreign automakers. Through Donnelly Mirrors, Limited ("DML"),
its Irish subsidiary, the Company supplies interior rearview mirror assemblies
to French automotive manufacturers. DML also manufactures and sells prismatic
interior rearview mirror glass throughout Europe and to other foreign
producers of complete interior rearview mirrors.
The Company has also developed complex modular interior mirror
assemblies, including mirrors with added features such as lights, electronic
compass and other features as specified by the customer. Lighted mirrors
direct light down to the laps of the driver and passenger for reading or
general lighting. Sales of lighted mirrors have increased significantly since
their introduction in fiscal 1985.
The Company is developing and offering for sale, various electrochromic
technologies for use in day/night automotive mirror systems which
automatically dim when headlights approach from the rear. Some of these
electrochromic technologies have been the subject of litigation. See Item 3.
The Company is also developing electronic vision systems for vehicles which
make use of advanced sensors and video microchip technology to control
dimmable interior and exterior mirror systems.
Exterior Rearview Mirrors and Exterior Trim. In 1987, the Company began
manufacturing complete exterior rearview mirror assemblies for cars and
trucks. Exterior mirror assemblies are more complex than base interior
rearview mirror assemblies given that, among other things, they contain either
manual or motorized actuators for remote adjustment. In addition, most new
vehicles are equipped with two exterior mirrors. Accordingly, the per vehicle
sales price of exterior mirror assemblies substantially exceeds that of
interior rearview mirror assemblies. The Company supplies exterior rearview
mirror assemblies to Honda of America, Ford and Mazda. Through Donnelly
Vision Systems Europe and the recent acquisition of an interest in Hohe, the
Company also supplies complete exterior rearview mirrors to all of the main
European automotive customers.
A new area of growth for the company arising out of established skills in
automotive paint and plastic molding is the manufacture of exterior trim
components. While still a small product line for the Company, the Company is
now producing a wide variety of exterior door handles for Honda and Ford.
The Company manufactures and supplies flat and convex chrome-coated
mirror glass to other manufacturers of exterior mirror assemblies. The
product line supplies mirror components to other complete mirror manufacturers
and to the Company's own internal complete mirror operation. This is a small
product line that was relocated to Monterrey, Mexico in 1995.
<PAGE> 4
The Company introduced a new mirror system innovation in 1993.
Trademarked INTELLIGENT VISION(TM), this system combines a unique new
electrochromic material with a video microchip which operates as a "smart
sensor". This system permits the user to monitor light levels from behind the
vehicle and automatically adjusts all three rearview mirrors independently to
compensate for glare. It is expected that the INTELLIGENT VISION(TM) system
will be available in 1998. This technology is the subject of patent
litigation, see Item 3.
Interior Lighting and Trim. The Company manufactures various interior
trim products including dome lights, interior door lights, lighted and non-
lighted grab handles and coat hooks. The Company's interior lighting products
are based on both plastic molding and optics technology. While the Company
entered this market relatively recently, it believes the market will expand
due to automakers' desire to add value to their cars and the trend toward
modularization of components. The Company believes automakers will
increasingly seek the suppliers who can provide complete interior lighting and
trim systems. The Company currently supplies these products to the Big Three
automakers, Honda and Toyota and has orders from Nummi, Mercedes Benz and
BMW.
Modular Windows. Modular windows consist of window glass and a plastic
molding that encapsulates various components, such as the frame, grommet, trim
and hardware. These windows offer improved quality, aerodynamics and
performance at a competitive price to conventional window systems. Recent
additions include hinged windows, "flush surface" windows that involve single
sided encapsulation, bonding of hardware directly to glass and the
incorporation of color matched body hardware into the window system. Its
windows are used for rear and liftgate windows, quarter windows, aperture
windows, fixed vent windows and windshields on over 40 current models,
including vehicles produced by each of the Big Three automakers and certain of
the New Automotive Manufacturers. Increasing use of modular windows by the
Big Three reflects trends in the industry towards outsourcing, modularization
and reliance on suppliers for design. Based upon the number of modular
windows that have been specified and are being designed for future models, the
Company expects continued expansion of the market for modular windows sold to
the Big Three automakers and New Automotive Manufacturers.
Through the Company's joint venture with Asahi Glass Company, D&A
Technology, Inc. ("D&A"), the Company provided substantially all the modular
windows for General Motors' Saturn cars through the 1995 model year. Due to
the loss of the Saturn business, the Company anticipates dissolving the joint
venture in the first quarter of 1996 and acquiring Asahi's 40% interest in
D&A. The operation will be reduced in size and maintained as a division in
Tennessee. New modular window and sunroof business with other customers will
begin to replace the Saturn programs currently produced at this operation.
D&A represented 5% and 8% of the Company's combined consolidated net sales and
net income in 1995.
In addition to its manufacturing facility in Holland, Michigan, the
Company also has a modular window manufacturing facility in Mt. Sterling,
Kentucky, which focuses on customers in that geographic area. Additionally,
construction was completed on a facility in Langres, France to produce new
windows systems for Chrysler.
Modular windows can be molded using polyvinyl chloride ("PVC") or a
urethane reaction injection molding process ("RIM"). The PVC process is less
expensive primarily because the material is less costly and does not require
painting. PVC, however, if more difficult to mold, particularly for large
windows. The Company believes that its ability to design and mold windows in
either process and its expertise in PVC molding are significant competitive
factors. Donnelly is also developing and using new polymers for window
encapsulation.
The Company has licensed major automotive glass companies in Europe and
Japan to manufacture modular windows for sale in foreign markets using the
Company's technology.
<PAGE> 5
Non-Automotive Businesses
The Company is heavily committed to its core automotive businesses and it
will remain the Company's central focus. However, the Company has developed a
number of significant non-automotive businesses and relationships over the
years. These activities developed from core technologies that had
applications outside of the automotive industry.
The Company's non-automotive businesses have been structured to be
operated independently from the Company's core automotive businesses.
Information Products. The Company's various, electrically conductive,
transparent, thin-film, coated glass products are used in computer
applications such as touch screens, contrast enhancement computer screens,
computer face plates which shield the operator from terminal emissions and
pen-interface electronic devices.
Optics. A new focus at the Company, this small group is working to
commercialize low cost, high quality, advanced diffractive optics in both
automotive and non-automotive areas. This unique new optics development
dramatically improves lighting and imaging systems.
Non-Consolidated Joint Ventures
Donnelly Applied Films Corporation ("DAFC"). DAFC is a major
manufacturer of thin-film glass coatings used in the production of liquid
crystal displays (LCD's). LCD's are widely used in watches, games,
calculators and instrumentation. DAFC is located in Boulder, Colorado. The
Company is currently exploring opportunities to exit this business. The
Company is a fifty percent shareholder of DAFC.
Donnelly Yantai Electronics Corporation, Ltd. This fifty percent owned
venture produces glass coatings similar to those of DAFC for use in the
domestic Chinese LCD market. This operation is located in the Yantai
Peninsula of the People's Republic of China. Ownership of the Joint Venture
will transfer to DAFC by the end of 1996.
VLSI Vision Limited ("VVL"). The Company is working in partnership with
VVL to produce electronic vision systems for the world automotive industry
using an innovative video microchip developed by VVL. The Company and VVL
have been collaborating to produce "smart" chips which can perform a variety
of functions in a vehicle including control of advanced mirror systems, video
displays, lighting control and security devices. In the fourth quarter VVL
completed a public offering of its stock, which is now listed on the London
Stock Exchange. The Company owns 32% of VVL, which is located in Edinburgh,
Scotland.
KAM Truck Components("KAM"). In the second quarter of 1995, the Company
sold 81% of its heavy truck mirror business, now KAM. KAM supplies
GLARESTOPPER(R) solid state electrochromic mirrors for large trucks. The
mirror permits truck drivers to manually adjust the glare of their mirrors by
a range of up to ten times.
Hohe GmbH & Co. KG ("Hohe"). Effective April 1, 1995, the Company
acquired an interest in Hohe GmbH & Co. KG ("Hohe"), a German limited
partnership. Hohe, based in Collenberg, Germany, serves many of the main auto
producers in Europe in exterior automotive mirrors, interior mirrors, door
handles, automotive tooling, and electronic components related to mirror
systems. The Company acquired 48 percent of the controlling general
partnership interest and 66 percent of the limited partnership interest.
<PAGE> 6
MARKETING STAFF
In North America, the Company markets its automotive products through a
sales force of approximately 22 people, who with approximately 139 members of
the Company's engineering staff, work with its customers' design teams early
in the design process. Sales of interior and exterior mirror glass are
generally to mirror manufacturers while sales of the Company's other
automotive products are generally to automakers.
The Company's wholly owned European subsidiaries employ 9 sales people,
including three based in Japan, and also sell through a trading company in
Japan.
The Company markets its non-automotive products through a sales force of
3 sales people and 19 engineers. The Company works with potential customers
on the development of new applications for electronic information display
products.
NEW PRODUCT OR INDUSTRY SEGMENT INFORMATION
The Company has made significant investments in the development of solid-
state, thin-film electrochromic technology that has potential for mirror and
window applications. Electrochromic coatings allow the user to darken glass
to the desired degree through the application of an electrical current to the
coating.
The Company is committed to its Variable Light Control (VLC) Technology.
These technologies allow the user to control the flow of light through, or the
reflection of, light from glass.
The Company continues to market electrochromic day/night automotive
mirror systems which will automatically dim when headlights approach from the
rear. This system has been the subject of litigation between the Company and
Gentex Corporation for over five years. In March 1994, Gentex's final
outstanding patent suit against the Company was dismissed in Federal Court in
Grand Rapids, Michigan. In its decision dismissing this suit, the Court found
that the Company's POLYCHROMIC(TM) electrochromic technology does not infringe
the patent asserted by Gentex's patents. Apart from Gentex's appeal of this
ruling there are no lawsuits outstanding by Gentex against the Company.
However, litigation by the Company against Gentex is scheduled for trial in
Feburary, 1996 and two other suits by the Company against Gentex have yet to be
scheduled for trial. See Item 3.
The Company has continued to actively develop newer and more advanced
electrochromic technologies for the automotive marketplace. The Company has
developed or licensed a number of promising technologies and several are
already available for commercial use. Electrochromic mirror systems are
electrically dimmable to reduce the glare from the headlights of other cars
approaching from the rear.
The Company's GLAREFREE(TM) electrochromic mirror technology offers
several advantages over competing technology. It has already been purchased
by Ford, Jaguar, Range Rover, General Motors and others. The Company believes
last year's court decision, combined with the Company's new technology
advances, has now opened this marketplace to competition.
Other than its recent acquisition of Hohe, the Company has not otherwise
made any public announcements of, or otherwise made public information about,
a new product or industry segment which would require the investment of a
material amount of the Company's assets or which otherwise would be material.
<PAGE> 7
SOURCES AND AVAILABILITY OF RAW MATERIALS
Generally, the Company has multiple sources of supply for the important
materials and components used in its products. Where the Company only uses
one source for an important material, it believes alternative sources are
available or could be readily developed. Because of the commodity nature of
common materials such as glass and plastics, the Company is somewhat
vulnerable to price fluctuations in many of its material purchases.
PATENTS, LICENSES, ETC.
While the Company owns over 150 patents and considers them important, the
Company as a whole is not dependent to any material extent upon any single
patent or group of patents. The Company believes its manufacturing know-how,
design of its own manufacturing equipment and development of manufacturing
processes are more important than its patents. Certain technology of the
Company is the subject of patent litigation. See Item 3.
The Company has licensed certain of its own patents and technology and
has licenses under certain third party patents and technology.
SEASONAL NATURE OF BUSINESS
The Company's net sales and net income are subject to significant
quarterly fluctuations. These fluctuations are attributable primarily to
customer shipment schedules which are tied to the production schedules of the
Company's major automotive customers. The Company generally reports lower net
sales and net income in the first half of its fiscal year than in the second
half because domestic automotive production is generally lower during the
first two quarters of the Company's fiscal year.
WORKING CAPITAL PRACTICES
The Company does not believe that it, or industries which it serves in
general, have any special practices or special conditions affecting working
capital items that are significant for an understanding of the Company's
business.
IMPORTANCE OF LIMITED NUMBER OF CUSTOMERS
In 1995, approximately 71% of the Company's net sales were to the
following major U.S. automobile manufacturers:
Ford Motor Company 22%
Chrysler Corporation 18%
General Motors Corporation 17%
Honda of America Mfg., Inc. 14%
---
Total 71%
The loss of any one of these customers would have a material adverse
effect on the Company.
<PAGE> 8
BACKLOG OF ORDERS
As of July 1, 1995, and July 2, 1994, the Company's backlog of orders was
approximately $80 million and $73 million respectively. The Company believes
that all of its existing backlog will be delivered during the current fiscal
year. The Company generally sells to automakers on the basis of long-term
purchase contracts or one-year purchase orders, which generally provide for
releases for approximately 30 to 90 days of production. Unshipped products
under these releases and short-term purchase orders constitute the Company's
backlog.
GOVERNMENT CONTRACTS
The Company does not believe that any portion of its business is subject
to renegotiation of profits or termination of contracts or sub-contracts at
the election of the government.
COMPETITION
Automotive Products
Competition in the markets for the Company's automotive products is based
on manufacturing capabilities, design, quality, cost and delivery. The
Company believes that its historical emphasis on research and development and
on product design, as well as its high quality ratings and close working
relationships with its customers, are important competitive factors for the
Company. Its international experience and relationships are also significant
competitive factors in the increasingly global market. A number of the
Company's competitors are divisions or subsidiaries of larger corporations,
including vertically integrated glass companies, with greater financial
resources than the Company and with well-established relationships with
automakers. Changing technology and design, and modularization/systems
integration capabilities to improve product function and lower costs will
continue to place pressure on the Company to be a cost competitive producer of
quality, functional automotive products, or lose market share and growth
opportunities to competitors who meet these demands.
Automotive Vision. The level and nature of competition involving the
Company's automotive vision products are varied. The Company manufactures and
sells interior and exterior mirror glass to other mirror manufacturers. Also,
the Company manufactures and sells complete interior and exterior mirror
assemblies and mirror subsystems to the automotive OEM's.
Interior Rearview Mirrors. Competition in the U.S. market for interior
rearview mirror assemblies and rearview mirror glass is limited. The Company
knows of three competitors in the U.S. market: one in the market for base
interior rearview mirror assemblies, and two in the added-feature mirror
market (electrochromic and lighted mirrors). The Company has developed
extensive skills and know-how in mirror glass and interior rearview mirror
assembly manufacturing. The Company for many years has sold interior mirror
glass to Japanese rearview mirror suppliers and now supplies complete interior
rearview mirror assemblies to the U.S. facilities of Japanese automakers, a
Korean automaker, and joint ventures between Japanese and U.S. automakers.
The Company has several potential worldwide competitors for interior mirror
glass sales in Japan and Europe. The Company believes each competitor has as a
smaller market share than the Company. Also in Europe, the Company competes
with several other manufacturers of complete interior rearview mirror
assemblies.
The Company has one competitor in the U.S. market for automatic interior
electrochromic mirrors. The Company and that competitor have been involved in
patent litigation with respect to certain aspects of electrochromic
technology. The litigation has had an adverse impact on the Company's ability
to market interior electrochromic mirrors in the United States and Europe.
See Item 3.
<PAGE> 9
Exterior Rearview Mirrors. Approximately twelve U.S. companies
manufacture exterior mirror assemblies for sale in the U.S. market for similar
type assemblies currently made by the Company. The Company entered the
exterior mirror assembly market in 1988 and today is a major supplier for
these products to Honda Mfg and Ford Motor Co. The Company has many
competitors worldwide, in the sale of exterior mirror glass. With the
Company's recent acquisition of an interest in Hohe, the Company and Hohe
together have become the world's largest producer of automotive mirror
systems.
The Company and one competitor in the U.S. market have been involved in
patent litigation with respect to certain aspects of automatic exterior
electrochromic mirrors. The litigation has had an adverse impact on the
Company's ability to market exterior electrochromic mirrors in the United
States and Europe. See Item 3.
Interior Lighting and Trim. There are many competitors in the market for
interior lighting and trim products. The Company believes its close customer
relationships, program management, technology and design capabilities and
basic materials knowledge are significant competitive factors.
Modular Windows. The Company has many competitors in the domestic
modular window market. Three competitors are major automotive glass
manufacturers or are closely associated with automobile or glass
manufacturers. The Company believes that the glass manufacturers could
further vertically integrate into glass molding and that these companies would
be significant competitors due to their size. However, the Company believes
that it is still the major technology leader for glass encapsulation and metal
bonding of attachments to glass.
Information Products
The Company believes it is the world's leading producer of coated bent
glass for the CRT-based electronic display and interactive systems market.
Competition in this segment is based on price, service and quality.
RESEARCH AND DEVELOPMENT
The Company engages in extensive research and development. It believes
its technical capabilities have resulted in the development of new and
improved products.
In 1995, 1994, and 1993, research and development expenditures were
$22,733,000, $21,362,000, and $15,889,000, respectively, or 5.9%, 6.3%, and
5.3% of the Company's total net sales for those years. While the Company has
an active corporate research and development group, approximately 80% of the
Company's total research and development expenditures is product specific and
conducted by the Company's product engineers. Corporate research and
development work is facilitated by advanced technology labs located in
Holland, Michigan, and in Tucson, Arizona, where the Company maintains a close
linkage with the faculty and students of the University of Arizona, and in
Naas, Ireland.
HUMAN RESOURCES
The Company believes its human resources are one of its fundamental
strengths. The Company currently has approximately 2,935 employees in its
Michigan, Arizona, Tennessee, Kentucky, Ireland, France, and Mexico
facilities. Its domestic work force is non-union. While the Company
considers its relationship with its employees to be favorable, massive
organization changes during the past year have put a strain on employee
relations. One manufacturing plant has received a petition for a UAW union
election. This election is currently
<PAGE> 10
blocked because of a question before the National Labor Relations Board
regarding the role of Donnelly's unique Equity Structure. It is uncertain at
this time when these issues will be resolved.
The Company's work forces in Ireland and Mexico are unionized, as are the
work forces of most companies in both Ireland and Mexico. The Company has no
collective bargaining agreements in Ireland or Mexico, where non-economic
terms of employment are governed by statute. The Company negotiates wages and
benefits approximately annually with its Irish work force. The Company
negotiates wages approximately annually and benefits approximately bi-annually
with its work force in Mexico.
The Company has operated for over forty years under a participative
management system. The Company believes that this approach has increased
productivity by emphasizing individual employee opportunity and participation
both in the operating decisions and in the Company's profitability.
Furthermore, the Company believes this emphasis has resulted in enhanced long-
term productivity, cost control and product quality and has helped the Company
attract and retain capable employees.
ITEM 1 (d) INFORMATION ABOUT FOREIGN OPERATIONS
During the last fiscal year, approximately 10% of combined consolidated
net sales were derived from the operations of the Company's wholly-owned
foreign subsidiaries. Approximately 8% of combined consolidated net sales
were derived from export shipments from the Company's United States operations
to customers in foreign countries. The Company has licensed major automotive
glass companies in Europe and Japan to manufacture modular windows for sale in
foreign markets using the Company's technology.
Export revenues are foreign revenues produced by identifiable assets
located in the United States. Foreign revenues are generated by identifiable
assets at the Company's subsidiaries located in Ireland, France and Mexico.
The Company operates two subsidiaries in Ireland, Donnelly Mirrors Limited and
Donnelly Vision Systems Europe Limited, one in France, Donnelly EuroGlas
Systems, and one in Mexico, Donnelly de Mexico, S.A.DE C.U. A summary of the
Company's operations by geographic area follows:
<TABLE>
<CAPTION>
July 1, July 2, July 3,
(in thousands) Year ended 1995 1994 1993
<S> <C> <C> <C>
Revenue:
United States $317,710 $296,226 $253,631
Foreign 36,832 18,367 23,065
Export:
Americas 25,016 21,557 22,153
Asia 981 310 400
Europe 2,786 785 895
Other 15 17 783
-------- -------- --------
$383,340 $337,262 $300,927
-------- -------- --------
-------- -------- --------
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
July 1, July 2, July 3,
(in thousands) Year ended 1995 1994 1993
<S> <C> <C> <C>
Operating Income (Loss):
United States $ 19,857 $ 16,397 $ 16,962
Foreign (2,824) (3,276) (904)
-------- -------- --------
$ 17,033 $ 13,121 $ 16,058
-------- -------- --------
-------- -------- --------
Identifiable Assets:
United States $186,743 $165,172 $125,465
Foreign 37,045 18,629 14,375
-------- -------- --------
$223,788 $183,801 $139,840
-------- -------- --------
-------- -------- --------
</TABLE>
Fluctuating exchange rates and other factors beyond the control of the
Company, such as tariff and foreign economic policies, may affect future
results of the Company's foreign operations.
ITEM 2. PROPERTIES
The Company and its consolidated subsidiaries own or lease facilities
which are located throughout the United States, Ireland, France and Mexico.
The location, square footage and use of the most significant facilities at
August 31, 1995, were as follows:
LOCATION
Owned Locations Square Footage Use
Holland, Michigan (8) 864,000 Manufacturing, Warehouse, and Office
Grand Haven, Michigan 133,000 Manufacturing, Warehouse, and Office
Mt. Sterling, Kentucky 37,000 Manufacturing, Warehouse, and Office
Naas, Ireland 84,000 Manufacturing, Warehouse, and Office
Manorhamilton, Ireland 21,600 Manufacturing, Warehouse, and Office
Monterrey, Mexico 40,000 Manufacturing, Warehouse, and Office
Leased Locations
Langres, France 40,000 Manufacturing, Warehouse, and Office
Mt. Pleasant, Tennessee 50,000 Manufacturing, Warehouse, and Office
Newaygo, Michigan 166,000 Manufacturing, Warehouse, and Office
Leased Office and Warehouses (5)
Holland and Detroit, Michigan;
Tucson, Arizona; and Tokyo, Japan
The Company believes its facilities are modern, well-maintained and
adequately insured. Because of its rapid growth in sales the Company is
continually evaluating the need for additional office, manufacturing and
warehouse space.
As of July 1, 1995, the Company had capital expenditures purchase
commitments outstanding of approximately $13 million.
<PAGE 12>
ITEM 3. LEGAL PROCEEDINGS
Patent Litigation. Certain electrochromic mirror technology of the
Company has been the subject of patent litigation between the Company and
Gentex Corporation ("Gentex"). Following the settlement of prior litigation,
Gentex filed another lawsuit against the Company on June 7, 1993. In this
suit, Gentex alleged that the Company's solid polymer film electrochromic
mirror infringed one of the Gentex patents involved in the prior litigation
and that the Company has violated the injunction entered by the court in the
previous litigation. Gentex sought unspecified damages and an injunction
against further alleged infringement by the Company. On March 21, 1994, the
Company's motion for summary judgement of non-infringement was granted and the
lawsuit was dismissed. Gentex has filed an appeal of this ruling, which is
currently pending.
The Company's lawsuit against Gentex, filed on July 8, 1993, remains
outstanding. In this suit, the Company has alleged that Gentex's lighted
electrochromic mirrors infringes three of the Company's patents and that all
of Gentex's electrochromic mirrors infringe a fourth patent owned by the
Company. The Company is seeking unspecified damages and injunction against
further infringement by Gentex. A trial has been scheduled to begin in
February 1996. The Company has filed a motion seeking a preliminary injunction
against further infringement of one of its patents pending final resolution of
the lawsuit; this motion has not yet been decided. Gentex filed several
motions for summary judgement, alleging that the patents in question are
invalid or not infringed, and that the Company is not entitled to certain
damages. The Court granted Gentex's motion for summary judgment that two of
the Donnelly patents relating to lighted mirrors are invalid. The Court
denied Gentex's remaining motions and granted Donnelly's request to dismiss
its claim under the third lighted mirror patent without prejudice. Donnelly
believes that its lighted mirror patents are not invalid and has requested
permission to file an immediate appeal on this issue.
On October 13, 1994, the Company filed a second lawsuit against Gentex,
alleging that Gentex's inside and outside electrochromic mirrors infringe two
additional patents owned by the Company which relate to the protection of
electrochromic mirrors from ultraviolet radiation. The Company subsequently
amended its complaint to allege that Gentex's inside and outisde electrochromic
mirrors infringe a third pantent owned by the Company which also relates to the
protection of electrochromic mirrors from ultraviolet radiation. The Company
is seeking unspecified damages and an injunction against further infringement
by Gentex. The Company has also filed a motion seeking a preliminary
injunction against further infringement of two of these patents pending final
resolution of the lawsuit. This motion has not yet been decided by the court,
and no trial date has been set in the second lawsuit.
On June 23, 1995, Gentex filed a lawsuit against the Company seeking a
declaration that three patents owned by the Company are invalid and not
infringed by Gentex. The Company has responded by denying these allegations,
and charging that two of the patents in question are infringed by certain of
Gentex's electrochromic mirrors. The Company is seeking unspecified damages
and an injunction against further infringement by Gentex. No trial date has
been set in this lawsuit.
Other Litigation. The Company and its subsidiaries are involved in
certain other legal actions and claims, including environmental claims,
arising in the ordinary course of business. Management believes (based on
advice of legal counsel) that such litigation and claims will be resolved
without material effect on the Company's financial position or results of
operations.
<PAGE> 13
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 the fiscal year ended July 1, 1995.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
The Common Shares are traded on the American Stock Exchange under the
symbol DON. The following table sets forth for the fiscal periods indicating
the high and low sale prices of the Common Shares, as reported by the American
Stock Exchange, and dividends declared per share.
<TABLE>
<CAPTION>
Fiscal 1995 1995 Dividends
Quarter High Low Declared
<S> <C> <C> <C>
First $17 1/2 $15 1/8 $ .08
Second 17 5/8 13 1/4 .08
Third 18 15 1/8 .08
Fourth 17 5/8 14 7/8 .08
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1994 1994 Dividends
Quarter High Low Declared
<S> <C> <C> <C>
First $21 3/4 $18 3/4 $ .08
Second 20 3/8 18 1/2 .08
Third 20 1/4 14 1/8 .08
Fourth 16 1/2 14 3/8 .08
</TABLE>
As of August 31, 1995, the Company had approximately 1,100 holders of
record.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net sales $383,340 $337,262 $300,927 $271,399 $232,841
Gross profit 82,568 73,632 68,910 60,752 48,812
Restructuring charges
(gain) (2,265) 1,184 910
Operating income 17,033 13,121 16,058 12,892 7,615
Patent Settlement 3,600
Income before taxes on
income 16,823 11,008 10,936 10,805 5,746
Income from
continuing operations 11,009 6,745 7,257 6,893 4,168
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Income from continuing
operations
per common share $ 1.42 $ 0.87 $ 0.94 $ 1.00 $ 0.59
Dividends declared per
common share 0.32 0.32 0.28 0.24 0.22
Total assets 223,788 183,801 139,840 131,229 121,404
Debt including current
maturities 66,802 53,485 33,765 24,882 41,343
Redeemable preferred
stock 531 531 531 531 531
Shareholders' equity
(total) 82,900 70,826 65,546 61,158 42,930
</TABLE>
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
General
Donnelly's net sales and net income are subject to significant quarterly
fluctuations attributable primarily to production schedules of the Company's
major automotive customers. These same factors cause quarterly results to
fluctuate from year to year.
Comparison of 1995 to 1994
Donnelly's sales were $383.3 million in 1995, an increase of 14% over the
$337.3 million of sales in 1994. North American automotive production
increased 5% over the previous year. New business in complete exterior
mirrors, door handles, interior systems and modular systems, along with the
strong automotive production levels all contributed to the stronger sales
level. This growth occurred despite declining prices. Price reductions are
expected to continue as products continue to be priced on a global basis.
Gross profit margin was 21.5% in 1995 compared to 21.8% in 1994. Kaizen
(continuous improvement) programs being run throughout the Company, along with
higher sales volumes are helping the Company offset price pressures from
customers and significant increases in raw material costs. Although global
pricing pressures are expected to continue, the Company is focused on reducing
costs through improved product design as well as a strong commitment to Kaizen
implementation. Business transitions are also being completed which should
also positively impact gross profit moving forward.
Selling, administrative and general expenses were $45.1 million or 11.8%
of sales in 1995, an increase from 11.3% in 1994. Patent litigation costs
were significantly higher in 1995 as the Company pursued actions to protect
its intellectual property. Patent litigation costs are expected to remain
high in 1996 with the scheduled trial in October (see Note 9).
Research and development expenses were $22.7 million or 5.9% of sales in
1995 compared to 6.3% in 1994. The Company is committed to developing new and
innovative technologies that improve the function, quality and safety of
automotive products and support new business for complete exterior mirrors and
modular windows.
In the second quarter of 1995, the Company entered into a plan to
restructure and sell certain nonautomotive businesses resulting in a pretax
gain of $4.7 million. The restructuring plan was implemented in an effort to
move the Company towards a much closer focus on its automotive business. The
gain includes the sale of the appliance business, the liquidation of the
Company's investment in OSD Envizion Company and the sale of 81% of the
Company's heavy truck mirror business. These non-automotive businesses
represented an insignificant portion of the Company's operations.
Restructuring costs were also recognized to cover a severance program and
other expenses associated with the restructuring plan.
The Company also restructured certain automotive operations resulting in
a charge of $2.4 million in the second quarter, primarily for the write-down
of operating assets due to the loss of Saturn's business at D&A Technology,
Inc., the Company's joint venture with Asahi Glass Company. As a result,
minority interest in net income of subsidiaries was $0.4 million in 1995
compared to $0.8 million in 1994. In the first quarter of fiscal 1996, the
Company anticipates dissolving the joint venture and acquiring Asahi's 40%
interest in D&A. The
<PAGE> 16
operation will be reduced in size and maintained as a division in Tennessee.
New modular window and sunroof business with other customers will begin to
replace the Saturn programs currently produced at this operation. D&A
represented 5% and 8%, respectively, of the Company's combined consolidated
net sales and net income in 1995.
Interest expense increased to $5.0 million in 1995, from $3.5 million in
1994. Heavy capital spending and higher interest rates continued to drive
interest expenses higher.
Royalty income was $3.8 million in 1995 compared to $1.4 million last
year. The increase primarily resulted from royalty income associated with the
appliance business sold to Gemtron Corporation. This royalty agreement is
expected to continue through fiscal 1996. Included in other income is a $0.5
million gain on the sale of a warehouse facility in the fourth quarter of
1995.
Equity in earnings (losses) of affiliated companies increased to $0.4
million in 1995, from a loss of $0.1 million in 1994. Improved earnings at
Donnelly Applied Films Corporation and a slight profit from Hohe GmbH & Co. KG
(see Note 12) for the two month period, ending May 31, 1995, more than offset
expenses at VLSI Vision Limited associated with its start-up.
The Company had net income of $11.0 million in 1995, including a $2.0
million gain from the sale of businesses, net of restructuring costs, compared
to $7.3 million in 1994. The increase in net income is the result of higher
sales volumes, lower R&D costs as a percent of sales, higher royalty income,
and improved equity earnings in affiliated companies. Results from foreign
operations improved slightly, as improvements in Donnelly's Irish subsidiary
exceed the start-up losses in Mexico and France.
The Company's financial performance in 1995 and 1994 has been impacted by
unprecedented capital expenditures and expenses incurred in anticipation of
meeting existing new customer orders. Projects requiring these costs include
the construction and equipping of several new facilities, equipping modular
systems for the new Chrysler minivan Program and transition costs associated
with consolidating production equipment from older facilities into a new
facility.
Comparison of 1994 to 1993
Donnelly's sales increased 12.1% to $337.3 million in 1994, from $300.9
million in 1993. North American automotive production increased 9% over the
same period. Sales growth occurred despite flat or declining pricing. A
primary contributor of the sales growth included new complete exterior mirror
business for both Ford and Mazda which began in the last half of 1994. Strong
demand for modular windows, especially at Ford and Chrysler continued to boost
sales. Interior mirror sales increased throughout the year in North America
helping to offset the negative sales impact caused by the European recession.
Sales increases of interior systems, information products and appliance
products also helped the Company's sales increase outpace automotive
production.
Gross profit margin decreased to 21.8% of sales in 1994, from 22.9% in
1993. This decrease resulted from: the European recession's impact on
Donnelly Mirrors, Ltd. (DML) one of Donnelly's Irish subsidiaries; start-up
costs associated with new complete exterior mirror production including a
second shift paint operation; and business units undergoing significant
transition costs.
Selling, administrative and general expenses were $38.0 million or 11.3%
of sales in 1994, a decrease from 12.3% in 1993. Patent litigation costs were
significantly lower than last year.
<PAGE> 17
Research and development expenses for 1994 were 6.3% of sales compared to
5.3% in 1993. The increase was primarily the result of significant
development costs being incurred to support new business for Ford and Mazda
complete exterior mirror systems in model years 1995 and beyond, along with
the new Chrysler minivan modular window business which began in late 1995.
A restructuring charge of $1.2 million was taken in the fourth quarter of
1994 to cover a severance program and other expenses associated with the
restructuring of DML.
Interest expense increased to $3.5 million in 1994, from $3.2 million in
1993. Lower interest rates helped to offset the impact of higher borrowing
levels to support increased capital spending.
The Company had net income in 1994 of $7.3 million, compared to $7.9
million in 1993. Higher sales resulting from increased North American
automotive production and new complete exterior mirror business, lower general
and administrative expenses as a percent-of-sales, 1993's patent settlement,
tax benefits associated with adopting SFAS 109 and retroactively reinstated
research and development tax credits resulting from the new tax act helped to
offset a number of unfavorable items, including: 1) a deep and prolonged
recession in Europe along with a restructuring charge which impacted DML; 2)
increased research and development expenditures to support new complete
exterior mirror and modular window programs; 3) increased competition and a
downturn in the demand for coated glass used in liquid crystal displays
affected DAFC's performance and 4) postretirement health care costs associated
with the adoption of SFAS 106.
ACQUISITION
Effective April 1, 1995, the Company acquired an interest in Hohe GmbH &
Co. KG ("Hohe"), a German limited partnership. Hohe, based in Collenberg,
Germany, serves many of the main auto producers in Europe in exterior
automotive mirrors, interior mirrors, door handles, automotive tooling, and
electronic components related to mirror systems. With operations in Germany
and Spain, Hohe's sales for the fiscal year ended March 31, 1995, were
approximately $220 million.
The Company acquired 48 percent of the controlling general partnership
interest and 66 2/3 percent of the limited partnership interest for $3.6
million. Additionally, $14.3 million has been advanced to Hohe under a
subordinated loan agreement. The Company expects to provide future advances
to Hohe of approximately $15 million which will be financed through the
Company's existing borrowing agreements. Amounts advanced to Hohe under the
subordinated loan agreement provide for 10 percent interest per annum with no
principal payments due until its maturity on April 1, 1998. Subsequent
advances to Hohe will be subordinated to Hohe bank debt and provide for
interest at 700 basis points above the Bundesbank discount rate, which was X%
at June 30, 1995. In connection with the Company's acquisition of the Hohe
interest, refinancing and additional loans of approximately $70 million are
being provided to Hohe by several banks. The Company's interest in Hohe is
stated at cost, adjusted for its equity in undistributed earnings from
acquisition to May 31, 1995, the most recent date financial information is
available. On July 1, 1995, the amount of the investment in Hohe included
goodwill in the amount of $5 million which is being amortized over 15 years.
The terms of the transaction allow Donnelly to purchase the remaining
ownership interest in Hohe through various options ranging from $3 million to
$10 million. The remaining owners have an option to require the Company to
buy their interests at any time based upon a formula which results in a price
of up to $10 million.
<PAGE 18>
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio was 1.7 at July 1, 1995 and 1.7 at July 2,
1994. Working capital was $40.5 million at July 1, 1995, compared to $36.4
million at July 2, 1994. This increase included higher customer tooling to be
billed to support new programs and increased accounts receivable and
inventories due to higher sales levels.
Capital spending levels were $29.2 million in 1995, $35.3 million in 1994
and $17.0 million in 1993. Included in capital spending is $10.5 million
financed by an operating sale-leaseback agreement. The Company also expects
to provide additional subordinated loans to Hohe of approximately $15 million.
In addition, construction of a $9.9 million manufacturing facility in Newaygo,
Michigan was financed with government grants. Capital expenditures in 1995
supported a number of major programs throughout the Company. A wide range of
expansion activities continued in the modular window and complete exterior
mirror areas to support new business programs. A new facility was also
constructed in France during 1995 to produce modular windows for the Chrysler
minivan in Europe.
The Company expects its 1996 capital expenditures will be slightly
reduced from the levels of 1995 as many of the major expansion programs are
completed. The Company expects to finance its future growth through
operational cash flow, its current revolving credit agreement and new senior
notes of $20.0 million issued with an insurance company in July of 1995. The
notes have a four to five month delayed takedown with principal payments
commencing in fiscal 2001 until maturity in fiscal 2006.
The Company enters into interest rate swaps and foreign exchange
contracts to manage exposure to fluctuations in interest and foreign currency
exchange rates. The risk of loss to the Company in the event of
nonperformance by any party under these agreements is not considered to be
material.
FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) ISSUES
Effective July 4, 1993, the Company adopted FASB Statement 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions", as
explained in Note 7 to the combined consolidated financial statements. The
impact of adopting this change increased postretirement health care costs by
$1.1 million in 1994.
Effective July 4, 1993, the Company adopted FASB Statement 109,
"Accounting for Income Taxes", as explained in Note 8 to the combined
consolidated financial statements. This change favorably affected 1994
earnings by $0.5 million, which is reported separately in the combined
consolidated statements of income.
In March 1995, the FASB issued FASB Statement 121, "Accounting for the
Impairment of Long-Lived Assets." The Company is required to adopt this
statement by its fiscal year ending in 1997. The new statement requires the
Company to review long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company does not expect the adoption of this statement to
have a material impact on its financial position or results of operations.
No other recently issued FASB statements are expected to have a material
impact on the Company.
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
COMBINED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
In thousands except share data July 1, July 2, July 3,
Year ended 1995 1994 1993
<S> <C> <C> <C>
Net sales $383,340 $337,262 $300,927
Cost of sales 300,772 263,630 232,017
-------- -------- --------
Gross profit 82,568 73,632 68,910
Operating expenses:
Selling 6,538 6,194 5,634
Administrative and general 38,529 31,771 31,329
Research and development 22,733 21,362 15,889
Restructuring charges (gain) (2,265) 1,184
-------- -------- --------
Total operating expenses 65,535 60,511 52,852
-------- -------- --------
Operating income 17,033 13,121 16,058
-------- -------- --------
Non-operating expenses (income):
Interest expense 5,010 3,528 3,216
Royalty income (3,774) (1,370) (1,681)
Patent settlement 3,600
Other income, net (1,026) (45) (13)
-------- -------- --------
Non-operating expenses 210 2,113 5,122
-------- -------- --------
Income before taxes on income 16,823 11,008 10,936
Taxes on income 5,795 3,334 3,571
-------- -------- --------
Income before minority interest
and equity earnings 11,028 7,674 7,365
Minority interest in net income
of subsidiaries (371) (825) (741)
Equity in earnings (loss) of
affiliated companies 352 (104) 633
-------- -------- --------
Income before extraordinary gain
and cumulative effect of change
in accounting principle 11,009 6,745 7,257
Tax benefit from utilization of
loss carryforward 595
Cumulative effect of adopting
SFAS 109 513
-------- -------- --------
Net income $ 11,009 $ 7,258 $ 7,852
-------- -------- --------
-------- -------- --------
Per share of common stock:
Income before extraordinary gain
and cumulative effect of change
in accounting principle $ 1.42 $ 0.87 $ 0.94
Tax benefit from utilization of
loss carryforward 0.08
Cumulative effect of adopting
SFAS 109 0.07
-------- -------- --------
Income per share of common stock $ 1.42 $ 0.94 $ 1.02
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 20
COMBINED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
In thousands except share data July 1, July 2,
Year ended 1995 1994
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,224 $ 1,374
Accounts receivable, less allowance of
$676 and $562 50,866 47,303
Inventories 22,042 19,976
Customer tooling to be billed 17,357 13,137
Prepaid expenses 2,120 3,027
Deferred income taxes 2,197 747
-------- --------
Total current assets 99,806 85,564
-------- --------
Property, plant and equipment:
Land 3,329 3,342
Buildings 32,556 27,919
Machinery and equipment 98,149 87,602
Construction in progress 16,544 24,406
-------- --------
150,578 143,269
Less accumulated depreciation 56,642 51,898
-------- --------
Net property, plant and equipment 93,936 91,371
Investments in and advances to affiliates 25,246 5,972
Other assets 4,800 894
-------- --------
Total assets $223,788 $183,801
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 42,248 $ 33,880
Current maturities of long-term debt 428 347
Accruals:
Compensation 6,671 7,007
Taxes 1,974 3,483
Postretirement plans 895 582
Other 7,088 3,859
-------- --------
Total current liabilities 59,304 49,158
-------- --------
Long-term debt, less current maturities 66,374 53,138
Postretirement plans 7,645 4,778
Deferred income taxes and other 5,281 4,290
-------- --------
Total liabilities 138,604 111,364
-------- --------
Minority interest 2,284 1,611
Shareholders' equity:
Preferred stock, 7 1/2% cumulative, $10 par:
shares authorized 250,000, issued 53,112 531 531
Common stocks:
Class A, $.10 par; shares authorized
30,000,000, issued 4,183,287 and 4,146,549 418 415
Class B, $.10 par; shares authorized
15,000,000, issued 3,582,915 and 3,583,632 358 358
Donnelly Export Corporation, $.01 par; shares
authorized 600,000, issued 409,561 4 4
Additional paid-in capital 23,522 20,730
Cumulative foreign currency translation
adjustment 154 (640)
Retained earnings 57,913 49,428
-------- --------
Total shareholders' equity 82,900 70,826
-------- --------
Total liabilities and shareholders'equity $223,788 $183,801
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 21
COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
In thousands except share data July 1, July 2, July 3,
Year ended 1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 11,009 $ 7,258 $ 7,852
Adjustments to reconcile net
income to net cash from
operating activities:
Depreciation and amortization 11,184 9,771 8,335
Deferred pension cost and
postretirement benefits 2,742 3,941 199
Deferred income taxes (2,108) (1,432) (190)
Minority interest 371 825 741
Equity in (earnings)loss of
affiliated companies (453) 28 (674)
Extraordinary gain (595)
Cumulative effect of change in
accounting principle (513)
Restructuring charges (gain)(Note 13) (2,265) 1,184
Changes in operating assets
and liabilities:
Accounts receivable (3,736) (9,228) 3,866
Inventories (2,841) (6,074) 910
Prepaid expense and other
current assets (3,304) (3,352) (7,336)
Accounts payable and other
current liabilities 6,320 13,629 (4,206)
Capitalized organization and
loan costs (1,721)
Other 131 375 606
-------- -------- --------
Net cash from operating
activities 15,329 16,412 9,508
-------- -------- --------
-------- -------- --------
INVESTING ACTIVITIES
Capital expenditures (29,154) (35,329) (16,995)
Investments in and advances to
equity affiliates (18,824)
Proceeds from sale of
businesses (Note 13) 14,200
Proceeds from sale-lease back 10,513
Change in unexpended bond proceeds (1,015) 1,093 (1,206)
Other 1,120 847 (576)
-------- -------- --------
Net cash for investing activities (23,160) (33,389) (18,777)
-------- -------- --------
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from long-term debt 15,000 21,362 14,895
Repayments on long-term debt (1,764) (2,018) (5,996)
Resources provided by minority
interest 491
Common stock issuance 478 304 554
Dividends paid (2,524) (2,511) (2,739)
-------- -------- --------
Net cash from financing activities 11,681 17,137 6,714
-------- -------- --------
-------- -------- --------
Increase (decrease) in cash and
cash equivalents 3,850 160 (2,555)
Cash and cash equivalents,
beginning of year 1,374 1,214 3,769
-------- -------- --------
Cash and cash equivalents,
end of year $ 5,224 $ 1,374 $ 1,214
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 22
COMBINED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Cumulative
Common Common Common foreign
In Preferred Class Class Donnelly Additional currency Retained
thousands, Stock A B Export paid-in translation Earnings
except Corp. Capital adjustment
Currency
share
Translation
data
Adjustment
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
June 27,
1992 $531 $408 $358 $4 $19,879 $956 $39,022
Net Income 7,852
Foreign
currency
translation
adjustment (1,825)
Cash
dividends
declared:
Preferred
stock-$.75
per share (40)
Common
stock:
Class A-
$.28
per share (1,149)
Class B-
$.28
per share (1,004)
Common stock
issued under
employee
benefit
plans 5 549
---- ---- ---- ---- ------- ---- -------
Balance,
July 3,
1993 531 413 358 4 20,428 (869) 44,681
Net Income 7,258
Foreign
currency
translation
adjustment 229
Cash
dividends
declared:
Preferred
stock-$.75
per share (40)
Common
stock:
Class A-
$.32
per share (1,323)
Class B-
$.32
per share (1,148)
Common stock
issued under
employee
benefit
plans 2 302
---- ---- ---- ---- ------- ---- -------
Balance,
July 2,
1994 531 415 358 4 20,730 (640) 49,428
Net Income 11,009
Foreign
currency
translation
adjustment 794
Cash
dividends
declared:
Preferred
stock-$.75
per share (40)
Common
stock:
Class A-
$.32
per share (1,337)
Class B-
$.32
per share (1,147)
Common stock
issued under
employee
benefit
plans 3 475
Change in
investment
in VLSI
Vision
Limited
(Note 14) 2,317
---- ---- ---- ---- ------- ---- -------
Balance,
July 1,
1995 $531 $418 $358 $4 $23,522 $154 $57,913
---- ---- ---- ---- ------- ---- -------
---- ---- ---- ---- ------- ---- -------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 23
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION AND CONSOLIDATION
The combined consolidated financial statements include the accounts of
Donnelly Corporation, Donnelly Export Corporation and all majority owned
subsidiaries (the Company) after all significant intercompany balances,
transactions and shareholdings have been eliminated. Investments in 20% to
50% owned companies are accounted for using the equity method of accounting.
Cost in excess of net assets of acquired companies is being amortized on a
straight-line basis over a 15 year period.
Voting control of Donnelly Corporation and Donnelly Export Corporation is
vested in the same shareholders and the corporations are under common
management. Because of these relationships, the accounts of the two
corporations are included in the financial statements as if they were a single
entity.
FOREIGN CURRENCY TRANSLATION
Except for the Company's subsidiary in Mexico whose functional currency
is the United States dollar, financial statements of international companies
are translated into United States dollar equivalents at exchange rates as
follows:(1) balance sheet accounts at year-end rates; (2) income statement
accounts at exchange rates weighted by the monthly volume of transactions
occurring during the year. Translation gains and losses are reported as a
separate component of shareholders' equity. For the Company's subsidiary in
Mexico, where the dollar is the functional currency, translation gains or
losses are reflected in net income. Other foreign currency transaction gains
and losses included in other income are not material.
CASH AND CASH EQUIVALENTS
Cash equivalents include all highly liquid investments with a maturity of
three months or less when purchased.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method, except for inventories of
the majority owned subsidiaries which are valued using the first-in, first-out
(FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
provided primarily by the straight-line method. Depreciation is computed over
the estimated useful lives of the assets as follows:
Years
Buildings 10 to 40
Machinery and equipment 3 to 12
For tax purposes, useful lives and accelerated methods are used as
permitted by the taxing authorities.
<PAGE> 24
INCOME TAXES
Effective July 4, 1993, deferred taxes reflect the differences between
the financial statement and tax basis of assets and liabilities. Available
tax credits are taken into income as reductions of current income tax
provisions.
INCOME PER SHARE OF COMMON STOCK
Income per share is computed by dividing net income, adjusted for
preferred stock dividends, by the weighted average number of shares of
Donnelly Corporation common stock outstanding, as adjusted for stock splits
(7,744,042 in 1995, 7,716,923 in 1994 and 7,686,104 in 1993).
FISCAL YEAR
The Company's fiscal year is the 52 or 53 week period ending the Saturday
nearest June 30. Fiscal years 1995, 1994 and 1993 ended on July 1, July 2 and
July 3, respectively, and included 52 weeks, 52 weeks and 53 weeks,
respectively.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year data to conform to
the current year presentation.
2. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
In thousands 1995 1994
<S> <C> <C>
LIFO cost:
Finished products and
work in process......... $ 6,743 $ 9,836
Raw materials........... 6,622 6,781
-------- --------
13,365 16,617
-------- --------
FIFO cost:
Finished products and
work in process......... 3,397 1,915
Raw materials........... 5,280 1,444
-------- --------
8,677 3,359
-------- --------
$ 22,042 $ 19,976
-------- --------
-------- --------
</TABLE>
If only the first-in, first-out method of inventory valuation had been
used, inventories would have been $0.5 million and $0.6 million higher than
reported at July 1, 1995 and July 2, 1994, respectively, and would have
approximated replacement cost.
<PAGE> 25
3. DEBT AND OTHER FINANCING ARRANGEMENTS
Debt consists of:
<TABLE>
<CAPTION>
In thousands 1995 1994
<S> <C> <C>
Borrowings under revolving credit
agreements at 7.50% and 4.94%...... $ 15,700 $ 18,800
Senior Notes, due fiscal 2004,
principal payable in installments
beginning in fiscal 1999, interest
at 6.67%........................... 15,000 15,000
Senior Notes, due fiscal 2005,
principal payable in installments
beginning in fiscal 2000, interest
at 7.22%........................... 15,000
Industrial revenue bonds:
$9,500 at adjustable rates(4.691%
at July 1, 1995), due in fiscal
2008-2010; $5,000 at a fixed rate
of 8.13%, due in fiscal 2012....... 14,500 14,500
Senior Notes, due fiscal 1997,
principal payments payable semi-
annually, interest at 9.01%........ 2,182 3,636
Other.............................. 4,420 1,549
--------- ---------
Total.............................. 66,802 53,485
Less current maturities............ 428 347
--------- ---------
$ 66,374 $ 53,138
--------- ---------
--------- ---------
</TABLE>
The Company has a $70 million Revolving Credit Agreement which expires
July 16, 1997. Interest is at prime unless one of three alternative elections
are made by the Company. It is the Company's intent to refinance $2.2 million
in Senior Notes with the revolving credit agreement.
The $9.5 million industrial revenue bonds are secured by letters of
credit which must be renewed annually. All industrial revenue bonds are
collateralized by the purchased land, building and equipment.
The various borrowings subject the Company to certain restrictions
relating to, among other things, minimum net worth, payment of dividends and
maintenance of certain financial ratios. Retained earnings available for
dividends at July 1, 1995, are $23.8 million.
Annual principal maturities consist of:
<TABLE>
<CAPTION>
In thousands Year ending Amount
<S> <C>
1996............................. $ 428
1997............................. 202
1998............................. 18,054
1999............................. 3,537
2000............................. 7,039
2001 and thereafter.............. 37,542
--------
$ 66,802
--------
--------
</TABLE>
<PAGE> 26
In July of 1995, the Company issued a $20 million note at an interest
rate of 6.7% with an insurance company. The note has a 4 to 5 month delayed
take down with principal payments commencing in fiscal 2001 until maturity in
fiscal 2006.
The Company provides guarantees for up to $5.0 million of Donnelly
Applied Films Corporation borrowings and also guarantees $7.3 million in
municipal funding for the construction of the Company's Newaygo facility.
Interest payments of $5.0 million, $3.7 million and $3.3 million were
made in 1995, 1994 and 1993, respectively.
4. FINANCIAL INSTRUMENTS
The Company has exposure to market risks from fluctuations in interest
rates and uses interest rate swap agreements with major financial institutions
to reduce those risks. The Company does not hold or issue financial
instruments for trading purposes. At July 1, 1995, the Company had interest
rate swaps with an aggregate notional amount of $60 million, $40 million of
which are offsetting. These are used to convert $20 million of the Company's
variable interest rate debt to fixed rates. The Company is currently paying a
weighted average fixed rate of 7.99%, calculated on the notional amounts.
These swap agreements have varied expirations through 2003. The notional
amounts of interest rate swaps do not represent amounts exchanged by the
parties and, thus are not a measure of the exposure to the Company through its
use of these instruments. Net receipts or payments under the agreements are
recognized as an adjustment to interest expense. The risk of loss to the
Company in the event of nonperformance by any party under these agreements is
not considered significant.
The Company's Irish subsidiary enters into foreign exchange contracts to
hedge against changes in foreign currency exchange rates. The Company has
foreign exchange contracts outstanding of $13.3 million and $10.3 million at
July 1, 1995 and July 2, 1994, respectively. The foreign exchange contracts
require the Company to exchange foreign currencies for Irish pounds and
generally mature within 12 months.
5. PREFERRED STOCK AND COMMON STOCK
Each share of 7 1/2% cumulative preferred stock is entitled to one vote
for the election of the members of the Board of Directors not elected by the
holders of Class A Common Stock, and all other matters at all shareholders'
meetings whenever dividend payments are in arrears for four cumulative
quarters. No arrearage existed at July 1, 1995. The preferred stock is
redeemable in whole or in part, if called by the Company, at $10.50 per share.
Additionally, there are 1,000,000 authorized shares of series preferred stock,
no par value. At July 1, 1995 and July 2, 1994, no series preferred stock was
outstanding.
Each share of Class A Common Stock and Class B Common Stock is entitled
to one vote and ten votes, respectively, at all shareholders' meetings. The
holders of Class A Common Stock are entitled to elect one-quarter of the
members of the Board of Directors. The remaining directors are elected by the
holders of Class B Common Stock and any preferred stock entitled to vote.
6. STOCK PURCHASE AND OPTION PLANS
The Company's Employees' Stock Purchase Plan permits the purchase in an
aggregate amount of up to 437,800 shares of Class A Common Stock. Eligible
employees may purchase stock at market value, or 90% of market
<PAGE> 27
value if the price is $8 per share or higher, up to a maximum of $5,000 per
employee in any calendar year. The Company issued 22,771 shares in 1995 and
19,677 shares in 1994 under this plan.
The Company's Stock Option Plans permit the granting of either
nonqualified or incentive stock options to certain key employees and directors
to purchase an aggregate amount of up to 862,500 shares of the Company's Class
A Common Stock. The options, which become exercisable twelve months after
date of grant, expire ten years after date of grant. Although the plan
administrator may establish the nonqualified option price at below market
value at date of grant, incentive stock options may be granted only at prices
not less than the market value.
Options have been granted to purchase common stock at prices ranging from
$9.20 to $20.125 per share. A summary of option transactions follows:
<TABLE>
<CAPTION>
In thousands Year ended 1995 1994 1993
<S> <C> <C> <C>
Options outstanding,
beginning of year.............. 361 283 247
Options granted................ 76 79 65
Options exercised.............. (13) (1) (29)
Options expired................ (12)
----- ----- -----
Options outstanding,
end of year.................... 412 361 283
----- ----- -----
----- ----- -----
Exercisable, end of year....... 343 282 218
----- ----- -----
----- ----- -----
</TABLE>
The Company has reserved 408,725 shares for future grants at July 1,
1995.
7. BENEFIT PLANS
A. Pension Benefits
The Company sponsors defined benefit pension plans covering substantially
all employees. Pension costs for the plans are funded in amounts which equal
or exceed regulatory requirements. Benefits under these plans are based
primarily on years of service and compensation.
Assumptions and net periodic pension cost are as follows:
<TABLE>
<CAPTION>
In thousands Year ended 1995 1994 1993
<S> <C> <C> <C>
Discount rate................... 8.25% 8.25% 8.00%
Compensation increase........... 5.00% 5.00% 5.00%
Expected return on plan
assets.......................... 9.50% 9.50% 10.00%
Service cost.................... $3,544 $3,178 $2,417
Interest cost................... 4,560 3,912 3,259
Actual return on plan assets.... (6,389) (854) (3,863)
Net amortization and
deferral........................ 2,563 (2,292) 737
------ ------ ------
$4,278 $3,944 $2,550
------ ------ ------
------ ------ ------
</TABLE>
<PAGE> 28
The increase in the net periodic pension cost in 1994 was primarily due
to the change in the discount rate.
The funded status of the defined benefit pension plans is summarized
below. The benefit obligation increase is primarily due to changing the
discount rate from 8.25% to 7.75% as of July 1, 1995.
<TABLE>
<CAPTION>
In thousands 1995 1994
<S> <C> <C>
Accumulated benefit
obligation, including vested
benefits of $38,997 and $31,466..... $ (40,328) $ (32,991)
Effect of projected compensation
increases........................... (23,462) (19,785)
Projected benefit obligation for
service rendered to date............ (63,790) (52,776)
Plan assets at fair value, primarily
corporate equity and debt
securities.......................... 47,180 39,565
Projected benefit obligation in
excess of plan assets............... (16,610) (13,211)
Unrecognized net transition
obligation.......................... 492 589
Unrecognized prior service cost..... 120 237
Unrecognized net loss............... 10,165 9,048
-------- --------
Net pension liability............... $ (5,833) $ (3,337)
-------- --------
-------- --------
</TABLE>
B. Postretirement Health Care Benefits
The Company provides certain health care and life insurance benefits for
eligible active and retired employees. The plan contains cost saving features
such as deductibles, coinsurance and a lifetime maximum and is unfunded.
Prior to July 4, 1993, the cost of providing these benefits was
recognized as a charge to income in the period the claims were paid and was
$0.2 million in 1993. Effective July 4, 1993, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." This Statement requires the
accrual, during the employee's years of service, of the expected cost of
providing those benefits to an employee and the employee's beneficiaries and
covered dependents. The net transition obligation represents the difference
between the accrued postretirement benefit costs prior to the adoption of SFAS
No. 106 and the Plan's unfunded accumulated postretirement benefit obligation
as of July 4, 1993. The net transition obligation of $7.9 million at July 4,
1993 is being amortized over 22 years.
<PAGE> 29
The components of the net periodic postretirement benefit cost are as
follows:
<TABLE>
<CAPTION>
In thousands Year ended 1995 1994
<S> <C> <C>
Service cost.......................... $ 402 $ 388
Interest cost......................... 779 661
Amortization of net transition
obligation over 22 years.............. 360 360
Unrecognized net loss................. 13
------- -------
Net periodic postretirement benefit
cost.................................. $ 1,554 $ 1,409
------- -------
------- -------
</TABLE>
The postretirement benefit liability recognized in the balance sheet is
as follows:
<TABLE>
<CAPTION>
In thousands 1995 1994
<S> <C> <C>
Retirees.............................. $ (5,973) $ (5,735)
Fully eligible active participants.... (14) (32)
Other active participants............. (4,961) (4,185)
Accumulated postretirement benefit
obligation............................ (10,948) (9,952)
Unrecognized transition obligation 7,201 7,561
Unrecognized net loss................. 1,519 1,266
-------- --------
Postretirement health care liability.. $ (2,228) $ (1,125)
-------- --------
-------- --------
</TABLE>
The actuarial calculation assumed a health care inflation rate of 13% in
1994, declining uniformly to 6% in 2000, and remaining level thereafter. The
health care cost trend rate has an effect on the amounts reported. Increasing
the assumed health care inflation rate by 1% would increase the accumulated
postretirement benefit obligation by $0.6 million, and the net periodic
postretirement benefit cost for the year by $40,000. The weighted average
discount rate used in determining the accumulated postretirement benefit
obligation was 7.75%.
8. TAXES ON INCOME
Effective July 4, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". The
cumulative effect of this accounting change of $0.5 million is reported
separately in the 1994 combined consolidated statement of income. Deferred
income taxes under SFAS No. 109 reflect the impact of "temporary differences"
between the amounts of assets and liabilities for financial reporting purposes
and those amounts as measured by income tax laws. The tax effects of
temporary differences which give rise to a significant portion of deferred tax
assets (liabilities) are as follows:
<TABLE>
<CAPTION>
In thousands 1995 1994
<S> <C> <C>
Fixed assets.................$ (4,237) $ (4,382)
Retirement plans............. 1,641 1,129
Postretirement benefits...... 780 394
Accrued expenses and other... 365 633
-------- --------
Net deferred tax liability...$ (1,451) $ (2,226)
-------- --------
-------- --------
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
In thousands Year ended 1995 1994 1993
<S> <C> <C> <C>
Income before taxes on income
consists of:
Domestic...................... $ 18,692 $ 14,453 $ 12,027
Foreign....................... (1,869) (3,445) (1,091)
-------- -------- --------
$ 16,823 $ 11,008 $ 10,936
-------- -------- --------
-------- -------- --------
Tax expense (benefits) consist of:
Current:
Domestic...................... $ 7,920 $ 4,782 $ 3,763
Foreign....................... (17) (16) (2)
-------- -------- --------
7,903 4,766 3,761
-------- -------- --------
Deferred:
Domestic...................... (1,761) (1,101) (96)
Foreign....................... (347) (331) (94)
-------- -------- --------
(2,108) (1,432) (190)
-------- -------- --------
$ 5,795 $ 3,334 $ 3,571
-------- -------- --------
-------- -------- --------
</TABLE>
The difference from the amount that would be computed by applying the
federal statutory income tax rate to income before taxes on income is
reconciled as follows:
<TABLE>
<CAPTION>
In thousands Year ended 1995 1994 1993
<S> <C> <C> <C>
Income taxes at federal
statutory rate.................. 35% 34% 34%
Impact of:
Available tax credits........... (2) (11)
Foreign subsidiary earnings..... 2 7 3
DISC earnings................... (2) (3) (3)
Other........................... 1 3 (1)
-------- -------- --------
Effective tax rate.............. 34% 30% 33%
-------- -------- --------
Income taxes paid............... $ 10,332 $ 3,149 $ 3,926
-------- -------- --------
-------- -------- --------
</TABLE>
The Company recognized a $0.6 million extraordinary tax benefit in 1993
from utilization of the net operating loss carryforward relating to previous
start-up losses of D&A Technology, Inc.
Deferred income taxes in 1993 were provided for significant timing
differences in the recognition of revenue and expenses for tax and financial
statement purposes, principally depreciation and pension costs.
Deferred income taxes are not provided on cumulative undistributed
earnings of the foreign subsidiaries and affiliates amounting to $0.7 million
and $1.7 million at July 1, 1995 and July 2, 1994, respectively, the majority
of which is intended to be permanently reinvested.
<PAGE> 31
9. COMMITMENTS AND CONTINGENCIES
A. Patent Litigation
Certain electrochromic mirror technology of the Company has been the
subject of patent litigation between the Company and Gentex Corporation
("Gentex"). Following the settlement of prior litigation, Gentex filed
another lawsuit against the Company on June 7, 1993. In this suit, Gentex
alleged that the Company's solid polymer film electrochromic mirror infringed
one of the Gentex patents involved in the prior litigation and that the
Company has violated the injunction entered by the court in the previous
litigation. Gentex sought unspecified damages and an injunction against
further alleged infringement by the Company. On March 21, 1994, the Company's
motion for summary judgement of non-infringement was granted and the lawsuit
was dismissed. Gentex has filed an appeal of this ruling, which is currently
pending.
The Company's lawsuit against Gentex, filed on July 8, 1993, remains
outstanding. In this suit, the Company has alleged that Gentex's lighted
electrochromic mirrors infringe three of the Company's patents and that all of
Gentex's electrochromic mirrors infringe a fourth patent owned by the Company.
The Company is seeking unspecified damages and injunction against further
infringement by Gentex. A trial has been scheduled to begin in October 1995.
The Company has filed a motion seeking a preliminary injunction against
further infringement of one of its patents pending final resolution of the
lawsuit. Gentex has filed several motions for summary judgement, alleging
that the patents in question are invalid or not infringed, and that the
Company is not entitled to certain damages. None of these motions have yet
been decided by the court.
On October 13, 1994, the Company filed a second lawsuit against Gentex,
alleging that Gentex's inside and outside electrochromic mirrors infringe two
additional patents owned by the Company which relate to the protection of
electrochromic mirrors from ultraviolet radiation. The Company is seeking
unspecified damages and an injunction against further infringement by Gentex.
The Company has also filed a motion seeking a preliminary injunction against
further infringement of these two patents pending final resolution of the
lawsuit. This motion has not yet been decided by the court, and no trial date
has been set in the second lawsuit.
On June 23, 1995, Gentex filed a lawsuit against the Company seeking a
declaration that three patents owned by the Company are invalid and not
infringed by Gentex. The Company has not yet responded to these allegations.
However, the Company believes that at least two of the patents in question are
infringed by certain of Gentex's electrochromic mirrors. No trial date has
been set in this lawsuit.
B. Other Litigation
The Company and its subsidiaries are involved in certain other legal
actions and claims, including environmental claims, arising in the ordinary
course of business. Management believes (based on advice of legal counsel)
that such litigation and claims will be resolved without material effect on
the Company's financial position.
C. Other
As of July 1, 1995, the Company had capital expenditure purchase
commitments outstanding of approximately $13 million.
<PAGE> 32
10. LEASES
The Company leases various facilities and equipment. Rental expense
charged to operations amounted to approximately $2.5 million for 1995, $2.5
million for 1994 and $2.5 million for 1993.
Future minimum lease payments consist of:
<TABLE>
<CAPTION>
Year ending In thousands Amount
<S> <C>
1996....................... $ 3,760
1997....................... 1,576
1998....................... 913
1999....................... 929
2000....................... 575
2001 and thereafter........ 1,290
--------
$ 9,043
--------
--------
</TABLE>
11. GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
The Company is primarily engaged in the research, design, development,
manufacture, marketing and sale of interior and exterior rearview mirrors,
interior lighting and interior trim products, and modular windows for world
automotive markets. Excluding the contributions of various coatings related
joint ventures, the Company's market focus is nearly exclusively automotive.
Export revenues are foreign revenues produced by identifiable assets
located in the United States. Foreign revenues are generated by identifiable
assets at the Company's subsidiaries located in Ireland, France and Mexico. A
summary of the Company's operations by geographic area follows:
<TABLE>
<CAPTION>
In thousands Year ended 1995 1994 1993
<S> <C> <C> <C>
Revenues:
United States.............. $317,710 $296,226 $253,631
Foreign.................... 36,832 18,367 23,065
Export:
Americas................... 25,016 21,557 22,153
Asia....................... 981 310 400
Europe..................... 2,786 785 895
Other...................... 15 17 783
-------- -------- --------
$383,340 $337,262 $300,927
-------- -------- --------
-------- -------- --------
Operating Income (Loss):
United States.............. $ 19,857 $ 16,397 $ 16,962
Foreign.................... (2,824) (3,276) (904)
-------- -------- --------
$ 17,033 $ 13,121 $ 16,058
-------- -------- --------
-------- -------- --------
Identifiable Assets:
United States.............. $186,743 $165,172 $125,465
Foreign.................... 37,045 18,629 14,375
-------- -------- --------
$223,788 $183,801 $139,840
-------- -------- --------
-------- -------- --------
</TABLE>
<PAGE> 33
Sales to major U.S. automobile manufacturers as a percent of the
Company's net sales follows:
<TABLE>
<CAPTION>
Year ended 1995 1994 1993
<S> <C> <C> <C>
Ford Motor Company........... 22% 24% 21%
Chrysler Corporation......... 18 18 18
General Motors Corporation... 17 21 23
Honda of America Mfg., Inc... 14 12 12
--- --- ---
71% 75% 74%
--- --- ---
--- --- ---
</TABLE>
12. BUSINESS ACQUISITION
Effective April 1, 1995, the Company acquired an interest in Hohe GmbH &
Co. KG ("Hohe"), a German limited partnership. Hohe, based in Collenberg,
Germany, serves many of the main auto producers in Europe in exterior mirrors,
interior mirrors, door handles, automotive tooling and electronic components
related to mirror systems. With operations in Germany and Spain, Hohe's sales
for the fiscal year ending March 31, 1995, were approximately $220 million.
The Company acquired 48 percent of the general partnership interest and
66 2/3 percent of the limited partnership interest for $3.6 million.
Additionally, $14.3 million has been advanced to Hohe under a subordinated
loan agreement. The Company expects to provide future advances to Hohe for
approximately $15 million which will be financed through the Company's
existing borrowing agreements. Amounts advanced to Hohe under the
subordinated loan agreement provide for 10 percent interest per annum with no
principal payments due until its maturity on April 1, 1998. Subsequent
advances to Hohe will be subordinated to Hohe bank debt and provide for
interest at 700 basis points above the Bundesbank discount rate, which was 4%
at June 30, 1995. In connection with the Company's acquisition of the Hohe
interest, refinancing and additional loans of approximately $70 million are
being provided to Hohe by several banks. The Company's interest in Hohe is
stated at cost, adjusted for its equity in undistributed earnings from
acquisition to May 31, 1995, the most recent date financial information is
available. On July 1, 1995, the amount of the investment in Hohe included
goodwill in the amount of $5 million which is being amortized over 15 years.
The terms of the transaction allow Donnelly to purchase the remaining
ownership interest in Hohe through various options ranging from $3 million to
$10 million. The remaining owners have an option to require the Company to
buy their interests at any time based upon a formula which results in a price
range of up to $10 million.
The unaudited results of operations and financial position of Hohe are
summarized below:
<TABLE>
<CAPTION>
Two months ended May 31, 1995
In thousands
<S> <C>
Condensed Income Statement Information
Net sales....................... $ 43,811
Costs and expenses.............. (43,401)
--------
Net income...................... $ 410
--------
--------
Equity in net income............ $ 212
--------
--------
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
At May 31, 1995
In thousands
<S> <C>
Condensed Balance Sheet Information
Current assets........... $ 59,380
Non-current assets....... 71,283
Current liabilities...... 50,429
Non-current liabilities.. 81,369
--------
Net equity .............. $ (1,135)
--------
--------
13. RESTRUCTURING OF OPERATIONS
In the second quarter of 1995, the Company entered into a plan to
restructure and sell certain nonautomotive businesses resulting in a pretax
gain of $4.7 million. The restructuring plan was implemented in an effort to
move the Company towards a much closer focus on its automotive business. The
gain includes the sale of the appliance business, the liquidation of the
Company's investment in OSD Envizion Company and the sale of 81% of the
Company's heavy truck mirror business. The sale of the appliance business
includes a royalty agreement which is expected to continue through fiscal
1996. These non-automotive businesses represented an insignificant portion of
the Company's operations. Restructuring costs were also recognized to cover a
severance program and other expenses associated with the restructuring plan.
The Company also restructured certain automotive operations resulting in
a charge of $2.4 million in the second quarter, primarily for the write-down
of operating assets due to the loss of Saturn's business at D&A Technology,
Inc., the Company's joint venture with Asahi Glass Company. In the first
quarter of fiscal 1996, the Company anticipates dissolving the joint venture
and acquiring Asahi's 40% interest in D&A. The operation will be reduced in
size and maintained as a division in Tennessee. New modular window and
sunroof business will begin to replace the Saturn programs currently produced
at this operation. D&A represented 5% and 8%, respectively, of the Company's
combined consolidated net sales and net income in 1995.
In the fourth quarter of 1994, the Company recognized restructuring costs
of $1.2 million to cover a severance program and other expenses associated
with the restructuring of Donnelly Mirrors Limited.
14. INVESTMENTS IN AND ADVANCES TO AFFILIATES
Investments in and advances to affiliate companies accounted for under
the equity method amounted to $25.2 million and $6.0 million at July 1, 1995
and July 2, 1944, respectively.
The acquisition of the Company's interest in Hohe is discussed in Note 12
and the sale of the Company's investment in OSD Envizion Company is discussed
in Note 13.
The Company's equity investments include a 50% owned joint venture in
Donnelly Applied Films Corporation which manufactures thin-film glass coatings
used in the production of liquid crystal displays and a working partnership
with VLSI Vision Limited (VVL) which produces an advanced video microchip.
During the year ended July 1, 1995, VVL's parent, VISION Group plc., sold
common shares in a private placement and through a public offering reducing
the Company's ownership interest from 40% to 32%. The Company's equity in the
net proceeds is reflected as an increase in additional paid in capital in the
accompanying financial statements. The aggregate market value of the
Company's investment in VISION, based on the quoted market price for VISION's
common shares, which are listed on the London Stock
<PAGE> 35
Exchange, was $17.3 million at July 1, 1995. The Company's investment in the
net assets of VISION was $3.5 million at July 1, 1995.
15. COMMON STOCK PRICE PER SHARE-UNAUDITED
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1995 1995 1994 1994
Quarter High Low High Low
<S> <C> <C> <C> <C>
First $17 1/2 $15 1/8 $21 3/4 $18 3/4
Second 17 5/8 13 1/4 20 3/8 18 1/2
Third 18 15 1/8 20 1/4 14 1/8
Fourth 17 5/8 14 7/8 16 1/2 14 3/8
</TABLE>
16. QUARTERLY FINANCIAL DATA - UNAUDITED
<TABLE>
<CAPTION>
In thousands, except per Total
share data First Second Third Fourth Year
<S> <C> <C> <C> <C> <C>
1995
Net sales $ 86,741 $ 98,460 $ 96,708 $101,431 $383,340
Gross profit 18,101 22,312 21,019 21,136 82,568
Operating income 811 7,274 4,828 4,120 17,033
Net Income:
Income (loss) (85) 4,699 3,076 3,319 11,009
Per common share (.01) .61 .40 .42 1.42
Dividends declared per
share of common stock .08 .08 .08 .08 .32
1994
Net sales $ 68,255 $ 80,070 $ 90,897 $ 98,040 $337,262
Gross profit 14,136 16,626 19,822 23,048 73,632
Operating income 832 2,494 4,402 5,393 13,121
Income before cumulative
effect of change in
accounting principle:
Income 359 675 2,679 3,032 6,745
Per common share .05 .09 .35 .39 .87
Net Income:
Income 872 675 2,679 3,032 7,258
Per common share .11 .09 .35 .39 .94
Dividends declared per
share of common stock .08 .08 .08 .08 .32
</TABLE>
The impact of certain transactions on the 1995 quarterly results of
operations is discussed in Note 13.
<PAGE> 36
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Donnelly Corporation is responsible for the preparation
and integrity of the combined consolidated financial statements and all other
information contained in this Annual Report. The financial statements were
prepared in accordance with generally accepted accounting principles and
include amounts that are based on management's informed estimates and
judgements.
In fulfilling its responsibility for the integrity of financial
information, management has established a system of internal accounting
control which provides reasonable assurance that assets are properly
safeguarded and accounted for and that transactions are executed in accordance
with management's authorization and recorded and reported properly.
The financial statements have been audited by our independent public
accountants, BDO Seidman, LLP, whose unqualified report is presented on the
next page. The independent accountants provide an objective assessment of the
degree to which management meets its responsibility for fairness of financial
reporting. They regularly evaluate the internal control structure and perform
such tests and other procedures as they deem necessary to reach and express an
opinion on the fairness of the financial statements.
The Audit Committee of the Board of Directors, consisting solely of
outside Directors, meets regularly with the independent public accountants and
management to review and discuss the major audit findings, the adequacy of the
internal control structure and quality of financial reporting. The
independent accountants also have free access to the Audit Committee to
discuss auditing and financial reporting matters with or without management
present.
/s/ J.Dwane Baumgardner
- -----------------------------
J. Dwane Baumgardner, Ph.D.
Chairman, Chief Executive Officer and President
/s/ William R. Jellison
- -----------------------------
William R. Jellison
Vice President, Chief Financial Officer and Treasurer
<PAGE> 37
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
DONNELLY CORPORATION
HOLLAND, MICHIGAN
We have audited the combined consolidated balance sheets of Donnelly
Corporation and subsidiaries as of July 1, 1995 and July 2, 1994, and the
related combined consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended July 1, 1995.
These 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the 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 combined consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Donnelly Corporation and subsidiaries as of July 1, 1995 and July 2, 1994, and
the results of their operations and their cash flows for each of the three
years in the period ended July 1, 1995, in conformity with generally accepted
accounting principles.
As discussed in notes 7 and 8 to the combined consolidated financial
statements, effective July 4, 1993, the Company changed its methods of
accounting for postretirement health care benefits and income taxes,
respectively.
/s/ BDO Seidman, LLP
- -----------------------------
BDO Seidman, LLP
Grand Rapids, Michigan
August 2, 1995
<PAGE> 38
ITEM 9 CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
Part III.
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of Registrant. Information relating to the directors and
director nominees of the registrant contained in the registrant's definitive
Proxy Statement for its Annual Meeting of Shareholders to be held October 20,
1995, and filed pursuant to Regulation 14A, is incorporated by reference.
Executive Officers of Registrant. The Executive Officers of the Company
are as follows:
Positions and Year First Elected
Name Age Offices Held Executive Officer
J. Dwane Baumgardner 54 Director, Chairman 1978
CEO, President
John F. Donnelly, Jr. 42 Senior Vice President 1986
Bob J. Tennison 47 Senior Vice President 1994
James A. Knister 56 Senior Vice President 1972
William R. Jellison 37 Vice President, CFO 1991
Treasurer
Maryam Komejan 44 Vice President, Corporate 1993
Secretary
John F. Donnelly, Jr., is a descendant of Bernard P. Donnelly, Sr., the
Company's founder, and is the brother of Joan E. Donnelly, a director of the
Company. B. Patrick Donnelly, III, Joan E. Donnelly, Thomas E. Leonard,
Gerald T. McNeive and Rudolph B. Pruden, all Directors of the Company, are
descendants of, or are married to descendants of Bernard P. Donnelly. There
are no other family relationships between or among the above-named executive
officers. There are no arrangements or understandings between any of the
above-named officers pursuant to which any of them was named an officer.
Dr. Baumgardner has been Chief Executive Officer and a director since
1982, Chairman of the Board since 1986 and President since 1994. John F.
Donnelly, Jr. was elected Senior Vice President in fiscal 1993. Prior to that
time he was Vice President from 1986 through 1993. Mr. Tennison joined
Donnelly in August, 1994. Prior to joining Donnelly, Mr. Tennison was a
division president at Hennessey Industries, Inc., a division of Danaher
Corporation, from October 1991 to 1994; Director of Manufacturing at Sauer-
Sundstrand from July 1990 to 1991; and President of Manufacturing Services
International, a division of Perry Group, Inc. from 1987 to 1990. Mr. Knister
has been a Senior Vice President since 1988. William R. Jellison has been CFO
since 1994, Vice President since 1991 and Treasurer since 1988. Maryam
Komejan has been Vice President since 1993 and Corporate Secretary since 1989.
All terms of office are on an annual basis which will expire on October 20,
1995.
<PAGE> 39
ITEM 11 EXECUTIVE COMPENSATION
Information relating to executive compensation is contained under the
caption "Executive Compensation" in the Company's definitive Proxy Statement
for its Annual Meeting of Shareholders to be held October 20, 1995 and the
information within those sections is incorporated herein be reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The sections entitled "Voting Securities and Principal Holders Thereof",
"Nominees for Election as Directors" and "Securities Ownership of Management"
in the definitive Proxy Statement for the Company's Annual Meeting of
Shareholders to be held October 20, 1995, and the information within those
sections are incorporated by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Transactions" in the definitive Proxy
Statement for the Company's Annual Meeting of Shareholders to be held October
20, 1995, and the information within that section is incorporated by
reference.
PART IV.
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT
1. Financial Statements. The Registrant's financial statements, for the year
ended July 1, 1995, together with the Report of Independent Accountants are
set forth on pages 19-37 of this report, Item 8. The supplemental financial
information listed and appearing hereafter should be read in conjunction with
the financial statements included in this report. Separate financial
statements of affiliates accounted for by the equity method have been omitted
because they would not constitute a significant subsidiary.
2. Financial Statement Schedules. The following are included in Part IV of
this report for each of the years ended July 1, 1995, July 2, 1994 and July 3,
1993 as applicable:
Page
Report of Independent Certified Public Accountants on Schedules 42
Schedule II Valuation and Qualifying Accounts 43
All other schedules are not submitted because they are not applicable or
because the required information is included in the financial statements or
notes thereto.
3. Exhibits. Reference is made to the Exhibit Index which is found on the
last two pages of the body of this Form 10-K Annual Report preceding the
exhibits.
<PAGE> 40
(b) REPORTS ON FORM 8-K
The Registrant filed Form 8-K, dated May 29, 1995, which has subsequently
been amended, in the fourth quarter of the period covered by this report,
relating to the acquisition of an interest in Hohe GmbH & Co. KG ("Hohe"), a
German limited partnership. The filing included an English language summary
of an Acquisition Agreement and related documents written in German between
the Registrant, Donnelly GmbH, Hohe and other parties related to Hohe,
dated May 25, 1995, consolidated financial statements of Hohe as of March 31,
1995 and 1994 (audited) and pro forma financial information of the Registrant
(c) EXHIBITS
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) FINANCIAL STATEMENT SCHEDULES
The response to this section of Item 14 is submitted as a separate
section of this report.
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 (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.
DONNELLY CORPORATION
/s/J. Dwane Baumgardner
- ----------------------------------
Chairman, Chief Executive
Officer, and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the
Registrant in the capacity indicated. The person named below hereby appoints
J. Dwane Baumgardner and William R. Jellison, and each of them severally, as
his or her attorney in fact, to sign in his or her name and on his or her
behalf, as a director or officer of the Registrant, and to file with the
Commission any and all amendments to this report on Form 10-K.
/s/J. Dwane Baumgardner /s/William R. Jellison
- ----------------------------- ------------------------------
Chairman, Chief Executive Vice President, Chief
Officer, and Director and Financial Officer and
President Treasurer
/s/Arnold F. Brookstone /s/B. Patrick Donnelly III
- ----------------------------- ------------------------------
Director Director
/s/Joan E. Donnelly /s/R. Eugene Goodson
- ----------------------------- ------------------------------
Director Director
/s/Thomas E. Leonard /s/Gerald T. McNeive
- ----------------------------- ------------------------------
Director Director
/s/Rudolph B. Pruden /s/Donald R. Uhlmann
- ----------------------------- ------------------------------
Director Director
/s/Glenn M. Walters
- -----------------------------
Director
DATE: September 22, 1995
Donnelly Corporation
Annual Report - Form 10-K
<PAGE> 42
Report of Independent Certified Public Accountants on Financial Statement
Schedule
Donnelly Corporation
Holland, Michigan
The audits referred to in our report dated August 2, 1995, relating to
the combined consolidated financial statements of Donnelly Corporation and
subsidiaries, which is contained in Item 8 of this Form 10-K, included the
audit of the financial statement schedule listed in the accompanying index.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
/s/BDO SEIDMAN, LLP
- -----------------------------
BDO Seidman, LLP
Grand Rapids, Michigan
August 2, 1995
<PAGE> 43
<TABLE>
<CAPTION>
DONNELLY CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
BALANCE AT BALANCE
BEGINNING AT END
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS PERIOD
<S> <C> <C> <C> <C>
RESERVE FOR UNCOLLECTIBLE
ACCOUNTS AND SALES RETURNS AND
ALLOWANCES:
YEAR ENDED JULY 3, 1993 $658 -- (1) -- (1) $562
YEAR ENDED JULY 2, 1994 $562 -- (1) -- (1) $676
YEAR ENDED JULY 1, 1995 $676 -- (1) -- (1) $575
(1) INFORMATION IN THIS COLUMN IS NOT SIGNIFICANT
</TABLE>
<PAGE> 44
Annual Report - Form 10-K
Exhibit Index
3. Articles of Incorporation and Bylaws are incorporated by reference to
Exhibit 3.1 and 3.2 of Registrant's Registration Statement on Form S-1, as
amended, dated March 9, 1988, (Registration No. 33-17167) ("S-1 Registration
Statement:).
4. A specimen stock certificate of the Class A Common Stock was filed as
part of a Registration Statement on Form S-1 (Registration No. 33-17167) as
Exhibit 4.1, and the same is hereby incorporated herein by reference.
10.1 Nationwide Life Insurance Company Debt Agreement
10.2 3rd Amendment to NBD Revolving Credit Loan Agreement
10.3 An English language summary of an Acquisition Agreement and related
documents written in German between the Registrant, Donnelly GmbH, Hohe GmbH &
Co. KG ("Hohe") and other related parties, dated May 25, 1995, consolidated
financial statements of Hohe as of March 31, 1995 and 1994 (audited) and pro
forma financial information of the Registrant were filed as part of Form 8-K
on June 9, 1995, which has been subsequently amended are are hereby
incorporated herein by reference.
10.4 Nationwide Life Insurance Company Debt Agreement was filed as part of
Form 10-K for the fiscal year ending July 2, 1994 as Exhibit 10.1 and is
hereby incorporated herein by reference.
10.5 The NBD loan agreement was filed as part of Form 10-K for the fiscal
year ending July 3, 1993 as Exhibit 10.1 and is hereby incorporated herein by
reference.
10.6 The Principal Mutual Debt Agreement was filed as part of Form 10-K for
the fiscal year ending July 3, 1993 as Exhibit 10.2 and is hereby incorporated
herein by reference.
10.7 A Merger Agreement for the Merger of Donnelly Coated Corporation
("DCC") into Applied Coated Corporation, among Registrant, DCC, Applied Films
Lab, Inc. and Cecil Vanalsburg, John Chapin, and Richard Condon, dated
February 24, 1992, was filed as part of a Registration Statement on Form S-2
(Registration No. 33-47036) and Exhibit 10.7, and the same is hereby
incorporated herein by reference.
10.8 The form of Indemnity Agreement between Registrant and each of its
directors was filed as a part of a Registration Statement on Form S-1
(Registration No. 33-17167) as Exhibit 10.8, and the same is hereby
incorporated herein by reference.
10.9 The Donnelly Corporation Stock Option Plan was filed as part of a
Registration Statement on Form S-1 (Registration No. 33-17167) as Exhibit
10.9, and the same is hereby incorporated herein by reference.
10.10 The Donnelly Corporation 1987 Employees' Stock Purchase Plan, including
amendments was filed as part of a Registration Statement on Form S-8
(Registration No. 33-34746) as Exhibit 28.1, and the same is hereby
incorporated herein by reference.
<PAGE> 45
10.11 A Joint Venture Agreement among Asahi Glass Company, Ltd., AP
Technoglass Corporation and Registrant, dated July 20, 1989, was filed as part
of a Registration Statement on Form S-2 (Registration No. 33-47036) as Exhibit
10.13, and the same is hereby incorporated herein by reference.
10.12 The Donnelly Corporation Non Employee Director's Stock Option Plan was
filed as part of a Registration Statement on Form S-8 (Registration No. 33-
55499) as Exhibit 99, and the same is hereby incorporated herein by reference.
22. Schedule of Affiliates
24. Consent of BDO Seidman, LLP, independent public accountants
27. Financial Data Schedules
<PAGE> 1
DONNELLY CORPORATION
NOTE AGREEMENT
Dated as of July 15, 1995
$20,000,000 Principal Amount
6.70% Senior Notes
Due December 15, 2005
PPN 257870 B@3
<PAGE> 2
TABLE OF CONTENTS
PAGE
S1. DESCRIPTION OF NOTES AND COMMITMENT..............................
1.1. Description of Notes.......................................
1.2. Commitment; Closing Date...................................
S2. PREPAYMENT OF NOTES...............................................
2.1. Required Prepayments.......................................
2.2. Optional Prepayments.......................................
2.3. Notice of Prepayments......................................
2.4. Surrender of Notes on Prepayment or Exchange...............
2.5. Direct Payment and Deemed Date of Receipt..................
2.6. Allocation of Payments.....................................
2.7. Payments Due on Saturdays, Sundays and Holidays............
S3. REPRESENTATIONS..................................................
3.1. Representations of the Company.............................
3.2. Representations of the Purchaser...........................
S4. CLOSING CONDITIONS...............................................
4.1. Representations and Warranties.............................
4.2. Legal Opinions.............................................
4.3. Events of Default..........................................
4.4. Payment of Fees and Expenses...............................
4.5. Legality of Investment.....................................
4.6. Private Placement Number...................................
4.7. Proceedings and Documents..................................
S5. INTERPRETATION OF AGREEMENT......................................
5.1. Certain Terms Defined......................................
5.2. Accounting Principles......................................
5.3. Valuation Principles.......................................
5.4. Direct or Indirect Actions.................................
S6. AFFIRMATIVE COVENANTS............................................
6.1. Corporate Existence........................................
6.2. Insurance..................................................
6.3. Taxes, Claims for Labor and Materials......................
6.4. Maintenance of Properties..................................
6.5. Maintenance of Records.....................................
<PAGE> 3
6.6. Financial Information and Reports..........................
6.7. Inspection of Properties and Records.......................
6.8. ERISA......................................................
6.9. Compliance with Laws.......................................
6.10. Acquisition of Notes.......................................
6.11. Private Placement Number...................................
S7. NEGATIVE COVENANTS...............................................
7.1. Working Capital............................................
7.2. Current Ratio..............................................
7.3. Net Worth..................................................
7.4. Funded Debt................................................
7.5. Liens......................................................
7.6. Restricted Payments........................................
7.7. Investments................................................
7.8. Joint Ventures.............................................
7.9. Sale and Leaseback Transactions............................
7.10. Merger or Consolidation....................................
7.11. Sale of Assets.............................................
7.12. Disposition of Stock or Indebtedness of Subsidiaries.......
7.13. Transactions with Affiliates...............................
7.14. Consolidated Tax Returns...................................
7.15. Nature of Business.........................................
S8. EVENTS OF DEFAULT AND REMEDIES THEREFOR..........................
8.1. Nature of Events............................................
8.2. Remedies on Default.........................................
8.3. Annulment of Acceleration of Notes..........................
8.4. Other Remedies..............................................
8.5. Conduct No Waiver; Collection Expenses......................
8.6. Remedies Cumulative.........................................
8.7. Notice of Default...........................................
S9. AMENDMENTS, WAIVERS AND CONSENTS.................................
9.1. Matters Subject to Modification.............................
9.2. Solicitation of Holders of Notes............................
9.3. Binding Effect..............................................
S10. FORM OF NOTES, REGISTRATION, TRANSFER, EXCHANGE AND
REPLACEMENT......................................................
10.1. Form of Notes..............................................
10.2. Note Register..............................................
10.3. Issuance of New Notes upon Exchange or Transfer............
<PAGE> 4
10.4. Replacement of Notes.......................................
S11. MISCELLANEOUS....................................................
11.1. Expenses...................................................
11.2. Notices....................................................
11.3. Reproduction of Documents..................................
11.4. Successors and Assigns.....................................
11.5. Law Governing..............................................
11.6. Headings...................................................
11.7. Counterparts...............................................
11.8. Reliance on and Survival of Provisions.....................
11.9. Integration and Severability...............................
ANNEXES
I - List of Subsidiaries and Joint Ventures and Jurisdictions in
Which the Company, Subsidiaries and Joint Ventures are
Organized and Qualified to Do Business
II - Liens
III - Litigation
IV - Funded Debt
EXHIBITS
A - Form of Senior Note
B - Form of Legal Opinion of the Purchaser's Counsel
C - Form of Legal Opinion of the Company's Counsel
<PAGE> 5
DONNELLY CORPORATION
NOTE AGREEMENT
Dated as of July 15, 1995
To Each of the Purchasers
Named in the Attached Schedule I
Ladies and Gentlemen:
DONNELLY CORPORATION, a Michigan corporation (the "Company"), agrees with
you as follows:
S1. DESCRIPTION OF NOTES AND COMMITMENT
1.1. Description of Notes. The Company has authorized the issuance and
sale of $20,000,000 aggregate principal amount of its Senior Notes (the
"Notes"), to be dated the date of issuance, to bear interest from such date
(computed on the basis of a 360-day year comprised of twelve 30-day months),
payable semi-annually on June 15 and December 15 of each year, commencing June
15, 1996, and at maturity, at the rate of 6.70% per annum prior to maturity
and to bear interest on any overdue principal (including any overdue optional
or required prepayment), on any overdue Make-Whole Amount or premium (to the
extent legally enforceable), and on any overdue installment of interest (to
the extent legally enforceable) at the rate of 8.70% per annum. The Notes
shall be expressed to mature on December 15, 2005 and shall be substantially
in the form attached as Exhibit A. The term "Notes" as used herein shall
include each Note delivered pursuant to this Note Agreement (the "Agreement")
and each Note delivered in substitution or exchange therefor and, where
applicable, shall include the singular number as well as the plural. Any
reference to you in this Agreement shall in all instances be deemed to include
any nominee of yours or any separate account or other person on whose behalf
you are purchasing Notes. You are sometimes referred to herein as the
"Purchaser."
1.2. Commitment; Closing Date. Subject to the terms and conditions of
this Agreement and on the basis of the representations and warranties
hereinafter set forth, the Company agrees to issue and sell to you, and you
agree to purchase from the Company, all of the Notes at a price of 100% of the
principal amount thereof.
Delivery of and payment for the Notes shall be made at the offices of the
Gardner, Carton & Douglas, 321 N. Clark Street, Chicago, Illinois 60610, at
10:00 a.m., Chicago Time on December 15, 1995, or such other time on such
earlier or later date, not later than 5:00 p.m., Chicago Time on December 31,
1995 as you and the Company may mutually agree (the "Closing Date"). The Notes
shall be delivered to you in the form of one or more Notes in fully registered
form, issued in your name or in the name of your nominee. Delivery of the
Notes to you on the Closing Date shall be against payment of the purchase price
thereof in Federal funds
<PAGE> 6
or other funds in U.S. dollars immediately available at NBD Bank, N.A., 611
Woodward, Detroit, Michigan 48226, ABN 072000326 for deposit in the Company's
Account No. 10714-83.
If on the Closing Date the Company shall fail to tender the Notes to you, you
shall be relieved of all remaining obligations under this Agreement. Nothing in
the preceding sentence shall relieve the Company of any liability occasioned by
such failure to deliver the Notes.
S2. PREPAYMENT OF NOTES
2.1. Required Prepayments. In addition to payment of all outstanding
principal of the Notes at maturity and regardless of the amount of Notes which
may be outstanding from time to time, the Company shall prepay and there shall
become due and payable on the dates set forth below the principal amounts of
the Notes set forth opposite such dates (or such lesser amounts as would
constitute payment in full on the Notes):
Date Principal Amount
December 15, 2000 $2,333,333.33
June 15, 2001 $2,333,333.33
December 15, 2001 $2,333,333.33
June 15, 2002 $2,333,333.33
December 15, 2002 $2,333,333.33
June 15, 2003 $2,333,333.33
December 15, 2003 $2,333,333.33
June 15, 2004 $ 916,666.67
December 25, 2004 $ 916,666.67
June 15, 2005 $ 916,666.67
Each such prepayment shall be at a price of 100% of the principal amount
prepaid, together with interest accrued thereon to the date of prepayment,
without a Make-Whole Amount or premium.
2.2. Optional Prepayments. (a) Upon notice as provided in
Section 2.3(a) and (b), the Company may prepay the Notes, in whole or in part,
at any time prior to December 15, 2002, in an amount not less than $100,000,
an integral multiple of $100,000 in excess thereof or such lesser amount as
shall constitute payment in full of the Notes. Each such prepayment shall be
at a price of 100% of the principal amount to be prepaid, plus interest
accrued thereon to the date of prepayment, plus the Make-Whole Amount.
(a) Upon notice as provided in Section 2.3(a) and (b), if applicable,
the Company may prepay the Notes, in whole or in part, at any time on or after
December 15, 2002, in an amount not less than $100,000, an integral multiple
of $100,000 in excess thereof or such lesser amount as shall constitute
payment in full of the Notes. Each such prepayment shall be at a price of
100% of the principal amount to be prepaid, plus interest accrued thereon to
the date of prepayment, plus the lesser of the Make-Whole Amount or a premium
as follows:
<PAGE> 7
If Prepaid in the Period Premium
December 15, 2002 to 1.3%
December 15, 2003
December 15, 2003 to 0.7%
December 15, 2004
Thereafter 0%
(b) Any optional prepayment of less than all of the Notes outstanding
pursuant to Section 2.2(a) or (b) shall be applied to reduce, pro rata, the
prepayments and payment at maturity required by Section 2.1.
(c) Except as provided in Section 2.1, this Section 2.2 or
Section 7.11, the Notes shall not be prepayable in whole or in part.
2.3. Notice of Prepayments. (a) The Company shall give notice of any
optional prepayment of the Notes pursuant to Section 2.2(a) or (b) to each
holder of the Notes not less than 30 days nor more than 60 days before the
date fixed for prepayment, specifying (i) such date, (ii) the principal amount
of the holder's Notes to be prepaid on such date, (iii) the Determination Date
for calculating the Make-Whole Amount, if applicable, (iv) the premium, if
applicable, and (v) the accrued interest applicable to the prepayment. Notice
of prepayment having been so given, the aggregate principal amount of the
Notes specified in such notice, together with the actual Make-Whole Amount or
the premium, if any, and accrued interest thereon shall become due and payable
on the prepayment date.
(a) In the case of any optional prepayment pursuant to Section 2.2(a)
and in the case of any Make-Whole Amount payable pursuant to Section 2.2(b),
the Company shall also give notice to each holder of the Notes by telecopy,
telegram, telex or other same-day written communication, 3 Business Days prior
to the prepayment date, of the Make-Whole Amount applicable to such prepayment
and the details of the calculations used to determine the amount of such Make-
Whole Amount.
2.4. Surrender of Notes on Prepayment or Exchange. Subject to
Section 2.5, upon any partial prepayment of a Note pursuant to this Section 2
or partial exchange of a Note pursuant to Section 10.3, such Note may, at the
option of the holder thereof, (i) be surrendered to the Company pursuant to
Section 10.3 in exchange for a new Note or Notes equal to the principal amount
remaining unpaid on the surrendered Note, or (ii) be made available to the
Company, at the Company's principal office, for notation thereon of the
portion of the principal so prepaid or exchanged. In case the entire
principal amount of any Note is prepaid or exchanged, such Note shall be
surrendered to the Company following such prepayment for cancellation and
shall not be reissued, and no Note shall be issued in lieu of such Note.
2.5. Direct Payment and Deemed Date of Receipt. Notwithstanding any
other provision contained in the Notes or this Agreement, the Company will pay
all sums becoming due on each Note held by you or any subsequent Institutional
Holder by wire transfer of
<PAGE> 8
immediately available funds to such account as you
have designated in Schedule I, or as you or such subsequent Institutional
Holder may otherwise designate by notice to the Company, in each case without
presentment and without notations being made thereon, except that any such
Note so paid or prepaid in full shall be surrendered to the Company for
cancellation. Any wire transfer shall identify such payment in the manner set
forth in Schedule I and shall identify the payment as principal, Make-Whole
Amount, or premium, if any, and/or interest. You and any subsequent
Institutional Holder of a Note to which this Section 2.5 applies agree that,
before selling or otherwise transferring any such Note, you or it will make a
notation thereon of the aggregate amount of all payments of principal
theretofore made and of the date to which interest has been paid and, upon
written request of the Company, will provide a copy of such notations to the
Company. You will notify the Company if you sell or otherwise transfer a
Note. Any payment made pursuant to this Section 2.5 shall be deemed received
on the payment date only if received before 10:00 A.M., Chicago time.
Payments received after 10:00 A.M., Chicago time, shall be deemed received on
the next succeeding Business Day.
2.6. Allocation of Payments. In the case of a prepayment pursuant to
Section 2.1 or 2.2(a) or (b), if less than the entire principal amount of all
of the Notes outstanding is to be paid, the Company will prorate the aggregate
principal amount to be prepaid among the outstanding Notes in proportion to
the unpaid principal amounts thereof.
2.7. Payments Due on Saturdays, Sundays and Holidays. If any interest
payment date on the Notes or the date fixed for any other payment of any Note
or exchange of any Note is a Saturday, Sunday or a legal holiday or a day on
which banking institutions in the United States of America generally are
authorized by law to close, then such payment or exchange need not be made on
such date but may be made on the next succeeding Business Day which is not a
Saturday, Sunday or a legal holiday or a day on which banking institutions in
the United States of America generally are authorized by law to close, with
the same force and effect as if made on the due date.
S3. REPRESENTATIONS
3.1. Representations of the Company. As an inducement to, and as part
of the consideration for, your purchase of the Notes pursuant to this
Agreement, the Company represents and warrants to you as follows:
(a) Corporate Organization and Authority. The Company is a solvent
corporation duly organized, validly existing and in good standing under the
laws of the State of Michigan. The Company has all requisite corporate power
and authority to own and operate its properties, to carry on its business as
now conducted and as presently proposed to be conducted, to enter into and
perform the Agreement and to issue and sell the Notes as contemplated in this
Agreement.
(b) Qualification to Do Business. The Company is duly qualified or
licensed and in good standing as a foreign corporation authorized to do
business in each jurisdiction where the nature of the business transacted by
it or the character of its properties owned or leased makes such qualification
or licensing necessary. A list of those jurisdictions wherein the Company is
qualified to do business is attached as Annex I.
<PAGE> 9
(c) Subsidiaries. The Company has no Subsidiaries or Joint Ventures,
as defined in Section 5.1, except those listed in the attached Annex I, which
correctly sets forth the percentage of the outstanding Voting Stock of each
Subsidiary or percentage of ownership interest in each Joint Venture which is
owned, of record or beneficially, by the Company and/or one or more
Subsidiaries. Each Subsidiary and Joint Venture has been duly organized and
is validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization and is duly licensed or qualified and in good
standing as a foreign corporation or other organization in each other
jurisdiction where the nature of the business transacted by it or the
character of its properties owned or leased makes such qualification or
licensing necessary. A list of the jurisdiction of incorporation or
organization and jurisdictions wherein each Subsidiary and Joint Venture is
qualified or licensed to do business is set forth in Annex I. Each Subsidiary
and each Joint Venture has full corporate or other power and authority to own
and operate its properties and to carry on its business as now conducted and
as presently proposed to be conducted. The Company and/or one or more
Subsidiaries have good and marketable title to all of the shares they purport
to own of the capital stock of each Subsidiary and each Joint Venture or to
all of the ownership interests they purport to own in each Joint Venture, free
and clear in each case of any Lien, except as otherwise disclosed in the
attached Annex I, and all such shares or ownership interests have been duly
issued and are fully paid and nonassessable, except as disclosed in Annex I.
(d) Financial Statements. The combined consolidated balance sheets of
the Company and its Subsidiaries as of July 1, 1995, July 2, 1994, July 3,
1993, June 27, 1992, June 30, 1991, and June 30, 1990, and the related
combined consolidated statements of income, shareholders' equity and cash
flows for each of the fiscal years ended on such dates, accompanied by the
reports and unqualified opinions of BDO Seidman, independent public
accountants, copies of which will be or have heretofore been delivered to you,
will be or were prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved (except as
otherwise noted therein) and present fairly the combined consolidated
financial position of the Company and its Subsidiaries on such dates and their
combined consolidated results of operations and cash flows for the years then
ended. The unaudited interim condensed combined consolidated balance sheets
of the Company and its Subsidiaries as of April 1, 1995 and April 2, 1994, and
the unaudited interim condensed combined consolidated statements of income and
cash flows of the Company and its Subsidiaries for the periods then ended,
copies of which have heretofore been delivered to you, were prepared in
accordance with generally accepted accounting principles and present fairly
the financial position of the Company and its Subsidiaries as of such dates
and the results of their operations for the fiscal periods then ended, subject
to customary year-end audit adjustments. The unaudited interim condensed
combined consolidated balance sheets of the Company and its Subsidiaries as of
September 30, 1995 and October 1, 1994, and the unaudited interim condensed
combined consolidated statements of income and cash flows of the Company and
its Subsidiaries for the periods then ended, copies of which will be delivered
to you, will be prepared in accordance with generally accepted accounting
principles and will present fairly the financial position of the Company and
its Subsidiaries as of such dates and the results of their operations for the
fiscal periods then ended, subject to customary year-end audit adjustments.
<PAGE> 10
(e) No Contingent Liabilities or Adverse Changes. Neither the Company
nor any of its Subsidiaries or Joint Ventures has any contingent liabilities
which, individually or in the aggregate, are material to the Company, to any
of its Subsidiaries or to any of its Joint Ventures, other than as indicated
in the most recent audited financial statements described in the foregoing
paragraph (d) of this Section 3.1, and, except as set forth in such financial
statements, since July 2, 1994 there have been, and after September 30, 1995
there will be, no changes in the condition, financial or otherwise, of the
Company, its Subsidiaries and its Joint Ventures except changes occurring in
the ordinary course of business, none of which, individually or in the
aggregate, have had or will have a Material Adverse Effect.
(f) Pending Litigation or Proceedings. Except as set forth in Annex
III, there are no actions, suits or proceedings at law or in equity or before
or by any Federal, state, municipal or other governmental department,
commission, board, bureau, administrative instrumentality or other agency,
domestic or foreign, pending or, to the knowledge of the Company, threatened
in writing against or affecting the Company, any Subsidiary or any Joint
Venture, including any action involving Gentex Corporation, which are
reasonably likely to result, individually or in the aggregate, in a Material
Adverse Effect.
(g) Compliance with Law. (i) Neither the Company nor any Subsidiary
nor any Joint Venture has received any notice, not heretofore complied
with, from any federal, state or local authority or any insurance or
inspection body to the effect, and neither the Company nor any
Subsidiary has knowledge, that any of the properties, Facilities,
equipment or business procedures or practices of the Company, any
Subsidiary or any Joint Venture fail to comply with any applicable law,
ordinance, regulation, building or zoning law, or any other requirements
of any such authority or body, which noncompliance could have,
individually or in the aggregate, a Material Adverse Effect.
(i) Neither the Company nor any Subsidiary nor any
Affiliate of the Company is an entity defined as a "designated national"
within the meaning of the Foreign Assets Control Regulations, 31 C.F.R.
Chapter V, or is in violation of any Federal statute or Presidential
Executive Order, or any rules or regulations of any department, agency
or administrative body promulgated under any such statute or Order,
concerning trade or other relations with any foreign country or any
citizen or national thereof or the ownership or operation of any
property and no restriction or prohibition under any such statute,
Order, rule or regulation has a Material Adverse Effect.
(h) ERISA. Based upon your representations in Section 3.2 of this
Agreement, neither the purchase of the Notes by you nor the consummation of
any of the other transactions contemplated by this Agreement is or will
constitute a "prohibited transaction" within the meaning of Section 4975 of
the Internal Revenue Code of 1986, as amended (the "Code"), or Section 406 of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Each employee pension benefit plan, as defined in Section 3(2) of ERISA, that
has been established by or contributed to or is maintained by the Company or
any Subsidiary (a "Plan") complies in all material respects with ERISA and
other applicable laws; specifically, (i) there is no accumulated funding
deficiency, as defined in Section 302(a)(2) of ERISA with respect to any Plan;
and (ii) no reportable event (as defined in Section 4043(b) of ERISA and
applicable
<PAGE> 11
regulations) with respect to any Plan has occurred that has
resulted in material liability to the Company or any Subsidiary. Neither the
Company nor any Subsidiary has incurred withdrawal or termination liability
with respect to any multiemployer plan (as defined in the Multiemployer
Pension Plan Amendments Act of 1980, as amended) to which the Company or any
Subsidiary has contributed (a "Multiemployer Plan") that has not been
satisfied in full; and neither the Company nor any Subsidiary has any
knowledge that any Multiemployer Plan is in reorganization. No liability
(whether or not such liability is being contested) has been asserted against
the Company or any Subsidiary in connection with any Plan or any Multiemployer
Plan by the Pension Benefit Guaranty Corporation (the "PBGC"), by a trustee
appointed pursuant to Section 4042(b) or (c) of ERISA, or by a sponsor or an
agent of a sponsor of a Multiemployer Plan, and no Lien has been attached and
no person has threatened to attach a Lien on any of the Company's or any
Subsidiary's property as a result of failure to comply with ERISA or as a
result of the termination of any Plan. Each Plan (except for any Plan which
is unfunded and maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated
employees), as most recently amended, including amendments to any trust
agreement, group annuity or insurance contract, or other governing instrument,
is the subject of a favorable determination by the Internal Revenue Service
with respect to its qualification under Section 401(a) of the Code.
(i) Title to Properties. Except as disclosed on the most recent
audited consolidated balance sheet described in the foregoing paragraph (d) of
this Section 3.1, the Company and each Subsidiary has (i) good title in fee
simple or its equivalent under applicable law to all the real property owned
by it and (ii) good title to all of the other property reflected in such
balance sheet or subsequently acquired by the Company or any Subsidiary
(except as sold or otherwise disposed of in the ordinary course of business),
in each case free from all Liens or defects in title except those permitted by
Section 7.5.
(j) Leases. The Company and each Subsidiary enjoy peaceful and
undisturbed possession under all leases under which the Company or such
Subsidiary is a lessee or is operating. None of such leases contains any
provision which might materially and adversely affect the operation or use of
the property so leased. All of such leases are valid and subsisting and
neither the Company or any Subsidiary nor any third party is in default under
any of such leases.
(k) Franchises, Patents, Trademarks and Other Rights. The Company and
each Subsidiary have all franchises, permits, licenses and other authority
necessary to carry on, or used in, their businesses as now being conducted and
as proposed to be conducted, and neither the Company nor any Subsidiary is in
default under any of such franchises, permits, licenses or other authority
except for franchises, permits, licenses or other authority, the lack or loss
of which, and defaults, which, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect. The Company and
each Subsidiary own or possess all patents, trademarks, service marks, trade
names, copyrights, licenses and rights with respect to the foregoing necessary
for, or used by them in, the present conduct of their businesses, without any
known conflict with the rights of others which could have, individually or in
the aggregate, a Material Adverse Effect.
<PAGE> 12
(l) Authorization. This Agreement and the Notes have been duly
authorized on the part of the Company and the Agreement does, and the Notes
when issued will, constitute the legal, valid and binding obligations of the
Company, enforceable in accordance with their terms, except to the extent that
enforcement of the Notes may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws of general application relating to
or affecting the enforcement of the rights of creditors or by equitable
principles, regardless of whether enforcement is sought in equity or at law.
The sale of the Notes, the execution and delivery of the Agreement and
compliance by the Company with all of the provisions of this Agreement and the
Notes (i) are within the Company's corporate powers, (ii) have been duly
authorized by proper corporate action, (iii) are legal and will not violate
any provisions of any law or regulation or order of any court, governmental
authority or agency and (iv) will not result in any breach of any of the
provisions of, or constitute a default under, or result in the creation of any
Lien on any property of the Company or any Subsidiary under the provisions of,
any charter document, by-law, loan agreement or other agreement or instrument
to which the Company or any Subsidiary is a party or by which any of them or
their property is bound.
(m) No Defaults. No event has occurred and no condition exists which,
upon the issuance of the Notes, would constitute a Default or an Event of
Default under this Agreement. Neither the Company nor any Subsidiary is in
default under any charter document, by-law, loan agreement or other agreement
or instrument to which it is a party or by which it or its property is bound.
(n) Governmental Consent. Neither the nature of the Company or any of
its Subsidiaries, their respective businesses or properties, nor any
relationship between the Company or any of its Subsidiaries and any other
Person, nor any circumstances relative to the offer, issuance, sale or
delivery of the Notes or execution and delivery of this Agreement is such as
to require a consent, approval or authorization of, or withholding of
objection on the part of, or filing, registration or qualification with, any
governmental authority on the part of the Company in connection with the
execution and delivery of this Agreement, or the offer, issuance, sale or
delivery of the Notes.
(o) Taxes. All tax returns required to be filed by the Company or any
Subsidiary in any jurisdiction have been filed, and all taxes, assessments,
fees and other governmental charges upon the Company or any Subsidiary, or
upon any of their respective properties, income or franchises, which are due
and payable, have been paid timely or within appropriate extension periods or
contested in good faith by appropriate proceedings that stay the collection
thereof by the applicable governmental authority during the period of the
contest and as to which adequate reserves are maintained in accordance with
generally accepted accounting principles. The Federal income tax liability of
the Company and its Subsidiaries has been finally determined by the Internal
Revenue Service and satisfied for all taxable years up to and including the
taxable year ended June 27, 1992, and no material controversy in respect of
additional taxes due since such date is pending or, to the Company's
knowledge, threatened. The provisions for taxes on the books of the Company
and each Subsidiary are adequate for all open years and for the current fiscal
period.
<PAGE> 13
(p) Status under Certain Statutes. Neither the Company nor any
Subsidiary is: (i) a "public utility company" or a "holding company," or an
"affiliate" or a "subsidiary company" of a "holding company," or an
"affiliate" of such a "subsidiary company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended, or (ii) a "public
utility" as defined in the Federal Power Act, as amended, or (iii) an
"investment company" or an "affiliated person" thereof, as such terms are
defined in the Investment Company Act of 1940, as amended.
(q) Private Offering. The Company has not authorized or employed any
Person as agent, broker, dealer or otherwise in connection with the offering
of the Notes or any similar security of the Company, and the Company has not
offered any of the Notes or any similar security of the Company for sale to,
or solicited offers to buy any thereof from, or otherwise approached or
negotiated with respect thereto with, any prospective purchaser, other than
institutional investors, including the Purchaser, each of whom was offered all
or a portion of the Notes at private sale for investment. Neither the Company
nor anyone acting on its authorization will offer the Notes, or any part
thereof or any similar security for issuance or sale to, or solicit any offer
to acquire any of the same from, anyone so as to bring the issuance and sale
of the Notes within the provisions of Section 5 of the Securities Act.
(r) Effect of Other Instruments. Neither the Company nor any
Subsidiary is bound by any agreement or instrument or subject to any charter
or other corporate restriction which (i) in any way specifically restricts the
Company's ability to perform its obligations under this Agreement or the Notes
or any Subsidiary's ability to pay dividends or make advances to the Company
or (ii) has a Material Adverse Effect.
(s) Use of Proceeds. The Company will apply the net proceeds from the
sale of the Notes to refinance existing Indebtedness. None of the
transactions contemplated in this Agreement (including, without limitation
thereof, the use of the proceeds from the sale of the Notes) will violate or
result in a violation of Section 7 of the Exchange Act, or any regulations
issued pursuant thereto, including, without limitation, Regulations G, T, U
and X of the Board of Governors of the Federal Reserve System (12 C.F.R.,
Chapter II). None of the proceeds from the sale of the Notes will be used to
purchase or carry or refinance any borrowing the proceeds of which were used
to purchase or carry any "margin stock" or "margin security" in violation of
Regulations G, T, U or X.
(t) Condition of Property. All of the facilities of the Company and
each of its Subsidiaries are in sound operating condition and repair, except
for facilities being repaired in the ordinary course of business.
(u) Books and Records. The Company and each Subsidiary (i) maintain
books, records and accounts in reasonable detail which accurately and fairly
reflect their respective transactions and business affairs, and (ii) maintain
a system of internal accounting controls sufficient to provide reasonable
assurances that transactions are executed in accordance with management's
general or specific authorization and to permit preparation of financial
statements in accordance with generally accepted accounting principles.
(v) Environmental Compliance. The Company and each Subsidiary
(including their operations and the conditions at or in their Facilities)
comply with all Environmental Laws
<PAGE> 14
except for violations which, individually
or in the aggregate, could not reasonably be expected to have a Material
Adverse Effect; the Company and each Subsidiary have obtained all permits
under Environmental Laws necessary to their respective operations, all such
permits are in full force and effect, and the Company and each Subsidiary are
in compliance with all material terms and conditions of such permits except
for permits, individually or in the aggregate, the lack of which or
noncompliance with which could not reasonably be expected to have a Material
Adverse Effect; and neither the Company nor any of its Subsidiaries has any
liability (contingent or otherwise) in connection with any Release of any
Hazardous Material or the existence of any Hazardous Material on, under or
about any Facility that could give rise to an Environmental Claim that could
reasonably be expected to have a Material Adverse Effect.
(w) Full Disclosure. Neither the financial statements referred to in
paragraph (d) of this Section 3.1, nor this Agreement, nor any other written
statement or document furnished by or on behalf of the Company to you in
connection with the negotiation of the sale of the Notes and the execution and
delivery of the Agreement, taken together, contain any untrue statement of a
material fact or omit a material fact necessary to make the statements
contained therein or herein not misleading in light of the circumstances under
which they were made. There is no fact (exclusive of general economic,
political or social conditions or trends) particular to the Company and known
by the Company that the Company has not disclosed to you in writing and that
has a Material Adverse Effect or, so far as the Company can now foresee, will
have, individually or in the aggregate, a Material Adverse Effect, or will
restrict the Company's performance of its undertakings under this Agreement
and the Notes.
3.2. Representations of the Purchaser. You represent, and in entering
into this Agreement the Company understands, that you are acquiring the Notes
for your own account and not with a view to any distribution thereof, provided
that the disposition of your property shall at all times be and remain within
your control; subject, however, to compliance with Federal securities laws.
You acknowledge that the Notes have not been registered under the Securities
Act and you understand that the Notes must be held indefinitely unless they
are subsequently registered under the Securities Act or an exemption from such
registration is available. You have been advised that the Company does not
contemplate registering, and is not legally required to register, the Notes
under the Securities Act.
You further represent that either: (i) no part of the funds to be used by
you to purchase the Notes will constitute assets allocated to any separate
account maintained by you; or (ii) no part of the funds to be used by you to
purchase the Notes will constitute assets allocated to any separate account
maintained by you such that the application of such funds will constitute a
prohibited transaction under Section 406 of ERISA; or (iii) all or a part of
such funds will constitute assets of one or more separate accounts maintained
by you, and you have disclosed to the Company the names of such employee
benefit plans whose assets in such separate account or accounts exceed 10% of
the total assets or are expected to exceed 10% of the total assets of such
account or accounts as of the date of such purchase and the Company has advised
you in writing that the Company is not a party-in-interest nor are the Notes
employer securities with respect to the particular employee benefit plans
disclosed to the Company by you as aforesaid (for the purpose of this
clause (iii), all employee benefit plans maintained by the same employer or
employee organization are deemed to be a single plan). As used herein, the
<PAGE> 15
terms "separate account," "party-in-interest," "employer securities," and
"employee benefit plan" have the meanings assigned to them in ERISA.
S4. CLOSING CONDITIONS
Your obligation to purchase the Notes on the Closing Date shall be subject
to the performance by the Company of its agreements hereunder, which are to be
performed at or prior to the time of delivery of the Notes, and to the
following conditions to be satisfied on or before the Closing Date:
4.1. Representations and Warranties. The representations and
warranties of the Company contained in this Agreement or otherwise made in
writing in connection herewith shall be true and correct on or as of the
Closing Date and the Company shall have delivered to you a certificate to such
effect, dated the Closing Date, and executed by the Chief Executive Officer or
Chief Financial Officer of the Company.
4.2. Legal Opinions. You shall have received from Gardner, Carton &
Douglas, who is acting as your special counsel in this transaction, from
Varnum, Riddering, Schmidt & Howlett LLP, counsel to the Company, their
opinions, dated such Closing Date, in form and substance satisfactory to you
and covering substantially the matters set forth or provided in the attached
Exhibits B and C, respectively.
4.3. Events of Default. No event shall have occurred and be continuing
on the Closing Date which would constitute a Default or an Event of Default,
and the Company shall have delivered to you a certificate to such effect,
dated the Closing Date and executed by the Chief Executive Officer or the
Chief Financial Officer of the Company.
4.4. Payment of Fees and Expenses. The Company shall have paid all
fees, expenses, costs and charges, including the fees and expenses of Gardner,
Carton & Douglas, your special counsel, incurred by you through the Closing
Date and incident to the proceedings in connection with, and transactions
contemplated by, this Agreement and the Notes.
4.5. Legality of Investment. Your acquisition of the Notes shall
constitute a legal investment as of the Closing Date under the laws and
regulations of each jurisdiction to which you may be subject (without resort
to any "basket" or "leeway" provision which permits the making of an
investment without restrictions as to the character of the particular
investment being made), and such acquisition shall not subject you to any
penalty or other onerous condition in or pursuant to any such law or
regulation; and you shall have received such certificates or other evidence as
you may reasonably request to establish compliance with this condition.
4.6. Private Placement Number. A private placement number with respect
to the Notes shall have been issued by S&P.
4.7. Proceedings and Documents. All corporate proceedings taken in
connection with the transactions contemplated by this Agreement, and all
documents necessary to the consummation of such transactions shall be
satisfactory in form and substance to you and your special counsel, and you
and your special counsel shall have received copies (executed or certified as
<PAGE> 16
may be appropriate) of all legal documents or proceedings which you and they
may reasonably request.
S5. INTERPRETATION OF AGREEMENT
5.1. Certain Terms Defined. The terms hereinafter set forth when used
in this Agreement shall have the following meanings:
Affiliate - Any Person (other than a Subsidiary or an original Purchaser)
(i) who is a director or executive officer of the Company or any Subsidiary,
(ii) which directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, the Company, (iii) which
beneficially owns or holds securities representing 5% or more of the combined
voting power of the Voting Stock of the Company or any Subsidiary or (iv) of
which securities representing 5% or more of the combined voting power of its
Voting Stock (or in the case of a Person not a corporation, 5% or more of its
equity) is beneficially owned or held by the Company or any Subsidiary. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Agreement - As defined in Section 1.1.
Business Day - Any day, other than Saturday, Sunday or a legal holiday or
any other day on which banking institutions in the United States of America
generally are authorized by law to close.
Capitalized Lease - Any lease the obligation for Rentals with respect to
which, in accordance with generally accepted accounting principles, would be
required to be capitalized on a balance sheet of the lessee or for which the
amount of the asset and liability thereunder, as if so capitalized, would be
required to be disclosed in a note to such balance sheet.
Closing Date - As defined in Section 1.2.
Code - As defined in Section 3.1(h).
Consolidated Funded Debt - Funded Debt of the Company and its Subsidiaries
determined on a consolidated basis in accordance with generally accepted
accounting principles.
Consolidated Net Income - For any period, the net earnings of the Company
and its Subsidiaries for such period, determined on a consolidated basis in
accordance with generally accepted accounting principles, but excluding
extraordinary items.
Consolidated Net Worth - The consolidated shareholders' equity of the
Company and its Subsidiaries determined in accordance with generally accepted
accounting principles.
<PAGE> 17
Consolidated Total Assets - The total assets of the Company and its
Subsidiaries determined on a consolidated basis in accordance with generally
accepted accounting principles.
Consolidated Total Capitalization - The sum of Consolidated Net Worth and
Consolidated Funded Debt.
Default - Any event which, with the lapse of time or the giving of notice,
or both, would become an Event of Default.
Determination Date - The day 3 Business Days before the date fixed for a
prepayment pursuant to Section 2.2 or Section 7.11 or the date of declaration
pursuant to Section 8.2.
Environmental Claim - Any notice of violation, claim, demand, abatement
order or other order by any Person for any damage, including personal injury
(including sickness, disease or death), tangible or intangible property damage,
contribution, indemnity, indirect or consequential damages, damage to the
environment, nuisance, pollution, contamination or other adverse effects on the
environment, or for fines, penalties or restrictions, resulting from or based
upon (i) the existence of a Release (whether sudden or non-sudden or accidental
or non-accidental) of, or exposure to, any Hazardous Material in, into or onto
the environment at, in, by, from or related to any Facility, (ii) the use,
handling, transportation, storage, treatment or disposal of Hazardous Materials
in connection with the operation of any Facility, or (iii) the violation, or
alleged violation, of any statute, rule, regulation, ordinance, order, permit,
license or authorization of or from any governmental authority, agency or court
relating to environmental matters pertaining to the Facilities.
Environmental Laws - All laws relating to environmental matters, including
those relating to (i) fines, orders, injunctions, penalties, damages,
contribution, cost recovery compensation, losses or injuries resulting from the
Release or threatened Release of Hazardous Materials and to the generation,
use, storage, transportation, or disposal of Hazardous Materials, in any manner
applicable to the Company or any of its Subsidiaries or any of their respective
properties, including, without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act (42 U.S.C. S9601 et seq.), the
Hazardous Material Transportation Act (49 U.S.C. S1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. S6901 et seq.), the Federal Water
Pollution Control Act (33 U.S.C. S1251 et seq.), the Clean Air Act (42 U.S.C.
S7401 et seq.), the Toxic Substances Control Act (15 U.S.C. S2601 et seq.),
the Occupational Safety and Health Act (29 U.S.C. S651 et seq.) and the
Emergency Planning and Community Right-to-Know Act (42 U.S.C. S11001 et seq.),
and (ii) environmental protection, including the National Environmental Policy
Act (42 U.S.C. S4321 et seq.), and comparable foreign and state laws, each as
amended or supplemented, and any similar or analogous local, state, federal or
foreign statutes and regulations promulgated pursuant thereto, each as in
effect as of the date of determination.
ERISA - As defined in Section 3.1(h).
Event of Default - As defined in Section 8.1.
<PAGE> 18
Exchange Act - The Securities Exchange Act of 1934, as amended, and as it
may be further amended from time to time.
Facility - Any and all real property (including all buildings, fixtures or
other improvements located thereon) now or heretofore owned, leased, operated
or used (under permit or otherwise) by the Company or any of its Subsidiaries.
Funded Debt - As of any date of determination, all Indebtedness properly
classified as long-term debt in accordance with generally accepted accounting
principles, including (A) Indebtedness which by its terms matures more than one
year from the date of creation (including any portion thereof payable within a
year) or which may be renewed or extended at the option of the obligor for more
than one year from such date whether or not theretofore renewed or extended,
(B) Indebtedness outstanding under a revolving credit or similar agreement
providing for borrowings (and renewals and extensions thereof) over a period of
more than one year notwithstanding that any such Indebtedness may be payable
within one year after the creation thereof and (C) the principal portion of
obligations under Capitalized Leases.
Guaranties - All obligations (other than endorsements in the ordinary
course of business of negotiable instruments for deposit or collection) of a
Person guaranteeing or, in effect, guaranteeing any Indebtedness, dividend or
other obligation of any other Person in any manner, whether directly or
indirectly, including, without limitation, all obligations incurred through an
agreement, contingent or otherwise, by such Person: (i) to purchase such
Indebtedness or obligation or any property or assets constituting security
therefor, (ii) to advance or supply funds (x) for the purchase or payment of
such Indebtedness or obligation, (y) to maintain working capital or other
balance sheet condition or (z) otherwise to advance or make available funds for
the purchase or payment of such Indebtedness or obligation, (iii) to lease
property or to purchase securities or other property or services primarily for
the purpose of assuring the owner of such Indebtedness or obligation against
loss in respect thereof, or (iv) otherwise to assure the owner of the
Indebtedness or obligation against loss in respect thereof. For the purposes
of all computations made under this Agreement, Guaranties in respect of any
Indebtedness for borrowed money shall be deemed to be Indebtedness equal to the
principal amount of such Indebtedness for borrowed money which has been
guaranteed, and Guaranties in respect of any other obligation or liability or
any dividend shall be deemed to be Indebtedness equal to the maximum aggregate
amount of such obligation, liability or dividend.
Hazardous Materials - (i) Any chemical, material or substance defined as
or included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous waste," "restricted hazardous
waste," or "toxic substances" or words of similar import under any
Environmental Laws; (ii) any oil, petroleum or petroleum derived substance, any
drilling fluid, produced water or other waste associated with the exploration,
development or production of crude oil, any flammable substance or explosive,
any radioactive material, any hazardous waste or substance, any toxic waste or
substance or any other material or pollutant that (x) poses a hazard to any
property of the Company or any of its Subsidiaries or to Persons on or about
such property or (y) causes such property to be in violation of any
Environmental Law; (iii) any friable asbestos, urea formaldehyde foam
<PAGE> 19
insulation, electrical equipment which contains any oil or dielectric fluid
with levels of polychlorinated biphenyls in excess of fifty parts per million;
and (iv) any other chemical, material or substance, exposure to which is
prohibited, limited or regulated by any governmental authority.
Indebtedness - (i) All items of borrowings, including Capitalized Leases,
which in accordance with generally accepted accounting principles would be
included in determining total liabilities as shown on the liability side of a
balance sheet, and (ii) Guaranties of obligations of other Persons of the
character referred to in this definition, provided, however, that, except as
otherwise required in this Agreement, Indebtedness of a Person shall not
include Indebtedness which would be eliminated in preparing a consolidated
balance sheet in accordance with generally accepted accounting principles.
Institutional Holder - Any bank, trust company, insurance company, pension
fund, mutual fund or other similar financial institution, including, without
limiting the foregoing, any "qualified institutional buyer" within the meaning
of Rule 144A under the Securities Act, which is or becomes a holder of any
Note.
Investments - All investments made, in cash or by delivery of property,
directly or indirectly, in any Person, whether by acquisition of shares of
capital stock, indebtedness or other obligations or securities or by loan,
advance, capital contribution or otherwise; provided, however, that
"Investments" shall not mean or include investments in property to be used or
consumed in the ordinary course of business.
Joint Venture - Any association with one or more Persons to undertake,
through a corporation or partnership, a commercial or business enterprise.
Lien - Any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind, including any agreement to grant any of the foregoing, any
conditional sale or other title retention agreement, any lease in the nature
thereof, including a Capitalized Lease, and the filing of or agreement to file
any financing statement under the Uniform Commercial Code of any jurisdiction
in connection with any of the foregoing.
Make-Whole Amount - As of any Determination Date, to the extent that the
Reinvestment Yield on such Determination Date is lower than the interest rate
payable on or in respect of the Notes, the excess of (a) the sum of the present
values of each principal and interest payment to be foregone by any prepayment
(exclusive of accrued interest on such Notes through the date of prepayment) on
such Notes (taking into account the manner of application of such prepayment
required by Section 2.2(c)), determined by discounting (semi-annually on the
basis of a 360-day year composed of twelve 30-day months), each such payment at
a rate that is equal to the Reinvestment Yield over (b) the aggregate principal
amount of such Notes then to be prepaid or paid. To the extent that the
Reinvestment Yield on any Determination Date is equal to or higher than the
interest rate payable on or in respect of such Notes, the Make-Whole Amount is
zero.
Material Adverse Effect - (i) A material adverse effect on the business,
properties, profits, prospects, operations or condition, financial or
otherwise, of the Company or any Subsidiary, (ii) the impairment of the ability
<PAGE> 20
of the Company to perform its obligations under this Agreement or the Notes or
(iii) the impairment of the ability of the holders of the Notes to enforce such
obligations.
Moody's - Moody's Investors Service, Inc.
Multiemployer Plan - As defined in Section 3.1(h).
Net Worth - With respect to any Joint Venture, total assets less total
liabilities, all as determined in accordance with generally accepted accounting
principles.
Notes - As defined in Section 1.1.
PBGC - As defined in Section 3.1(h).
Person - Any individual, corporation, partnership, Joint Venture,
association, joint-stock company, trust, unincorporated organization or
government or any governmental authority, agency or political subdivision.
Plan - As defined in Section 3.1(h).
Purchaser - As defined in Section 1.1.
Reinvestment Yield - shall mean the sum of (i) 0.60% plus (ii) the yield
reported, as of 10:00 A.M. (New York City time) on the Determination Date, on
the Cantor-Fitzgerald Brokerage Screen available on the Bloomberg and Knight
Ridder Information System (or, if not available, any other nationally
recognized trading screen reporting on-line intraday trading in United States
government securities) for actively traded U.S. Treasury securities having a
maturity equal to the Weighted Average Life to Maturity of the Notes then being
prepaid or paid as of the date of prepayment or payment, rounded to the nearest
month, or if such yields shall not be reported as of such time or the yields
reported as of such time are not ascertainable in accordance with the preceding
clause, then the arithmetic mean of the yields published in the statistical
release designated H.15(519) (or any successor publication) of the Board of
Governors of the Federal Reserve System under the caption "U.S. Government
Securities--Treasury Constant Maturities" (the "statistical release") for the
maturity corresponding to the remaining Weighted Average Life to Maturity of
the Notes as of the date of such prepayment or payment rounded to the nearest
month. For purposes of calculating the Reinvestment Yield, the most recent
weekly statistical release published prior to the applicable Determination Date
shall be used. In the event the statistical release is not published, the
arithmetic mean of such reasonably comparable index as may be designated by the
holders of at least 51% in aggregate principal amount of the Notes, for the
maturity corresponding to the remaining Weighted Average Life to Maturity of
the Notes as of the date of prepayment or payment, as the case may be, rounded
to the nearest month shall be used. If no maturity exactly corresponding to
such rounded Weighted Average Life to Maturity shall appear therein, yields for
the two most closely corresponding published maturities (one of which occurs
prior and the other subsequent to the Weighted Average Life to Maturity) shall
<PAGE> 21
be calculated pursuant to the foregoing sentence and the Reinvestment Yield
shall be interpolated from such yields on a straight-line basis (rounding, in
each of such relevant periods, to the nearest month).
Release - Any release, spill, emission, leaking, pumping, pouring,
emptying, dumping, injection, escaping, deposit, disposal, discharge,
dispersal, leaching or migration into the indoor or outdoor environment
(including the abandonment or disposal of any barrel, container or other closed
receptacle containing any Hazardous Material), or into or out of any Facility,
including the movement of any Hazardous Material through the air, soil, surface
water, groundwater or property.
Rentals - As of the date of any determination thereof, all fixed payments
(including all payments which the lessee is obligated to make to the lessor on
termination of the lease or surrender of the property) payable by the Company
or a Subsidiary, as lessee or sublessee under a lease of real or personal
property, but exclusive of any amounts required to be paid by the Company or a
Subsidiary (whether or not designated as rents or additional rents) on account
of maintenance, repairs, insurance, taxes, assessments, amortization and
similar charges. Fixed rents under any so-called "percentage leases" shall be
computed on the basis of the minimum rents, if any, required to be paid by the
lessee, regardless of sales volume or gross revenues.
Sale and Leaseback Transaction - Any arrangement, directly or indirectly,
with any Person whereby a seller or a transferor shall sell or otherwise
transfer any real or personal property and then or thereafter lease (whether or
not a Capitalized Lease), or repurchase under an extended purchase contract,
the same or similar property from the purchaser or the transferee of such
property.
S&P - Standard & Poor's Corporation.
Securities Act - The Securities Act of 1933, as amended, and as it may be
further amended from time to time.
Subsidiary - Any corporation of which shares of Voting Stock representing
more than 50% of the combined voting power of each outstanding class of Voting
Stock are owned, directly or indirectly, by the Company. For purposes of this
Agreement, Donnelly Export Corporation also shall be deemed to be a Subsidiary
as long as it is included in the combined consolidated financial statements of
the Company.
Voting Stock - Capital stock of any class of a corporation having power
under ordinary circumstances to vote for the election of members of the board
of directors of such corporation, or persons performing similar functions.
Weighted Average Life to Maturity - As applied to any prepayment of
principal of the Notes at any date, the number of years obtained by dividing
(a) the then outstanding principal amount of the Notes to be prepaid, into (b)
the sum of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity, or other required
payment, including payment at final maturity, foregone by virtue of such
<PAGE> 22
prepayment of the Notes, by (ii) the number of years (calculated to the nearest
1/12th) which would have elapsed between such date and the making of such
payment.
Wholly-Owned - When applied to a Subsidiary, any Subsidiary 100% of the
Voting Stock of which is owned by the Company and/or its Wholly-Owned
Subsidiaries, other than directors' qualifying shares.
Terms which are defined in other Sections of this Agreement shall have the
meanings specified therein.
5.2. Accounting Principles. Where the character or amount of any asset
or liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, the same shall be done in accordance with United
States generally accepted accounting principles in force at the time this
Agreement is executed, except where such principles are inconsistent with the
requirements of this Agreement.
5.3. Valuation Principles. Except where indicated expressly to the
contrary by the use of terms such as "fair value," "fair market value" or
"market value," each asset, each liability and each capital item of any
Person, and any quantity derivable by a computation involving any of such
assets, liabilities or capital items, shall be taken at the net book value
thereof for all purposes of this Agreement. "Net book value" with respect to
any asset, liability or capital item of any Person shall mean the amount at
which the same is recorded or, in accordance with generally accepted
accounting principles, should have been recorded in the books of account of
such Person, as reduced by any reserves which have been or, in accordance with
generally accepted accounting principles, should have been set aside with
respect thereto, but in every case (whether or not permitted in accordance
with generally accepted accounting principles) without giving effect to any
write-up, write-down or write-off (other than any write-down or write-off the
entire amount of which was charged to Consolidated Net Income or to a reserve
which was a charge to Consolidated Net Income) relating thereto which was made
after the date of this Agreement.
5.4. Direct or Indirect Actions. Where any provision in this Agreement
refers to action to be taken by any Person, or which such Person is prohibited
from taking, such provision shall be applicable whether the action in question
is taken directly or indirectly by such Person.
S6. AFFIRMATIVE COVENANTS
The Company agrees that, for so long as any amount remains unpaid on any
Note:
6.1. Corporate Existence. The Company will maintain and preserve, and
will cause each Subsidiary to maintain and preserve, its corporate existence
and right to carry on its business and use, and cause each Subsidiary to use,
its best efforts to maintain, preserve, renew and extend all of its rights,
powers, privileges and franchises necessary to the proper conduct of its
business; provided, however, that the foregoing shall not prevent any
transaction permitted by Sections 7.10, 7.11 or 7.12 or the termination of the
corporate existence of any Subsidiary if, in the opinion of the Board of
<PAGE> 23
Directors or senior management of the Company, such termination is in the best
interests of the Company, is not disadvantageous to holders of the Notes and
is not otherwise prohibited by this Agreement.
6.2. Insurance. The Company will insure and keep insured, and will
cause each Subsidiary to insure and keep insured, at all times all of its
properties which are of an insurable nature and of the character usually
insured by companies operating properties similar to the properties of the
Company or each such Subsidiary, against loss or damage by fire and from other
causes as are required by law or sound business practice to be insured and are
customarily insured against by companies engaged in the manufacture and
distribution of automotive parts in such amounts as are usually insured
against by such companies. The Company will also maintain, and will also
cause each Subsidiary to maintain, at all times adequate insurance against
loss or damage from such hazards and risks to the person and property of
others as are required by law or sound business practice to be insured and are
usually insured against by companies operating properties similar to the
properties of the Company or each such Subsidiary. All such insurance shall
be carried with financially sound and reputable insurers of good standing.
The Company shall furnish you on or prior to the Closing Date a summary of
insurance presently in force.
6.3. Taxes, Claims for Labor and Materials. The Company will pay and
discharge prior to the date on which penalties attach thereto, and will cause
each Subsidiary to pay and discharge prior to the date on which penalties
attach thereto, all taxes, assessments and governmental charges or levies
imposed upon it or its property or assets, or upon properties leased by it
(but only to the extent required to do so by the applicable lease), prior to
the date on which penalties attach thereto, and all lawful claims which, if
unpaid, might become a Lien upon its property or assets, provided that neither
the Company nor any Subsidiary shall be required to pay any such tax,
assessment, charge, levy or claim, the payment of which is being contested in
good faith and by proper proceedings that will stay the forfeiture or sale of
any property and with respect to which adequate reserves are maintained in
accordance with generally accepted accounting principles.
6.4. Maintenance of Properties. The Company will maintain, preserve
and keep, and will cause each Subsidiary to maintain, preserve and keep, its
material properties (whether owned in fee or a leasehold interest) in good
repair and working order, ordinary wear and tear excepted, and from time to
time will make all necessary repairs, replacements, renewals, improvements and
additions.
6.5. Maintenance of Records. The Company will keep, and will cause
each Subsidiary to keep, at all times proper books of record and account in
which full, true and correct entries will be made of all dealings or
transactions of or in relation to the business and affairs of the Company or
such Subsidiary, in accordance with generally accepted accounting principles
consistently applied throughout the period involved (except for such changes
as are disclosed in such financial statements or in the notes thereto and
concurred in by the Company's independent certified public accountants), and
the Company will, and will cause each Subsidiary to, provide reasonable
protection against loss or damage to such books of record and account.
<PAGE> 24
6.6. Financial Information and Reports. The Company will furnish to
you and to any other Institutional Holder (in duplicate if you or such other
holder so request) the following:
(a) As soon as available and in any event within 60 days after the end
of each of the first three quarterly accounting periods of each fiscal year of
the Company, a condensed combined consolidated balance sheet of the Company
and its Subsidiaries as of the end of such period and condensed combined
consolidated statements of income and cash flows of the Company and its
Subsidiaries for the periods beginning on the first day of such fiscal year
and the first day of such quarterly accounting period and ending on the date
of such balance sheet, setting forth in comparative form the corresponding
condensed combined consolidated figures for the corresponding periods of the
preceding fiscal year, all in reasonable detail, prepared in accordance with
generally accepted accounting principles consistently applied throughout the
period involved (except for changes disclosed in such financial statements or
in the notes thereto and concurred in by the Company's independent certified
public accountants) and certified by the chief financial officer or Vice
President of Financial Operations of the Company (i) outlining the basis of
presentation, and (ii) stating that the information presented in such
statements presents fairly the financial condition of the Company and its
Subsidiaries and the results of operations for the period, subject to
customary year-end audit adjustments;
(b) As soon as available and in any event within 120 days after the
last day of each fiscal year, a combined consolidated balance sheet of the
Company and its Subsidiaries as of the end of such fiscal year and the related
combined consolidated statements of income, shareholders' equity and cash
flows for such fiscal year, in each case setting forth in comparative form
figures for the preceding fiscal year, all in reasonable detail, prepared in
accordance with generally accepted accounting principles consistently applied
throughout the period involved (except for changes disclosed in such financial
statements or in the notes thereto and concurred in by independent certified
public accountants) and accompanied by a report unqualified as to scope of
audit and unqualified as to going concern as to the combined consolidated
balance sheet and the related combined consolidated statements of income,
shareholders' equity and cash flows by BDO Seidman, or any other firm of
independent public accountants of recognized national standing selected by the
Company, to the effect that such financial statements have been prepared in
conformity with generally accepted accounting principles and present fairly,
in all material respects, the financial condition of the Company and its
Subsidiaries and that the examination of such financial statements by such
accounting firm has been made in accordance with generally accepted auditing
standards;
(c) Together with the financial statements delivered pursuant to
paragraphs (a) and (b) of this Section 6.6, a certificate of the chief
financial officer or Vice President of Financial Operations of the Company,
(i) to the effect that such officer has re-examined the terms and provisions
of this Agreement and that, to the best of his knowledge, on the date of such
certificate, during the periods covered by such financial statements and as of
the end of such periods, neither the Company nor any Subsidiary is, or was, in
default in the fulfillment of any of the terms, covenants, provisions and
conditions of this Agreement and that no Default or Event of Default is
occurring or has occurred as of the date of such certificate, during such
periods and as of the end of such periods, or if such officer is aware of any
Default or Event of Default, such officer shall disclose in such statement the
nature thereof, its period of existence and what action, if any, the Company
<PAGE> 25
has taken or proposes to take with respect thereto, and (ii) stating whether
the Company is in compliance with Sections 7.1 through 7.15 and setting forth,
in sufficient detail, the information and computations required to establish
whether or not the Company was in compliance with the requirements of Sections
7.1 through 7.6 and 7.8 through 7.12 during the periods covered by the
financial statements then being furnished and as of the end of such periods;
(d) Together with the financial reports delivered pursuant to
paragraph (b) of this Section 6.6, a certificate from the Company's
independent certified public accountants stating that in making the
examination necessary for expressing an opinion on such financial statements,
nothing came to their attention that caused them to believe that there is in
existence or has occurred any Default or Event of Default hereunder (the
occurrence of which is ascertainable by accountants in the course of normal
audit procedures) or, if such accountants shall have obtained knowledge of any
such Default or Event of Default, describing the nature thereof and the length
of time it has existed;
(e) Within 5 days after the Company obtains knowledge thereof, notice
of any litigation or any governmental proceeding pending against the Company
or any Subsidiary in which the damages sought exceed $1,000,000, individually
or in the aggregate, or which might reasonably be expected to result in a
Material Adverse Effect;
(f) As soon as available, copies of each financial statement, notice,
report and proxy statement which the Company shall furnish to its
stockholders; copies of each registration statement and periodic report which
the Company may file with the Securities and Exchange Commission, and any
similar or successor agency of the Federal government administering the
Securities Act, the Exchange Act or the Trust Indenture Act of 1939, as
amended; without duplication, copies of each report relating to the Company or
its securities which the Company may file with any securities exchange on
which any of the Company's securities may be registered; copies of any orders
in any material proceedings to which the Company or any of its Subsidiaries is
a party, issued by any governmental agency, Federal or state, having
jurisdiction over the Company or any of its Subsidiaries; and, except at such
times as the Company is a reporting company under Section 13 or 15(d) of the
Exchange Act or has complied with the requirements for the exemption from
registration under the Exchange Act set forth in Rule 12g-3-2(b), such
financial or other information as any holder of the Notes or prospective
purchaser of the Notes may reasonably request;
(g) As soon as available, a copy of each other report submitted to the
Company or any Subsidiary by independent accountants retained by the Company
or any Subsidiary in connection with any interim or special audit made by them
of the books of the Company or any Subsidiary;
(h) Annually following any change in the composition of the Company's
Subsidiaries from that set forth in Annex I, as theretofore updated pursuant
to this paragraph, an updated list setting forth the information specified in
Annex I;
(i) If at any time (but only so long as) the Company provides
consolidating financial statements to any holder of Indebtedness, copies of
such consolidating financial statements; and
<PAGE> 26
(j) Such additional information as you or such other Institutional
Holder of the Notes may reasonably request concerning the Company and its
Subsidiaries.
6.7. Inspection of Properties and Records. The Company will allow, and
will cause each Subsidiary to allow, any representative of you or any other
Institutional Holder, so long as you or such other Institutional Holder holds
any Note, to visit and inspect any of its properties, to examine its books of
record and account and to discuss its affairs, finances and accounts with its
officers and its public accountants (and by this provision the Company
authorizes such accountants to discuss with you or such Institutional Holder
its affairs, finances and accounts). Such visitations and inspections shall
take place at such reasonable times and as often as you or such Institutional
Holder may reasonably request, provided that, if at the time thereof any
Default or Event of Default has occurred and is continuing, such visitations
and inspections shall be at the Company's expense. Any proprietary or other
confidential, competitively sensitive information obtained by you or any other
Institutional Holder in the course of any visitation or inspection shall not
be disclosed to any Person unless required by law.
6.8. ERISA. (a) All assumptions and methods used to determine the
actuarial valuation of employee benefits, both vested and unvested, under any
Plan, and each such Plan, whether now existing or adopted after the date
hereof, will comply in all material respects with ERISA and other applicable
laws.
(a) The Company will not at any time permit any Plan established,
maintained or contributed to by it or any Subsidiary or an "affiliate" (as
defined in Section 407(d)(7) of ERISA) of the Company to:
(i) engage in any "prohibited transaction" as such term is
defined in Section 4975 of the Code or in Section 406 of ERISA;
(ii) incur any "accumulated funding deficiency" as such
term is defined in Section 302 of ERISA, whether or not waived; or
(iii) be terminated under circumstances which are likely to
result in the imposition of a lien on the property of the Company or any
Subsidiary pursuant to Section 4068 of ERISA, if and to the extent such
termination is within the control of the Company;
if the event or condition described in clause (i), (ii) or (iii) above is
likely to subject the Company, any Subsidiary or ERISA affiliate to liabilities
which, individually or in the aggregate, could have a Material Adverse Effect.
(b) Upon request, the Company will furnish you or any other
Institutional Holder a copy of the annual report of each Plan (Form 5500)
required to be filed with the Internal Revenue Service no later than 30 days
after the later of the date such report has been filed with the Internal
Revenue Service or the date the copy is requested.
(c) Promptly upon the occurrence thereof, the Company will give you
and each other Institutional Holder written notice of (i) a reportable event
<PAGE> 27
(within the meaning of Section 4043(b) of ERISA and applicable regulations)
with respect to any Plan; (ii) the institution of any steps by the Company,
any Subsidiary, any ERISA affiliate, the PBGC or any other Person to terminate
any Plan; (iii) the institution of any steps by the Company, any Subsidiary or
any ERISA affiliate to withdraw from any Plan; (iv) a prohibited transaction
in connection with any Plan; (v) any material increase in the contingent
liability of the Company, any Subsidiary or any ERISA affiliate with respect
to any liability under any employee welfare benefit plan (as defined in
Section (3)(1) of ERISA) which has been or is maintained by the Company, any
Subsidiary or any ERISA affiliate for the purpose of providing post-retirement
welfare benefits to plan participants and their beneficiaries; or (vi) the
taking of any action by the Internal Revenue Service, the Department of Labor
or the PBGC with respect to any of the foregoing which would result in any
material liability to the Company or any of its Subsidiaries.
6.9. Compliance with Laws. (a) The Company will comply, and will cause
each Subsidiary to comply, with all laws, rules and regulations, including
Environmental Laws, relating to its or their respective businesses, other than
laws, rules and regulations the failure to comply with which or the sanctions
and penalties resulting therefrom, individually or in the aggregate, would not
have a Material Adverse Effect or would not result in the creation of a Lien
which, if incurred in the ordinary course of business, would not be permitted
by Section 7.5 on any property of the Company or any Subsidiary; provided,
however, that the Company and its Subsidiaries shall not be required to comply
with laws, rules and regulations the validity or applicability of which are
being contested in good faith and by appropriate proceedings and as to which
the Company has established adequate reserves on its books in accordance with
generally accepted accounting principles.
(a) Promptly upon the occurrence thereof, the Company will give you
and each other Institutional Holder notice of the institution of any
proceedings against, or the receipt of notice of potential liability or
responsibility of, the Company or any Subsidiary for violation, or the alleged
violation, of any Environmental Law which violation could give rise to a
material liability of the Company and its Subsidiaries taken as a whole.
6.10. Acquisition of Notes. Neither the Company nor any Subsidiary or
Affiliate, directly or indirectly, will repurchase or offer to repurchase any
Notes unless the offer is made to repurchase Notes pro rata from all holders
at the same time and on the same terms. The Company will forthwith cancel any
Notes in any manner or at any time acquired by the Company or any Subsidiary
or Affiliate and such Notes shall not be deemed to be outstanding for any of
the purposes of this Agreement or the Notes.
6.11. Private Placement Number. The Company consents to the filing by
your special counsel of copies of this Agreement with S&P to obtain a private
placement number.
S7. NEGATIVE COVENANTS
The Company agrees that, for so long as any amount remains unpaid on any
Note:
7.1. Working Capital. The Company will not permit working capital, as
determined in accordance with generally accepted accounting principles on a
consolidated basis, at any time to be less than $6,000,000.
<PAGE> 28
7.2. Current Ratio. The Company will not permit consolidated current
assets at any time to be less than 140% of consolidated current liabilities,
as determined in accordance with generally accepted accounting principles.
7.3. Net Worth. The Company will not permit at any time its
Consolidated Net Worth to be less than $50,000,000 plus the cumulative sum of
40% of Consolidated Net Income (without reduction for any losses) for each of
its fiscal years ending after July 3, 1993.
7.4. Funded Debt. The Company will not, and will not permit any
Subsidiary to, permit to exist, create, assume, incur, guarantee or otherwise
be or become liable for, directly or indirectly, any Funded Debt other than:
(a) the Notes;
(b) Outstanding Funded Debt of the Company and its Subsidiaries
described in the attached Annex IV;
(c) Funded Debt of a Subsidiary owed to the Company or a Wholly-Owned
Subsidiary and of the Company owed to a Wholly-Owned Subsidiary; and
(d) Additional Funded Debt, provided that at the time of incurring
such additional Funded Debt and after giving effect thereto and to the
application of the proceeds therefrom, the Consolidated Funded Debt then to be
outstanding does not exceed 75% of Consolidated Total Capitalization.
7.5. Liens. The Company will not, and will not permit any Subsidiary
to, permit to exist, create, assume or incur, directly or indirectly, any Lien
on its properties or assets, whether now owned or hereafter acquired, except:
(a) Liens existing on property or assets of the Company or any
Subsidiary as of the date of this Agreement that are described in the attached
Annex II and Liens resulting from extensions, renewals or replacements of such
Liens, provided that there is no increase in the Indebtedness secured thereby
at the time of renewal and any new Lien attaches only to the same property
theretofore subject to such earlier Lien;
(b) Liens for taxes, assessments or governmental charges not then due
and delinquent or the validity of which is being contested in good faith and
as to which the Company has established adequate reserves on its books;
(c) Liens arising in connection with court proceedings, provided the
execution of such Liens is effectively stayed, such Liens are being contested
in good faith by appropriate proceedings and the Company has established
adequate reserves therefor on its books;
(d) Liens arising in the ordinary course of business and not incurred
in connection with the borrowing of money (including encumbrances in the
nature of zoning restrictions, easements, rights and restrictions of record on
the use of real property, defects in title and landlord's, lessor's,
mechanics' and materialmen's liens) that in the aggregate do not materially
<PAGE> 29
interfere with the conduct of the business of the Company and its Subsidiaries
taken as a whole or materially impair the value of the property or assets
subject thereto;
(e) Liens securing Indebtedness of a Subsidiary to the Company or to a
Wholly-Owned Subsidiary or Liens securing Indebtedness of the Company to a
Wholly-Owned Subsidiary;
(f) Liens (i) existing on property at the time of its acquisition by
the Company or a Subsidiary and not created in contemplation thereof, whether
or not the Indebtedness secured by such Lien is assumed by the Company or a
Subsidiary; or (ii) on property created substantially contemporaneously with
the date of acquisition or within 180 days of the acquisition or completion of
construction thereof to secure or provide for all or a portion of the purchase
price or cost of construction of such property; or (iii) existing on property
of a Person at the time such Person is merged or consolidated with, or
substantially all of its assets are acquired by, the Company or a Subsidiary
and not created in contemplation thereof; provided in the case of clauses (i),
(ii) and (iii) that such Liens do not extend to other property of the Company
or any Subsidiary and that the aggregate principal amount of Indebtedness
secured by each such Lien does not exceed 100% of the fair market value of all
property subject thereto; and
(g) Liens not otherwise permitted by paragraphs (a) through (f) above
incurred subsequent to the Closing Date to secure Indebtedness, provided that
at the time of incurring such additional Indebtedness and after giving effect
thereto and to the application of the proceeds therefrom, such additional
Indebtedness is permitted by Section 7.4(d).
7.6. Restricted Payments. (a) The Company will not, except as
hereinafter provided:
(i) declare or pay any dividends, either in cash or
property, on any shares of its capital stock (except dividends or other
distributions payable solely in shares of common stock of the Company);
(ii) directly or indirectly, or through any Subsidiary,
purchase, redeem, retire or otherwise acquire any shares of capital
stock of the Company or any warrants, rights or options to purchase or
acquire any shares of its capital stock; or
(iii) make any other payment or distribution, either
directly or indirectly, or through any Subsidiary, in respect of its
capital stock;
(all such non-permitted declarations, payments, purchases, redemptions,
retirements, acquisitions, distributions or investments being hereinafter
referred to as "Restricted Payments") unless, after giving effect thereto, (x)
the aggregate amount of Restricted Payments made after June 27, 1992 to and
including the date of making the Restricted Payment in question would not
exceed the sum of: (A) $2,000,000; (B) 50% of cumulative Consolidated Net
Income since June 27, 1992 (less 100% thereof in case of a deficit); (C) the
net cash proceeds received by the Company from the sale of any shares of its
capital stock or warrants to acquire shares of its capital stock or any
Indebtedness that is converted into shares of its capital stock subsequent to
June 27, 1992; and (y) no Default or Event of Default would exist; and (z) the
Company could incur at least $1.00 of additional Funded Debt under Section
7.4(d).
<PAGE> 30
For purposes of this Section, the amount of any Restricted Payment which
is payable or distributable in property other than cash or shares of capital
stock of the Company shall be deemed to be the greater of the book value or
fair market value (as determined in good faith by the Board of Directors of the
Company) of such property as of the date of the declaration or payment of such
Restricted Payment.
(a) Notwithstanding the limitations in clause (ii) of the foregoing
paragraph (a), the Company may purchase or redeem its common stock for cash in
an amount not to exceed $10,000,000; provided that after giving effect to such
purchase or redemption the Company shall not be in default in the observance or
performance of any of the covenants or conditions contained in this Agreement,
including the other limitations in paragraph (a) of this Section 7.6. On the
date of any such purchase or redemption of its common stock, the Company shall
give notice to each holder of the Notes by telecopy, telegram, telex or other
same-day written communication of the number of shares of common stock of the
Company purchased or redeemed and the amount of consideration paid therefor.
7.7. Investments. The Company will not, directly or indirectly, and will
not permit any Subsidiary to, make any Investment, other than:
(a) Investments in Subsidiaries or in Persons which through such
Investments become Subsidiaries;
(b) Investments in Joint Ventures permitted by Section 7.8;
(c) Investments in direct or indirect obligations of, or obligations
unconditionally guaranteed by, the United States of America or an agency
thereof;
(d) Investments in commercial paper maturing within 270 days or less
from the date of issuance and rated in one of the two highest rating
classifications by S&P or Moody's; and
(e) Investments in certificates of deposit of commercial banks located
in the United States of America and having capital, surplus and undivided
profits of at least $150,000,000 and whose long-term debt securities are rated
A or better by S&P or the equivalent by Moody's.
7.8. Joint Ventures. (a) The Company will not, and will not permit any
Subsidiary to, make any Investment in a Joint Venture if, after giving effect
thereto, the then outstanding Investments of the Company and its Subsidiaries
in all Joint Ventures would exceed 70% of Consolidated Net Worth.
(a) The Company will not permit the Net Worth of Joint Ventures in which
the Company or any Subsidiary directly or indirectly owns an interest to be
less than a negative $500,000 individually or a negative $1,000,000 in the
aggregate.
7.9. Sale and Leaseback Transactions. The Company will not, and will not
permit any Subsidiary to, effect any Sale and Leaseback Transaction unless
(i) such Sale and Leaseback Transaction occurs within 180 days of the date of
acquisition of property acquired after the date of this Agreement or completion
<PAGE> 31
of construction on property acquired after the date of this Agreement,
whichever occurs later, (ii) if such Sale and Leaseback Transaction involves a
Capitalized Lease, such Capitalized Lease is permitted under Section 7.4 hereof
and (iii) such Sale and Leaseback Transaction is permitted under Section 7.11.
7.10. Merger or Consolidation. The Company will not, and will not permit
any Subsidiary to, merge or consolidate with, or sell all or substantially all
of its assets to, any Person, except that:
(a) The Company may merge into or consolidate with, or sell all or
substantially all of its assets to, any Person or permit any Person to merge
into it, provided that immediately after giving effect thereto,
(i) The Company is the successor corporation or, if the
Company is not the successor corporation, the successor corporation is a
solvent corporation organized under the laws of a state of the United
States of America having substantially all of its assets in the United
States of America and expressly assumes in writing the Company's
obligations under the Notes and this Agreement;
(ii) There shall exist no Default or Event of Default; and
(iii) The Company or such successor corporation could incur at
least $1.00 of additional Funded Debt under Section 7.4(d); and
(b) Any Subsidiary may (i) merge into the Company or a Wholly-Owned
Subsidiary or (ii) sell, transfer or lease all or any part of its assets to the
Company or a Wholly-Owned Subsidiary or (iii) merge into any Person which, as a
result of such merger, becomes a Wholly-Owned Subsidiary, or (iv) merge with
any Person which does not become a Subsidiary as a result of such merger so
long as such merger is otherwise permitted by Section 7.11; provided in each
instance set forth in clauses (i) through (iv) that immediately before and
after giving effect thereto there shall exist no Default or Event of Default
and the Company could incur at least $1.00 of additional Funded Debt under
Section 7.4(d); provided further that, if the Company is the party to a merger
of the type described in clause (iv), the successor is a solvent corporation
organized under the laws of a state of the United States of America and
expressly assumes the Company's obligations under the Notes and this Agreement.
7.11. Sale of Assets. The Company will not, and will not permit any
Subsidiary to, sell, lease, transfer or otherwise (including by way of merger)
dispose of (collectively a "Disposition") any assets, including any shares of
capital stock of Subsidiaries or any Sale and Leaseback Transaction, in one or
a series of transactions, other than in the ordinary course of business, to any
Person, except to the Company or a Wholly-Owned Subsidiary, (i) if, in any
fiscal year, after giving effect to such Disposition, the aggregate net book
value of assets subject to Dispositions during such fiscal year would exceed
10% of Consolidated Total Assets as of the end of the immediately preceding
fiscal year or (ii) if a Default or Event of Default exists; provided, that
such Disposition shall not be subject to or included in the foregoing
limitation and computation in clause (i) if the net proceeds of such
Disposition are (x) reinvested in productive assets of a similar nature and at
least equivalent value within 12 months of such Disposition, or (y) applied to
<PAGE> 32
reduce Funded Debt of the Company or its Subsidiaries, including the Notes
(other than Funded Debt that by its terms is subordinate to the Notes), on a
pro rata basis, and in the case of those proceeds applied to reduce the Notes,
the procedures for optional prepayments set forth in Sections 2.2(a), (b), (c)
and 2.3 shall apply.
7.12. Disposition of Stock or Indebtedness of Subsidiaries. The Company
will not, and will not permit any Subsidiary to, issue, sell or transfer the
capital stock or Indebtedness of a Subsidiary to any Person other than the
Company or a Wholly-Owned Subsidiary if such issuance, sale or transfer would
cause it to cease to be a Subsidiary, unless (i) all shares of capital stock of
such Subsidiary and all Indebtedness of such Subsidiary owned by the Company
and by every other Subsidiary shall simultaneously be sold, transferred or
otherwise disposed of (except that the Company or a Subsidiary need not
simultaneously sell, transfer or otherwise dispose of all shares of capital
stock of one or more other Subsidiaries if the aggregate net book value of the
assets of all such Subsidiaries does not exceed $15,000,000), (ii) such
Subsidiary does not thereafter own any shares of capital stock or Indebtedness
of the Company or another Subsidiary and (iii) such sale would not be
prohibited under Section 7.11.
7.13. Transactions with Affiliates. The Company will not, and will not
permit any Subsidiary to, enter into any transaction (including the furnishing
of goods or services) with an Affiliate, except in the ordinary course of
business as presently conducted and on terms and conditions no less favorable
to the Company or such Subsidiary than would be obtained in a comparable arm's-
length transaction with a Person not an Affiliate.
7.14. Consolidated Tax Returns. The Company will not file, or consent to
the filing of, any consolidated Federal income tax return with any Person other
than a Subsidiary, except to the extent that the Company is required under the
Code to do otherwise.
7.15. Nature of Business. The Company will not, and will not permit any
Subsidiary to, enter into any business which is substantially different from
that presently conducted by them.
S8. EVENTS OF DEFAULT AND REMEDIES THEREFOR
8.1. Nature of Events. An "Event of Default" shall exist if any one or
more of the following occurs:
(a) Any default in the payment of interest when due on any of the Notes
which is not remedied within 3 days;
(b) Any default in the payment of the principal of any of the Notes or
the Make-Whole Amount or the premium thereon, if any, at maturity, upon
acceleration of maturity or at any date fixed for prepayment;
(c) Any default (i) in the payment of the principal of, or interest or
premium on, any other Indebtedness of the Company and its Subsidiaries
aggregating in excess of $1,000,000 as and when due and payable (whether by
lapse of time, declaration, call for redemption or otherwise) and the
continuation of such default beyond the period of grace, if any, allowed with
respect thereto, or (ii) (other than a payment default) under any mortgages,
<PAGE> 33
agreements or other instruments of the Company and its Subsidiaries under or
pursuant to which such Indebtedness aggregating in excess of $1,000,000 is
issued and the continuation of such default beyond the period of grace, if any,
allowed with respect thereto, or (iii) with respect to any combination of the
foregoing involving Indebtedness in excess of $1,000,000.
(d) Any default in the observance or performance of any of the covenants
or conditions contained in Section 6.8 and Sections 7.1 through 7.14 which is
not remedied within 10 days;
(e) Any default in the observance or performance of Section 7.15 or any
other covenant or provision of this Agreement which is not remedied within 30
days after written notice thereof to the Company by any holder of a Note;
(f) Any representation or warranty made by the Company in this
Agreement, or made by the Company in any written statement or certificate
furnished by the Company in connection with the issuance and sale of the Notes
or furnished by the Company pursuant to this Agreement, proves incorrect as of
the date of the issuance or making thereof;
(g) Any judgment, writ or warrant of attachment or any similar process
in an aggregate amount in excess of $1,000,000 shall be entered or filed
against the Company or any Subsidiary or against any property or assets of
either and remain unpaid, unvacated, unbonded or unstayed (through appeal or
otherwise) for a period of 60 days after the Company or any Subsidiary receives
notice thereof;
(h) The Company or any Subsidiary shall
(i) generally not pay its debts as they become due or admit
in writing its inability to pay its debts generally as they become due;
(ii) file a petition in bankruptcy or for reorganization or
for the adoption of an arrangement under the Federal Bankruptcy Code, or
any similar applicable bankruptcy or insolvency law, as now or in the
future amended (herein collectively called "Bankruptcy Laws"); file an
answer or other pleading admitting or failing to deny the material
allegations of such a petition; fail to obtain the dismissal of such a
petition within 60 days of its filing or be subject to an order for relief
or a decree approving such a petition; or file an answer or other pleading
seeking, consenting to or acquiescing in relief provided for under the
Bankruptcy Laws;
(iii) make an assignment of all or a substantial part of its
property for the benefit of its creditors;
(iv) seek or consent to or acquiesce in the appointment of a
receiver, liquidator, custodian or trustee of it or for all or a
substantial part of its property;
(v) be finally adjudicated bankrupt or insolvent;
(vi) be subject to the entry of a court order, which shall
not be vacated, set aside or stayed within 60 days of the date of entry,
<PAGE> 34
(A) appointing a receiver, liquidator, custodian or trustee of it or for
all or a substantial part of its property, or (B) for relief pursuant to
an involuntary case brought under, or effecting an arrangement in,
bankruptcy or (C) for a reorganization pursuant to the Bankruptcy Laws or
(D) for any other judicial modification or alteration of the rights of
creditors; or
(vii) be subject to the assumption of custody or sequestration
by a court of competent jurisdiction of all or a substantial part of its
property, which custody or sequestration shall not be suspended or
terminated within 60 days from its inception.
8.2. Remedies on Default. When any Event of Default described in
paragraphs (a) through (g) of Section 8.1 has occurred and is continuing, the
holder or holders of at least 25% in aggregate principal amount of the Notes
then outstanding may, by notice to the Company, declare the entire principal
and all interest accrued on all Notes to be, and such Notes shall thereupon
become, forthwith due and payable, without any presentment, demand, protest or
other notice of any kind, all of which are expressly waived. Notwithstanding
the foregoing, (i) when any Event of Default described in paragraphs (a) or (b)
of Section 8.1 has occurred and is continuing, any holder may by notice to the
Company declare the entire principal and all interest accrued on the Notes then
held by such holder to be, and such Notes shall thereupon become, forthwith due
and payable, without any presentment, demand, protest or other notice of any
kind, all of which are expressly waived, and (ii) when any Event of Default
described in paragraph (h) of Section 8.1 has occurred, then the entire
principal and all interest accrued on all outstanding Notes shall immediately
become due and payable without presentment, demand or notice of any kind. When
any Event of Default described in the following paragraphs of Section 8.1 shall
have occurred: paragraphs (a), (b), (c)(i), and (d) as to any default in the
observance or performance of any of the covenants or conditions contained in
Sections 7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.10, 7.11, and 7.12 and in paragraph
(h), then the Company shall be obligated to pay a Make-Whole Amount (to the
extent permitted by law) in addition to the entire principal and all interest
accrued on the Notes pursuant to the foregoing sentences of this Section 8.2.
Upon the Notes or any of them becoming due and payable as aforesaid, the
Company will forthwith pay to the holder or holders of such Notes the entire
principal of and interest accrued on such Notes, plus the Make-Whole Amount, as
required, which shall be calculated on the Determination Date.
8.3. Annulment of Acceleration of Notes. The provisions of Section 8.2
are subject to the condition that if the principal of and accrued interest on
the Notes have been declared immediately due and payable by reason of the
occurrence of any Event of Default described in paragraphs (a) through (h),
inclusive, of Section 8.1, the holder or holders of 66-2/3% in aggregate
principal amount of the Notes then outstanding may, by written instrument filed
with the Company, rescind and annul such declaration and the consequences
thereof, provided that (i) at the time such declaration is annulled and
rescinded no judgment or decree has been entered for the payment of any monies
due pursuant to the Notes or this Agreement, (ii) all arrears of interest upon
all the Notes and all other sums payable under the Notes and under this
Agreement (except any principal or interest on the Notes which has become due
and payable solely by reason of such declaration under Section 8.2) shall have
been duly paid and (iii) each and every Default or Event of Default shall have
been cured or waived; and provided further, that no such rescission and
annulment shall extend to or affect any subsequent Default or Event of Default
or impair any right consequent thereto.
<PAGE> 35
8.4. Other Remedies. If any Event of Default shall be continuing, any
holder of Notes may enforce its rights by suit in equity, by action at law, or
by any other appropriate proceedings, whether for the specific performance (to
the extent permitted by law) of any covenant or agreement contained in this
Agreement or in the Notes or in aid of the exercise of any power granted in
this Agreement, and may enforce the payment of any Note held by such holder and
any of its other legal or equitable rights.
8.5. Conduct No Waiver; Collection Expenses. No course of dealing on the
part of any holder of Notes, nor any delay or failure on the part of any holder
of Notes to exercise any of its rights, shall operate as a waiver of such
rights or otherwise prejudice such holder's rights, powers and remedies. If
the Company fails to pay, when due, the principal of, the Make-Whole Amount or
premium, if any, or the interest on, any Note, or fails to comply with any
other provision of this Agreement, the Company will pay to each holder, to the
extent permitted by law, on demand, such further amounts as shall be sufficient
to cover the cost and expenses, including but not limited to reasonable
attorneys' fees, incurred by such holders of the Notes in collecting any sums
due on the Notes or in otherwise enforcing any of their rights incident to an
Event of Default.
8.6. Remedies Cumulative. No right or remedy conferred upon or reserved
to any holder of Notes under this Agreement is intended to be exclusive of any
other right or remedy, and every right and remedy shall be cumulative and in
addition to every other right or remedy given under this Agreement or now or
hereafter existing under any applicable law. Every right and remedy given by
this Agreement or by applicable law to any holder of Notes may be exercised
from time to time and as often as may be deemed expedient by such holder, as
the case may be.
8.7. Notice of Default. With respect to Defaults, Events of Default or
claimed defaults, the Company will give the following notices:
(a) The Company promptly, but in any event within 5 days, will furnish
to each holder of a Note written notice of the occurrence of a Default or an
Event of Default. Such notice shall specify the nature of such default, the
period of existence thereof and what action the Company has taken or is taking
or proposes to take with respect thereto.
(b) If the holder of any Note or of any other evidence of Indebtedness
of the Company or any Subsidiary gives any notice or takes any other action
with respect to a claimed default, the Company will forthwith give written
notice thereof to each holder of the then outstanding Notes, describing the
notice or action and the nature of the claimed default.
S9. AMENDMENTS, WAIVERS AND CONSENTS
9.1. Matters Subject to Modification. Any term, covenant, agreement or
condition of this Agreement may, with the consent of the Company, be amended,
or compliance therewith may be waived (either generally or in a particular
instance and either retroactively or prospectively), if the Company shall have
obtained the consent in writing of the holder or holders of at least 66-2/3% in
aggregate principal amount of outstanding Notes; provided, however, that,
without the written consent of the holder or holders of all of the Notes then
<PAGE> 36
outstanding, no such waiver, modification, alteration or amendment shall be
effective which will (i) change the time of payment (including any required
prepayment or optional prepayment) of the principal of or the interest on any
Note, (ii) change the principal amount thereof or the Make-Whole Amount or
premium, if any, or change the rate of interest thereon, (iii) change any
provision of any instrument affecting the preferences between holders of the
Notes or between holders of the Notes and other creditors of the Company, or
(iv) change any of the provisions of Section 8.2, Section 8.3 or this
Section 9.
For the purpose of determining whether holders of the requisite principal
amount of Notes have made or concurred in any waiver, consent, approval, notice
or other communication under this Agreement, Notes held in the name of, or
owned beneficially by, the Company, any Subsidiary or any Affiliate thereof,
shall not be deemed outstanding.
9.2. Solicitation of Holders of Notes. The Company will not solicit,
request or negotiate for or with respect to any proposed waiver or amendment
of any of the provisions of this Agreement or the Notes unless each holder of
the Notes (irrespective of the amount of Notes then owned by it) shall
concurrently be informed thereof by the Company and shall be afforded the
opportunity of considering the same and shall be supplied by the Company with
sufficient information to enable it to make an informed decision with respect
thereto. Executed or true and correct copies of any waiver or consent
effected pursuant to the provisions of this Section 9 shall be delivered by
the Company to each holder of outstanding Notes forthwith following the date
on which the same shall have been executed and delivered by the holder or
holders of the requisite percentage of outstanding Notes. The Company will
not, directly or indirectly, pay or cause to be paid any remuneration, whether
by way of supplemental or additional interest, fee or otherwise, to any holder
of the Notes as consideration for or as an inducement to the entering into by
any holder of the Notes of any waiver or amendment of any of the terms and
provisions of this Agreement unless such remuneration is concurrently paid, on
the same terms, ratably to each holder of the then outstanding Notes.
9.3. Binding Effect. Any such amendment or waiver shall apply equally
to all the holders of the Notes and shall be binding upon them, upon each
future holder of any Note and upon the Company whether or not such Note shall
have been marked to indicate such amendment or waiver. No such amendment or
waiver shall extend to or affect any obligation not expressly amended or
waived or impair any right related thereto.
S10. FORM OF NOTES, REGISTRATION, TRANSFER, EXCHANGE AND
REPLACEMENT
10.1.Form of Notes. Each Note initially delivered under this Agreement
will be in the form of one fully registered Note in the form attached as
Exhibit A. The Notes are issuable only in fully registered form and in
denominations of at least $200,000 (or the remaining outstanding balance
thereof, if less than $200,000).
10.2.Note Register. The Company shall cause to be kept at its
principal office a register (the "Note Register") for the registration and
transfer of the Notes. The names and addresses of the holders of Notes, the
transfer thereof and the names and addresses of the transferees of the Notes
shall be registered in the Note Register. The Company may deem and treat the
<PAGE> 37
person in whose name a Note is so registered as the holder and owner thereof
for all purposes and shall not be affected by any notice to the contrary,
until due presentment of such Note for registration of transfer as provided in
this Section 10.
10.3.Issuance of New Notes upon Exchange or Transfer. Upon surrender
for exchange or registration of transfer of any Note at the office of the
Company designated for notices in accordance with Section 11.2, the Company
shall execute and deliver, at its expense, one or more new Notes of any
authorized denominations requested by the holder of the surrendered Note, each
dated the date to which interest has been paid on the Notes so surrendered
(or, if no interest has been paid, the date of such surrendered Note), but in
the same aggregate unpaid principal amount as such surrendered Note, and
registered in the name of such person or persons as shall be designated in
writing by such holder. Every Note surrendered for registration of transfer
shall be duly endorsed, or be accompanied by a written instrument of transfer
duly executed, by the holder of such Note or by his attorney duly authorized
in writing. The Company may condition its issuance of any new Note in
connection with a transfer by any Person on compliance with Section 3.2, by
Institutional Holders on compliance with Section 2.5 and on the payment to the
Company of a sum sufficient to cover any stamp tax or other governmental
charge imposed in respect of such transfer.
10.4.Replacement of Notes. Upon receipt of evidence satisfactory to
the Company of the loss, theft, mutilation or destruction of any Note, and in
the case of any such loss, theft or destruction upon delivery of a bond of
indemnity in such form and amount as shall be reasonably satisfactory to the
Company or in the event of such mutilation upon surrender and cancellation of
the Note, the Company, without charge to the holder thereof, will make and
deliver a new Note, of like tenor in lieu of such lost, stolen, destroyed or
mutilated Note. If any such lost, stolen or destroyed Note is owned by you or
any other Institutional Holder, then the affidavit of an authorized officer of
such owner setting forth the fact of such loss, theft or destruction and of
its ownership of the Note at the time of such loss, theft or destruction shall
be accepted as satisfactory evidence thereof, and no further indemnity shall
be required as a condition to the execution and delivery of a new Note, other
than a written agreement of such owner (in form reasonably satisfactory to the
Company) to indemnify the Company.
S11. MISCELLANEOUS
11.1.Expenses. The Company agrees to pay directly all expenses in
connection with the preparation, execution and delivery of this Agreement and
the transactions contemplated by this Agreement, including, but not limited
to, out-of-pocket expenses, charges and disbursements of special counsel,
photocopying and printing costs and charges for shipping the Notes, adequately
insured, to you at your home office or at such other address as you may
designate, and all similar expenses (including the fees and expenses of
counsel) relating to any amendments, waivers or consents in connection with
this Agreement or the Notes, including, but not limited to, any such
amendments, waivers or consents resulting from any work-out, renegotiation or
restructuring relating to the performance by the Company of its obligations
under this Agreement and the Notes. The Company also agrees that it will pay
and save you harmless against any and all liability with respect to stamp and
other documentary taxes, if any, which may be payable, or which may be
determined to be payable in connection with the execution and delivery of this
<PAGE> 38
Agreement or the Notes (but not in connection with a transfer of any Notes),
whether or not any Notes are then outstanding. The obligations of the Company
under this Section 11.1 shall survive the retirement of the Notes.
11.2.Notices. Except as otherwise expressly provided herein, all
notices provided for in this Agreement shall be in writing and delivered or
sent by registered or certified mail, return receipt requested, or by
overnight courier, but all other communications may be sent by regular mail,
in each case (i) if to you, to the address set forth below your name in
Schedule I, or to such other address as you may in writing designate, (ii) if
to any other holder of the Notes, to such address as the holder may designate
in writing to the Company, and (iii) if to the Company, to Donnelly
Corporation, 414 East Fortieth Street, Holland, Michigan 49423, Attention:
Mr. William R. Jellison, Chief Financial Officer, or to such other address as
the Company may in writing designate.
11.3.Reproduction of Documents. This Agreement and all documents
relating hereto, including, without limitation, (i) consents, waivers and
modifications which may hereafter be executed, (ii) documents received by you
at the closing of the purchase of the Notes (except the Notes themselves), and
(iii) financial statements, certificates and other information previously or
hereafter furnished to you, may be reproduced by you by any photographic,
photostatic, microfilm, micro-card, miniature photographic or other similar
process, and you may destroy any original document so reproduced. The Company
agrees and stipulates that any such reproduction which is legible shall be
admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made by you in the regular course of
business) and that any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence; provided that nothing
herein contained shall preclude the Company from objecting to the admission of
any reproduction on the basis that such reproduction is not accurate, has been
altered or is otherwise incomplete.
11.4.Successors and Assigns. This Agreement will inure to the benefit
of and be binding upon the parties hereto and their respective successors and
assigns.
11.5.Law Governing. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois.
11.6.Headings. The headings of the sections and subsections of this
Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
11.7.Counterparts. This Agreement may be executed simultaneously in
one or more counterparts, each of which shall be deemed an original, but all
such counterparts shall together constitute one and the same instrument, and
it shall not be necessary in making proof of this Agreement to produce or
account for more than one such counterpart or reproduction thereof permitted
by Section 11.3.
11.8.Reliance on and Survival of Provisions. All written covenants,
representations and warranties made by the Company herein and in any
certificates delivered pursuant to this Agreement, whether or not in
connection with a closing, (i) shall be presumed to have been relied upon by
<PAGE> 39
you, notwithstanding any investigation heretofore or hereafter made by you or
on your behalf and (ii) shall survive the delivery of this Agreement and the
Notes.
11.9.Integration and Severability. This Agreement embodies the entire
agreement and understanding between you and the Company, and supersedes all
prior agreements and understandings relating to the subject matter hereof. In
case any one or more of the provisions contained in this Agreement or in any
Note, or application thereof, shall be invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained in this Agreement and in any Note, and any other
application thereof, shall not in any way be affected or impaired thereby.
(The remainder of this page is intentionally left blank.)
<PAGE> 40
IN WITNESS WHEREOF, the Company and the Purchaser have caused this
Agreement to be executed and delivered by their respective officer or officers
thereunto duly authorized.
DONNELLY CORPORATION
By: /s/ William R. Jellison
Title: Chief Financial Officer
NATIONWIDE LIFE INSURANCE COMPANY
By: /s/ Jeffrey G.Milburn
Title: Vice President, Corporate Fixed-
Income Securities
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
By: /s/ Jeffrey G.Milburn
Title: Vice President, Corporate Fixed-
Income Securities
WEST COAST LIFE INSURANCE COMPANY
By: /s/ Jeffrey G.Milburn
Title: Attorney-In-Fact
EMPLOYERS LIFE INSURANCE COMPANY OF WAUSAU
By: /s/ Jeffrey G.Milburn
Title: Attorney-In-Fact
WISCONSIN HEALTH CARE LIABILITY INSURANCE PLAN
By: /s/ Jeffrey G.Milburn
Title: Attorney-In-Fact
<PAGE> 41
SCHEDULE I
Principal Amount of Notes to Be Purchased
Name and Address of Purchaser Principal Amount of Notes
Nationwide Life Insurance Company
One Nationwide Plaza $12,500,000
Columbus, Ohio 43215-2220
Send notices and communications to:
Nationwide Life Insurance Company
One Nationwide Plaza (1-33-07)
Columbus, Ohio 43215-2220
Attention: Corporate Fixed-Income Securities
All payments are to be by bank wire transfer of immediately
available funds to:
Morgan Guaranty Trust Company of New York
ABA #021-000-238
JOURNAL #999-99-024
F/A/O Nationwide Life Insurance Company
Custody A/C #71615
Attention: Custody Service Department
Each wire transfer shall identify such payment as "Donnelly
Corporation, 6.70% Senior Notes due December 15, 2005, PPN
257870 B@ 3".
With notice of each such payment to:
Nationwide Life Insurance Company
One Nationwide Plaza (1-32-09)
Columbus, Ohio 43215-2220
Attention: Corporate Money Management
Tax ID # 31-4156830
<PAGE> 42
SCHEDULE I
Principal Amount of Notes to Be Purchased
Name and Address of Purchaser Principal Amount of Notes
Nationwide Life and Annuity Insurance Company
One Nationwide Plaza $2,000,000
Columbus, Ohio 43215-2220
Send notices and communications to:
Nationwide Life and Annuity Insurance Company
One Nationwide Plaza (1-33-07)
Columbus, Ohio 43215-2220
Attention: Corporate Fixed-Income Securities
All payments are to be by bank wire transfer of immediately
available funds to:
Morgan Guaranty Trust Company of New York
ABA #021-000-238
JOURNAL #999-99-024
F/A/O Nationwide Life and Annuity Insurance
Company
Custody A/C #71620
Attention: Custody Service Department
Each wire transfer shall identify such payment as "Donnelly
Corporation, 6.70% Senior Notes due December 15, 2005, PPN
257870 B@ 3."
With notice of each such payment to:
Nationwide Life and Annuity Insurance Company
One Nationwide Plaza (1-32-09)
Columbus, Ohio 43215-2220
Attention: Corporate Money Management
Tax ID # 31-1000740
<PAGE> 43
SCHEDULE I
Principal Amount of Notes to Be Purchased
Name and Address of Purchaser Principal Amount of Notes
West Coast Life Insurance Company
343 Sansome Street $2,000,000
San Francisco, CA 94104
Send notices and communications to:
West Coast Life Insurance Company
One Nationwide Plaza (1-33-07)
Columbus, Ohio 43215-2220
Attention: Corporate Fixed-Income Securities
All payments are to be by bank wire transfer of immediately
available funds to:
Morgan Guaranty Trust Company of New York
ABA #021-000-238
JOURNAL #999-99-024
F/A/O West Coast Life
Custody A/C #73290
Attention: Custody Service Department
Each wire transfer shall identify such payment as "Donnelly
Corporation, 6.70% Senior Notes due December 15, 2005, PPN
257870 B@ 3."
With notice of each such payment to:
West Coast Life Insurance Company
343 Sansome Street
San Francisco, CA 94104
Attention: Karl Snover
Tax ID # 94-0971150
<PAGE> 44
SCHEDULE I
Principal Amount of Notes to Be Purchased
Name and Address of Purchaser Principal Amount of Notes
Employers Life Insurance Company of Wausau
2000 Westwood Drive $3,000,000
Columbus, Ohio 54401
Send notices and communications to:
Employers Life Insurance Company of Wausau
One Nationwide Plaza (1-33-07)
Columbus, Ohio 43215-2220
Attention: Corporate Fixed-Income Securities
All payments are to be by bank wire transfer of immediately
available funds to:
Morgan Guaranty Trust Company of New York
ABA #021-000-238
JOURNAL #999-99-024
F/A/O Employers Life Custody A/C #50135
Attention: Custody Service Department
Each wire transfer shall identify such payment as "Donnelly
Corporation, 6.70% Senior Notes due December 15, 2005, PPN
257870 B@ 3."
With notice of each such payment to:
Employers Life Insurance Company of Wausau
2000 Westwood Drive
Wausau, Wisconsin 54401
Tax ID # 39-1049873
<PAGE> 45
SCHEDULE I
Principal Amount of Notes to Be Purchased
Name and Address of Purchaser Principal Amount of Notes
Wisconsin Health Care Liability Insurance Plan
2000 Westwood Avenue $500,000.00
Wausau, Wisconsin 54401
Send notices and communications to:
Wisconsin Health Care Liability Insurance Plan
One Nationwide Plaza (1-33-07)
Columbus, Ohio 43215-2220
Attention: Corporate Fixed-Income Securities
All payments are to be by bank wire transfer of immediately
available funds to:
Firstar Bank Milwaukee, N.A.
Account of Firstar Trust Company
ABA #075-000-002
For credit to Account 112 950 027
For further credit to Account 1690000
Each wire transfer shall identify such payment as "Donnelly
Corporation, 6.70% Senior Notes due December 15, 2005, PPN
257870 B@ 3."
With notice of each such payment to:
Wisconsin Health Care Liability Insurance Plan
2000 Westwood Avenue
Wausau, Wisconsin 54401
Attention: Ms. Lorraine Moran
Name of nominee in which Notes are to be issued: Band & Co.
Tax ID # 39-1256796
<PAGE> 46
ANNEX I
List of Subsidiaries and Joint Ventures and Jurisdictions
in Which the Company, Subsidiaries and Joint Ventures are
Organized and Qualified to Do Business
Willing to supply if requested.
ANNEX II
Liens
Willing to supply if requested.
ANNEX III
Litigation
Willing to supply if requested.
ANNEX IV
Funded Debt
Willing to supply if requested.
<PAGE> 47
EXHIBIT A
DONNELLY CORPORATION
6.70% SENIOR NOTE
Due December 15, 2005
THIS NOTE MAY BE SUBJECT TO A HOME OFFICE PAYMENT AGREEMENT AND
ACCORDINGLY ANY PROSPECTIVE PURCHASER SHOULD FIRST VERIFY THE
UNPAID PRINCIPAL AMOUNT WITH THE COMPANY.
Registered Note No. R-__ ____________, 1995
$______________
DONNELLY CORPORATION, a Michigan corporation (the "Company"), for value
received, promises to pay to ____________________ or registered assigns, on
December 15, 2005, the principal amount of ____________ Dollars ($__________)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount from time to time remaining unpaid hereon at
the rate of 6.70% per annum from the date hereof until maturity, payable on
June 15 and December 15 in each year, commencing June 15, 1996, and at
maturity, and to pay interest on any overdue principal, on any overdue Make-
Whole Amount or on any premium and (to the extent legally enforceable) on any
overdue installment of interest at a per annum rate of 8.70% until paid.
Payments of the principal of, the Make-Whole Amount or on any premium, if any,
and the interest on this Note shall be made in lawful money of the United
States of America in the manner and at the place provided in Section 2.5 of the
Note Agreement hereinafter defined.
This Note is issued under and pursuant to the terms and provisions of the
Note Agreement, dated as of July 15, 1995, entered into by the Company with the
Purchaser named in Schedule I thereto (the "Note Agreement"), and this Note and
any holder hereof are entitled to all of the benefits provided for by such Note
Agreement or referred to therein. Reference is made to the Note Agreement for
a statement of such benefits.
As provided in the Note Agreement, upon surrender of this Note for
registration of transfer, duly endorsed or accompanied by a written instrument
of transfer duly executed by the registered holder hereof or its attorney duly
authorized in writing, a new Note for a like unpaid principal amount will be
issued to, and registered in the name of, the transferee upon the payment of
the taxes or other governmental charges, if any, that may be imposed in
<PAGE> 48
connection therewith. The Company may treat the person in whose name this Note
is registered as the owner hereof for the purpose of receiving payment and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
This Note may be declared due prior to its expressed maturity date,
voluntary prepayments may be made hereon and certain prepayments are required
to be made hereon all in the events, on the terms and in the manner as provided
in the Note Agreement. Such prepayments include certain required prepayments
on June 15 and December 15 of each year commencing December 15, 2000 through
June 15, 2005, inclusive, with the remaining principal payable on December 15,
2005, and certain optional prepayments with a Make-Whole Amount or premium.
Should the indebtedness represented by this Note or any part thereof be
collected in any proceeding provided for in the Note Agreement or be placed in
the hands of attorneys for collection, the Company agrees to pay, in addition
to the principal, Make-Whole Amount or premium, if any, and interest due and
payable hereon, all costs of collecting this Note, including reasonable
attorneys' fees and expenses.
This Note and the Note Agreement are governed by and construed in
accordance with the laws of the State of Illinois.
DONNELLY CORPORATION
By:_______________________________
Its:
<PAGE> 49
EXHIBIT B
LEGAL OPINIONS
The opinion of Gardner, Carton & Douglas, special counsel for the
Purchaser, shall be to the effect that:
1. The Company is a corporation organized and validly existing in good
standing under the laws of the State of Michigan, with all requisite corporate
power and authority to enter into the Agreement and to issue and sell the
Notes.
2. The Agreement and the Notes have been duly authorized by proper
corporate action on the part of the Company, have been duly executed and
delivered by an authorized officer of the Company, and constitute the legal,
valid and binding agreements of the Company, enforceable in accordance with
their terms, except to the extent that enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
of general application relating to or affecting the enforcement of the rights
of creditors or by equitable principles, regardless of whether enforcement is
sought in a proceeding in equity or at law.
3. Based upon the representations set forth in the Agreement, the
offering, sale and delivery of the Notes do not require the registration of the
Notes under the Securities Act of 1933, as amended, nor the qualification of an
indenture under the Trust Indenture Act of 1939, as amended.
4. The issuance and sale of the Notes, the execution and delivery of the
Agreement and compliance with the terms and provisions of the Notes and the
Agreement will not conflict with or result in any breach of any of the
provisions of the Certificate of Incorporation or By-Laws of the Company.
The opinion of Gardner, Carton & Douglas also shall state that the legal
opinion of Varnum, Riddering, Schmidt & Howlett LLP, counsel for the Company,
delivered to you pursuant to the Agreement, is satisfactory in form and scope
to Gardner, Carton & Douglas, and, in its opinion, the Purchaser and it are
justified in relying thereon and shall cover such other matters relating to the
sale of the Notes and the execution and delivery of the Agreement as the
Purchaser may reasonably request. Gardner, Carton & Douglas may rely as to
matters of Michigan law upon the opinion of Varnum, Riddering, Schmidt &
Howlett LLP.
<PAGE> 50
EXHIBIT C
LEGAL OPINIONS
The opinion of Varnum, Riddering, Schmidt & Howlett LLP, counsel for the
Company, shall be to the effect that:
1. Donnelly is a corporation duly organized, validly existing and in
good standing under the laws of the state of Michigan, has the requisite
corporate power and authority under Michigan law to carry on its business as
now conducted and own and operate its properties and to enter into and perform
its obligations under the Note Agreement and to issue and sell the Notes, and
is duly qualified to transact business in all other jurisdictions wherein the
failure to qualify would have a Material Adverse Effect.
2. Each of the Affiliates (as hereinafter defined) is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Michigan, and has the requisite corporate power and authority under
Michigan law to carry on its business as presently conducted and own and
operate its properties and is duly qualified to transact business in all other
jurisdictions wherein the failure to qualify would have a Material Adverse
Effect. As used herein, "Affiliates" means Donnelly Investments, Inc.,
Donnelly Export Corporation and Donnelly International, Inc. All of the
outstanding shares of the capital stock of Donnelly Investments, Inc. and
Donnelly International, Inc. are owned by Donnelly free and clear of any Lien,
have been duly and validly issued and are fully paid and nonassessable.
3. The Note Agreement and the Notes have been duly authorized by proper
corporate action on the part of Donnelly, have been duly executed and delivered
by an authorized officer of Donnelly, and constitute the legal, valid and
binding agreements of Donnelley, enforceable in accordance with their
respective terms except to the extent that enforcement thereof may be limited
by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar laws of general application relating to or affecting the
rights of creditors or by equitable principles regardless of whether
enforcement is sought in a proceeding in equity or at law.
4. The issuance and sale of the Notes by Donnelly, the execution and
delivery by Donnelly of the Note Agreement and the performance by Donnelly of
the Note Documents do not (i) violate the articles of incorporation or bylaws
of Donnelly, or (ii) result in any breach of any of the obligations of, or
constitute a default under, the provisions of any written agreement or other
written instrument relating to the borrowing of money or any other written
agreement the breach of which would have a Material Adverse Effect to which
Donnelly, any of its Subsidiaries or any of the Affiliates is a party, or by
which Donnelly, any of its Subsidiaries or any of the Affiliates may be bound,
(iii) violate applicable provisions of statutory law or regulation, or (iv)
based solely on inquiry of executive officers of Donnelly and the actual
knowledge of attorneys in such counsel's firm primarily responsible for the
provision of legal services to Donnelly, violate any order, writ, injunction or
decree of any court or governmental authority applicable to Donnelly, any of
its Subsidiaries or any of the Affiliates.
<PAGE> 51
5. No consent, approval or authorization of, or any registration or
filing with, any governmental body, federal or state of Michigan (including
registration of the Notes under the Securities Act of 1933, as amended (the
"Act"), or qualification of an indenture under the Trust Indenture Act of 1939,
as amended), is necessary for the execution, delivery and performance by
Donnelly of the Note Agreement or the offering, issuance and sale of the Notes
by Donnelly to you. For purposes of the opinions expressed in this paragraph 5
counsel has relied on the Purchaser's representations in the Note Agreement and
has further assumed that the Purchaser is an "insurance company" within the
meaning of the Act. No opinion is expressed with respect to the Purchaser's
compliance with any laws or regulations applicable to the transaction on
account of the nature of the Purchaser's business, or facts relating
specifically to the Purchaser or as to the effect of any such noncompliance on
the opinions set forth in this paragraph 5.
6. Based on the inquiry described below and the actual knowledge of
attorneys in such counsel's firm primarily responsible for the provision of
legal services to Donnelly and without expressing any opinion as to the
potential effect of the case of Gentex Corp. v. Donnelly Corporation (Case No.
94-1252) presently pending in the United States Court of Appeals for the
Federal Circuit or any other litigation between Gentex Corporation and Donnelly
Corporation, as to which such firm is not counsel for Donnelly and,
accordingly, render no opinion, and the case of Eric Balcom v. Donnelly
Corporation (Case No. 95-22471NO) presently pending in the Ottawa County,
Michigan Circuit Court, as to which we are not counsel for Donnelly and,
accordingly, render no opinion, there are no actions or proceedings against
Donnelly, any of its Subsidiaries or any of the Affiliates pending, or overtly
threatened in writing, before any court, governmental agency or arbitrator,
which, if adversely determined, would exceed an aggregate amount of $2,500,000
in damages and civil penalties or which would impair the ability of Donnelly to
perform its obligations under the Notes or which would cause an Event of
Default under the Note Agreement or which would impair the ability of the
holders of the Notes to enforce such obligations. For purposes of the opinions
expressed in this paragraph 6, counsel has examined the civil dockets of the
Ottawa County, Michigan Circuit Court and the United States District Court for
the Western District of Michigan, Southern Division and has consulted with
executive officers of Donnelly.
7. The issuance of the Notes by Donnelly and the intended use of the
proceeds of the sale of the Notes (based solely on the representations as to
the use of such proceeds made by Donnelly in Section 3.1(s) of the Note
Agreement) do not violate or conflict with Regulation G, T, U or X of the Board
of Governors of the Federal Reserve System.
8. Neither Donnelly nor any Subsidiary nor any Affiliate is: (i) a
"public utility company" or a "holding company," or an "affiliate" or a
"subsidiary company" of a "holding company," or an "affiliate" of such a
"subsidiary company," as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended, or (ii) a "public utility" as defined in the
Federal Power Act, as amended, or (iii) an "investment company" or an
"affiliated person" thereof, as such terms are defined in the Investment
Company Act of 1940, as amended.
<PAGE>1
THIRD AMENDMENT TO REVOLVING CREDIT LOAN AGREEMENT
THIS THIRD AMENDMENT TO REVOLVING CREDIT LOAN AGREEMENT, dated
June 30, 1995 (this "Amendment"), among DONNELLY CORPORATION, a Michigan
corporation (the "Company"), the Banks set forth on the signature pages hereof
(collectively, the "Banks" and individually, a "Bank"), and NBD BANK (formerly
known as NBD Bank, N.A.), as agent for the Banks (in such capacity, the
"Agent").
RECITALS
A. The parties hereto have entered into a Revolving Credit Loan
Agreement dated as of July 16, 1993 (as amended, the "Credit Agreement"), which
is in effect.
B. The Company desires to amend the Credit Agreement as herein
provided, to, among other matters, increase the amount of the Commitments
available under the Credit Agreement and add an additional Bank to provide the
increased Commitment amount, and the Banks and the Agent are willing to so amend
the Credit Agreement on the terms set forth herein.
AGREEMENT
Based upon these recitals, the parties agree as follows:
1. Amendment. Upon the Company satisfying the conditions set forth in
paragraph 4 (the date that this occurs being called the "effective date"), the
Credit Agreement shall be amended to read as follows:
(A) The definition of "Banks" in the first paragraph of the Credit
Agreement is deleted, a new definition of "Banks" is added to
Section 1.1, and the definition of "Commitment" is amended, each as
follows:
"Banks" means, collectively, NBD Bank (formerly known as NBD
Bank, N.A.), a Michigan banking corporation, Societe Generale, a
bank organized under the laws of France, and The First National Bank
of Chicago, a national banking association, and each may be
individually referred to as a Bank.
"Commitments" means the commitment of each Bank to make
Revolving Credit Loans pursuant to Section 2.1 and 3.3, and to
participate in Letter of Credit Advances through the Agent pursuant
to Section 2.1, in an amount not exceeding the respective commitment
amounts for each Bank set forth below, as such amount may be reduced
from time to time pursuant to Section 2.2:
<PAGE> 2
NBD Bank $40,000,000
Societe Generale 15,000,000
The First National Bank of Chicago 15,000,000
(B) Section 8.1 is amended by deleting existing subsection (iii)
and renumbering existing subsection (iv) as subsection (iii).
(C) The address for notices to The First National Bank of Chicago
under Section 8.2 shall be as follows:
The First National Bank of Chicago
One First National Plaza
Mail Suite 0088
Chicago, Illinois 60670-0088
Attn: Patricia H. Besser
Facsimile No. (312) 732-5161
2. References to Credit Agreement. From and after the effective date
of this Amendment, references to the Credit Agreement in the Credit Agreement
and all other documents issued under or with respect thereto (as each of the
foregoing is amended hereby or pursuant hereto) shall be deemed to be references
to the Credit Agreement as amended hereby.
3. Representations and Warranties. The Company represents and warrants
to the Banks and the Agent that:
(a) (i) The execution, delivery and performance of this Amendment
and all agreements and documents delivered pursuant hereto by the Company have
been duly authorized by all necessary corporate action and do not and will not
violate any provision of any law, rule, regulation, order, judgment, injunction,
or award presently in effect applying to it, or of its articles of incorporation
or By-Laws, or result in a breach of or constitute a default under any material
agreement, lease or instrument to which the Company is a party or by which it or
its properties may be bound or affected; (ii) no authorization, consent,
approval, license, exemption or filing of a registration with any court or
governmental department, agency or instrumentality is or will be necessary to
the valid execution, delivery or performance by the Company of this Amendment
and all agreements and documents delivered pursuant hereto; and (iii) this
Amendment and all agreements and documents delivered pursuant hereto by the
Company are the legal, valid and binding obligations of the Company, enforceable
against it in accordance with the terms thereof.
(b) After giving effect to the amendments contained herein, the
representations and warranties contained in Article IV (other than Section 4.6)
of the Credit Agreement are true and correct on and as of the effective date
hereof with the same force and effect as if made on and as of such effective
date.
<PAGE> 3
(c) The consolidated balance sheet of the Company and its
Subsidiaries and the consolidated statements of income, retained earnings, and
cash flows of the Company and its Subsidiaries for the fiscal year ended
June 30, 1994, certified by the Company's accountants, and the interim
consolidated balance sheet of the Company and its Subsidiaries and the interim
consolidated statements of income, retained earnings, and cash flows of the
Company and its Subsidiaries for the 9-month period ended March 31, 1995,
copies of which have been furnished to the Banks, fairly present the
consolidated financial condition of the Company and its Subsidiaries as at the
date thereof, and the consolidated results of operations of the Company and
its Subsidiaries for the respective periods indicated, all in accordance with
generally accepted accounting principles consistently applied (subject in the
case of the interim statements to year-end audit adjustments). There has
been no material adverse change in the business, properties, operations, or
condition, financial or otherwise, of the Company and its Subsidiaries, on a
consolidated basis, since June 30, 1994. There are no liabilities of the
Company or any Subsidiary, fixed or contingent, which are material but are
not reflected in such financial statements or the notes thereto.
(d) No Event of Default has occurred and is continuing or will
exist under the Credit Agreement as of the effective date hereof.
4. Conditions to Effectiveness. This Amendment shall not become
effective until the Agent has received the following documents and the following
conditions have been satisfied, each in form and substance satisfactory to the
Agent:
(a) Copies, certified as of the effective date hereof, of such
corporate documents of the Company, including articles of incorporation, bylaws
(or certifying as to the copies of the articles of incorporation and by-laws
previously delivered to the Banks), and incumbency certificates, and such
documents evidencing necessary corporate action by the Company with respect to
this Amendment and all other agreements or documents delivered pursuant hereto;
(b) A Revolving Credit Note, duly executed by the Company in favor
of The First National Bank of Chicago; and
(c) Such additional agreements and documents, fully executed by
the Company, as may be reasonably requested by the Agent.
5. Miscellaneous. The terms used but not defined herein shall have the
respective meanings ascribed thereto in the Credit Agreement. Except as
expressly amended hereby, the Credit Agreement and all other documents issued
under or with respect thereto are hereby ratified and confirmed by the Banks,
the Agent, and the Company and shall remain in full force and effect, and the
Company hereby acknowledges that it has no defense, offset or counterclaim with
respect thereto.
6. Counterparts. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties may execute this Amendment by signing any
counterpart.
<PAGE> 4
7. Expenses. The Company agrees to pay and save the Agent and the
Banks harmless from liability for all costs and expenses of the Agent arising in
respect of this Amendment, including the reasonable fees and expenses of
Dickinson, Wright, Moon, Van Dusen & Freeman, counsel to the Agent, in
connection with preparing and reviewing this Amendment and any related
agreements and documents.
8. Governing Law. This Amendment is a contract made under, and shall
be governed by and construed in accordance with, the laws of the State of
Michigan applicable to contracts made and to be performed entirely within such
state and without giving effect to the choice law principles of such state.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the date first written above.
DONNELLY CORPORATION NBD BANK
By: /s/William R. Jellison By: /s/William C. Goodhue
----------------------- ---------------------
William R. Jellison William C. Goodhue
Its: Vice President Its: Vice President
SOCIETE GENERALE NBD BANK, as Agent
By: /s/Joseph A. Philbin By: /s/William C. Goodhue
---------------------- ----------------------
Joseph A. Philbin William C. Goodhue
Its: Vice President Its: Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/Patricia H. Besser
----------------------
Patricia H. Besser
Its: Vice President/Senior
Corporate Banker
<PAGE> 1
SCHEDULE OF AFFILIATES
PERCENTAGE OF
AFFILIATE INCORPORATION OWNERSHIP
DONNELLY MIRRORS LIMITED ORGANIZED UNDER THE 100%
LAWS OF THE REPUBLIC
OF IRELAND
DONNELLY VISION SYSTEMS ORGANIZED UNDER THE 100%
LAWS OF THE REPUBLIC
OF IRELAND
DONNELLY DE MEXICO, S.A. DE C.V. ORGANIZED UNDER THE 100%
LAWS OF MEXICO
DONNELLY EUROGLAS SYSTEMS, ORGANIZED UNDER THE 100%
E.U.R.L. LAWS OF FRANCE
DONNELLY HOLDING GmbH ORGANIZED UNDER THE 100%
LAWS OF GERMANY
DONNELLY INTERNATIONAL, INC. MICHIGAN 100%
DONNELLY INVESTMENTS, INC. MICHIGAN 100%
DONNELLY HOHE GmbH & CO. KG ORGANIZED UNDER THE 66 2/3%
LAWS OF GERMANY
DONNELLY HOHE VERWALTUUNGS ORGANIZED UNDER THE 48%
GmbH LAWS OF GERMANY
D&A TECHNOLOGY, INC. TENNESSEE 60%
DONNELLY HAPPICH MICHIGAN 60%
TECHNOLOGIES, INC.
APPLIED FILMS CORPORATION COLORADO 50%
VLSI VISION LTD. ORGANIZED UNDER THE 32%
LAWS OF SCOTLAND
<PAGE> 1
Consent of Independent Certified Public Accountants
We hereby consent to the incorporation by reference of our reports dated
August 2, 1995, relating to the consolidated financial statements and schedule
of Donnelly Corporation appearing in the corporation's annual report on Form
10-K for the year ended July 1, 1995, in that corporation's previously filed
Form S-8 Registration Statements for that corporation's 1987 Stock Option Plan
(Registration File No. 33-26555), 1987 Employee's Stock Purchase Plan
(Registration File No. 33-34746) and Non Employee Director's Stock Option Plan
(Registration File No. 33-55499).
/s/BDO SEIDMAN, LLP
- -------------------
BDO Seidman, LLP
Grand Rapids, Michigan
September 22, 1995
<TABLE> <S> <C>
<ARTICLE> 5
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<NAME> DONNELLY CORPORATION
<CURRENCY> DOLLARS
<S> <C>
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<FISCAL-YEAR-END> JUL-01-1995
<PERIOD-START> JUL-03-1995
<PERIOD-END> JUL-01-1995
<EXCHANGE-RATE> 1.000
<CASH> 5,224
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<RECEIVABLES> 50,866
<ALLOWANCES> 562
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<CURRENT-ASSETS> 99,806
<PP&E> 150,578
<DEPRECIATION> 56,642
<TOTAL-ASSETS> 223,788
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<BONDS> 56,802
<COMMON> 780
0
531
<OTHER-SE> 81,589
<TOTAL-LIABILITY-AND-EQUITY> 223,788
<SALES> 383,340
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<CGS> 300,772
<TOTAL-COSTS> 300,772
<OTHER-EXPENSES> (2,265)
<LOSS-PROVISION> 0
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<INCOME-TAX> 5,795
<INCOME-CONTINUING> 11,009
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<NET-INCOME> 11,009
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.42
</TABLE>
