<PAGE> 1
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 June 29, 1996.
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 $102,811,298 as of August 30, 1996.
Number of shares outstanding of each of the registrant's classes of
common stock, as of August 30, 1996.
4,261,178 shares of Class A Common Stock par value, $.10 per share
3,575,959 shares of Class B Common Stock par value, $.10 per share
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement for its annual
meeting of shareholders to be held October 18, 1996, 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).
The Company is committed to improving shareholder value through
focused development of core automotive businesses primarily by
increasing dollar content per vehicle through introduction of new
technologies, increasing volume through penetration into new and
emerging markets, improving the efficiency of current operations and
the effectiveness by which the Company launches new products.
In line with the strategy, the Company has continued in the last few
years to build volume growth in all existing businesses; introduced
products new to the Company including exterior and interior door
handles, modular window systems and encapsulated sunroofs,
electrochromic mirrors and interior trim and lighting; completed the
largest acquisition in the Company's history through the purchase of
an equity share of Hohe GmbH & Co. K.G.; expanded and built
production equipment and facilities; and undertaken a major
restructuring program.
During the fourth quarter of 1996, the Company reached a patent and
licensing settlement with Gentex Corporation that resolved patent
litigation between the two companies relating to automotive
electrochromic rearview mirrors. In the agreement, Gentex agreed to
pay the Company a settlement of $6 million, which the Company used
largely to offset patent litigation costs that had previously been
capitalized in 1996. In the settlement the two companies also
agreed to cross licensing of certain patents and agreed not to
pursue patent litigation against each other on certain other patents
for a period of four years. See Item 3.
During 1995, the Company implemented a strategic plan that
positioned the Company as one of the world's significant 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 ("Donnelly Hohe"), a German
limited partnership. Based in Collenberg, Germany, Donnelly 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 Donnelly 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 Modular Window business,
the Company dissolved the joint venture in the first quarter of 1996
and acquired Asahi's 40% interest in D&A. D&A represented 5% and 8%
of the Company's combined consolidated net sales and net income in
1995. Due to the major loss of business and the
<PAGE> 3
inability to attract significant new business for the plant, the
Company made a decision in 1996 to close the Tennessee facility.
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 an international supplier of high quality automotive
parts and component systems from manufacturing operations in North
America and Europe. The Company supplies automotive customers
around the world with interior and exterior mirror systems, window
systems and interior lighting and trim systems. The Company also
provides products to several non-automotive markets, none of which
are reportable segments.
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. The Company and
its European affiliate, Donnelly Hohe, together are the world's
largest producer of automotive mirror systems.
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 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 interior mirror product line ranges from the day/night flip
mirror to rear-vision systems that incorporate a variety of
sophisticated electronic features such as 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
The Company is developing and offering for sale, various
electrochromic technologies for use in day/night automotive mirror
systems that automatically dim when headlights approach from the
rear. Some of these electrochromic technologies had been the
subject of litigation. See Item 3. The Company is also developing
electronic vision systems for vehicles that 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 outside mirror systems. Complete
outside mirror systems are more complex than base interior rearview
mirror
<PAGE> 4
assemblies. The outside rearview mirrors are combined with
automatic or manual adjusting mechanisms, wiring harnesses and other
hardware into an injection-molded housing that is color painted to
match exactly the vehicles' paint color. These complete units are
then ready for easy assembly onto the vehicle. 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
primarily Honda of America, Ford and Mazda. Through Donnelly Hohe
and Donnelly Vision Systems Europe, the Company supplies complete
exterior rearview mirrors to all of the main European automotive
customers.
A new product area 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 Ford, Honda and Mazda.
The Company manufactures and supplies flat and convex chrome-coated
mirror glass to other manufacturers of exterior mirror assemblies
and to the Company's own internal complete mirror operation. This
is a small product line that was relocated to Monterrey, Mexico in
1995.
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 that 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. This
technology had been the subject of patent litigation; See Item 3.
In 1996, the Company introduced its Illuminator(TM) ground illumination
mirror, the world's first commercial automotive outside mirror that
includes remote-control security lighting, electrochromic dimming
and exterior turn indicators all integrated into a single unit.
INTERIOR LIGHTING AND TRIM. The Company manufactures various
interior trim products including dome lights, interior door lights,
map lights, courtesy lamps, lighted and non-lighted grab handles and
trim components such as overhead consoles. The Company' extensive
capabilities in optics, injection molding and electronics provide a
distinct competitive advantage for the Company' automotive interior
lighting and overhead trim products. The Company' lighting systems
have been well received by the marketplace largely because of the
Company's expertise in developing precision optical lenses. These
skills enable the Company to produce interior lighting that is
highly focused and directed within the vehicle, and which sharply
reduces unwanted spill-over glare. These lights are incorporated
into multi-purpose modulars that can include features such as grab
handles, coat hooks, sun visors and vents.
The Company believes automakers will increasingly seek the suppliers
who can provide complete interior lighting and trim systems. The
Company's goal is to be the leading supplier of interior overhead
trim that incorporates advanced electronic and lighting systems.
Our customers for those products will integrate them into larger,
complete interior systems that will then be assembled into the auto
manufacturers' final products. The Company currently supplies these
products to the Big Three automakers, Honda and Toyota and has
orders from Nummi (a joint venture between Toyota and General
Motors) and Mercedes Benz.
In the fourth quarter of 1996, the Company formed Donnelly Eurotrim,
a 100% owned affiliate organized under the laws of Ireland, to offer
our interior lighting and overhead trim products to the European
market.
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,
<PAGE> 5
aerodynamics and performance at a competitive price to
conventional window systems. 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, is 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. Recent additions include hinged
windows and "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.
The Company's windows are used for rear and liftgate windows,
quarter windows, aperture windows, fixed vent windows and
windshields on 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. Considering 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.
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 in 1995 on a
facility in Langres, France to produce new windows' systems for
Chrysler.
In the fourth quarter of 1996, the Company formed a 50-50 joint
venture with Shanghai Fu Hua Glass Company, Ltd. to produce framed
glass products for the Asian automotive industry. Shanghai Fu Hua
Glass Company is itself a joint venture between Ford Motor Company
and Shanghai Yao Hua Glass Works. The joint venture will begin
manufacturing encapsulated and framed glass products by the end of
1997.
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.
NON-AUTOMOTIVE BUSINESSES
The Company is heavily committed to its core automotive businesses
which 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 that 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. The Company believes this
new optics development significantly improves lighting and imaging
systems.
<PAGE> 6
NON-CONSOLIDATED JOINT VENTURES
HOHE GmbH & CO. KG ("Donnelly Hohe"). In April 1995, the Company
acquired an interest in Hohe GmbH & Co. KG, a German limited
partnership. Donnelly 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 % of the controlling general partnership interest and
66 % of the limited partnership interest.
SHANGHAI DONNELLY FU HUA WINDOW SYSTEMS LIMITED
("Shanghai Donnelly Fu Hua").
In the fourth quarter of 1996, the Company formed a 50-50 joint
venture with Shanghai Fu Hua Glass Company, Ltd. to produce framed
glass products for the Asian automotive industry. Shanghai Fu Hua
Glass Company is itself a joint venture between Ford Motor Company
and Shanghai Yao Hua Glass Works. The joint venture will begin
manufacturing encapsulated and framed glass products by the end of
1997.
VISION GROUP PLC ("VISION"). The Company is working with VISION to
produce electronic vision systems for the world automotive industry
using an innovative video microchip developed by VISION. The
Company and VISION have been collaborating to produce "smart" chips
that 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, VISION completed a
public offering of its stock, which is listed on the London Stock
Exchange. The Company owns 30.4% of VISION, 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 to 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.
APPLIED FILMS CORPORATION ("AFC"). AFC 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. AFC is located in Boulder,
Colorado. The Company is currently exploring opportunities to exit
this business. The Company is a 50% shareholder of AFC.
DONNELLY YANTAI ELECTRONICS CORPORATION, LTD. This 50 % owned
venture produces glass coatings similar to those of AFC for use in
the Chinese LCD market. This operation is located in the Yantai
Peninsula of the People's Republic of China. Ownership of the Joint
Venture is expected to eventually transfer to AFC.
MARKETING STAFF
In North America, the Company markets its automotive products
through a sales force of approximately 34 people who, with
approximately 146 members of the Company's engineering staff, work
with its customers' design teams early in the design process.
Nearly all sales are made directly to automakers with the exception
of some interior and exterior mirror glass components.
The Company's wholly owned European subsidiaries employ 9 sales
people, including 2 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 12 engineers. The Company works with
potential customers on the development of new applications for
electronic information display products.
<PAGE> 7
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 that will automatically dim when headlights approach
from the rear. This system had been the subject of litigation
between the Company and Gentex Corporation for over five years. 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. The technology has
been purchased by Ford, Jaguar, Range Rover, General Motors and
others. During 1996, the Company won a number of important new
business commitments for interior GLAREFREE(TM) electrochromic mirrors.
The commitments include orders in North America and Europe, and they
represent a major step forward in the Company's positioning as a
strong player in a global market for electrochromic mirrors that
industry sources expect to mature at approximately $500 million.
With strong technologies to offer and having favorably settled the
patent issues that have hampered its ability to compete in recent
years, the Company has set ambitious goals for increasing its
electrochromic mirror market share in the years ahead.
Another major breakthrough in electrochromics came in April 1996,
when the Company announced that it has successfully completed Phase
I of an electrochromic window development program supported by an
$800,000 grant from the United States Department of Energy (DOE).
Electrochromic windows can be electronically darkened to screen out
unwanted sunlight during the day and returned to a clear state at
night or on cloudy days. The Company believes this technology has
commercial potential in vehicles and buildings.
In fulfilling the terms of the grant, the Company delivered to the
DOE large area electrochromic windows that exceeded the agency's
specifications for performance, cost and reliability.
The completion of Phase I of this program was a major step in
establishing the market structure and proving the technology of
electrochromic windows. With that step accomplished, the Company
is looking forward to the start of Phase II, which the Company
anticipates will include a pilot production line and
commercialization of the Company's electrochromic window technology.
In 1996, the Company introduced its Illuminator(TM) ground illumination
mirror, the world's first commercial automotive outside mirror that
includes remote-control security lighting, electrochromic dimming
and exterior turn indicators all integrated into a single unit.
In the fourth quarter of 1996, the Company formed a 50-50 joint
venture with Shanghai Fu Hua Glass Company, Ltd. to produce framed
glass products for the Asian automotive industry. Shanghai Fu Hua
Glass Company is itself a joint venture between Ford Motor Company
and Shanghai Yao Hua Glass Works. The joint venture will begin
manufacturing encapsulated and framed glass products by the end of
1997.
<PAGE> 8
Also in the fourth quarter of 1996, the Company formed Donnelly
Eurotrim, a 100% owned affiliate organized under the laws of
Ireland, to offer our interior lighting and overhead trim systems
for the European market.
Other than the aforementioned items, 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.
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 approximately 175 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 had
been 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 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.
<PAGE> 9
IMPORTANCE OF LIMITED NUMBER OF CUSTOMERS
In 1996, approximately 81% of the Company's net sales were to the
following major automobile manufacturers:
Chrysler Corporation 33%
Ford Motor Company 22%
Honda of America Mfg., Inc. 16%
General Motors Corporation 10%
----
Total 81%
----
----
The loss of any one of these customers would have a material adverse
effect on the Company.
BACKLOG OF ORDERS
As of June 29, 1996, and July 1, 1995, the Company's backlog of
orders was approximately $93 million and $80 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 complete interior and exterior mirror
assemblies and mirror subsystems to the automotive OEM's. The
Company also manufactures and sells interior and exterior mirror
glass to other mirror manufacturers.
<PAGE> 10
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 principal 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
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
had 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. During the
fourth quarter of 1996, the Company reached a patent and licensing
settlement with the competitor. See Item 3.
EXTERIOR REARVIEW MIRRORS. Approximately 12 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 had 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. During the fourth quarter
of 1996, the Company reached a patent and licensing settlement with
the competitor. 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.
<PAGE> 11
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 1996, 1995, and 1994, research and development expenditures were
$27,728,000, $22,733,000 and $21,362,000, respectively, or 6.3%,
5.9% and 6.3% 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 are 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 3,100 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, organization changes during the past year have put a
strain on employee relations. Considerable work has been done to
make improvements following these changes and many areas of the
Company are improving steadily in the area of employee relations.
The Company's work forces in Ireland, Mexico and France are
unionized, as are the work forces of most companies in these
countries. 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's French
subsidiary is subject to the salary schedule and conditions
collectively agreed to on a national and regional basis between
employers and employees in the plastics industry.
The Company has operated for over 40 years under a team-based,
participative management system. The Company believes that this
approach has increased productivity by emphasizing employee
opportunity and participation aimed at continuous improvement. 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.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements which
involve risks and uncertainties. When used in this report, the
words "believe," "anticipate," "think," "intend," "goal" and similar
expressions identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause
actual results to differ materially from those anticipated. Readers
are cautioned not to place undue reliance on those forward-looking
statements which speak only as of the date of this report.
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
<PAGE> 12
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 three subsidiaries
in Ireland, Donnelly Mirrors Limited, Donnelly Vision Systems Europe
Limited and Donnelly Eurotrim; one in France, Donnelly EuroGlas
Systems; and one in Mexico, Donnelly de Mexico, S.A. de C.V. A
summary of the Company's operations by geographic area follows:
<TABLE>
<CAPTION>
June 29, July 1, July 2,
(in thousands) Year ended 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenue:
United States $331,469 $317,710 $296,226
Foreign 55,998 36,832 18,367
Export:
Americas 49,655 25,016 21,557
Asia 532 981 310
Europe 1,917 2,786 785
Other -- 15 17
-------- -------- --------
$439,571 $383,340 $337,262
-------- -------- --------
-------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
June 29, July 1, July 2,
(in thousands) Year ended 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Operating Income (Loss):
United States $ 15,641 $ 19,857 $ 16,397
Foreign (2,150) (2,824) (3,276)
-------- -------- --------
$ 13,491 $ 17,033 $ 13,121
-------- -------- --------
-------- -------- --------
Identifiable Assets:
United States $226,861 $186,743 $165,172
Foreign 44,631 37,045 18,629
-------- -------- --------
$271,492 $223,788 $183,801
-------- -------- --------
-------- -------- --------
</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.
<PAGE> 13
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 30, 1996, were as follows:
LOCATION
Square
Owned Locations Footage Use
- --------------- ------- ---
Holland, Michigan (8) 870,000 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 58,000 Manufacturing, Warehouse, and Office
Newaygo, Michigan 177,000 Manufacturing, Warehouse, and Office
Leased Office and Warehouses (6):
Holland and Detroit, Michigan;
Tucson, Arizona (2); Goteborg,
Sweden; and Tokyo, Japan
The Company believes its facilities are modern, well-maintained and
adequately insured and are primarily utilized. Because of its rapid
growth in sales the Company is continually evaluating the need for
additional office, manufacturing and warehouse space.
As of June 29, 1996, the Company had capital expenditures purchase
commitments outstanding of approximately $9 million.
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 a lawsuit against the Company on
June 7, 1993, alleging that the Company's solid polymer film
electrochromic mirror infringed a patent owned by Gentex. On March
21, 1994, the Company's motion for summary judgment of non-
infringement was granted and the lawsuit was dismissed. Gentex
filed an appeal of this ruling. On November 3, 1995, the Court of
Appeals for the Federal Circuit affirmed the summary judgment
decision and dismissed Gentex's appeal. On December 18, 1995, the
Court of Appeals for the Federal Circuit denied Gentex's request for
a rehearing.
The Company was also a party to three subsequent lawsuits involving
ten patents owned by the Company. In one of these suits, the Court
granted Gentex's motion for summary judgment that two of the
Company's patents relating to lighted mirrors are invalid. The
Company believes that its lighted mirror patents are not invalid and
has filed on appeal on this issue. The appeal is currently pending.
On April 1, 1996, the Company entered into a settlement agreement
with Gentex which resolved all aspects of
<PAGE> 14
these three lawsuits except for the pending appeal referred to
above. Under the agreement, Gentex paid the Company $6.0 million
in settlement fees and will pay an additional $200,000 if the
Company prevails in its appeal. In addition, the settlement
includes cross-licensing of certain patents which each party may
practice within its own core technology area, and an agreement
that the parties will not pursue litigation against each other
on certain other patents for a period of four years.
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.
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 June 29, 1996.
ADDITIONAL ITEM - EXECUTIVE OFFICERS OF THE REGISTRANT
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, PHD 55 Director,Chairman, 1978
CEO, President
Robert C. Hange 44 COO 1996
Donn J. Viola 51 COO 1996
John F. Donnelly, Jr. 43 Senior Vice President 1986
James A. Knister 57 Senior Vice President 1972
Maryam Komejan 45 Senior Vice President,
Corporate Secretary 1993
Niall R. Lynam 42 Senior Vice President 1992
William R. Jellison 38 Vice President, Corporate
Controller, Treasurer 1991
Russell B. Scaffede 47 Vice President 1995
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. Robert Hange joined the Company in April 1996 as Chief
Operating Officer for the Company's European operations. Prior to
joining the Company, Mr. Hange was President of the Plastics
Division of Freundenberg-NOK, a major international auto supplier,
from 1994 to 1996 and Senior Vice President and General Manager from
1992 to 1996. Donn Viola joined the Company as Chief Operating
Officer of the Company's North America operations in August 1996.
Prior to joining the Company, he was
<PAGE> 15
Senior Executive Vice President, Chief Operating Officer and member of
the Board of Directors for Mack Trucks Incorporated from 1994 to 1996
and was Executive Vice President of Manufacturing, Purchasing and Quality
from 1990 to 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. Knister has been a Senior Vice
President since 1988. Maryam Komejan has been Senior Vice President
since 1995, Vice President since 1993 and Corporate Secretary since
1989. Niall Lynam was elected Senior Vice President and Chief
Technical Officer in fiscal 1996. Prior to that time he was Vice
President from 1992 through 1996. William R. Jellison has been Vice
President since 1991, Corporate Controller since 1992 and Treasurer
since 1988. Russ Scaffede joined the Company in October 1995 as Vice
President of Manufacturing. Prior to joining the Company,
Mr. Scaffede worked with RWD Technologies, Inc. from 1993 to 1995 as
a consultant with several leading U.S. corporations to develop lean
manufacturing systems and was Vice President at Toyota Motor
Manufacturing U.S.A. Inc. (Powertrain) from 1988 to 1993.
All terms of office are on an annual basis which will expire on
October 18, 1996.
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 1996 Dividends
Quarter High Low Declared
----------------------------------------------------
<S> <C> <C> <C>
First $16 3/4 $14 1/2 $ .10
Second 15 5/8 13 3/4 .10
Third 14 7/8 13 .10
Fourth 16 1/8 13 3/4 .10
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------
Fiscal 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>
As of August 30, 1996, the Company had approximately 1,100 holders
of record.
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $439,571 $383,340 $337,262 $300,927 $271,399
Gross profit $ 81,741 $ 82,568 $ 73,632 $ 68,910 $ 60,752
Restructuring charges
(gain) $ 2,399 $ (2,265) $ 1,184 $ 910
Operating income $ 13,491 $ 17,033 $ 13,121 $ 12,458 $ 12,892
Income before taxes
on income $ 12,349 $ 16,823 $ 11,008 $ 10,936 $ 10,805
Income from
continuing operations $ 8,454 $ 11,009 $ 6,745 $ 7,257 $ 6,893
1996 1995 1994 1993 1992
----------------------------------------------------
Income from
continuing operations
per common share $ 1.08 $ 1.42 $ 0.87 $ 0.94 $ 0.98
Dividends declared per
common share $ 0.40 $ 0.32 $ 0.32 $ 0.28 $ 0.24
Total assets $271,492 $223,788 $183,801 $139,840 $131,229
Debt including current
maturities $101,916 $ 66,802 $ 53,485 $ 33,765 $ 24,882
Preferred stock $ 531 $ 531 $ 531 $ 531 $ 531
Shareholders' equity
(total) $ 88,852 $ 82,900 $ 70,826 $ 65,546 $ 61,158
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
GENERAL
Donnelly Corporation's (Company) 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. The comparability of the Company's results on a period to
period basis may also be affected by the Company's implementation of
new joint ventures, alliances and acquisitions.
COMPARISON OF 1996 TO 1995
The Company's net sales increased 14.7% to $439.6 million in 1996,
from $383.3 million in 1995. Net sales for the Company continued to
grow despite a 3% decrease in North American car and light truck
production, the loss of Saturn modular window business (which
represented approximately 5% of the Company's combined consolidated
net sales in 1995) and significant price pressures from the
Company's major automotive customers. Price reductions in the
automotive industry are expected to continue in the foreseeable
future. Sales remained relatively strong throughout the year, but
were exceptionally strong during the fourth quarter with an
<PAGE> 17
increase of 24% over the fourth quarter of 1995. The Company's
growth in net sales has remained strong due to higher sales of
modular window systems (particularly for the new Chrysler NS minivans),
lighting and trim products, complete exterior mirror products and door
handles.
Gross profit margin decreased to 18.6% of sales in 1996, from 21.5%
in 1995. The gross profit margin for the Company in the first half
of the year was adversely impacted by the start-up of various
modular window programs, particularly for the Chrysler NS minivan,
and the implementation of a new paint line in the Company's Newaygo
facility. Gross profit margin performance was also significantly
impacted by technical difficulties on a new business program that
resulted in significant additional engineering, production and other
costs that negatively impacted net earnings by $1.2 million, most of
which occurred in the third quarter. Although this problem was
largely due to factors not directly under the Company's control, the
issue has been resolved in a timely and cooperative way that ensures
an uninterrupted source of supply to the customer. Finally, the
Company's subsidiary in Naas, Ireland is experiencing lower gross
profit margins compared to last year due to pricing pressures from
competition in Eastern Europe and Asia. Gross profit margin for the
Company improved to 20.6% in the fourth quarter, compared to 19.0%
in the third quarter of 1996, primarily due to stronger sales,
significantly lower start-up costs and cost containment measures
taken on discretionary expenditures.
Selling, administrative and general expenses were $38.1 million, or
8.7% of sales in 1996, down from 11.8% in 1995. These expenses were
lower primarily due to patent settlement and license fees paid to
the Company in the beginning of the fourth quarter. The patent
settlement of $6 million was recognized net of legal costs
previously capitalized for a gain to the Company of $2.3 million.
In addition, these costs were significantly reduced as a result of
the restructuring plan implemented in 1995 and continued commitment
to leverage these costs through continuous improvement efforts.
On April 1, 1996, the Company and Gentex Corporation reached a
settlement agreement to resolve patent litigation between the two
companies relating to automotive electrochromic (automatic-dimming)
rearview mirrors. The parties have signed a definitive agreement,
the specific details of which will remain confidential. The
agreement does not include any licenses on either companies' current
core electrochromic technology, but does include the following
provisions:
- - Cross licensing of certain patents (for the life of the patents)
that each company may practice within its own core electrochromic
technology area.
- - Gentex is to pay Donnelly $6.2 million ($6.0 million in patent
settlement and license fees plus a $0.2 million contingent payment
if Donnelly prevails in its lighted mirror patent appeal) as full
and complete satisfaction of all Donnelly's patent infringement
claims. The $6.0 million in patent settlement and license fees
was paid in the beginning of the fourth quarter.
- - The two companies agreed not to pursue litigation against each
other on certain other patents for a period of four years.
Research and development expenses for 1996 were $27.7 million, or
6.3% of sales, compared to 5.9% of sales in the prior year. The
increase in research and development costs is due to the technical
difficulties on a new business program and costs for the design and
development of new window, mirror, door handle and interior trim
programs. The Company continues to be committed to developing new
and innovative technologies that improve the function, quality and
safety of automotive products and supporting new business for
complete interior and exterior mirrors, electrochromic mirror
systems, door handles, interior systems and modular window systems.
<PAGE> 18
Interest expense increased to $8.1 million in 1996, from $5.0
million in 1995. The increase over last year resulted from higher
borrowing levels to support the Company's investment in and advances
to Donnelly Hohe GmbH & Co. KG (Donnelly Hohe), the Company's equity
affiliate in Germany, capital expenditures and higher working
capital. The Company has advanced $28 million to Donnelly Hohe
under a subordinated loan agreement, $14.3 million in 1995 and $13.7
million in 1996. Amounts advanced to Donnelly Hohe under the
subordinated loan agreement provide for 10% interest per annum with
no principal payments due until its maturity on April 1, 1998. The
advances were financed through the Company's existing borrowing
agreements. The increase in interest income realized by the Company
is a result of the interest charged on the advances to Donnelly
Hohe, which is presented net of amounts eliminated from equity
earnings in accordance with generally accepted accounting
principles.
In the fourth quarter of 1996, the Company recorded a restructuring
charge of $2.4 million related to the write-down of certain assets
and the closure of the Company's manufacturing facility in Mt.
Pleasant, Tennessee. The decision to close the Tennessee facility
was based on a number of factors that included a major loss of
business one year ago and the inability to attract significant new
business for the plant. These costs include accruals for severance
and related employee support programs and write-down of certain
assets removed from service. The majority of these liabilities
should be paid or settled during the first six months of 1997.
Royalty income was $5.2 million in 1996 compared to $3.8 million in
1995. This increase resulted from royalty income associated with
the sale of the appliance business in 1995. The royalty obligations
under this agreement were satisfied during the fourth quarter of
1996. Royalty income in 1997 is expected to be significantly lower
due to the completion of this and certain other automotive royalty
agreements.
Equity in earnings of affiliated companies was $0.1 million in 1996
compared to $0.4 million in 1995. Equity earnings from Donnelly
Hohe, after the elimination of intercompany interest, were offset by
losses at Applied Films Corporation ("AFC"), the Company's joint
venture in Boulder Colorado, and Vision Group, PLC ("VISION"), the
Company's joint venture in Scotland. The combined impact on net
income for the Company's non-automotive joint ventures was a loss of
$1.5 million in 1996, compared to a gain of $0.1 million in 1995.
AFC suffered during 1996 from a severe downturn in the market for
coated glass used in the production of liquid crystal displays.
VISION, producer of video microchips, continued to experience start-
up losses during 1996 which the Company expects to continue in the
beginning of 1997. Despite the significant negative impact on
earnings from VISION, the market value of the Company's investment
in VISION increased from $17 million at July 1, 1995 to
approximately $44 million at June 29, 1996.
The Company reported net income of $8.5 million in 1996 compared to
$11.0 million for 1995. Net income in 1996 included $1.1 million of
net income associated with the patent and license settlement and a
$1.4 million net loss for restructuring costs, while 1995 included
$2.0 million of net income associated with the gain on the sale and
restructuring of certain non-automotive businesses. Higher sales
volumes, higher royalty income, lower selling and administrative
costs as a percentage of sales and the Gentex patent and license
settlement positively impacted earnings for the year. These
improvements were offset by higher than expected start-up costs
during the first half of the year, technical difficulties during the
third quarter on a new business program, lower profitability at the
Company's subsidiary in Naas, Ireland due to pricing pressures,
higher research and development costs as a percentage of sales,
equity in losses of non-automotive affiliated companies and
restructuring charges taken in the fourth quarter. Earnings
performance improved greatly in the fourth quarter in which net
income of $5.1 million was the highest-ever quarterly earnings for
the Company. Earnings in this period were stronger primarily due to
higher sales, significantly lower start-up costs and lower selling,
administrative and general expenses as a percent to sales.
<PAGE> 19
The Company is committed to improving shareholder value through
focused development of core automotive businesses primarily by
increasing the Company's dollar content per vehicle through
introduction of new technologies, increasing volume through
penetration into new and emerging markets and improving the
efficiency of current operations and the effectiveness of new
product launches. Net sales for the Company have increased at a
compounded rate of approximately 15% over a 10 year period. The
Company expects that 1997 net sales will increase below this level
due to lower volumes for domestic modular window business and
continued price pressures. Earnings growth from operations have
trailed the increase that the Company has experienced in sales
revenues. The Company believes that future results of operations
will continue to be influenced by the Company's introduction of
improved program management and lean manufacturing systems,
introduction of new technologies and programs to the Company,
significant global pricing pressures and general economic and
industry conditions.
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.
Gross profit margin was 21.5% in 1995 compared to 21.8% in 1994.
Continuous improvement programs being run throughout the Company,
along with higher sales volumes helped the Company offset price
pressures from customers and significant increases in raw material
costs.
Selling, administrative and general expenses were $45.1 million or
11.8% of sales in 1995, an increase from 11.3% in 1994. The
increase was primarily due to patent litigation costs that were
significantly higher in 1995 as the Company pursued actions to
protect its intellectual property.
Research and development expenses were $22.7 million or 5.9% of
sales in 1995 compared to 6.3% in 1994.
In the second quarter of 1995, the Company entered into a plan to
restructure and sell certain non-automotive businesses resulting in
a pretax gain of $4.7 million. The restructuring plan was
implemented in an effort to move the Company toward a closer focus
on its automotive business. The gain included the sale of the
appliance business, the liquidation of the Company's investment in
OSD Envision 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. (D&A), 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
dissolved the joint venture and acquired Asahi's 40% interest in D&A
for $2.1 million. 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, due to heavy capital spending and higher interest
rates.
<PAGE> 20
Royalty income was $3.8 million in 1995 compared to $1.4 million in
1994. The increase primarily resulted from royalty income
associated with the sale of the appliance business. Included in
other income was a $0.5 million gain on the sale of a warehouse
facility in the fourth quarter of 1995.
Equity in earnings of affiliated companies increased to $0.4 million
in 1995, from a loss of $0.1 million in 1994. Improved earnings at
Applied Films Corporation and a slight profit from Donnelly Hohe for
the two month period ending May 31, 1995, more than offset start-up
costs at VVL.
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
was the result of higher sales volumes, lower research and
development costs as a percentage of sales, higher royalty income
and improved equity earnings in affiliated companies. Results from
foreign operations improved slightly, as improvements in Ireland
exceeded start-up losses in Mexico and France.
The Company's financial performance in 1995 and 1994 was impacted
by unprecedented capital expenditures and expenses incurred in
anticipation of meeting existing new customer orders. These
projects included the construction and equipping of several new
facilities, equipping modular systems for the new Chrysler NS
minivan program and transition costs associated with consolidating
production equipment from older facilities into a new facility.
ACQUISITIONS AND INVESTMENT IN AFFILIATES
In the fourth quarter of 1996, the Company formed a 50-50 joint
venture with Shanghai Fu Hua Glass Company, Ltd. to produce framed
glass products for the Asian automotive industry. Shanghai Fu Hua
Glass Company is itself a joint venture between Ford Motor Company
and Shanghai Yao Hua Glass Works. The joint venture will have its
equipment and processes in place by September 1996 and will begin
manufacturing encapsulated and framed glass products by the end of
1997. Also in the fourth quarter, the Company formed Donnelly
Eurotrim Ltd., a 100% owned subsidiary organized under the laws of
Ireland, to offer our interior lighting and overhead trim products
for the European market.
During 1996 and 1995, VVL's parent, VISION Group, PLC (VISION), sold
common shares in a private placement and through public offerings
reducing the Company's ownership interest from 40% to 30.4%. The
Company's equity in the net proceeds of these sales 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 Exchange, was
approximately $44 million at June 29, 1996. The Company's
investment in the net assets of VISION was $4.0 million at June 29,
1996.
In April 1995, the Company acquired an interest in Hohe GmbH & Co.
KG, since renamed Donnelly Hohe GmbH & Co. KG (Donnelly Hohe), a
German limited partnership with operations in Germany and Spain.
Donnelly 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% of the controlling general partnership
interest and 66 2/3% of the limited partnership interest for $3.6
million. Additionally, the Company has advanced $28 million to
Donnelly Hohe under a subordinated loan agreement, $14.3 million in
1995 and $13.7 million in 1996. Amounts advanced to Donnelly Hohe
under the subordinated loan agreement provide for 10% interest per
annum with no principal payments due until its maturity on April 1,
1998. In connection with the Company's acquisition of the
<PAGE> 21
Donnelly Hohe interest, refinancing and additional loans of
approximately $70 million were provided to Donnelly Hohe by
several banks.
The terms of the transaction allow Donnelly to purchase the
remaining ownership interest in Donnelly 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 that results in a price of up to
$10 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio was 2.0 and 1.7 at June 29, 1996 and
July 1, 1995, respectively. Working capital was $63.5 million at
June 29, 1996, compared to $40.5 million at July 1, 1995. This
increase included an increase in accounts receivables to support
higher sales and higher customer tooling and increased inventories
to support new business programs reaching full production in the
first quarter of 1997. Accounts receivable were also higher due to
the year ending on June 29 and the timing of customer payments.
Capital expenditures for 1996 were $20.6 million compared to $29.2
million for 1995 and $35.3 million for 1994. Capital expenditures
were lower in 1996 due to the completion of the building additions
required the last two years in Langres, France and Newaygo, Michigan
to support new business programs, the transfer of the outside mirror
glass product line to Mexico and the consolidation of two older
interior mirror operations into a new facility in Holland, Michigan.
Capital expenditures in 1996 included costs for equipment to support
new business for complete exterior mirrors, door handles and modular
window encapsulation, bonding and hardware programs.
In the second quarter of 1996, the Company amended its revolving
credit loan agreement by increasing the amount to $80 million and
extending the maturity date to November 2002. The revolving credit
agreement had borrowings against it of $35.4 million at June 29,
1996. In November 1995, the Company issued a senior note of $20.0
million with an insurance company. Principal payments commence in
2001 until maturity in 2006. The Company anticipates completing a
$50 million asset securitization transaction by the end of the first
quarter of 1997. This will be utilized by the Company and Donnelly
Hohe to provide additional financing availability and reduce
interest and other costs.
The Company utilizes 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
material.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of." 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 through future
net cash flows generated by the assets. The Company does not expect
the adoption of this statement to have a material impact on its
financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 allows companies to
continue to account for their stock-based compensation plans in
accordance with APB Opinion No. 25, but encourages the adoption of
a new accounting method to record compensation expense
<PAGE> 22
based on the estimated fair value of employee stock-based
compensation. Companies electing not to follow the new fair value
based method are required to provide expanded footnote disclosures,
including pro forma net income and earnings per share, determined as
if the company had adopted the new method. The Statement is required
to be adopted by the Company's fiscal year ending in 1997. Management
intends to continue to account for its stock-based compensation
plans in accordance with APB Opinion No. 25 and provide the
supplemental disclosures as required by SFAS No. 123, beginning in
1997.
No other recently issued accounting standards are expected to have
a material impact on the Company.
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
COMBINED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
In thousands, except share data June 29, July 1, July 2,
Year ended 1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $439,571 $383,340 $337,262
Cost of sales 357,830 300,772 263,630
-------- -------- --------
Gross profit 81,741 82,568 73,632
Operating expenses:
Selling 8,239 6,538 6,194
Administrative and general 29,884 38,529 31,771
Research and development 27,728 22,733 21,362
Restructuring charges (gain) 2,399 (2,265) 1,184
-------- -------- --------
Total operating expenses 68,250 65,535 60,511
-------- -------- --------
Operating income 13,491 17,033 13,121
-------- -------- --------
Non-operating (income) expenses:
Interest expense 8,102 5,010 3,528
Royalty income (5,239) (3,774) (1,370)
Interest income (1,017) (514) (153)
Other (income) expenses, net (704) (512) 108
-------- -------- --------
Non-operating expenses 1,142 210 2,113
-------- -------- --------
Income before taxes on income 12,349 16,823 11,008
Taxes on income 4,191 5,795 3,334
-------- -------- --------
Income before minority interest
and equity earnings 8,158 11,028 7,674
Minority interest in net (income)
loss of subsidiaries 186 (371) (825)
Equity in earnings (losses) of
affiliated companies 110 352 (104)
-------- -------- --------
Income before cumulative effect of
change in accounting principle 8,454 11,009 6,745
Cumulative effect of adopting
SFAS No. 109 -- -- 513
-------- -------- --------
Net income $ 8,454 $ 11,009 $ 7,258
-------- -------- --------
-------- -------- --------
Per share of common stock:
Income before cumulative effect of
change in accounting principle $ 1.08 $ 1.42 $ 0.87
Cumulative effect of adopting
SFAS No. 109 -- -- 0.07
-------- -------- --------
Income per share of common stock $ 1.08 $ 1.42 $ 0.94
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 24
COMBINED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
In thousands, except share data June 29, July 1,
Year ended 1996 1995
- ---------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,303 $ 5,224
Accounts receivable, less allowance of
$571 and $575 73,658 50,866
Inventories 24,228 22,042
Customer tooling to be billed 19,955 17,357
Prepaid expenses 5,639 2,120
Deferred income taxes 1,912 2,197
-------- --------
Total current assets 126,695 99,806
-------- --------
Property, plant and equipment:
Land 3,327 3,329
Buildings 33,000 32,556
Machinery and equipment 112,761 98,149
Construction in progress 8,073 16,544
-------- --------
157,161 150,578
Less accumulated depreciation 57,397 56,642
-------- --------
Net property, plant and equipment 99,764 93,936
Investments in and advances to affiliates 37,932 25,246
Other assets 7,101 4,800
-------- --------
Total assets $271,492 $223,788
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 44,349 $ 42,248
Current maturities of long-term debt 159 428
Accruals:
Compensation 7,264 6,671
Taxes 4,705 1,974
Other 6,736 7,983
-------- --------
Total current liabilities 63,213 59,304
-------- --------
Long-term debt, less current maturities 101,757 66,374
Postretirement plans 12,026 7,645
Deferred income taxes and other 5,644 5,281
-------- --------
Total liabilities 182,640 138,604
-------- --------
Minority interest -- 2,284
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 4,248,814 and 4,183,287 425 418
Class B, $.10 par; shares authorized
15,000,000, issued 3,582,198 and 3,582,915 358 358
Donnelly Export Corporation, $.01 par; shares
authorized 600,000, issued 409,397 and 409,561 4 4
Additional paid-in capital 25,158 23,522
Cumulative foreign currency translation
adjustment (771) 154
Retained earnings 63,147 57,913
-------- --------
Total shareholders' equity 88,852 82,900
-------- --------
Total liabilities and shareholders'equity $271,492 $223,788
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 25
COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
In thousands June 29, July 1, July 2,
Year ended 1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 8,454 $ 11,009 $ 7,258
Adjustments to reconcile net
income to net cash from (for)
operating activities:
Depreciation and amortization 12,984 11,184 9,771
Deferred pension cost and
postretirement benefits 4,934 2,742 3,941
Deferred income taxes (2,386) (2,108) (1,432)
Minority interest income (loss) (186) 371 825
Equity in (earnings) losses of
affiliated companies 1,160 (453) 28
Cumulative effect of change in
accounting principle -- -- (513)
Restructuring charges (gain) 2,399 (2,265) 1,184
Changes in operating assets and
liabilities, net of effects of
sale of businesses:
Accounts receivable (22,792) (3,736) (9,228)
Inventories (2,186) (2,841) (6,074)
Prepaid expenses and other
current assets (6,117) (3,304) (3,352)
Accounts payable and other
current liabilities 3,134 6,320 13,629
Other 189 131 375
-------- -------- --------
Net cash from (for) operating
activities (413) 17,050 16,412
-------- -------- --------
-------- -------- --------
INVESTING ACTIVITIES
Capital expenditures (20,585) (29,154) (35,329)
Investments in and advances to
equity affiliates (13,966) (18,824) --
Purchase of minority interest (2,100) -- --
Proceeds from sale of businesses -- 14,200 --
Proceeds from sale-lease back -- 10,513 --
Change in unexpended bond proceeds 316 (1,015) 1,093
Other (854) (601) 847
-------- -------- --------
Net cash for investing
activities (37,189) (24,881) (33,389)
-------- -------- --------
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from long-term debt 36,195 15,000 21,362
Repayments on long-term debt -- (1,764) (2,018)
Resources provided by minority
interest -- 491 --
Common stock issuance 706 478 304
Dividends paid (3,220) (2,524) (2,511)
-------- -------- --------
Net cash from financing
activities 33,681 11,681 17,137
-------- -------- --------
-------- -------- --------
Increase (decrease) in cash and
cash equivalents (3,921) 3,850 160
Cash and cash equivalents,
beginning of year 5,224 1,374 1,214
-------- -------- --------
Cash and cash equivalents,
end of year $ 1,303 $ 5,224 $ 1,374
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 26
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
share
data
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
July 4,
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-
$.32
per share (1,147)
Common stock
issued under
employee
benefit
plans 3 475
Change in
investment
in Vision
Group, PLC 2,317
---- ---- ---- ---- ------- ---- -------
Balance,
July 1,
1995 531 418 358 4 23,522 154 57,913
Net Income 8,454
Foreign
currency
translation
adjustment (925)
Cash
dividends
declared:
Preferred
stock-$.75
per share (40)
Common
stock:
Class A-
$.40
per share (1,690)
Class B-
$.40
per share (1,490)
Common stock
issued under
employee
benefit
plans 7 699
Change in
investment
in Vision
Group, PLC 937
---- ---- ---- ---- ------- ---- -------
Balance,
June 29,
1996 $531 $425 $358 $4 $25,158 $(771) $63,147
---- ---- ---- ---- ------- ----- -------
---- ---- ---- ---- ------- ----- -------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 27
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, controlled 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. Investments in
affiliates representing less than 20% ownership are accounted for
under the cost method. 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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
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; and (2) income statement accounts at weighted
average monthly exchange rates prevailing during the year.
Translation gains and losses are reported as a separate component of
shareholders' equity. For the Company's subsidiary in Mexico,
translation gains or losses are reflected in net income for all
accounts other than intercompany balances of a long-term investment
nature for which the translation gains or losses are reported as a
separate component of shareholders' equity. 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 consolidated subsidiaries which are valued using
the first-in, first-out (FIFO) method.
<PAGE> 28
CUSTOMER TOOLING TO BE BILLED
Customer tooling to be billed consists of program tooling costs
relating to agreements with customers for reimbursement. Customer
tooling is billed at the time of tool completion and approval, or
reimbursed in the program's piece price over the program's life not
to exceed a period of three years.
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.
INCOME TAXES
Deferred taxes reflect the tax effects of temporary differences
between the financial statement and tax basis of assets and
liabilities, and operating loss carryforwards. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred income taxes
are not provided on cumulative undistributed earnings of the foreign
subsidiaries and affiliates because they are intended to be
permanently reinvested.
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 (7,802,846 in 1996, 7,744,042 in 1995 and 7,716,923 in
1994). The potential dilutive effect from the exercise of stock
options is not material.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates the fair value of all financial instruments
where the carrying value differs from the fair value, primary long-
term fixed rate debt, interest rate swaps and foreign exchange
currency contracts, based upon quoted amounts or the current rates
available for similar financial instruments.
FISCAL YEAR
The Company's fiscal year is the 52 or 53 week period ending the
Saturday nearest June 30. Fiscal years 1996, 1995 and 1994 ended
on June 29, July 1 and July 2, respectively, each included 52 weeks.
IMPAIRMENT OF ASSETS
In March 1995, Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," was issued. SFAS No. 121
requires long-lived assets, including the excess of cost over the
fair value of assets of businesses acquired, to be reviewed for
impairment losses whenever events or changes in circumstances
indicate the carrying amount may not be
<PAGE> 29
recoverable through future net cash flows generated by the assets.
The Company, consistent with existing generally accepted accounting
principles, currently states the majority of its fixed assets at
the lower of cost or net realizable value. The Company will adopt
SFAS No. 121 in 1997 and believes the effect of adoption will not
be material.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year data to
conform to the current year presentation and had no effect on net
income reported for any period.
2. NATURE OF OPERATIONS
The Company is an international supplier of high quality automotive
parts and component systems from manufacturing operations in North
America and Europe. The Company supplies automotive customers
around the world with interior and exterior mirror systems, window
systems and interior lighting and trim systems. The Company also
provides products to several non-automotive markets.
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 1996 1995 1994
- -------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
United States.................... $331,469 $317,710 $296,226
Foreign.......................... 55,998 36,832 18,367
EXPORT:
Americas......................... 49,655 25,016 21,557
Asia............................. 532 981 310
Europe........................... 1,917 2,786 785
Other............................ -- 15 17
-------- -------- --------
$439,571 $383,340 $337,262
-------- -------- --------
-------- -------- --------
OPERATING INCOME (LOSS):
United States.................... $ 15,641 $ 19,857 $ 16,397
Foreign.......................... (2,150) (2,824) (3,276)
-------- -------- --------
$ 13,491 $ 17,033 $ 13,121
-------- -------- --------
-------- -------- --------
IDENTIFIABLE ASSETS:
United States.................... $226,861 $186,743 $165,172
Foreign.......................... 44,631 37,045 18,629
-------- -------- --------
$271,492 $223,788 $183,801
-------- -------- --------
-------- -------- --------
</TABLE>
<PAGE> 30
Sales to major automobile manufacturers as a percent of the
Company's net sales follows:
<TABLE>
<CAPTION>
Year ended 1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C>
Chrysler Corporation.............. 33% 18% 18%
Ford Motor Company................ 22 22 24
Honda............................. 16 14 12
General Motors Corporation........ 10 17 21
---- ---- ----
81% 71% 75%
</TABLE>
3. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
In thousands 1996 1995
----------------------------------------------
<S> <C> <C>
LIFO cost:
Finished products and
work in process......... $ 6,998 $ 6,743
Raw materials........... 6,981 6,622
------- -------
13,979 13,365
FIFO cost:
Finished products and
work in process......... 3,202 3,397
Raw materials........... 7,047 5,280
------- -------
10,249 8,677
------- -------
$24,228 $22,042
------- -------
------- -------
</TABLE>
If only the first-in, first-out method of inventory valuation had
been used, inventories would have been $0.4 million and $0.5 million
higher than reported at June 29, 1996 and July 1, 1995,
respectively, and would have approximated replacement cost.
4. INVESTMENTS IN AND ADVANCES TO EQUITY AFFILIATES
The Company's equity affiliates include the following: Donnelly
Hohe, a German limited partnership that produces exterior mirrors,
interior mirrors, door handles, automotive tooling and electronic
components related to mirror systems; Vision Group PLC (VISION), the
sole shareholder of VLSI Vision Limited that produces an advanced
video microchip; newly formed Shanghai Donnelly Fu Hua Window
Systems Company Ltd. (Shanghai Donnelly Fu Hua) that will
manufacture encapsulated and framed glass products for the Asian
automotive industry; and Applied Films Corporation, a 50% owned
joint venture that manufactures thin-film glass coatings used in the
production of liquid crystal displays.
In the fourth quarter of 1996, the Company formed Shanghai Donnelly
Fu Hua, a 50-50 joint venture with Shanghai Fu Hua Glass Company,
Ltd. Shanghai Fu Hua Glass Company is itself a joint venture
between Ford Motor Company and Shanghai Yao Hua Glass Works. The
joint venture will have its equipment and processes in place by
September 1996, and the venture will begin manufacturing
encapsulated and framed glass products by the end of the year.
During 1996 and 1995, VISION sold common shares in a private
placement and through public offerings reducing the Company's
ownership interest from 40% to 30.4%. The Company's equity in the
net proceeds of
<PAGE> 31
these sales 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 Exchange, was approximately $44 million at
June 29, 1996. The Company's investment in the net assets of
VISION was approximately $4 million at June 29, 1996.
Effective April 1, 1995, the Company acquired an interest in Hohe
GmbH & Co. KG, since renamed Donnelly Hohe GmbH & Co. KG (Donnelly
Hohe), a German limited partnership with operations in Germany and
Spain. Donnelly Hohe, based in Collenberg, Germany, serves many of
the main auto producers in Europe.
The Company acquired 48% of the general partnership interest and 66
2/3% of the limited partnership interest for $3.6 million.
Additionally, the Company has advanced $28 million to Donnelly Hohe
under a subordinated loan agreement, $14.3 million in 1995 and $13.7
million in 1996. Amounts advanced to Donnelly Hohe under the
subordinated loan agreement provide for 10% interest per annum with
no principal payments due until its maturity on April 1, 1998. In
connection with the Company's acquisition of the Donnelly Hohe
interest, refinancing and additional loans of approximately $70
million were provided to Donnelly Hohe by several banks. The terms
of the transaction allow Donnelly to purchase the remaining
ownership interest in Donnelly 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.
Summarized balance sheet and income statement information for the
Company's non-consolidated affiliates accounted for using the equity
method are as follows. Income statement information includes
Donnelly Hohe twelve months ended May 31, 1996, and two months ended
May 31, 1995. All significant others presented include twelve
months ending in the month of June for each year presented.
<TABLE>
<CAPTION>
In thousands 1996 1995
- -----------------------------------------------------------
<S> <C> <C>
Summarized Balance Sheet Information
Current assets.................... $ 90,927 $ 80,443
Non-curent assets................. 82,052 80,986
Current liabilities............... 69,931 57,857
Non-current liabilities........... 87,905 89,860
-------- --------
Net equity........................ $ 15,143 $ 13,712
-------- --------
-------- --------
Summarized Income Statement Information
Net sales......................... $250,904 $ 77,756
Costs and expenses................ 254,403 77,547
-------- --------
Net income (loss)................. $ (3,500) $ 209
-------- --------
-------- --------
</TABLE>
<PAGE> 32
5. DEBT AND OTHER FINANCING ARRANGEMENTS
Debt consists of:
<TABLE>
<CAPTION>
In thousands 1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
Borrowings under revolving credit
agreements at 4.15% and 7.50%............. $ 35,418 $ 15,700
Senior Notes, due 2004, principal
payable in installments beginning
in 1999, interest at 6.67%................ 15,000 15,000
Senior Notes, due 2005, principal
payable in installments beginning in
2000, interest at 7.22%................... 15,000 15,000
Senior Notes, due 2006,principal
payable in installments beginning
in 2001, interest at 6.70%................ 20,000 --
Industrial revenue bonds:
$9,500 at adjustable rates (3.80%
at June 29, 1996), due in 2008-
2010; $5,000 at a fixed rate of
8.13%, due in 2012........................ 14,500 14,500
Other..................................... 1,998 6,602
-------- --------
Total..................................... 101,916 66,802
Less current maturities................... 159 428
-------- --------
$101,757 $ 66,374
-------- --------
-------- --------
</TABLE>
The Company has an unsecured $80 million Revolving Credit Loan
Agreement which expires November 20, 2002. Interest is at prime
unless one of three alternative elections are made by the Company.
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 senior notes are unsecured.
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. At June 29,
1996, the Company was in compliance with all related convenants.
Retained earnings available for dividends at June 29, 1996, are
$19.6 million.
Annual principal maturities consist of:
<TABLE>
<CAPTION>
In thousands Year ending Amount
- ------------------------------------------
<S> <C>
1997............................. $ 159
1998............................. 117
1999............................. 3,525
2000............................. 7,000
2001............................. 20,357
2002 and thereafter.............. 70,758
--------
$101,916
--------
--------
</TABLE>
<PAGE> 33
The Company provides guarantees for $7.3 million in municipal
funding for the construction of a manufacturing facility and up to
$5.0 million of Applied Films Corporation borrowings.
Interest payments of $7.8 million, $5.0 million and $3.7 million
were made in 1996, 1995 and 1994, respectively.
6. FINANCIAL INSTRUMENTS
The Company utilizies 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
material. At June 29, 1996 and July 1, 1995, the Company had
interest rate swaps with an aggregate notional amount of $60
million, $30 million and $40 million of which were offsetting at
June 29, 1996 and July 1, 1995, respectively. These effectively
converted $30 million and $20 million of the Company's variable
interest rate debt to fixed rates at June 29, 1996 and July 1, 1995,
respectively. The Company is currently paying a weighted average
fixed rate of 7.17%, 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 Company's Irish subsidiaries enter into foreign exchange
contracts to hedge against changes in foreign currency exchange
rates. The Company had foreign exchange contracts outstanding of
$7.8 million and $13.3 million at June 29, 1996 and July 1, 1995,
respectively. The foreign exchange contracts require the Company
to exchange foreign currencies for Irish pounds and generally mature
within 12 months.
In accordance with the requirements of SFAS No. 107, "Disclosures
About Fair Value of Financial Instruments," the Company has provided
the following fair value estimates at June 29, 1996:
<TABLE>
<CAPTION>
In thousands Carrying Value Fair Value
- ----------------------------------------------------------
<S> <C> <C>
Liabilities
Long-term fixed rate debt $55,000 $53,630
Derivatives
Interest rate swaps -- (423)
Foreign exchange contracts -- 274
</TABLE>
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.
<PAGE> 34
Assumptions and net periodic pension cost are as follows:
<TABLE>
<CAPTION>
In thousands Year ended 1996 1995 1994
- -------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate....................... 8.00% 8.25% 8.25%
Compensation increase............... 5.00% 5.00% 5.00%
Expected return on plan assets...... 9.50% 9.50% 9.50%
Service cost........................ $ 3,545 $ 3,544 $ 3,178
Interest cost....................... 5,060 4,560 3,912
Actual gain on plan assets.......... (8,528) (6,389) (854)
Net amortization and deferral....... 4,550 2,563 (2,292)
------- ------- -------
Net periodic pension cost........... $ 4,627 $ 4,278 $ 3,944
------- ------- -------
------- ------- -------
</TABLE>
The funded status of the defined benefit pension plans is summarized
below
<TABLE>
<CAPTION>
In thousands 1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
Accumulated benefit
obligation, including vested
benefits of $43,101 and $38,997.......... $(43,945) $(40,328)
Effect of projected compensation
increases................................ (23,826) (23,462)
-------- --------
Projected benefit obligation for
service rendered to date................. (67,771) (63,790)
Plan assets at fair value, primarily
corporate equity and debt
securities............................... 55,784 47,180
-------- --------
Projected benefit obligation in
excess of plan assets.................... (11,987) (16,610)
Unrecognized net transition
obligation............................... 408 492
Unrecognized prior service cost.......... 530 120
Unrecognized net loss.................... 1,926 10,165
-------- --------
Net pension liability.................... $ (9,123) $ (5,833)
-------- --------
-------- --------
</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.
Effective July 4, 1993, the Company adopted 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> 35
The components of the net periodic postretirement benefit cost are
as follows:
<TABLE>
<CAPTION>
In thousands Year ended 1996 1995 1994
- ----------------------------------------------------------------
<S> <C> <C> <C>
Service cost..................... $ 450 $ 402 $ 388
Interest cost.................... 830 779 661
Amortization of net transition
obligation over 22 years......... 360 360 360
Unrecognized net loss............ 20 13 --
------ ------ ------
Net periodic postretirement
benefit cost..................... $1,660 $1,554 $1,409
------ ------ ------
------ ------ ------
</TABLE>
The postretirement health care liability recognized in the balance
sheet is as follows:
<TABLE>
<CAPTION>
In thousands 1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Retirees................................. $(5,946) $(5,973)
Fully eligible active participants....... (66) (14)
Other active participants................ (5,467) (4,961)
------- -------
Accumulated postretirement benefit
obligation............................... (11,479) (10,948)
Unrecognized transition obligation....... 6,841 7,201
Unrecognized net loss.................... 1,486 1,519
------- -------
Postretirement health care liability..... $(3,152) $(2,228)
------- -------
------- -------
</TABLE>
The assumed health care inflation rate used in measuring the
postretirement health care liability is 9.0% for 1997, 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 postretirement health care liability 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 8.0% and 7.75% in
1996 and 1995, respectively.
8. TAXES ON INCOME
Effective July 4, 1993, the Company adopted 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 tax effects 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 1996 1995
- -------------------------------------------------------------
<S> <C> <C>
Fixed assets............................. $(5,581) $(4,237)
Retirement plans......................... 3,106 1,641
Postretirement benefits.................. 1,103 780
Loss carryforwards....................... 2,095 636
Accrued expenses and other............... (280) (271)
------- -------
Net deferred tax asset (liability)....... $ 443 $(1,451)
------- -------
------- -------
</TABLE>
<PAGE> 36
At June 29, 1996, the Company has $2.1 million of net operating loss
carryforwards, the majority of which expire in 2010 or are
indefinite.
<TABLE>
<CAPTION>
In thousands Year ended 1996 1995 1994
- ----------------------------------------------------------------
<S> <C> <C> <C>
Income before taxes on income
consists of:
Domestic......................... $15,647 $18,692 $14,453
Foreign.......................... (3,298) (1,869) (3,445)
------- ------- -------
$12,349 $16,823 $11,008
------- ------- -------
------- ------- -------
Tax expense (benefit) consists of:
Current:
Domestic......................... $ 6,909 $ 7,920 $ 4,782
Foreign.......................... 8 (17) (16)
------- ------- -------
6,917 7,903 4,766
------- ------- -------
Deferred:
Domestic......................... (2,156) (1,761) (1,101)
Foreign.......................... (570) (347) (331)
------- ------- -------
(2,726) (2,108) (1,432)
------- ------- -------
$ 4,191 $ 5,795 $ 3,334
------- ------- -------
------- ------- -------
</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 1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C>
Income taxes at federal
statutory rate................... 35% 35% 34%
Impact of:
Available tax credits............ -- (2) (11)
Foreign subsidiary earnings...... 5 2 7
DISC earnings.................... (6) (2) (3)
Other............................ -- 1 3
------- ------- -------
Effective tax rate............... 34% 34% 30%
------- ------- -------
Income taxes paid................ $ 3,731 $10,332 $ 3,149
------- ------- -------
------- ------- -------
</TABLE>
9. 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
June 29, 1996. 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 June 29, 1996 and July 1, 1995, 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-
<PAGE> 37
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.
10. 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 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 17,460 shares in 1996 and 22,771 shares in 1995 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 1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding,
beginning of year................ 412 361 283
Options granted.................. 80 76 79
Options exercised................ (47) (13) (1)
Options expired.................. (36) (12) --
---- ---- ----
Options outstanding, end of
year............................. 409 412 361
---- ---- ----
---- ---- ----
Exercisable, end of year......... 337 343 282
---- ---- ----
---- ---- ----
</TABLE>
The Company has reserved 364,975 shares for future grants at June
29, 1996.
In 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 allows companies to continue to account
for their stock-based compensation plans in accordance with APB
Opinion No. 25, but encourages the adoption of a new accounting
method to record compensation expense based on the estimated fair
value of employee stock-based compensation. Companies electing not
to follow the new fair value based method are required to provide
expanded footnote disclosures, including pro forma net income and
earnings per share, determined as if the company had adopted the new
method. The Statement is required to be adopted by the Company's
fiscal year ending in 1997. Management intends to continue to
account for its stock-based compensation plans in accordance with
APB Opinion No. 25 and provide the supplemental disclosures as
required by SFAS No. 123, beginning in 1997.
<PAGE> 38
11. 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 a lawsuit against the Company on June 7,
1993, alleging that the Company's solid polymer film electrochromic
mirror infringed a patent owned by Gentex. On March 21, 1994, the
Company's motion for summary judgment of non-infringement was
granted and the lawsuit was dismissed. Gentex filed an appeal of
this ruling. On November 3, 1995, the Court of Appeals for the
Federal Circuit affirmed the summary judgment decision and dismissed
Gentex's appeal. On December 18, 1995, the Court of Appeals for the
Federal Circuit denied Gentex's request for a rehearing.
The Company was also a party to three subsequent lawsuits involving
10 patents owned by the Company. In one of these suits, the Court
granted Gentex's motion for summary judgment that two of the
Company's patents relating to lighted mirrors are invalid. The
Company believes that its lighted mirror patents are not invalid and
has filed on appeal on this issue. The appeal is currently pending.
On April 1, 1996, the Company entered into a settlement agreement
with Gentex which resolved all aspects of these three lawsuits
except for the pending appeal referred to above. Under the
agreement, Gentex paid the Company $6.0 million in settlement fees
and will pay an additional $0.2 million if the Company prevails in
its appeal. In addition, the settlement includes cross-licensing of
certain patents which each party may practice within its own core
technology area, and an agreement that the parties will not pursue
litigation against each other on certain other patents for a period
of four years. This settlement was recognized net of related patent
litigation costs previously capitalized.
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 June 29, 1996, the Company had capital expenditure purchase
commitments outstanding of approximately $9 million.
12. LEASES
The Company leases various facilities and equipment. Rental expense
charged to operations amounted to approximately $3.8 million for
1996, $2.5 million for 1995 and $2.5 million for 1994.
<PAGE> 39
Future minimum lease payments, excluding renewal options, consist
of:
<TABLE>
<CAPTION>
Year ending in thousands Amount
- ----------------------------------------
<S> <C>
1997............................. $3,688
1998............................. 1,196
1999............................. 514
2000............................. 578
2001............................. 221
2002 and thereafter.............. 485
------
$6,682
------
------
</TABLE>
13. RESTRUCTURING OF OPERATIONS
In the fourth quarter of 1996, the Company recorded a restructuring
charge of $2.4 million related to the write-down of certain assets
and the closure of the Company's manufacturing facility in Mt.
Pleasant, Tennessee. The decision to close the Tennessee facility
was based on a number of factors that included a major loss of
business one year ago and the inability to attract significant new
business for the plant. These costs include accruals for severence
and related employee support programs and write-off of certain
assets removed from service. The majority of these liabilities will
be paid or settled during the first six months of 1997.
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 toward a 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 included
a royalty agreement which continued through May, 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 spending for these costs was essentially
completed by the end of 1995.
The Company also restructured certain automotive operations in the
second quarter of 1995, resulting in a charge of $2.4 million
primarily for the write-down of operating assets due to the loss of
Saturn's business at D&A Technology, Inc. (D&A), the Company's
former joint venture with Asahi Glass Company. In the first quarter
of 1996, the Company dissolved the joint venture and acquired
Asahi's 40% interest in D&A for approximately $2.1 million. 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.
<PAGE> 40
14. COMMON STOCK PRICE PER SHARE - UNAUDITED
The Company's common stock is traded on the American Stock Exchange
under the Symbol "DON." Market quotations regarding the range of
high and low sales prices of the Company's common stock were as
follows:
<TABLE>
<CAPTION>
Fiscal 1996 1995
- -----------------------------------------------------------
Quarter High Low High Low
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
First $16 3/4 $14 1/2 $17 1/2 $15 1/8
Second 15 5/8 13 3/4 17 5/8 13 1/4
Third 14 7/8 13 18 15 1/8
Fourth 16 1/8 13 3/4 17 5/8 14 7/8
</TABLE>
15. QUARTERLY FINANCIAL DATA - UNAUDITED
<TABLE>
<CAPTION>
In thousands, First Second Third Fourth Total
except per share data Quarter Quarter Quarter Quarter Year
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Net sales..................... $ 90,523 $106,823 $116,445 $125,780 $439,571
Gross profit.................. 13,685 20,030 22,153 25,873 81,741
Operating income (loss)....... (2,087) 3,899 3,920 7,759 13,491
Net Income (loss):
Income (loss).............. (1,789) 2,629 2,503 5,111 8,454
Per common share........... (.23) .34 .32 .65 1.08
Dividends declared per share
of common stock.............. .10 .10 .10 .10 .40
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 (loss):
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
</TABLE>
The impact of certain transactions on the 1996 and 1995 quarterly
results of operations is discussed in Notes 11 and 13.
<PAGE> 41
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 judgments.
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 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, Ph.D.
Chairman, Chief Executive Officer and President
/S/ William R. Jellison
Vice President, Corporate Controller and Treasurer
<PAGE> 42
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 June 29, 1996 and July 1, 1995,
and the related combined consolidated statements of income,
shareholders' equity and cash flows for each of the three years in
the period ended June 29, 1996. 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
June 29, 1996 and July 1, 1995, and the results of their operations
and their cash flows for each of the three years in the period ended
June 29, 1996, in conformity with generally accepted accounting
principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Grand Rapids, Michigan
August 2, 1996
<PAGE> 43
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 18, 1996, and filed pursuant to Regulation 14A, is
incorporated by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT. Information relating to the
executive officers of the Company is included in Part I of this
form 10-K.
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 18, 1996 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 18,
1996, 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 18, 1996, 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 June 29, 1996, together with the Report of
Independent Accountants are set forth on pages 22-41 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.
<PAGE> 44
2. Financial Statement Schedules. The following are included in
Part IV of this report for each of the years ended June 29, 1996,
July 1, 1995 and July 2, 1994 as applicable:
Page
Report of Independent Certified Public Accountants on Schedules 46
Schedule II Valuation and Qualifying Accounts 47
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.
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the year
ended June 29, 1996.
(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> 45
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, Corporate
Officer, and Director and Controller 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 24, 1996
Donnelly Corporation
Annual Report - Form 10-K
<PAGE> 46
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL
STATEMENT SCHEDULE
Donnelly Corporation
Holland, Michigan
The audits referred to in our report dated August 2, 1996, 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, 1996
<PAGE> 47
<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 AT
BEGINNING END
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS PERIOD
- ------------------------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
RESERVE FOR UNCOLLECTIBLE
ACCOUNTS AND SALES RETURNS
AND ALLOWANCES:
YEAR ENDED JULY 2, 1994 $562 --(1) --(1) $676
YEAR ENDED JULY 1, 1995 $676 --(1) --(1) $575
YEAR ENDED JUNE 29, 1996 $575 --(1) --(1) $571
(1) INFORMATION IN THIS COLUMN IS NOT SIGNIFICANT
</TABLE>
<PAGE> 48
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 Amended and Restated First Chicago Revolving Credit Loan
Agreement
10.2 Nationwide Life Insurance Company Debt Agreement was filed as
part of Form 10-K for the fiscal year ending July 1, 1995 as
Exhibit 10.1 and is hereby incorporated herein by reference.
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
and 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 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.
10.6 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.
10.7 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.
10.8 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.
10.9 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.
10.10 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.
<PAGE> 49
22 Schedule of Affiliates.
24 Consent of BDO Seidman, LLP, independent public accountants.
27 Financial Data Schedules.
<PAGE> 1
DONNELLY CORPORATION
$80,000,000
AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT
dated as of May 20, 1996
SOCIETE GENERALE
NATIONSBANK OF TENNESSEE, N.A.
and
THE FIRST NATIONAL BANK OF CHICAGO, as Agent
<PAGE> 2
ARTICLE I DEFINITIONS................................................. 1
1.1.Certain Definitions..................................... 1
1.2.Other Definitions; Rules of Construction................ 12
ARTICLE II THE COMMITMENT.............................................. 12
2.1.Commitment of the Banks................................. 12
2.2.Termination and Reduction of Commitment................. 12
2.3.Fees.................................................... 13
2.4.Disbursement of Advances................................ 14
2.5.Conditions for First Disbursement....................... 17
2.6.Further Conditions for Disbursement..................... 17
2.7.Subsequent Elections as to Loans........................ 18
2.8.Limitation of Requests and Elections.................... 18
2.9.Minimum Amounts......................................... 19
ARTICLE III PAYMENTS AND PREPAYMENTS OF LOANS.......................... 19
3.1.Principal Payments...................................... 19
3.2.Interest Payments....................................... 20
3.3.Letter of Credit Reimbursement Payments................. 21
3.4.Payment Method.......................................... 22
3.5.No Setoff or Deduction.................................. 23
3.6.Payment on Non-Business Day; Payment Computations....... 24
3.7.Additional Costs........................................ 24
3.8.Illegality and Impossibility............................ 25
3.9.Indemnification......................................... 26
ARTICLE IV REPRESENTATIONS AND WARRANTIES.............................. 26
4.1.Corporate Existence and Power........................... 26
4.2.Corporate Authority..................................... 26
4.3.Binding Effect.......................................... 27
4.4.Subsidiaries............................................ 27
4.5.Litigation.............................................. 27
4.6.Financial Condition..................................... 27
4.7.Use of Loans............................................ 28
4.8.Consents, Etc........................................... 28
4.9.Taxes................................................... 28
4.10.ERISA.................................................. 28
4.11.Disclosure............................................. 28
ARTICLE V COVENANTS................................................... 29
5.1.Affirmative Covenants................................... 29
5.2.Negative Covenants...................................... 31
<PAGE> 3
ARTICLE VI DEFAULT..................................................... 33
6.1.Events of Default....................................... 33
6.2.Remedies................................................ 35
ARTICLE VII THE AGENT AND THE BANKS.................................... 36
7.1.Appointment and Authorization........................... 36
7.2.Agent and Affiliates.................................... 36
7.3.Scope of Agent's Duties................................. 37
7.4.Reliance by Agent....................................... 37
7.5.Default................................................. 37
7.6.Liability of Agent...................................... 37
7.7.Nonreliance on Agent and Other Banks.................... 38
7.8.Indemnification......................................... 38
7.9.Resignation of Agent.................................... 38
7.10.Sharing of Payments.................................... 39
ARTICLE VIII MISCELLANEOUS............................................. 40
8.1.Amendments, Etc......................................... 40
8.2.Notices................................................. 40
8.3.No Waiver By Conduct; Remedies Cumulative............... 41
8.4.Reliance on and Survival of Various Provisions.......... 41
8.5.Expenses; Indemnification............................... 41
8.6.Successors and Assigns.................................. 43
8.7.Counterparts............................................ 43
8.8.Governing Law........................................... 43
8.9.Headings................................................ 43
8.10.Construction of Certain Provisions..................... 43
8.11.Integration and Severability........................... 44
8.12.Independence of Covenants.............................. 44
8.13.Interest Rate Limitation............................... 44
8.14.Effect of Amendment and Restatement.................... 44
8.15.Waiver of Jury Trial................................... 45
EXHIBIT A-1 REVOLVING CREDIT NOTE...................................... 47
EXHIBIT A-2 TERM NOTE.................................................. 49
EXHIBIT B REQUEST FOR ADVANCE........................................ 51
EXHIBIT C REQUEST FOR CONTINUATION OR CONVERSION OF LOAN............. 53
EXHIBIT D OPINION OF COUNSEL OF DONNELLY CORPORATION................. 54
<PAGE> 4
SCHEDULE 1.1 Member Countries of the Organization for Economic
Cooperation and Development as of the Effective Date...... 56
SCHEDULE 4.4
SCHEDULE 4.5
SCHEDULE 5.2(g)
<PAGE> 5
Exhibit 10.2
AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT
THIS AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT,
dated as of May 20, 1996 (as it may be amended, supplemented, or
modified from time to time, this "Agreement"), is among DONNELLY
CORPORATION, a Michigan corporation (the "Company"), the Banks
(other than NBD Bank) set forth on the signature pages hereof
(collectively, the "Banks" and, individually, a "Bank"), and The
First National Bank of Chicago, as agent for the Banks (in such
capacity, the "Agent").
INTRODUCTION
The Company is party to an Amended and Restated Revolving
Credit Loan Agreement dated as of November 20, 1995 (the "1995
Agreement"), pursuant to which certain of the Banks have provided
certain credit facilities to the Company in the aggregate principal
amount of $80,000,000. The Company desires to amend and restate the
1995 Agreement to add a transaction loan facility, to change the
Agent from NBD Bank to The First National Bank of Chicago, to
increase the commitment of The First National Bank of Chicago, to
eliminate the commitment of NBD Bank and to allow for the sale of
receivables. The Banks are willing to establish such a credit
facility in favor of the Company on the terms herein set forth.
In consideration of the premises and the mutual promises herein
contained, the Company, the Banks, and the Agent hereby agree to
amend and restate the 1995 Agreement in it entirety as follows:
ARTICLE I
DEFINITIONS
1.1. Certain Definitions. As used herein the following terms
shall have the following respective meanings:
"Advance" means any Revolving Credit Loan, any Letter of Credit
Advance, and the Term Loan.
"Affiliate" when used with respect to any person shall mean any
other person which, directly or indirectly, controls or is
controlled by or is under common control with such person. For
purposes of this definition, "control" (including the correlative
meanings of the terms "controlled by" and "under common control
with"), with respect to any person, shall mean possession, directly
or indirectly, of the power to direct or cause the direction of the
management and policies of such person, whether through the
ownership of voting securities or by contract or otherwise.
"Alternate Base Rate" means, for any day, a rate of interest
per annum equal to the higher of (i) the Corporate Base Rate for
such day and (ii) the sum of Federal Funds Effective Rate for such
day plus 1/2% per annum.
<PAGE> 6
"Applicable Lending Office" means, with respect to any Advance
made by any Bank or with respect to a Bank's Commitment, the office
of that Bank or of any
Affiliate of that Bank located at the address set forth next to the
name of that Bank in the signature pages hereof, as may be changed
by that Bank by notice to the Company and the Agent. Unless the
Agent shall notify the Company otherwise, the Applicable Lending
Office of the Agent shall be: (a) with respect to all Advances
denominated in Dollars, the principal office of the Agent in
Chicago, Illinois; and (b) with respect to all other Advances, the
branch of the Agent in London, England.
"Applicable Margin" means on any day, with respect to each type
of Revolving Credit Loan other than Transaction Loans, the per annum
rate set forth below in the corresponding column for the period
during which the Interest Coverage Ratio is within the corresponding
range. The Applicable Margin shall change on the fifth day
following receipt of the notice delivered by the Company under
Section 5.1(e)(ii), to correspond with the Interest Coverage Ratio
as of the end of the period reported in that notice.
<TABLE>
<CAPTION>
Interest Federal
Coverage Floating Eurocurrency Funds
Ratio Rate Rate Rate
- ------------------- -------- ------------ -------
<S> <C> <C> <C>
Greater than
7.75 to 1 0% .20% .40%
Less than or equal to
7.75 to 1 and greater
than 5.75 to 1 0% .25% .45%
Less than or equal to
5.75 to 1 and greater
than 3.75 to 1 0% .30% .50%
Less than or equal to
3.75 to 1 and greater
than 3.00 to 1 0% .45% .75%
Less than or equal to
3.00 to 1 0% .75% 1.00%
</TABLE>
"Applied Films" means Applied Films Corporation, a
Colorado corporation, 50% of the equity interests of which are
currently owned by the Company.
"Business Day" means a day other than a Saturday, Sunday
or other day on which (a) the Agent is not open to the public for
carrying on substantially all of its banking functions
2
<PAGE> 7
or (b) if such reference relates to the date for payment or purchase
of any amount denominated in any currency other than Dollars, banks
are not generally open to the public for carrying on substantially all
of their banking functions in the principal financial center of the
country issuing such currency.
"Capital Lease" of any person means any lease which, in
accordance with generally accepted accounting principles, is
capitalized on the books of such person.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and the regulations thereunder.
"Commitment" means the commitment of each Bank to make
Revolving Credit Loans pursuant to Sections 2.1(a) and 3.3 and the
Term Loan pursuant to Section 2.1(b), and to participate in Letter
of Credit Advances through the Agent pursuant to Section 2.1(a), in
an amount not exceeding the respective commitment amount for each
Bank set forth on the signature pages below, as such amount may be
reduced from time to time pursuant to Section 2.2.
"Consolidated" or "consolidated" means, when used with
reference to any financial term in this Agreement, the aggregate for
two or more persons of the amounts signified by such term for all
such persons determined on a consolidated basis in accordance with
generally accepted accounting principles.
"Consolidated EBIT" means, for any period, the sum of (a)
income or loss before taxes on income for the Company and its
consolidated Subsidiaries (excluding Hohe), plus (b) Consolidated
Interest Expense, all as determined in accordance with generally
accepted accounting principles.
"Consolidated Interest Expense" means, for any period,
all interest paid or payable by the Company and its consolidated
Subsidiaries (excluding Hohe) during such period.
"Corporate Base Rate" means a rate per annum equal to the
corporate base rate of interest announced by First Chicago from time
to time, changing when and as said corporate base rate changes.
"Default" means any of the events or conditions described
in Section 6.1 which might become an Event of Default with notice or
lapse of time or both.
"Dollar Equivalent" means, with respect to each
Eurocurrency Rate Loan, the sum in Dollars resulting from converting
the amount of the Loan from the Permitted Currency in which it is
denominated into Dollars at the most favorable spot exchange rate
determined by the Agent to be available to it for purchasing the
Permitted Currency with Dollars at approximately 11:00 a.m. local
time of the Applicable Lending Office on the date the Eurocurrency
Rate Loan is disbursed or continued, or on such other date as the
determination is made, which rate shall be substantially
representative of the market rate.
3
<PAGE> 8
"Dollars" and "$" means the lawful money of the United
States of America.
"Effective Date" means the effective date specified in
the final paragraph of this Agreement.
"Environmental Laws" means all provisions of law, statute,
ordinances, rules, regulations, judgments, writs, injunctions,
decrees, orders, awards and standards promulgated by the government
of the United States of America or any foreign government or by any
state, province, municipality or other political subdivision thereof
or therein or by any court, agency or instrumentality, regulatory
authority or commission of any of the foregoing concerning the
protection of, or regulating the discharge of substances into, the
environment.
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended from time to time, and the regulations
thereunder.
"ERISA Affiliate" means, with respect to any person, any
trade or business (whether or not incorporated) which, together with
such person or any Subsidiary of such person, would be treated as a
single employer under Section 414 of the Code.
"Eurocurrency Business Day" means, with respect to any
Eurocurrency Rate Loan, a day which is both a Business Day and a day
on which dealings in Dollar deposits are carried out in the
interbank market selected by the Agent with respect to such
Eurocurrency Rate Loan.
"Eurocurrency Interest Period" means, with respect to any
Eurocurrency Rate Loan, the period commencing on the day such
Eurocurrency Rate Loan is made or converted to a Eurocurrency Rate
Loan and ending on the date one, two, three or six months
thereafter, as the Company may elect under Section 2.4 or 2.7, and
each subsequent period commencing on the last day of the immediately
preceding Eurocurrency Interest Period and ending on the date one,
two, three or six months thereafter, as the Company may elect under
Section 2.7, provided, however, that (a) any Eurocurrency Interest
Period which commences on the last Eurocurrency Business Day of a
calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month)
shall end on the last Eurocurrency Business Day of the appropriate
subsequent calendar month, (b) each Eurocurrency Interest Period
which would otherwise end on a day which is not a Eurocurrency
Business Day shall end on the next succeeding Eurocurrency Business
Day or, if such next succeeding Eurocurrency Business Day falls in
the next succeeding calendar month, on the next preceding
Eurocurrency Business Day (c) no Eurocurrency Interest Period which
would end after the Termination Date or, with respect to the Term
Loan, the Maturity Date, shall be permitted, and (d) the Eurocurrency
Interest Period for any loan made under the 1995 Agreement which
becomes a Loan under this Agreement pursuant to Section 8.14 hereof
shall be the period commencing on the Effective Date and ending on
the last day of the interest period for such loan under the 1995
Agreement.
4
<PAGE> 9
"Eurocurrency Rate" means, with respect to any
Eurocurrency Rate Loan and the related Eurocurrency Interest Period,
the per annum rate that is equal to the sum of:
1 the Applicable Margin, plus
2
(a) the rate per annum obtained by dividing (i) the per
annum rate of interest at which deposits in the Permitted Currency
in which the Eurocurrency Rate Loan is to be denominated for such
Eurocurrency Interest Period and in an aggregate amount comparable
to the amount of such Eurocurrency Rate Loan are offered by the
Agent to other prime banks in the applicable interbank market,
selected in the Agent's discretion, at approximately 11:00 a.m.
local time of the Applicable Lending Office on the second
Eurocurrency Business Day prior to the first day of such
Eurocurrency Interest Period by (ii) an amount equal to one minus
the stated maximum rate (expressed as a decimal) of all reserve
requirements (including, without limitation, any marginal,
emergency, supplemental, special or other reserves) that is
specified on the first day of such Eurocurrency Interest Period by
the Board of Governors of the Federal Reserve System (or any
successor agency thereto) for determining the maximum reserve
requirement with respect to eurocurrency funding (currently referred
to as "Eurocurrency liabilities" in Regulation D of such Board)
maintained by a member bank of such System;
all as conclusively determined by the Agent, such sum to be rounded
up, if necessary, to the nearest whole multiple of one one-hundredth
of one percent (1/100 of 1%).
"Eurocurrency Rate Loan" means any Revolving Credit Loan
denominated in a Permitted Currency or any portion of the Term Loan
denominated in Dollars which bears interest at the Eurocurrency Rate
for a specified Interest Period.
"Event of Default" means any of the events or conditions
described in Section 6.1.
"Federal Funds Interest Period" means, with respect to
any Federal Funds Rate Loan, the period commencing on the day such
Federal Funds Rate Loan is made or converted to a Federal Funds Rate
Loan and ending on the next Business Day thereafter, as the Company
may elect under Section 2.4 or 2.7, and each subsequent period
commencing on the last day of the immediately preceding Federal
Funds Interest Period and ending on the next Business Day thereafter,
as the Company may elect under Section 2.7.
"Federal Funds Effective Rate" means, for any day, an
interest rate per annum equal to the weighted average of the rates
on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as
published for such day (or, if such day is not a Business Day, for
the immediately preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations at approximately 10
a.m. (Chicago time) on such day on such transactions received by the
Agent from three Federal funds brokers of recognized standing
selected by the Agent in its sole discretion.
5
<PAGE> 10
"Federal Funds Rate Loan" means any Revolving Credit Loan
or any portion of the Term Loan denominated in Dollars which bears
interest at the Federal Funds Effective Rate.
"First Chicago" means The First National Bank of Chicago
in its individual capacity, and its successors.
"Fixed Rate Loan" means a Eurocurrency Rate Loan or a
Transaction Loan.
"Floating Rate" means the per annum rate equal to the sum
of the Applicable Margin plus the Alternate Base Rate, which
Floating Rate shall change simultaneously with any change in the
Alternate Base Rate.
"Floating Rate Loan" means any Revolving Credit Loan or
any portion of the Term Loan denominated in Dollars which bears
interest at the Floating Rate.
"Funded Debt" of any person means all Indebtedness that
would, in accordance with generally accepted accounting principles,
constitute long term debt, including (a) any Indebtedness with a
maturity of longer than one year after the creation of such
Indebtedness, (b) any Indebtedness outstanding under a revolving
credit or similar agreement (and any renewal or extension thereof)
providing for borrowings which constitute long term debt, provided,
however, that all Indebtedness outstanding under this Agreement
shall be deemed "Funded Debt" at all times regardless of the proper
classification under generally accepted accounting principles, (c)
any Capital Lease, and (d) any guarantee with respect to Funded Debt
of another person to the extent the indebtedness or obligations
guaranteed are not included in the liabilities of the Company and
its Subsidiaries determined on a consolidated basis as of the date
of the last balance sheet required to be furnished to the Banks
pursuant to Section 5.1(e)(ii) of this Agreement.
"generally accepted accounting principles" means generally
accepted accounting principles applied on a basis consistent with
that reflected in the financial statements referred to in Section
4.6.
"Guaranty" means the Guaranty and Subordination Agreement
dated May 4, 1992, executed by the Company in favor of NBD in
connection with the term loan issued by NBD in favor of Applied
Films, as the Guaranty may be amended or modified from time to time.
"Hohe" means Donnelly Hohe GmbH & Co. KG, a limited
partnership with a limited liability company as the general partner,
each organized under the law of the Federal Republic of Germany, and
an Affiliate of the Company.
"Indebtedness" means (i) indebtedness for borrowed money,
(ii) obligations evidenced by bonds, debentures, notes or other
similar instruments, (iii) obligations to pay the deferred purchase
price of property or services, except for trade accounts payable
arising in the ordinary course of business that are not more than 90
days past due or as are reasonably being
6
<PAGE> 11
contested, (iv) obligations as lessee under leases which have been in
accordance with generally accepted accounting principles, recorded as
Capital Leases, (v) obligations to purchase property or services if
payment is required regardless of whether such property is delivered
or services are performed (generally called "take or pay" contracts),
but such obligations shall only be included in an amount equal to the
difference between the amount of the required payment and the value
to the Company or a Subsidiary of the Company of the goods or
services required to be delivered in connection with such required
payment, (vi) obligations in respect of currency or interest rate
swaps or comparable transactions valued at the maximum termination
payment payable by the obligor, other than any such contracts
entered into as hedges against Indebtedness of the kinds referred to
in clauses (i) and (ii) above, (vii) any obligation of any Person
other than the Company or its Subsidiaries, if such obligation is
secured by any lien on the property of the Company or any of its
Subsidiaries, provided that, the amount of any such Indebtedness
shall be limited to the greater of the then book value or fair
market value of the property securing any such lien, (viii)
obligations of others similar in character to those described in
clauses (i) through (vii) above for which the Company or any of its
Subsidiaries is contingently liable, including without limitation
all reimbursement obligations in respect of letters of credit,
surety bonds, or similar obligations, to the extent such obligations
are not included in the liabilities of the Company and its
Subsidiaries determined on a consolidated basis as of the date of
the last balance sheet required to be furnished to the Banks
pursuant to Section 5.1(e)(ii) of this Agreement, and (ix)
liabilities in respect of unfunded vested benefits under plans
covered by Title IV of ERISA.
"Interest Coverage Ratio" means, as of any date, (a) for
purposes of calculating the ratio under Section 5.2(b), the ratio of
(i) Consolidated EBIT, as calculated for the Company's eight most
recently ended fiscal quarters, to (ii) Consolidated Interest
Expense, as calculated for the Company's eight most recently ended
fiscal quarters, and (b) for purposes of calculating the ratio under
the definition of "Applicable Margin" and Section 2.3, the ratio of
(i) Consolidated EBIT, as calculated for the Company's four most
recently ended fiscal quarters, to (ii) Consolidated Interest
Expense, as calculated for the Company's four most recently ended
fiscal quarters.
"Interest Payment Date" means (a) with respect to any
Floating Rate Loan, the first day of each January, April, July, and
October occurring after the date hereof, commencing with the first
such day occurring after the date of this Agreement, and (b) with
respect to any Federal Funds Rate Loan, Eurocurrency Rate Loan or
Transaction Loan, the last day of the related Interest Period and,
in the case of any Interest Period exceeding three months, those
days that occur during such Interest Period at intervals of three
months after the first day of the Interest Period (unless the
Company and the Bank making a Transaction Loan specifically agree
not to require the payment of interest prior to the last day of the
Interest Period for such Transaction Loan.)
"Interest Period" means any Eurocurrency Interest Period
or Federal Funds Interest Period or Transaction Loan Interest
Period.
7
<PAGE> 12
"Letter of Credit" means a standby letter of credit
denominated in Dollars, having a stated expiry date not later than
the earlier of one year from its issuance date and the
then-scheduled Termination Date, issued by the Agent for the
Company's account under an application and related documentation
acceptable to the Agent requiring, among other things, immediate
reimbursement by the Company to the Agent in respect of all drafts
or other demand for payment honored thereunder and all expenses paid
or incurred by the Agent relating thereto.
"Letter of Credit Advance" means the issuance of a Letter
of Credit under Section 2.4 made pursuant to Section 2.1(a) in which
each Bank acquires a pro rata risk participation pursuant to Section
2.4.
"Letter of Credit Documents" shall have the meaning
ascribed thereto in Section 3.3(b).
"Lien" means any pledge, assignment, deed of trust,
hypothecation, mortgage, security interest, conditional sale or
title retaining contract, financing statement filing, or any other
type of lien, charge, encumbrance or other similar claim or right.
"Loan" means any Revolving Credit Loan or Term Loan, as
the context may require.
"Loan Documents" means this Agreement, the Notes, the
Letter of Credit Documents, and any other agreement, instrument or
document executed at any time in connection with this Agreement.
"Maturity Date" means the maturity date of the Term Loans
issued under Section 2.1(b), which will be the earlier of (a) the
second anniversary of the Termination Date and (b) the date on which
the Notes are declared due and payable pursuant to Section 6.2.
"Multiemployer Plan" means any "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA or Section 414(f) of the
Code.
"NBD" means NBD Bank, a Michigan banking corporation.
"Net Income" means, for any period, the consolidated net
income (or loss) of the Company and its Subsidiaries after
deductions for income taxes, determined in accordance with generally
accepted accounting principles.
"Notes" means the Revolving Credit Notes and the Term
Notes, and "Note" means any Revolving Credit Note or any Term Note.
"Overdue Rate" means (a) in respect of principal of
Floating Rate Loans, a rate per annum that is equal to the sum of
three percent (3%) per annum plus the Floating Rate, (b) in respect
of principal of Federal Funds Rate Loans, Eurocurrency Rate Loans
and Transaction
8
<PAGE> 13
Loans, a rate per annum that is equal to the sum of
three percent (3%) per annum plus the per annum rate in effect
thereon until the end of the then-current Interest Period for such
Loan and, thereafter, a rate per annum that is equal to the sum of
three percent (3%) per annum plus the Floating Rate, and (c) in
respect of other amounts payable by the Company hereunder (other
than interest), a per annum rate that is equal to the sum of three
percent (3%) per annum plus the Floating Rate.
"PBGC" means the Pension Benefit Guaranty Corporation and
any entity succeeding to any or all of its functions under ERISA.
"Permitted Currency" means Dollars and any currency which
is freely transferable and convertible into Dollars, is readily
available to the Banks in the relevant interbank market, and is
issued by a country which is a member of the Organization for
Economic Cooperation and Development ("OECD") (as such designation
shall change from time to time) or any other currency approved by
the Agent and the Banks. A list of all OECD countries as of the
Effective Date is set forth in Schedule 1.1.
"Permitted Liens" means Liens permitted by Section 5.2(g).
"Person" or "person" shall include an individual, a
corporation, an association, a partnership, a trust or estate, a
joint stock company, an unincorporated organization, a joint
venture, a trade or business (whether or not incorporated), a
government (foreign or domestic) and any agency or political
subdivision thereof, or any other entity.
"Plan" means, with respect to any person, any pension plan
(other than a Multiemployer Plan) subject to Title IV of ERISA or to
the minimum funding standards of Section 412 of the Code which has
been established or maintained by such person, any Subsidiary of such
person or any ERISA Affiliate, or by any other person if such
person, any Subsidiary of such person or any ERISA Affiliate could
have liability with respect to such pension plan.
"Prohibited Transaction" means any transaction involving
any Plan which is proscribed by Section 406 of ERISA or Section 4975
of the Code.
"Receivables" means and includes "accounts" and "general
intangibles" (each as defined in Section 9-106 of the Uniform
Commercial Code) and notes receivable, and in each case includes the
right to payment of any interest or finance charges and other
obligations of any obligor with respect thereto.
"Reportable Event" means a reportable event as described
in Section 4043(b) of ERISA including those events as to which the
thirty (30) day notice period is waived under Part 2615 of the
regulations promulgated by the PBGC under ERISA.
9
<PAGE> 14
"Required Banks" means Banks holding not less than sixty-
six and two-thirds percent (66 2/3%) of the Commitments, or if the
Commitments have been terminated, Banks holding not less than sixty-
six and two-thirds percent (66 2/3%) of the aggregate principal
amount of the Advances then outstanding.
"Revolving Credit Loans" means the borrowings under
Section 2.4 evidenced by the Revolving Credit Notes and made
pursuant to Section 2.1(a), and "Revolving Credit Loan" means any
of the Revolving Credit Loans. Any Revolving Credit Loan or portion
thereof may also be denominated as a Floating Rate Loan, a Federal
Funds Rate Loan, or a Eurocurrency Rate Loan or a Transaction Loan,
as appropriate, and such Floating Rate Loans, Federal Funds Rate
Loans, and Eurocurrency Rate Loans are referred to herein as "types"
of Revolving Credit Loans.
"Revolving Credit Note" means any promissory note of the
Company evidencing the Revolving Credit Loans, in substantially the
form annexed hereto as Exhibit A-1, as amended or modified from time
to time and together with any promissory note or notes issued in
exchange or replacement therefor.
"Significant Subsidiary" means any Subsidiary of the
Company which has either (i) Tangible Net Worth equal to 10% or more
of the Consolidated Tangible Net Worth of the Company and its
Subsidiaries or (ii) Total Assets equal to 10% or more of the
Consolidated Total Assets of the Company and its Subsidiaries.
"Subsidiary" of any person means any other person (whether
now existing or hereafter organized or acquired) in which (other
than directors qualifying shares required by law) at least a
majority of the securities or other ownership interests of each
class having ordinary voting power or analogous right (other than
securities or other ownership interests which have such power or
right only by reason of the happening of a contingency), at the time
as of which any determination is being made, are owned, beneficially
and of record, by such person or by one or more of the other
Subsidiaries of such person or by any combination thereof. Unless
otherwise specified, reference to "Subsidiary" means a Subsidiary of
the Company.
"Tangible Net Worth" of any person means, as of any date,
(a) the amount of any capital stock, paid in capital and similar
equity accounts plus (or minus in the case of a deficit) the capital
surplus and retained earnings of such person and the amount of any
foreign currency translation adjustment account shown as a capital
account of such person, less (b) the net book value of all items of
the following character which are included in the assets of such
person: (i) goodwill, including without limitation, the excess of
cost over book value of any asset, (ii) organization or experimental
expenses, (iii) unamortized debt discount and expense, (iv) patents,
trademarks, trade names and copyrights, (v) treasury stock, (vi)
deferred taxes and deferred charges, (vii) franchises, licenses and
permits, and (viii) other assets which are deemed intangible assets
under generally accepted accounting principles, and plus (c) any
Transitional Obligation reflected in such person's Total
Liabilities.
10
<PAGE> 15
"Term Loan" means the borrowings in Dollars under Section
2.4 evidenced by the Term Notes and made pursuant to Section 2.1(b),
and "Term Loan" means any of the Term Loans. Any Term Loan or
portion thereof may also be denominated as a Floating Rate Loan, a
Federal Funds Rate Loan, or a Eurocurrency Rate Loan, as
appropriate, and such Floating Rate Loans, Federal Funds Rate Loans,
and Eurocurrency Rate Loans are referred to herein as "types" of
Term Loans.
"Term Note" means any promissory note of the Company
evidencing the Term Loans, in substantially the form annexed hereto
as Exhibit A-2, as amended or modified from time to time and
together with any promissory note or notes issued in exchange or
replacement therefor.
"Termination Date" means the earlier to occur of (a)
November 20, 2000 and (b) the date on which the Commitment shall be
terminated pursuant to Section 2.2 or 6.2.
"Total Assets" of any person means, as of any date, all
property which, in accordance with generally accepted accounting
principles, is or should be classified as assets on a balance sheet
of such person.
"Total Capitalization" of any person means the sum of
Tangible Net Worth of such person and Funded Debt of such person.
"Total Liabilities" of any person means, as of any date,
all obligations which, in accordance with generally accepted
accounting principles, are or should be classified as liabilities
on a balance sheet of such person less, in the case of the Company,
the amount of cash on hand which constitutes unexpended proceeds
from the issuance of bonds received by the Company committed to be
expended under the terms of such bonds, plus any Transitional
Obligations reflected in such person's liabilities, and plus, in the
case of the Company, the lesser of (a) the face amount of the
Guaranty, and (b) $5,000,000.
"Transaction Interest Period" means, with respect to a
Transaction Loan, a period not longer than 29 days commencing on a
Business Day and ending on a Business Day which is prior to the
Termination Date and which is mutually agreed upon by the Company
and a Bank in connection with making a particular Transaction Loan.
"Transaction Loan" means any Revolving Credit Loan which
bears interest at a Transaction Rate for a specified Transaction
Interest Period.
"Transaction Rate" means the rate per annum agreed upon
by the Company and a Bank in connection with a particular
Transaction Loan.
"Transitional Obligations" of any person means the amount
of the accumulated post-retirement benefit obligations determined to
exist as of the date that Statement of Financial Accounting Standard
No. 106 is initially applied to such person.
11
<PAGE> 16
"Unfunded Benefit Liabilities" means, with respect to any
Plan as of any date, the amount of the unfunded benefit liabilities
determined in accordance with Section 4001(a)(18) of ERISA.
1.2. Other Definitions; Rules of Construction. As used
herein, the terms "Agent", "Bank", "Banks", "Company", "1995
Agreement", and "this Agreement" shall have the respective meanings
ascribed thereto in the introductory paragraphs of this Agreement.
Such terms, together with the other terms defined in Section 1.1,
shall include both the singular and the plural forms thereof and
shall be construed accordingly. All computations required hereunder
and all financial terms used herein shall be made or construed in
accordance with generally accepted accounting principles unless such
principles are inconsistent with the express requirements of this
Agreement. Use of the terms "herein", "hereof", and "hereunder"
shall be deemed references to this Agreement in its entirety and not
to the Section or clause in which such term appears. References to
"Sections" and "subsections" shall be to Sections and subsections,
respectively, of this Agreement unless otherwise specifically
provided.
ARTICLE II
THE COMMITMENT
2.1. Commitment of the Banks.
(a) Revolving Credit Loans. Each Bank agrees, for
itself only, and subject to the terms of this Agreement, to make
Revolving Credit Loans to the Company under Section 2.4 and Section
3.3, and to participate in Letter of Credit Advances to the Company
under Section 2.4, from time to time from and including the
Effective Date to but excluding the Termination Date, provided,
that, on the date of each Advance, the Dollar Equivalent of all
Advances made by any Bank, including the Advances to be made on that
date, shall not exceed the Commitment of such Bank and the Dollar
Equivalent of all Advances made by all Banks, including the Advances
to be made on that date, shall not exceed the aggregate Commitments,
and provided, further, that the aggregate face amount of all Letter
of Credit Advances outstanding at any time shall not exceed
$10,000,000.
(b) Term Loan. Each Bank further agrees, for itself
only, and subject to the terms of this Agreement, to make a single
Term Loan in Dollars to the Company on the Termination Date in an
amount not to exceed the lesser of (i) the Dollar Equivalent of the
aggregate principal amount of the Revolving Credit Loans of such
Bank outstanding on the Termination Date, and (ii) its respective
Commitment as of the Termination Date.
2.2. Termination and Reduction of Commitment. (a) The
Company shall have the right to terminate or reduce the Commitments
at any time and from time to time, provided that (a) the Company
shall give notice of such termination or reduction to the Agent
specifying the amount and effective date thereof, (b) each partial
reduction of the Commitments shall be in a minimum amount of
$5,000,000 and in an integral multiple of $5,000,000, and shall
reduce the
12
<PAGE> 17
Banks' Commitments proportionately in accordance with the
Banks' respective Commitment amounts, (c) no such termination or
reduction shall be permitted with respect to any portion of the
Commitment as to which a request for an Advance pursuant to Section
2.4 is then pending, and (d) the Commitment may not be terminated if
any Advances are then outstanding and may not be reduced below the
principal amount of Revolving Credit Loans and the face amount of
Letters of Credit then outstanding. The Commitments or any portion
thereof terminated or reduced pursuant to this Section 2.2 may not
be reinstated.
(b) A Letter of Credit Advance (i) shall be deemed
outstanding in an amount equal to the sum of the maximum amount
available to be drawn under the related Letter of Credit on or after
the date of determination and on or before the stated expiry date
thereof plus the amount of any draws under such Letter of Credit
that have not been reimbursed as provided in Section 3.3, and (ii)
shall be deemed outstanding at all times on and before such stated
expiry date or such earlier date on which all amounts available to
be drawn under such Letter of Credit have been fully drawn and all
related reimbursement obligations have been paid pursuant to Section
3.3. As provided in Section 3.3, upon each payment made by the
Agent in respect of any draft or other demand for payment under any
Letter of Credit, the amount of any Letter of Credit Advance
outstanding immediately prior to such payment shall be automatically
reduced by the amount of each Revolving Credit Loan deemed advanced
in respect of the Company's related reimbursement obligation.
2.3. Fees.
(a) Facility Fee. The Company shall pay to the
Agent for the account of the Banks a facility fee computed at the
per annum rate set forth in the chart below of the maximum
Commitment available from time to time under this Agreement for the
period from and including the Effective Date to and including the
Termination Date. The applicable facility fee shall change on the
fifth day following receipt of the notice delivered by the Company
under Section 5.1(e)(ii), based on the Interest Coverage Ratio as of
the end of the period reported in that notice. Accrued facility
fees shall be payable quarterly in arrears on the first Business Day
of each January, April, July and October, commencing on the first
such Business Day occurring after the date of this Agreement, and on
the Termination Date.
Interest Coverage Ratio Facility Fee
- ----------------------- ------------
Greater than 7.75 to 1 .10%
Less than or equal to 7.75 to 1
and greater than 5.75 to 1 .125%
Less than or equal to 5.75 to 1
and greater than 3.75 to 1 .15%
13
<PAGE> 18
Less than or equal to 3.75 to 1
and greater than 3.00 to 1 .175%
Less than or equal to 3.00 to 1 .25%
(b) Letter of Credit Fees. On or before the date
any Letter of Credit is issued, the Company agrees to pay to the
Agent for the account of the Banks a fee computed at the per annum
rate set forth in the chart below of the maximum amount available
to be drawn from time to time under such Letter of Credit, for the
period from and including the date of issuance of such Letter of
Credit to and including the stated expiry date of such Letter of
Credit. The applicable letter of credit fee shall be based on the
Interest Coverage Ratio as of the last day of the period reported
in the notice delivered by the Company under Section 5.1(e)(ii)
immediately prior to the Company delivering its request for the
Letter of Credit under Section 2.4(a).
Interest Coverage Ratio Letter of Credit Fee
- ----------------------- --------------------
Greater than 7.75 to 1 .20%
Less than or equal to 7.75 to 1
and greater than 5.75 to 1 .25%
Less than or equal to 5.75 to 1
and greater than 3.75 to 1 .30%
Less than or equal to 3.75 to 1
and greater than 3.00 to 1 .45%
Less than or equal to 3.00 to 1 .75%
Further, the Company agrees to pay an additional fee to
the Agent for its own account computed at the rate of one-eighth of
one percent (1/8 of 1%) per annum of such maximum amount for such
period. Such fees are nonrefundable and the Company shall not be
entitled to any rebate of any portion thereof if such Letter of
Credit does not remain outstanding through its stated expiry date or
for any other reason.
(c) Agency Fee. The Company agrees to pay to the
Agent an agency fee for its services as Agent under this Agreement
in such amounts as may from time to time be agreed upon by the
Company and the Agent.
2.4. Disbursement of Advances.
(a) Requests for Advances; Proceeds of Loans. The
Company shall give the Agent notice of its request for each Advance
(other than an Advance to be made as a
14
<PAGE> 19
Transaction Loan, which shall
be requested in the manner set forth in Section 2.4(f)) in
substantially the form of Exhibit B hereto (i) not later than
12:00 p.m. Noon Chicago time three (3) Eurocurrency Business Days
prior to the date the Advance is requested to be made if the Advance
is to be made as a Eurocurrency Rate Loan, (ii) not later than
1:00 p.m. Chicago time on the Business Day the Advance is requested
to be made if the Advance is to be made as a Federal Funds Rate Loan
or a Floating Rate Loan, and (iii) not later than 12:00 p.m. Noon
Chicago time one (1) Business Day prior to the date the Advance is
requested to be made in all other cases, which notice shall specify
whether a Revolving Credit Loan, a Term Loan, or a Letter of Credit
Advance is requested and whether a Eurocurrency Rate Loan, Federal
Funds Rate Loan or Floating Rate Loan is requested. If a Letter of
Credit Advance is requested, the request shall include all
information which the Agent may require. If a Revolving Credit Loan
in the form of a Eurocurrency Rate Loan is requested, the notice
shall specify the Permitted Currency requested and the Interest
Period to initially apply to the Loan. The Agent, not later than
the Business Day next succeeding the day any notice is given, shall
notify each Bank of the requested Advance, provided, that the Agent
shall promptly notify each Bank of the Company's request for a
Federal Funds Rate Loan or a Floating Rate Loan on the Business Day
on which the Company makes such a request. Subject to the terms of
this Agreement, the proceeds of each requested Loan (other than a
Transaction Loan) denominated in Dollars shall be made available to
the Company by depositing the proceeds thereof, in immediately
available funds, in an account maintained and designated by the
Company at the Agent, and, in the case of a Loan not denominated in
Dollars shall be made available to the Company by depositing the
proceeds thereof, in immediately available funds, in an account
maintained and designated by the Company at a bank acceptable to the
Agent in the principal financial center of the country issuing the
Permitted Currency in which the Loan is denominated, or in such
other place specified by the Agent, provided, however, the proceeds
of the Term Loans shall be applied against the outstanding principal
amount of and accrued interest on the Revolving Credit Loans.
Subject to the terms of this Agreement, the Agent shall issue any
requested Letter of Credit for the Company's account on the date the
related Letter of Credit Advance is requested to be made.
Notwithstanding anything to the contrary herein, the Agent may
decline to issue any requested Letter of Credit on the basis that
the beneficiary, the purpose, or the terms of drawing are
unacceptable to the Agent in its reasonable discretion.
(b) Funding Loans. Each Bank, on the date any Loan
(other than a Transaction Loan) is requested to be made, shall make
its pro rata share of the Loan, if denominated in Dollars, available
in immediately available funds at the Agent's principal office for
disbursement to the Company, and, in the case of a Loan not
denominated in Dollars, to the Agent's account at its designated
branch or correspondent bank in the country issuing the respective
Permitted Currency or at such other place specified by the Agent.
Unless the Agent shall have received notice from any Bank prior to
the date a Loan is requested to be made under this Section 2.4(b)
that the Bank will not make available to the Agent its pro rata
portion of such Loan, the Agent may assume that the Bank has made
such portion available to the Agent in accordance with this Section.
If and to the extent any Bank shall not have so made its pro rata
portion available to the Agent, the Agent may (but shall not be
obligated to) make such amount available to the Company, and such
Bank and the Company severally agree to pay to the Agent forthwith on
15
<PAGE> 20
demand such amount together with interest thereon, for each day
from the date such amount is made available to the Company by the
Agent until the date such amount is repaid to the Agent, at a rate
per annum equal to the interest rate applicable to the Loan during
such period in the case of repayments by the Company or equal to the
Federal Funds Effective Rate in the case of repayments by the Bank.
If the Bank shall pay such amount to the Agent together with
interest, such amount so paid shall constitute a Loan by the Bank as
a part of the related Loan for purposes of this Agreement. The
failure of any Bank to make its pro rata portion of any Loan
available to the Agent shall not relieve any other Bank of its
obligations to make available its pro rata portion of the Loan on
the date it is requested to be made.
(c) Notes. All Revolving Credit Loans shall be evidenced
by the Revolving Credit Notes, and the Term Loans shall be evidenced
by the Term Notes. All Loans shall be due and payable and bear
interest as provided in Article III. The Banks are hereby
authorized by the Company to record in their respective books and
records, the date, amount and type of Loan and the duration of the
related Interest Period (if applicable), the amount of each payment
or prepayment of principal thereon, and any other appropriate
information, which books and records shall constitute prima facie
evidence of the information so recorded, provided, however, that any
Bank's failure to record or any error in recording any such
information shall not relieve the Company of its obligation to repay
the outstanding principal amount of the Loans, all accrued interest
thereon and other amounts payable with respect thereto in accordance
with the terms of the Notes and this Agreement.
(d) Issuing Letters of Credit. Nothing in this Agreement
shall be construed to require or authorize any Bank to issue any
Letter of Credit, it being recognized that the Agent has the sole
obligation under this Agreement to issue Letters of Credit and the
Commitment of each Bank with respect to Letter of Credit Advances is
expressly conditioned upon the Agent performing these obligations.
Upon such issuance by the Agent in accordance with the terms hereof,
each Bank shall automatically acquire a pro rata risk participation
interest in the Letter of Credit Advance based on its respective
Commitment. If the Agent shall honor a draft or other demand for
payment presented or made under any Letter of Credit, the Agent
shall provide notice thereof to each Bank on the date such draft or
demand is honored unless the Company shall have satisfied its
reimbursement obligation to the Agent under Section 3.3 on such
date. Each Bank, on such date, shall make its pro rata share of the
amount paid by the Agent available to the Agent in immediately
available funds at the Agent's principal office. If and to the
extent any Bank shall not have made such pro rata portion available
to the Agent, such Bank and the Company severally agree to pay to
the Agent forthwith on demand such amount together with interest
thereon, for each day from the date such amount was paid by the
Agent until such amount is so made available to the Agent, at a per
annum rate equal to the interest rate applicable during such period
to the related loan disbursed under Section 3.3 in respect of the
Company's reimbursement obligation if paid by the Company or equal
to the then-applicable Federal Funds Effective Rate if paid by the
Bank. If the Bank shall pay such amount to the Agent together with
such interest, such amount so paid shall constitute a Revolving
Credit Loan by such Bank as part of the loan disbursed in respect of
the Company's reimbursement obligation under Section 3.3. The
failure of any Bank to make its pro rata portion of any such amount
paid by the Agent
16
<PAGE> 21
available to the Agent shall not relieve any other Bank of its
obligation to make available its pro rata portion of such amount.
(e) Prepayments and Reborrowings of Revolving Credit
Loans. Subject to the terms of this Agreement, the Company may
borrow Revolving Credit Loans under this Section 2.4, prepay
Revolving Credit Loans pursuant to Section 3.1, and reborrow
Revolving Credit Loans under this Section 2.4.
(f) Transaction Loans. If the Company desires to borrow
at the Transaction Rate from any Bank, it shall notify such Bank on
the date the Advance is requested to be made of the amount it wishes
to borrow at a Transaction Rate and the proposed Interest Period.
If such Bank desires to make a Transaction Loan to the Company, such
Bank will quote to the Company the Transaction Rate which would be
applicable to a Transaction Loan in an amount equal to the requested
Advance for the proposed Interest Period. If the Company decides to
accept the Transaction Rate quoted by such Bank, the Company shall
give an irrevocable notice of such acceptance within one hour after
the Transaction Rate was quoted to it. The Company shall not be
required to request Transaction Loans from the Banks on a pro rata
basis. All Transaction Loans will be made in Dollars. The Company
shall promptly notify the Agent of the amount of each Transaction
Loan borrowed by the Company.
2.5. Conditions for First Disbursement. The obligation
of the Agent and the Banks to make or participate in the first
Advance hereunder is subject to the Banks receiving the following
documents and the following matters being completed, in form and
substance satisfactory to the Agent and the Banks:
(a) Corporate Documents. Certified copies of such
corporate documents of the Company, including those evidencing
necessary corporate action with respect to this Agreement and the
borrowings hereunder, as the Agent and the Banks shall reasonably
request;
(b) Notes. The Revolving Credit Notes, duly executed
on behalf of the Company; and
(c) Legal Opinions. The favorable written opinion of
counsel for the Company substantially in the form attached hereto
as Exhibit D.
2.6. Further Conditions for Disbursement. The obligation
of the Agent and the Banks to make or participate in any Advance
(including the first Advance) or any continuation or conversion
under Section 2.7, is further subject to the following conditions
being satisfied:
(a) The representations and warranties contained in
Article IV hereof shall be true and correct on and as of the date
the Advance is made (both before and after the Advance is made) as
if such representations and warranties were made on and as of such
date;
17
<PAGE> 22
(b) No Event of Default, and no event or condition which
might become such an Event of Default with notice or lapse of time,
or both, shall exist or shall have occurred and be continuing on the
date the Advance is made (whether before or after the Advance is
made);
(c) In the case of any Term Loan, the Company shall have
delivered the Term Notes for each Bank to the Agent, appropriately
completed and duly executed on behalf of the Company; and
(d) In the case of any Letter of Credit Advance, the
Company shall have delivered to the Agent an application for the
related Letter of Credit and other related documentation requested
by and acceptable to the Agent, appropriately completed and duly
executed on behalf of the Company.
The Company shall be deemed to have made a representation and
warranty to the Banks at the time of the making of, and the
continuation or conversion of, each Advance to the effect set forth
in clauses (a) and (b) of this Section 2.6. For purposes of this
Section, the representations and warranties contained in Section 4.6
shall be deemed made with respect to the most recent financial
statements delivered pursuant to Section 5.1(e)(ii).
2.7. Subsequent Elections as to Loans. The Company may
elect (a) to continue a Loan of one type, or a portion thereof
(other than a Transaction Loan), as a Loan of the then-existing
type, or (b) may elect to convert a Loan of one type, or a portion
thereof (other than a Transaction Loan), to a Loan of another type,
in each case by giving notice thereof to the Agent in substantially
the form of Exhibit C hereto not later than 12:00 p.m. Noon Chicago
time three (3) Eurocurrency Business Days prior to the date any such
continuation of or conversion to a Eurocurrency Rate Loan is to be
effective, and not later than 1:00 p.m. Chicago time on the Business
Day that such continuation or conversion is to be effective in all
other cases, provided, that an outstanding Eurocurrency Rate Loan
may only be converted on the last day of the then-current Interest
Period with respect to such Loan, and provided, further, if a
continuation of a Loan as, or a conversion of a Loan to, a
Eurocurrency Rate Loan is requested, such notice shall also specify
the Interest Period to be applicable thereto upon such continuation
or conversion. If the Company shall not timely deliver such a
notice with respect to any outstanding Eurocurrency Rate Loan, the
Company shall be deemed to have elected to convert the Eurocurrency
Rate Loan to a Floating Rate Loan on the last day of the
then-current Interest Period applying to the Loan.
2.8. Limitation of Requests and Elections.
Notwithstanding any other provision of this Agreement to the
contrary, if, upon receiving a request for a Eurocurrency Rate Loan
pursuant to Section 2.4, or a request to continue a Eurocurrency
Rate Loan as a Eurocurrency Rate Loan, or a request to convert any
other Loan to a Eurocurrency Rate Loan pursuant to Section 2.7, (a)
deposits in the Permitted Currency for periods comparable to the
Interest Period elected by the Company are not available to any Bank
in the relevant interbank or secondary market, or (b) the
Eurocurrency Rate will not adequately and fairly reflect the cost to
any Bank of making, funding or maintaining the related Eurocurrency
Rate Loan, or (c) by reason of
18
<PAGE> 23
national or international financial,
political or economic conditions or by reason of any applicable law,
treaty, rule or regulation (whether domestic or foreign) now or
hereafter in effect, or the interpretation or administration thereof
by any governmental authority charged with the interpretation or
administration thereof, or compliance by any Bank with any
guideline, request or directive of such authority (whether or not
having the force of law), including without limitation exchange
controls, it is impracticable, unlawful or impossible for any Bank
(i) to make or fund the relevant Eurocurrency Rate Loan or (ii) to
continue such Eurocurrency Rate Loan as a Eurocurrency Rate Loan of
the then-existing type or (iii) to convert a Loan to such a
Eurocurrency Rate Loan, then the Company shall not be entitled, so
long as such circumstances continue, to request a Eurocurrency Rate
Loan of the affected type pursuant to Section 2.4 or a continuation
of or conversion to a Eurocurrency Rate Loan of the affected type
pursuant to Section 2.7. In the event that such circumstances no
longer exist, the Banks shall again consider requests for
Eurocurrency Rate Loans of the affected type pursuant to Section
2.4, and requests for continuations of and conversions to
Eurocurrency Rate Loans of the affected type pursuant to Section
2.7.
2.9. Minimum Amounts. Except for (a) Revolving Credit
Loans and conversions thereof or Letter of Credit Advances which
exhaust the entire remaining amount of the Commitment, and (b)
conversions or payments required pursuant to Section 3.1(b), Section
3.3, or Section 3.7, each Revolving Credit Loan and each
continuation or conversion pursuant to Section 2.7 and each
prepayment thereof shall be, with respect to a Floating Rate Loan
or a Transaction Loan, in a minimum amount of $1,000,000, and with
respect to a Federal Funds Rate Loan or Eurocurrency Rate Loan, in
a minimum amount of $3,000,000, and in integral multiples of
$100,000.
ARTICLE III
PAYMENTS AND PREPAYMENTS OF LOANS
3.1. Principal Payments. (a) Unless earlier payment is
required under this Agreement, (i) the Company shall pay to the
Banks on the Termination Date the entire outstanding principal
amount of the Revolving Credit Loans, and (ii) the Company shall pay
to the Banks the outstanding principal amount of each Term Loan in
equal quarterly amounts payable on the first day of each January,
April, July, and October, commencing on the first such day following
the Termination Date, to and including the Maturity Date, when the
entire outstanding principal amount of the Term Loan shall be due
and payable. In addition, the outstanding principal amount of each
Transaction Loan shall be paid on the last day of the then-current
Interest Period with respect to such Loan.
(b) The Company may at any time and from time to
time prepay all or a portion of the Loans, without premium or
penalty, provided that (i) the Company may not prepay any portion
of any Loan as to which an election for a continuation of or a
conversion to a Eurocurrency Rate Loan is pending pursuant to
Section 2.7, and (ii) unless earlier payment is
19
<PAGE> 24
required under this Agreement, any Eurocurrency Rate Loan or
Transaction Loan may only be prepaid or paid on the last day of the
then-current Interest Period with respect to such Loan.
(c) If at any time the Dollar Equivalent of the
aggregate principal amounts outstanding under the Revolving Credit
Loans and Letter of Credit Advances exceed the Commitments, the
Company shall immediately pay to the Agent for the account of the
Banks an amount not less than the amount of such excess, to be
applied first to the amounts outstanding under the Revolving Credit
Loans, and the remainder, if any, to be held by the Agent on behalf
of the Banks as cash collateral securing any reimbursement
obligations which may arise under the outstanding Letters of Credit;
the Company grants to the Agent for the benefit of the Banks a
first-priority lien and security interest in this cash collateral,
and all cash collateral shall be in the Agent's sole and exclusive
control.
(d) If at any time the face amount of the Letters
of Credit exceed the lesser of $10,000,000 and the Commitments, the
Company shall immediately pay to the Agent for the account of the
Banks an amount not less than the amount of such excess, to be
applied first to the amounts outstanding under the Revolving Credit
Loans, and the remainder, if any, to be held by the Agent on behalf
of the Banks as cash collateral securing any reimbursement
obligations which may arise under the outstanding Letters of Credit.
(e) All prepayments of the Term Loans shall be
applied to principal installments of the Term Loan in the inverse
order of their maturities. No partial prepayment of the Term Loans
shall reduce the amount or defer the date of the scheduled
installments of principal.
3.2. Interest Payments. The Company shall pay interest
to the Agent for the account of the Banks on the unpaid principal
amount of each Loan (other than a Transaction Loan) and shall pay
interest directly to each applicable Bank on the unpaid principal
amount of each Transaction Loan, for the period commencing on the
date the Loan is made until the Loan is paid in full, on each
Interest Payment Date and at maturity (whether at stated maturity,
by acceleration or otherwise), and thereafter on demand, as follows:
(a) Loans. Interest on each Loan shall be payable
(i) at the Floating Rate during such periods that the Loan is a
Floating Rate Loan, (ii) at the Eurocurrency Rate applicable to the
Loan for each related Eurocurrency Interest Period during such
periods that the Loan is a Eurocurrency Rate Loan, and (iii) at the
Federal Funds Rate applicable to the Loan for each related Interest
Period during such periods that the Loan is a Federal Funds Rate
Loan and (iv) at the Transaction Rate applicable to the Loan for
each related Interest Period during such periods that the Loan is a
Transaction Loan.
(b) Overdue Amounts. Notwithstanding the foregoing
paragraph (a), the Company shall pay interest on demand at the
Overdue Rate on the outstanding principal amount of any Loan and any
other amount payable by the Company hereunder (other than
20
<PAGE> 25
interest) which is not paid in full when due (whether at stated
maturity, by acceleration or otherwise) for the period commencing on
the due date thereof until the same is paid in full.
3.3. Letter of Credit Reimbursement Payments. (a) The
Company agrees to pay to the Agent, on the day on which the Agent
honors a draft or other demand for payment presented or made under
any Letter of Credit, an amount equal to the amount paid by the
Agent in respect of such draft or other demand under such Letter of
Credit and all expenses paid or incurred by the Agent relative
thereto. Unless the Company shall have made such payment to the
Agent on such day, upon each such payment by the Agent, the Agent
shall be deemed to have disbursed to the Company, and the Company
shall be deemed to have elected to satisfy its reimbursement
obligation by, a Revolving Credit Loan bearing interest at the
Floating Rate for the account of the Banks in an amount equal to the
amount so paid by the Agent in respect of such draft or other demand
under the Letter of Credit. Such Revolving Credit Loan shall be
disbursed notwithstanding any failure to satisfy any conditions for
disbursement of any Loan set forth in Article II and, to the extent
of the Revolving Credit Loan so disbursed, the reimbursement
obligation of the Company under this Section 3.3 shall be deemed
satisfied.
(b) The reimbursement obligation of the Company
under this Section 3.3 shall be absolute, unconditional and
irrevocable and shall remain in full force and effect until all
obligations of the Company to the Banks hereunder shall have been
satisfied, and the Company's obligations shall not be affected,
modified or impaired upon the happening of any event, including
without limitation any of the following, whether or not with notice
to, or the consent of, the Company:
(i)Any lack of validity or enforceability of any Letter of Credit or any
documentation relating to any Letter of Credit or to any transaction
related in any way to such Letter of Credit (the "Letter of Credit
Documents");
(ii)Any amendment, modification, waiver, consent, or any substitution,
exchange or release of or failure to perfect any interest in
collateral or security, with respect to any of the Letter of Credit
Documents;
(iii)The existence of any claim, setoff, defense or other right which the
Company may have at any time against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for
whom any such beneficiary or any such transferee may be acting), the
Agent or any Bank or any other person or entity, whether in
connection with any of the Letter of Credit Documents, the
transactions contemplated herein or therein or any unrelated
transactions;
(iv)Any draft or other statement or document presented under any Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in
any respect;
21
<PAGE> 26
(v)Payment by the Agent to the beneficiary under any Letter of Credit against
presentation of documents which do not comply with the terms of the
Letter of Credit, including failure of any documents to bear any
reference or adequate reference to such Letter of Credit;
(vi)Any failure, omission, delay or lack on the part of the Agent or any Bank
or any party to any of the Letter of Credit Documents to enforce,
assert or exercise any right, power or remedy conferred upon the
Agent, any Bank or any such party under this Agreement or any of the
Letter of Credit Documents, or any other acts or omissions on the
part of the Agent, any Bank or any such party;
(vii)Any other event or circumstance that would, in the absence of this clause,
result in the release or discharge by operation of law or otherwise
of the Company from the performance or observance of any obligation,
covenant or agreement contained in this Section 3.3.
No setoff, counterclaim, reduction or diminution of any obligation
or any defense of any kind or nature which the Company has or may
have against the beneficiary of any Letter of Credit shall be
available hereunder to the Company against the Agent or any Bank.
3.4. Payment Method. (a) All payments to be made by the
Company hereunder will be made in immediately available funds to the
Agent, or in the case of Transaction Loans, to the applicable Bank,
(i) in the case of principal and interest on any Loan, in the
Permitted Currency in which such Loan is denominated and (ii) in all
other cases, in the otherwise specified or relevant currency. All
payments in Dollars (other than with respect to Transaction Loans)
shall be made to the Agent at its address set forth in Section 8.2
not later than 1:00 p.m. Chicago time on the date on which such
payment shall become due, and all payments in a Permitted Currency
other than Dollars shall be made by credit to the Agent's account at
its designated branch or correspondent bank in the country issuing
the relevant Permitted Currency, or in such other place specified by
the Agent, not later than 1:00 p.m. in the local time at the place
for payment. Any payment of principal or interest on a Transaction
Loan prior to the occurrence of an Event of Default shall be made
directly to each applicable Bank at its address specified on the
signature page hereto, by 1:00 p.m. local time on the date when due
ratably among the Banks based on each Bank's share of the aggregate
amount of Transaction Loans due and payable on such date. After the
occurrence of a Default or an Event of Default or in the event any
Bank receives payment by set-off, Section 7.1 shall govern the
distribution of payments made by the Company until such Default or
Event of Default is cured. Payments received after 1:00 p.m. local
time shall be deemed to be payments made prior to 1:00 p.m. local
time on the next succeeding Business Day.
(b) At the time of making each such payment to the
Agent, the Company shall, subject to the other terms of this
Agreement, specify to the Agent the Loan or other obligation of the
Company hereunder to which such payment is to be applied. In the
event that the Company fails to so specify the relevant obligation
or if an Event of Default shall have
22
<PAGE> 27
occurred and be continuing, the Agent may apply such payments to the
Company's obligations under this Agreement as it may determine in its
sole discretion.
(c) This Agreement arises in the context of an
international transaction, and the specification of payment in a
specific currency at a specific place pursuant to this Agreement is
of the essence. Such specified currency shall be the currency of
account and payment under this Agreement. The Company's obligations
hereunder shall not be discharged by an amount paid in any other
currency or at another place, whether pursuant to a judgment or
otherwise, to the extent that the amount so paid, on prompt
conversion into the applicable currency and transfer to the Banks
under normal banking procedure, does not yield the amount of such
currency due under this Agreement. In the event that any payment,
whether pursuant to a judgment or otherwise, upon conversion and
transfer, does not result in payment of the amount of such currency
due under this Agreement, the Banks shall have an independent cause
of action against the Company for the currency deficit.
(d) If for purposes of obtaining judgment in any
court, it becomes necessary to convert any currency due hereunder
into any other currency, the Company will pay any additional amount
as may be necessary to ensure that the amount paid in respect of
such judgment is the amount in such other currency which, when
converted at the Agent's spot rate of exchange prevailing on the
date of payment, would yield the same amount of the currency due
hereunder. Any amount due from the Company under this Section
3.4(d) will be due as a separate debt and shall not be affected by
judgment being obtained for any other sum due under or in respect of
this Agreement.
3.5. No Setoff or Deduction. (a) All payments of
principal of and interest on the Loans and other amounts payable by
the Company hereunder shall be made by the Company without setoff or
counterclaim, and free and clear of, and without deduction or
withholding for, or on account of, any present or future taxes,
levies, imposts, duties, fees, assessments, or other charges of
whatever nature, imposed by any governmental authority, or by any
department, agency or other political subdivision or taxing
authority. The Company indemnifies each Bank against any taxes or
charges (other than on net overall income) which may be claimed from
it in respect of the Advances or any of them or any sum payable by
the Company hereunder and against any costs, charges and expenses or
liabilities in respect of such claim. Such indemnity shall survive
the termination of the Commitments.
(b) If at any time the Company is required by law
or by any directive or order of any court of competent jurisdiction
to make any deduction or withholding of whatever nature from any
payment due under this Agreement or any of the Loan Documents, the
Company will ensure that the same does not exceed the minimum
liability therefor and will (i) pay to any Bank on request such
additional amount as such Bank certifies will result in the net
amount received by it after all deductions being equal to the full
amount which would have been receivable had there been no deduction
or withholding and (ii) pay forthwith to the relevant authorities
the full amount of the deduction or withholding and deliver to the
Agent such an official receipt, certificate or other proof
evidencing the amount paid in respect of such deduction
23
<PAGE> 28
or withholding. Any additional amount paid under this sub-clause
shall not be treated as interest but as agreed compensation.
(c) If any payment by the Company is made to or for
the account of any Bank after deduction for or on account of tax,
and additional payments are made by the Company, then, if any Bank
shall receive or be granted a credit against or remission for such
tax, that Bank shall, to the extent that it can do so without
prejudice to the retention of the amount of such credit or
remission, reimburse to the Company such amount as that Bank shall,
in its reasonable opinion, have concluded to be attributable to the
relevant tax or deduction or withholding. A statement as to the
amount of such reimbursement, prepared in good faith and in
reasonable detail by the Bank and submitted by the Bank to the
Company following the Company's written request, shall be conclusive
and binding for all purposes absent manifest error in computation.
Nothing herein contained shall interfere with the right of any Bank
to arrange its affairs in whatever manner it thinks fit and, in
particular, the Banks shall not be under any obligation to claim
relief from its corporation profits or similar tax liability in
respect of such tax in priority to any other claims, reliefs,
credits or deductions available to it nor oblige any Bank to
disclose any information relating to its tax affairs. Such
reimbursement shall be made as soon as reasonably practical upon
such Bank certifying that the amount of such credit or remission has
been received by it.
3.6. Payment on Non-Business Day; Payment Computations.
Except as otherwise provided in this Agreement to the contrary,
whenever any installment of principal of, or interest on, any Loan
or any other amount due hereunder becomes due and payable on a day
which is not a Business Day, the maturity thereof shall be extended
to the next succeeding Business Day and, in the case of any
installment of principal, interest shall be payable thereon at the
rate per annum determined in accordance with this Agreement during
such extension. Computations of interest and other amounts due
under this Agreement shall be made on the basis of a year of 360
days, or 365 or 366 days, as determined by custom in the relevant
market, for the actual number of days elapsed, including the first
day but excluding the last day of the relevant period.
3.7. Additional Costs. (a) In the event that any
applicable law, treaty, rule or regulation (whether domestic or
foreign) now or hereafter in effect and whether or not presently
applicable to any Bank, or any interpretation or administration
thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by any Bank
with any guideline, request or directive of any such authority
(whether or not having the force of law), shall (i) affect the basis
of taxation of payments to the Bank of any amounts payable by the
Company under this Agreement (other than taxes imposed on the
overall net income of the Bank, by the jurisdiction, or by any
political subdivision or taxing authority of any such jurisdiction,
in which the Bank has its principal office), or (ii) shall impose,
modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of,
or credit extended by the Bank, or (iii) shall impose any other
condition with respect to this Agreement, the Commitment, the
Advances, any Letter of Credit, the Notes, or the Loans, and the
result of any of the foregoing is to increase the cost to the Bank
of making,
24
<PAGE> 29
funding or maintaining any Eurocurrency Rate Loan or any
Letter of Credit, or to reduce the amount of any sum receivable by
the Bank thereon, then the Company shall pay to the Bank, from time
to time, upon request by the Bank, additional amounts sufficient to
compensate the Bank for such increased cost or reduced sum
receivable to the extent, in the case of any Eurocurrency Rate Loan,
the Bank is not compensated therefor in the computation of the
interest rate applicable to such Eurocurrency Rate Loan. A
statement as to the amount of such increased cost or reduced sum
receivable, prepared in good faith and in reasonable detail by the
Bank and submitted by the Bank to the Company, shall be conclusive
and binding for all purposes absent manifest error in computation.
(b) In the event that any applicable law, treaty,
rule or regulation (whether domestic or foreign) now or hereafter
in effect and whether or not presently applicable to any Bank, or
any interpretation or administration thereof by any governmental
authority charged with the interpretation or administration thereof,
or compliance by any Bank with any guideline, request or directive
of any such authority (whether or not having the force of law),
including any risk-based capital guidelines, affects or would affect
the amount of capital required or expected to be maintained by any
Bank (or any corporation controlling the Bank) and the Bank
determines that the amount of such capital is increased by or based
upon the existence of the Bank's obligations hereunder and such
increase has the effect of reducing the rate of return on the Bank's
(or such controlling corporation's) capital as a consequence of such
obligations hereunder to a level below that which the Bank (or such
controlling corporation) could have achieved but for such
circumstances (taking into consideration its policies with respect
to capital adequacy) by an amount deemed by the Bank to be material,
then the Company shall pay to the Bank, from time to time, upon
request by the Bank, additional amounts sufficient to compensate the
Bank (or such controlling corporation) for any increase in the
amount of capital and reduced rate of return which the Bank
reasonably determines to be allocable to the existence of the Bank's
obligations hereunder. A statement as to the amount of such
compensation, prepared in good faith and in reasonable detail by the
Bank and submitted by the Bank to the Company, shall be conclusive
and binding for all purposes absent manifest error in computation.
3.8. Illegality and Impossibility. In the event that any
applicable law, treaty, rule or regulation (whether domestic or
foreign) now or hereafter in effect and whether or not presently
applicable to any Bank, or any interpretation or administration
thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by any Bank
with any guideline, request or directive of such authority (whether
or not having the force of law), including without limitation
exchange controls, shall make it unlawful or impossible for the Bank
to maintain any Eurocurrency Rate Loan or Letter of Credit under
this Agreement, the Company shall, upon receiving notice thereof
from the Bank, repay in full the then-outstanding principal amount
of each Eurocurrency Rate Loan so affected or provide cash
collateral equal to the outstanding amount of the Letter of Credit
so affected, together with all accrued interest thereon to the date
of payment and all amounts owing to the Bank under Section 3.9, (a)
on the last day of the then-current Interest Period applicable to
the affected loan if the Bank may lawfully continue to maintain the
loan to such day, or (b) immediately if the Bank may not continue to
maintain the Loan to such day or if being paid on account of a
Letter of
25
<PAGE> 30
Credit. If otherwise permitted to do so under this
Agreement, the Company may convert the principal amount of each
Eurocurrency Rate Loan so affected to a Floating Rate Loan in lieu
of repaying such Eurocurrency Rate Loan hereunder.
3.9. Indemnification. If the Company makes any payment
of principal with respect to any Eurocurrency Rate Loan or
Transaction Loan on any other date than the last day of an Interest
Period applicable thereto (whether pursuant to Section 6.2 or
otherwise), or if the Company fails to borrow any Eurocurrency Rate
Loan or Transaction Loan after notice has been given to the Agent or
a Bank, as applicable, in accordance with Sections 2.4 or 2.7, or if
the Company fails to make any payment of principal or interest in
respect of a Eurocurrency Rate Loan or Transaction Loan when due,
the Company shall reimburse the Banks on demand for any resulting
actual loss or expense incurred by the Banks, including without
limitation any actual loss incurred in obtaining, liquidating or
employing deposits from third parties, whether or not the Banks
shall have funded or committed to fund such Loan. A statement as to
the amount of such loss or expense, prepared in good faith and in
reasonable detail by the affected Bank and submitted to the Company,
shall be conclusive and binding for all purposes absent manifest
error in computation. Calculation of all amounts payable to a Bank
under this Section 3.9 shall be made as though the Bank shall have
actually funded or committed to fund the relevant Eurocurrency Rate
Loan or Transaction Loan through the purchase of an underlying
deposit in an amount equal to the amount of the Loan and having a
maturity comparable to the related Interest Period; provided,
however, that each Bank may fund any Eurocurrency Rate Loan or
Transaction Loan in any manner it sees fit and the foregoing
assumption shall be utilized only for the purpose of calculating
amounts payable under this Section 3.9.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants that:
4.1. Corporate Existence and Power. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Michigan, and is duly qualified to
do business, and is in good standing, in all additional
jurisdictions where such qualification is necessary under applicable
law. The Company has all requisite corporate power to own or lease
the properties used in its business and to carry on its business as
now being conducted and as proposed to be conducted, and to execute
and deliver this Agreement, the Notes, and the other Loan Documents
and to engage in the transactions contemplated by this Agreement.
4.2. Corporate Authority. The execution, delivery and
performance by the Company of this Agreement, the Notes, and the
other Loan Documents have been duly authorized by all necessary
corporate action and are not in contravention of any law, rule or
regulation, or any judgment, decree, writ, injunction, order or
award of any arbitrator, court or governmental authority, or of the
terms of the Company's articles of incorporation or by-laws, or of
any
26
<PAGE> 31
contract or undertaking to which the Company is a party or by
which the Company or its property may be bound or affected or result
in the imposition of any lien except for Permitted Liens.
4.3. Binding Effect. This Agreement is, and the Notes
and the other Loan Documents when delivered hereunder will be,
legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms.
4.4. Subsidiaries. Schedule 4.4 hereto correctly sets
forth the corporate or partnership name, jurisdiction of
incorporation or registration of partnership, and ownership of each
Subsidiary of the Company. Each such Subsidiary and each
corporation becoming a Subsidiary of the Company after the date
hereof is and will be a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of
incorporation and is and will be duly qualified to do business in
each additional jurisdiction where such qualification is or may be
necessary under applicable law. Each Subsidiary of the Company has
and will have all requisite corporate power to own or lease the
properties used in its business and to carry on its business as now
being conducted and as proposed to be conducted.
4.5. Litigation. Except as set forth in Schedule 4.5,
there is no action, suit or proceeding pending or, to the best of
the Company's knowledge, threatened against or affecting the Company
or any of its Subsidiaries before or by any court, governmental
authority or arbitrator, which if adversely decided might result,
either individually or collectively, in any material adverse change
in the business, properties, operations or condition, financial or
otherwise, of the Company or any of its Subsidiaries or in any
material adverse effect on the legality, validity or enforceability
of this Agreement, the Notes, or the other Loan Documents, and, to
the best of the Company's knowledge, there is no basis for any such
action, suit or proceeding.
4.6. Financial Condition. The consolidated balance sheet
of the Company and its Subsidiaries and the consolidated statements
of income, retained earnings and changes in financial position of
the Company and its Subsidiaries for the fiscal year ended July 1,
1995, and reported on by BDO Seidman, independent certified public
accountants, and the interim consolidated balance sheet and interim
consolidated statements of income, retained earnings and changes in
financial position of the Company and its Subsidiaries, as of or for
the three-month period ended on September 30, 1995, copies of which
have been furnished to the Banks, fairly present, and the financial
statements of the Company and its Subsidiaries delivered pursuant to
Section 5.1 will fairly present, the consolidated financial position
of the Company and its Subsidiaries as at the respective dates
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 said 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 or any of its
Subsidiaries since July 1, 1995. There is no material contingent
liability of the Company or any of its Subsidiaries that is not
reflected in such financial statements or in the notes thereto.
27
<PAGE> 32
4.7. Use of Loans. The Company will use the Advances for
its general corporate purposes. Neither the Company nor any of its
Subsidiaries extends or maintains, in the ordinary course of
business, credit for the purpose, whether immediate, incidental, or
ultimate, of buying or carrying margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Loan will be used for
the purpose, whether immediate, incidental, or ultimate, of buying
or carrying any such margin stock or maintaining or extending credit
to others for such purpose. After applying the proceeds of each
Loan, such margin stock will not constitute more than 25% of the
value of the assets (either of the Company alone or of the Company
and its Subsidiaries on a consolidated basis) that are subject to
any provisions of this Agreement that may cause the Advances to be
deemed secured, directly or indirectly, by margin stock.
4.8. Consents, Etc. No consent, approval or authorization
of or declaration, registration or filing with any governmental
authority or any nongovernmental person or entity, including without
limitation any creditor, lessor or stockholder of the Company or any
of its Subsidiaries, is required on the part of the Company in
connection with the execution, delivery and performance of this
Agreement, the Notes, or the other Loan Documents, or the
transactions contemplated hereby or as a condition to the legality,
validity or enforceability of this Agreement, the Notes, or the
other Loan Documents.
4.9. Taxes. The Company and its Subsidiaries have filed
all tax returns (federal, state and local) required to be filed and
have paid all taxes shown thereon to be due, including interest and
penalties, or have established adequate financial reserves on their
respective books and records for payment thereof. Neither the
Company nor any of its Subsidiaries knows of any actual or proposed
tax assessment or any basis therefor, and no extension of time for
the assessment of deficiencies in any federal or state tax has been
granted by the Company or any Subsidiary.
4.10. ERISA. The Company, its Subsidiaries, their
ERISA Affiliates and their respective Plans are in compliance in all
material respects with those provisions of ERISA and of the Code
which are applicable with respect to any Plan. No Prohibited
Transaction and no Reportable Event has occurred with respect to any
such Plan. None of the Company, any of its Subsidiaries or any of
their ERISA Affiliates is an employer with respect to any
Multiemployer Plan. The Company, its Subsidiaries and their ERISA
Affiliates have met the minimum funding requirements under ERISA and
the Code with respect to each of their respective Plans, if any, and
have not incurred any liability to the PBGC or any Plan. The
execution, delivery and performance of this Agreement and the
issuance and payment of the Notes do not constitute a Prohibited
Transaction. There is no material unfunded benefit liability,
determined in accordance with Section 4001(a)(18) of ERISA, with
respect to any Plan of the Company, its Subsidiaries or their ERISA
Affiliates.
4.11. Disclosure. No report or other information
furnished in writing or on behalf of the Company to the Agent or the
Banks in connection with negotiating or administrating this
Agreement or the 1995 Agreement contains any material misstatement
of fact
28
<PAGE> 33
or omits to state any material fact or any fact necessary
to make the statements contained therein not misleading. Neither
this Agreement, the Notes nor any other Loan Document furnished to
the Agent or the Banks by or on behalf of the Company in connection
with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact in
order to make the statements contained herein and therein not
misleading. There is no fact known to the Company which materially
and adversely affects, or which in the future may (so far as the
Company can now foresee) materially and adversely affect, the
business, properties, operations or condition, financial or
otherwise, of the Company or any Subsidiary, which has not been set
forth in this Agreement or in the other documents, certificates,
statements, reports and other information furnished in writing to
the Agent and the Banks by or on behalf of the Company in connection
with the transactions contemplated hereby.
ARTICLE V
COVENANTS
.1.. Affirmative Covenants. The Company covenants and
agrees that, until the Maturity Date and thereafter until payment
in full of the principal of and accrued interest on the Notes and
the performance of all other obligations of the Company under this
Agreement, unless the Required Banks shall otherwise consent in
writing, it will:
.2.
(a) Maintain Corporate Existence. Maintain, and
cause each of its Significant Subsidiaries to maintain, its
corporate existence in good standing and maintain or obtain, and
cause each of its Significant Subsidiaries to maintain or obtain,
those qualifications required by the states or countries where it
is conducting business.
(b) Compliance with Laws, Etc. Comply, and cause
each of its Subsidiaries to comply, in all material respects with
all applicable laws, rules, regulations and orders of any
governmental authority, whether federal, state, local or foreign
(including without limitation ERISA, the Code, and Environmental
Laws), in effect from time to time; and pay and discharge, and cause
each of its Subsidiaries to pay and discharge, promptly when due,
all lawful claims for labor, materials and supplies or otherwise,
which, if unpaid, might give rise to Liens upon such properties or
any portion thereof, except to the extent that payment of any of the
foregoing is then being contested in good faith by appropriate legal
proceedings and with respect to which adequate financial reserves
have been established on the books and records of the Company or
such Subsidiary.
(c) Payment of Taxes. Pay and discharge, and cause
each of its Subsidiaries to pay and discharge, promptly when due,
all property, income and other tax assessments and governmental
charges of every kind and nature lawfully levied, assessed or
imposed upon it or its properties, except to the extent contested in
good faith.
29
<PAGE> 34
(d) Maintenance of Properties; Insurance. Maintain
and protect, and cause each Subsidiary to maintain and protect, all
property that is material to the Company and each Significant
Subsidiary in conducting its business and keep such property in good
repair, working order, and condition, and, from time to time, make
or cause to be made all needful repairs, renewals, additions, and
improvements necessary in order that the business carried on in
connection therewith may be properly conducted at all times in
accordance with customary and prudent business practices for similar
businesses; and maintain, and cause each of its Subsidiaries to
maintain, with financially sound and responsible companies,
insurance in such forms and in such amounts and against such risks
as is customarily carried by like persons engaged in the same
business and operating like properties, and deliver to the Agent
evidence satisfactory to the Agent that such insurance has been
procured. Self-insurance is permissible provided that customary
stop-loss insurance is maintained and the Agent is promptly notified
of such self-insurance being implemented.
(e) Reporting Requirements. Furnish to the Agent
and the Banks the following:
(i)Promptly, upon the occurrence of any Event of Default as defined herein,
or any event which, with notice or lapse of time or both, would
constitute an Event of Default, or of any occurrence having a
materially adverse effect upon the Company's financial condition or
upon the ability to comply with its obligations hereunder or under
any other agreement to which it is a party, notice of such
occurrence.
(ii)Within forty-five (45) days after the end of each of the first three
quarterly periods of each fiscal year of the Company and within
ninety (90) days after the close of each fiscal year of the Company,
consolidated and consolidating balance sheets of the Company and its
Subsidiaries as of such date and related statements of income for
the fiscal year or year-to-date portion thereof then ended, all in
reasonable detail, unaudited and subject to normal year-end
adjustments but, in the case of fiscal year statements, audited by
BDO Seidman or another certified public accountant or firm of
certified public accountants acceptable to the Agent. Each
financial report of the Company shall be accompanied by a
certificate of a principal officer of the Company stating that it
has been prepared in accordance with generally accepted accounting
principles consistently applied and fairly presents the financial
condition of the Company and its Subsidiaries as of the date of said
balance sheet and of the results of operations for the year-to-date
period then ended, and shall include a certificate of such officer
demonstrating compliance with the covenants contained in Sections
5.2(a)-(d) and (i), and stating whether such officer is aware of any
Event of Default or any event or condition which, with notice or
lapse of time, or both, would constitute an Event of Default, and,
if such an Event of Default or event or condition then exists and is
continuing, a statement setting forth the nature and status thereof.
(iii)The Company agrees promptly to provide the Agent and the Banks with each
report or form filed by the Company with the Securities and Exchange
Commission
30
<PAGE> 35
and all documents supplied contemporaneously with such
filing, and with such other information as the Agent or the Banks
may reasonably request from time to time.
(f) Accounting; Access to Records, Books, Etc.
Maintain a system of accounting established and administered in
accordance with sound business practices to permit financial
statements to be prepared in accordance with generally accepted
accounting principles and to comply with the requirements of this
Agreement and, at any reasonable time and from time to time upon
prior notice to the Company, permit the Agent or any Bank or any
agents or representatives thereof to examine any of the Company's
books and records.
5.2. Negative Covenants. The Company covenants and agrees
that, until the Maturity Date and thereafter until payment in full
of the principal of and accrued interest on the Notes and the
performance of all other obligations of the Company under this
Agreement and the other Loan Documents, unless the Required Banks
shall otherwise consent in writing, it will not and will not permit
any Subsidiary to:
(a) Tangible Net Worth. Permit or suffer
Consolidated Tangible Net Worth of the Company and its Subsidiaries
to be less than $65,000,000, increasing by fifty percent of the
Consolidated Net Income of the Company and its Subsidiaries, if
positive, for each fiscal year commencing with the fiscal year ended
June 29, 1996, and continuing thereafter.
(b) Interest Coverage Ratio. Permit or suffer the
Interest Coverage Ratio to be less than 2.0 to 1.0, calculated as of
the end of each fiscal quarter.
(c) Funded Debt to Total Capitalization. Permit
or suffer the ratio of Consolidated Funded Debt of the Company and
its Subsidiaries to Consolidated Total Capitalization of the Company
and its Subsidiaries to exceed .70 to 1.0.
(d) Loans. Permit outstanding loans or advances
by the Company or its Subsidiaries to their respective officers,
directors, shareholders and employees, or any persons related to any
such persons by blood or marriage which exceed, in the aggregate,
$500,000 at any time.
(e) Merger. Merge or consolidate or amalgamate with
any other person or take any other action having a similar effect;
provided, however, that this Section shall not prohibit any merger
or acquisition of or by the Company if the Company shall be the
surviving or continuing corporation thereof and, immediately after
such merger or acquisition, no Default or Event of Default shall
exist or shall have occurred and be continuing.
(f) Nature of Business. Make any material change
in the manner in which the business of the Company is conducted.
(g) Liens. Create, incur, assume or suffer to exist
any mortgage, pledge, encumbrance, security interest, lien or charge
of any kind upon any of the Company's or any
31
<PAGE> 36
Subsidiary's properties
or assets (including the right to receive income) whether now owned
or hereafter acquired, other than in favor of the Agent and the
Banks to secure the obligations of the Company hereunder, except (i)
Liens for taxes not delinquent, or being contested in good faith and
the payment of which is secured in a manner satisfactory to the
Agent, (ii) Liens not delinquent created by statute in connection
with worker's compensation, unemployment insurance, social security,
and similar statutory obligations, (iii) Liens disclosed to the
Agent and each Bank on Schedule 5.2(g), (iv) Capital Leases, (v)
purchase money security interests in machinery, equipment, fixtures,
or other personal property, not including inventory or supplies,
purchased by the Company or any Subsidiary and given to secure the
deferred purchase price, provided that no such purchase money
security interest shall extend to or cover any assets of the Company
or any Subsidiary other than the asset being purchased and that the
security interest in the asset being purchased shall secure only the
purchase price thereof, (vi) Liens on tangible operating assets to
secure tax-advantaged financings not exceeding the aggregate
principal amount of $20,000,000 at any one time outstanding obtained
by the Company or any Subsidiary, provided that no such Lien shall
extend to or cover any assets of the Company or any Subsidiary other
than assets being purchased with the proceeds of the financing and
that the security interest in the assets being purchased shall
secure only the purchase price thereof and (vii) Liens in connection
with transactions permitted by Section 5.2(j).
(h) Disposition of Assets; Etc. Sell, lease,
license, transfer, assign or otherwise dispose of any portion of its
business, assets, rights, revenues or property, real, personal or
mixed, tangible or intangible, whether in one or a series of
transactions (other than inventory sold in the ordinary course of
business upon customary credit terms and sales of scrap or obsolete
material or equipment and sales of Receivables pursuant to Section
5.2(j)), provided, however, that this Section 5.2(h) shall not
prohibit any such sale, lease, license, transfer, assignment or
other disposition if the aggregate book value (disregarding any
write-downs of such book value other than ordinary depreciation and
amortization) of all of the business, assets, rights, revenues and
property involved in the transaction or series of transactions,
together with such aggregate book value of all other business,
assets, rights, revenues and property sold, leased, licensed,
transferred or otherwise disposed of by the Company and its
Subsidiaries in the same fiscal year of the Company constitutes less
than 10% of the aggregate book value of the consolidated total
tangible assets of the Company and its Subsidiaries as of the end of
the preceding fiscal year of the Company and, together with the
aggregate book value of all other business, assets, rights, revenues
and property sold, leased, licensed, transferred or otherwise
disposed of by the Company and its Subsidiaries during the entire
period subsequent to the Effective Date of this Agreement
constitutes less than 25% of the aggregate book value of
consolidated total tangible assets of the Company and its
Subsidiaries as of the end of the last fiscal year of the Company
preceding such sale, lease, license, transfer, assignment or
disposition, and if, immediately after such transaction, no Default
or Event of Default shall exist or shall have occurred and be
continuing. For purposes of calculating the aggregate book value of
any business, assets, rights, revenues and property sold, leased,
licensed, transferred or otherwise disposed of by the Company, there
shall be excluded any sale or transfer of Receivables permitted by
Section 5.2(j).
32
<PAGE> 37
(i) Investments. Make, permit or suffer to exist
any investment in the stock or securities of, make loans or advances
to, or make, permit or suffer to exist a liability as guarantor,
surety or indemnitor with respect to any Indebtedness or other
obligation of, any entity which is not consolidated with the Company
for financial reporting purposes, in an amount which, together with
the aggregate amount of all such investments, loans, advances and
liabilities made or existing subsequent to the Effective Date of
this Agreement, exceeds 20% of the Consolidated Tangible Net Worth
of the Company and its Subsidiaries, provided, that in addition to
the items permitted above, the Company may also invest in, advance
to, or guaranty debt of (i) Applied Films in principal amount not
exceeding in the aggregate $10,000,000, and (ii) Hohe in principal
amount not exceeding in the aggregate $35,000,000.
(j) Sale of Receivables. Sell, lease, transfer,
assign or otherwise dispose of any Receivables of the Company or any
of its Subsidiaries except for the sale, lease, transfer, assignment
or other disposition of Receivables of the Company or any Subsidiary
(whether directly or indirectly through a special purpose entity all
of the equity interests in which are owned directly or indirectly by
the Company or any of its Subsidiaries) to any Person pursuant to a
written agreement to provide for the securitization of such
Receivables; provided that (i) the investment arising as a result of
such transaction, when aggregated with the remaining unpaid
investment of such other Person or Persons in respect of all prior
such sales shall not exceed $50,000,000; (ii) such sale is for all
cash consideration (whether payable immediately or on a deferred
basis) and (iii) such sale is treated as a sale of such Receivables
under generally accepted accounting principles.
ARTICLE VI
DEFAULT
6.1. Events of Default. The occurrence of any one of the
following events or conditions shall be deemed an "Event of Default"
hereunder unless waived by the Required Banks pursuant to Section
8.1:
(a) Nonpayment. The Company shall fail to pay on
the date when due any principal of the Notes, or the Company shall
fail to pay within five days after the date when due any interest
on the Notes or any fees or any other amount payable hereunder; or
(b) Misrepresentation. Any representation or
warranty made by the Company in Article IV or any other certificate,
report, financial statement or other document furnished by or on
behalf of the Company in connection with this Agreement or the 1995
Agreement, shall prove to have been incorrect in any material
respect when made or deemed made; or
(c) Certain Covenants. The Company shall fail to
perform or observe any term, covenant or agreement contained in
Sections 5.2(d), (e), (h), or (i); or
33
<PAGE> 38
(d) Other Defaults. The Company shall fail to
perform or observe any other term, covenant or agreement contained
in this Agreement, and, if capable of remedy, any such failure shall
remain unremedied for 20 calendar days after notice thereof shall
have been given to the Company by the Agent, provided, however,
that, except for any such failure occurring under Sections 5.1(e),
5.2(a), (b), and (c), so long as the Company, in the Required Banks'
judgment, is diligently pursuing the remedy of such failure, but in
no event for a period longer than 90 calendar days, such failure
shall not be deemed an Event of Default; or
(e) Cross-Default. The Company or any of its
Subsidiaries shall fail to pay any part of the principal of, the
premium, if any, or the interest on, or any other payment of money
due under any of its Indebtedness (other than Indebtedness
hereunder) or the Guaranty, beyond any period of grace provided with
respect thereto, which individually or together with other such
Indebtedness as to which any such failure exists has an aggregate
outstanding principal amount in excess of $5,000,000; or if the
Company or any of its Subsidiaries fails to perform or observe any
other term, covenant or agreement contained in any agreement,
document or instrument evidencing or securing any such Indebtedness
or the Guaranty, or under which any such Indebtedness or the
Guaranty was issued or created, beyond any period of grace, if any,
provided with respect thereto, which Indebtedness, individually or
together with such other Indebtedness as to which any such failure
exists, has an aggregate outstanding principal amount in excess of
$5,000,000, if the effect of such failure is to cause, or permit the
holders of such Indebtedness (or a trustee on behalf of such
holders) to cause, any payment in respect of such Indebtedness to
become due prior to its due date; or
(f) ERISA. The occurrence of a Reportable Event
that results in or could result in liability of the Company, any
Subsidiary of the Company or their ERISA Affiliates to the PBGC or
to any Plan and such Reportable Event is not corrected within thirty
(30) days after the occurrence thereof; or the occurrence of any
Reportable Event which could constitute grounds for termination of
any Plan of the Company, its Subsidiaries or their ERISA Affiliates
by the PBGC or for the appointment by the appropriate United States
District Court of a trustee to administer any such Plan and such
Reportable Event is not corrected within thirty (30) days after the
occurrence thereof; or the filing by the Company, any Subsidiary of
the Company or any of their ERISA Affiliates of a notice of intent
to terminate a Plan or the institution of other proceedings to
terminate a Plan; or the Company, any Subsidiary of the Company or
any of their ERISA Affiliates shall fail to pay when due any
liability to the PBGC or to a Plan; or the PBGC shall have
instituted proceedings to terminate, or to cause a trustee to be
appointed to administer, any Plan of the Company, its Subsidiaries
or their ERISA Affiliates; or any person engages in a Prohibited
Transaction with respect to any Plan which results in or could
result in liability of the Company, any Subsidiary of the Company,
any of their ERISA Affiliates, any Plan of the Company, its
Subsidiaries or their ERISA Affiliates or fiduciary of any such
Plan; or failure by the Company, any Subsidiary of the Company or
any of their ERISA Affiliates to make a required installment or
other payment to any Plan within the meaning of Section 302(f) of
ERISA or Section 412(n) of the Code that results in or could result
in liability of the Company, any Subsidiary of the Company or any of
their ERISA Affiliates to the PBGC or any Plan; or the withdrawal of
the Company, any of its Subsidiaries or any of their ERISA
34
<PAGE> 39
Affiliates from a Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(9a)(2) of ERISA;
or the Company, any of its Subsidiaries or any of their ERISA
Affiliates becomes an employer with respect to any Multiemployer
Plan without the prior written consent of the Bank; or
(g) Judgments. One or more judgments or orders for
the payment of money shall be rendered against the Company or any of
its Subsidiaries, or any other judgment or order (whether or not for
the payment of money) shall be rendered against or shall affect the
Company or any of its Subsidiaries which causes or could cause a
material adverse change in the business, properties, operations or
condition, financial or otherwise, of the Company or any of its
Subsidiaries or which does or could have a material adverse effect
on the legality, validity or enforceability of this Agreement or the
Notes and either (i) such judgment or order shall have remained
unsatisfied and the Company or such Subsidiary shall not have taken
action necessary to stay enforcement thereof by reason of pending
appeal or otherwise, prior to the expiration of the applicable
period of limitations for taking such action or, if such action
shall have been taken, a final order denying such stay shall have
been rendered, or (ii) enforcement proceedings shall have been
commenced by any creditor upon such judgment or order; or
(h) Insolvency, Etc. The Company or any Significant
Subsidiary shall be dissolved or liquidated (or any judgment, order
or decree therefor shall be entered), or shall generally not pay its
debts as they become due, or shall admit in writing its inability to
pay its debts generally, or shall make a general assignment for the
benefit of creditors, or shall institute, or there shall be
instituted against the Company or any Significant Subsidiary, any
proceeding or case seeking to adjudicate it a bankrupt or insolvent
or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization
or relief or protection of debtors or seeking the entry of an order
for relief, or the appointment of a receiver, trustee, custodian or
other similar official for it or for any substantial part of its
assets, rights, revenues or property, and, if such proceeding is
instituted against the Company or such Significant Subsidiary and is
being contested by the Company or such Significant Subsidiary, as
the case may be, in good faith by appropriate proceedings, such
proceeding shall remain undismissed or unstayed for a period of 60
days; or the Company or such Significant Subsidiary shall take any
action (corporate or other) to authorize or further any of the
actions described above in this subsection.
6.2. Remedies. (a) Upon the occurrence and during the
continuance of any Event of Default, the Agent, with the Required
Banks' consent, may or, at the Required Banks' direction, shall, by
notice to the Company, (i) terminate the Commitments or (ii) declare
the outstanding principal of, and accrued interest on, the Notes and
all other amounts owing under this Agreement (including without
limitation all obligations to provide cash collateral) to be
immediately due and payable whereupon the Commitments shall
terminate forthwith and all such amounts shall become immediately
due and payable, provided, that in the case of any event or
condition described in Section 6.1(h) with respect to the Company,
the Commitments shall automatically terminate forthwith and all such
amounts (including without limitation all obligations to provide
cash collateral) shall automatically become immediately due and
payable
35
<PAGE> 40
without notice; in all cases without demand, presentment,
protest, diligence, notice of dishonor or other formality, all of
which are hereby expressly waived.
(b) The Agent may, and upon being directed to do
so by the Required Banks, shall, in addition to the remedies
provided in Section 6.2(a), exercise and enforce any and all other
available rights and remedies, whether arising under this Agreement,
the Notes or under applicable law, in any manner deemed appropriate
by the Agent, including suits in equity, actions at law, or 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 exercising any power
granted in this Agreement or the Notes.
(c) Upon the occurrence and during the continuance
of any Event of Default, each Bank may at any time and from time to
time, without notice to the Company (any requirement for such notice
being expressly waived by the Company) set off and apply against any
and all of the obligations of the Company now or hereafter existing
under this Agreement any and all deposits (general or special, time
or demand, provisional or final) at any time held and other
indebtedness at any time owing by the Bank to or for the credit or
the account of the Company and any property of the Company from time
to time in possession of the Bank, irrespective of whether or not
the Bank shall have made any demand hereunder and although such
obligations may be contingent and unmatured. The Company hereby
grants to the Agent and the Banks a lien on and security interest in
all such deposits, indebtedness and property as collateral security
for the payment and performance of the obligations of the Company
under this Agreement. The rights of the Banks under this
Section 6.2(c) are in addition to other rights and remedies
(including, without limitation, other rights of setoff) which the
Banks may have.
ARTICLE VII
THE AGENT AND THE BANKS
7.1. Appointment and Authorization. Each Bank hereby
irrevocably appoints and authorizes the Agent to take such action
as agent on its behalf and to exercise such powers under this
Agreement, the Notes, and the other Loan Documents as are delegated
to the Agent by the terms hereof or thereof, together with all such
powers as are reasonably incidental thereto. The provisions of this
Article VII are solely for the benefit of the Agent and the Banks,
and the Company shall not have any rights as a third party
beneficiary of any of the provisions hereof. In performing its
functions and duties under this Agreement, the Agent shall act
solely as agent of the Banks and does not assume and shall not be
deemed to have assumed any obligation towards or relationship of
agency or trust with or for the Company.
7.2. Agent and Affiliates. First Chicago, in its capacity
as a Bank, shall have the same rights and powers hereunder as any
other Bank and may exercise or refrain from exercising the same as
though it were not the Agent. First Chicago and its affiliates may
(without having to account therefor to any Bank) accept deposits
from, lend money to, and generally engage in any kind of banking,
trust, financial advisory or other business with the
36
<PAGE> 41
Company or any Subsidiary of the Company as if it were not acting as
Agent hereunder, and may accept fees and other consideration therefor
without having to account for the same to the Banks.
7.3. Scope of Agent's Duties. The Agent shall have no
duties or responsibilities except those expressly set forth herein,
and shall not, by reason of this Agreement, have a fiduciary
relationship with any Bank, and no implied covenants,
responsibilities, duties, obligations or liabilities shall be read
into this Agreement or shall otherwise exist against the Agent. As
to any matters not expressly provided for by this Agreement
(including, without limitation, collection and enforcement actions
under the Notes), the Agent shall not be required to exercise any
discretion or take any action, but the Agent shall take such action
or omit to take any action pursuant to the reasonable written
instructions of the Required Banks and may request instructions from
the Required Banks. The Agent shall in all cases be fully protected
in acting, or in refraining from acting, pursuant to the written
instructions of the Banks or the Required Banks, as the case may be,
which instructions and any action or omission pursuant thereto shall
be binding upon all of the Banks; provided, however, that the Agent
shall not be required to act or omit to act if, in the judgment of
the Agent, such action or omission may expose the Agent to personal
liability or is contrary to this Agreement, the Notes, or applicable
law.
7.4. Reliance by Agent. The Agent shall be entitled to
rely upon any certificate, notice, document or other communication
(including any cable, telegram, telex, facsimile transmission or
oral communication) believed by it to be genuine and correct and to
have been sent or given by or on behalf of a proper person. The
Agent may treat the payee of any Note as the holder thereof. The
Agent may employ agents (including without limitation collateral
agents) and may consult with legal counsel (who may be counsel for
the Company), independent public accountants and other experts
selected by it and shall not be liable to the Banks, except as to
money or property received by it or its authorized agents, for the
negligence or misconduct of any such agent selected by it with
reasonable care or for any action taken or omitted to be taken by it
in good faith in accordance with the advice of such counsel,
accountants or experts.
7.5. Default. The Agent shall not be deemed to have
knowledge of the occurrence of any Default or Event of Default,
unless the Agent has received written notice from a Bank or the
Company specifying such Default or Event of Default and stating that
such notice is a "Notice of Default". In the event that the Agent
receives such a notice, the Agent shall promptly give written notice
thereof to the Banks or the Company, as the case may be.
7.6. Liability of Agent. Neither the Agent nor any of
its directors, officers, agents, or employees shall be liable to the
Banks for any action taken or not taken by it or them in connection
herewith with the consent or at the request of the Required Banks or
in the absence of its or their own gross negligence or willful
misconduct. Neither the Agent nor any of its directors, officers,
agents or employees shall be responsible for or have any duty to
ascertain, inquire into or verify (i) any recital, statement,
warranty or representation contained in this Agreement or any Note,
or in any certificate, report, financial statement or other document
furnished in connection with this Agreement, (ii) the performance or
observance of any of the covenants or agreements of the Company,
(iii) the satisfaction of any condition specified in
37
<PAGE> 42
Article II, or (iv) the validity, effectiveness, legal enforceability,
value or genuineness of this Agreement, the Notes, or any other
instrument or document furnished in connection herewith.
7.7. Nonreliance on Agent and Other Banks. Each Bank
acknowledges and agrees that it has, independently and without
reliance on the Agent or any other Bank, and based on such documents
and information as it has deemed appropriate, made its own credit
analysis of the Company and decision to enter into this Agreement
and that it will, independently and without reliance upon the Agent
or any other Bank, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own
analysis and decision in taking or not taking action under this
Agreement. The Agent shall not be required to keep itself informed
as to the performance or observance by the Company of this
Agreement, the Notes, or any other documents referred to or provided
for herein or to inspect the properties or books of the Company.
Except for notices, reports and other documents and information
expressly required to be furnished to the Banks by the Agent
hereunder, the Agent shall not have any duty or responsibility to
provide any Bank with any information concerning the affairs,
financial condition or business of the Company or any of its
Subsidiaries which may come into the possession of the Agent or any
of its affiliates.
7.8. Indemnification. The Banks agree to indemnify the
Agent (to the extent not reimbursed by the Company, but without
limiting any obligation of the Company to make such reimbursement),
ratably according to the respective amounts of their Commitments or
if the Commitments have been terminated, ratably according to the
principal amounts of the Advances then outstanding made by each of
them, from and against any and all claims, damages, losses,
liabilities, costs or expenses of any kind or nature whatsoever
(including, without limitation, fees and disbursements of counsel)
which may be imposed on, incurred by, or asserted against the Agent
in any way relating to or arising out of this Agreement or the
transactions contemplated hereby or any action taken or omitted by
the Agent under this Agreement, provided, however, that no Bank
shall be liable for any portion of such claims, damages, losses,
liabilities, costs or expenses which are paid by the Company or
which result from the Agent's gross negligence or willful
misconduct. Without limiting the foregoing, each Bank agrees to
reimburse the Agent promptly upon demand for its ratable share of
any out-of-pocket expenses (including without limitation the
reasonable fees and expenses of counsel) incurred by the Agent in
connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this
Agreement, to the extent that the Agent is not reimbursed for such
expenses by the Company, but without limiting the obligation of the
Company to make such reimbursement. If the indemnity furnished to
the Agent under this Section shall, in the judgment of the Agent, be
insufficient or become impaired, the Agent may call for additional
indemnity from the Banks and cease, or not commence, to take any
action until such additional indemnity is furnished.
7.9. Resignation of Agent. The Agent may resign as such
at any time upon thirty days' prior written notice to the Company
and the Banks. In the event of any such resignation, the Banks
shall, by an instrument in writing delivered to the Company and the
Agent,
38
<PAGE> 43
appoint a successor, which shall be a commercial bank
organized under the laws of the United States or any State thereof
and having a combined capital and surplus of at least $500,000,000.
If a successor is not so appointed or does not accept such
appointment before the Agent's resignation becomes effective, the
resigning Agent may appoint a temporary successor to act until the
appointment by the Banks is made and accepted or, if no temporary
successor is appointed as provided above by the resigning Agent, the
Required Banks shall thereafter perform all the duties of the Agent
hereunder until such appointment by the Banks is made and accepted.
Any successor to the Agent shall execute and deliver to the Company
and the Banks an instrument accepting such appointment. At that
time, the successor Agent, without further act, deed, conveyance or
transfer, shall become vested with all of the properties, rights,
interests, powers, authorities and obligations of its predecessor
hereunder with like effect as if originally named as Agent
hereunder. Upon the successor Agent's request, the Company and the
resigning Agent shall execute and deliver all instruments of
conveyance, assignment and further assurance and do such other
things as may reasonably be required for more fully and certainly
vesting and confirming in such successor Agent all such properties,
rights, interests, powers, authorities and obligations. The
provisions of this Article VII shall thereafter remain effective for
such resigning Agent with respect to any actions taken or omitted to
be taken by such Agent while acting as the Agent hereunder.
7.10. Sharing of Payments. The Banks agree among
themselves that, in the event that any Bank shall obtain payment in
respect of any Advance or any other obligation owing to the Banks
under this Agreement through exercising a right of set-off, banker's
lien, counterclaim or otherwise in excess of its ratable share of
payments received by all of the Banks on account of the Advances and
other obligations (or if no Advances are outstanding, ratably
according to the respective amounts of the Commitments), such Bank
shall promptly purchase from the other Banks participations in such
Advances and other obligations in such amounts, and make such other
adjustments from time to time, as shall be equitable to the end that
all of the Banks share such payment in accordance with such ratable
shares, provided that prior to the occurrence of a Default or an
Event of Default each Bank shall be entitled to retain payments
received by such Bank in accordance with Section 3.4 with respect to
Transaction Loans made by such Bank. The Banks further agree among
themselves that if payment to a Bank obtained by such Bank through
exercising a right of set-off, banker's lien, counterclaim or
otherwise as aforesaid shall be rescinded or must otherwise be
restored, each Bank which shall have shared the benefit of such
payment shall, by repurchase of participations theretofore sold,
return its share of that benefit to each Bank whose payment shall
have been rescinded or otherwise restored. The Company agrees that
any Bank so purchasing such a participation may, to the fullest
extent permitted by law, exercise all rights of payment, including
set-off, banker's lien or counterclaim, with respect to such
participation as fully as if such Bank were a holder of an Advance
or other obligation in the amount of such participation. The Banks
further agree among themselves that, in the event that amounts
received by the Banks and the Agent hereunder are insufficient to
pay all such obligations or insufficient to pay all such obligations
when due, the fees and other amounts owing to the Agent in such
capacity shall be paid therefrom before paying obligations owing to
the Banks under this Agreement. Except as otherwise expressly
provided in this Agreement, if any Bank or the Agent shall fail to
remit to the Agent or any other Bank an amount payable by such Bank
39
<PAGE> 44
or the Agent pursuant to this Agreement on the date when such amount
is due, such payments shall be made together with interest thereon
from the date such amount is due until the date such amount is paid
to the Agent or such other Bank at a rate per annum equal to the
Federal Funds Effective Rate. It is further understood and agreed
among the Banks and the Agent that if the Agent shall engage in any
other transactions with the Company and shall have the benefit of
any collateral or security therefor which does not expressly secure
the obligations arising under this Agreement except by virtue of a
so-called dragnet clause or comparable provision, the Agent shall be
entitled to apply any proceeds of such collateral or security first
in respect of the obligations arising in connection with such other
transaction before application to the obligations arising under this
Agreement.
ARTICLE VIII
MISCELLANEOUS
8.1. Amendments, Etc. No amendment, modification,
termination or waiver of any provision of this Agreement nor any
consent to any departure therefrom shall be effective unless the
same shall be in writing and signed by the Required Banks and, to
the extent any rights or duties of the Agent may be affected
thereby, the Agent, provided, however, that no such amendment,
modification, termination, waiver or consent shall, without the
consent of the Agent and all of the Banks, (i) authorize or permit
the extension of time for, or any reduction of the amount or rate
of, any payment of the principal of, or interest on, the Notes or
any Letter of Credit reimbursement obligation, or any fees or other
amount payable hereunder, or (ii) amend or terminate the respective
Commitments of any Bank set forth on the signature pages hereof, or
(iii) modify the provisions of this Section regarding the taking of
any action under this Section or the provisions of Section 7.10 or
the definitions of Maturity Date, Termination Date, or Required
Banks. Any such amendment, waiver or consent shall be effective
only in the specific instance and for the specific purpose for which
given.
8.2. Notices. (a) Except as otherwise provided in Section
8.2(c) hereof, all notices and other communications hereunder shall
be in writing and shall be delivered or sent to the Company at 414
East 40th Street, Holland, Michigan 49423, Attention: Treasurer,
Facsimile No. (616) 786-5606, and to the Agent and the Banks at the
addresses set forth on the signature pages below, or to such other
address as may be designated by the Company, the Banks, or the Agent
by notice to the other parties hereto. All notices and other
communications shall be deemed to have been given at the time of
actual delivery thereof to such address, or if sent by certified or
registered mail, postage prepaid, to such address, on the third day
after the date of mailing, or, if sent by federal express or other
recognized overnight delivery service, prepaid, to such address, on
the Business Day following the date of deposit with such delivery
service prior to such service's next day delivery deadline,
provided, however, that notices to the Agent or the Banks shall not
be effective until received.
(b) Notices by the Company to the Agent with respect
to terminating or reducing the Commitment pursuant to Section 2.2,
requests for Advances pursuant to Section
40
<PAGE> 45
2.4, and requests for continuations or conversions of Loans pursuant
to Section 2.7 shall be irrevocable and binding on the Company.
(c) Any notice to be given by the Company pursuant
to Sections 2.4 or 2.7, and any notice to be given by the Agent or
the Banks hereunder, may be given by telephone, and all such notices
given by the Company must be immediately confirmed in writing in the
manner provided in Section 8.2(a). Any such notice given by
telephone shall be deemed effective upon receipt thereof by the
party to whom such notice is to be given.
8.3. No Waiver By Conduct; Remedies Cumulative. No course
of dealing on the part of the Agent or any Bank, nor any delay or
failure on the part of the Agent or any Bank in exercising any
right, power or privilege hereunder, shall operate as a waiver of
such right, power or privilege or otherwise prejudice the Agent's or
any Bank's rights and remedies hereunder, nor shall any single or
partial exercise thereof preclude any further exercise thereof or
the exercise of any other right, power or privilege. No right or
remedy conferred upon or reserved to the Agent or any Bank under
this Agreement or the Notes 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 granted thereunder or now
or hereafter existing under any applicable law. Every right and
remedy granted by this Agreement or the Notes or by applicable law
to the Agent or any Bank may be exercised from time to time and as
often as may be deemed expedient by the Agent or any Bank and,
unless contrary to the express provisions of this Agreement or the
Notes, irrespective of the occurrence or continuance of any Default
or Event of Default.
8.4. Reliance on and Survival of Various Provisions. All
terms, covenants, agreements, representations and warranties of the
Company made herein or in any certificate, report, financial
statement or other document furnished by or on behalf of the Company
in connection with this Agreement and the 1995 Agreement shall be
deemed to be material and to have been relied upon by the Banks,
notwithstanding any investigation heretofore or hereafter made by or
on behalf of any Bank, and those covenants and agreements of the
Company set forth in Sections 3.5, 3.7, and 8.5 shall survive the
repayment in full of the Loans and the termination of the
Commitment.
8.5. Expenses; Indemnification. (a) The Company agrees
to pay, or reimburse the Agent for the payment of, on demand, (i)
the reasonable fees and expenses of counsel to the Agent, which
shall include in-house counsel, in connection with the preparation,
execution, delivery and administration of this Agreement, the Notes,
and the other Loan Documents, and the consummation of the
transactions contemplated hereby, and in connection with advising
the Bank as to its rights and responsibilities with respect thereto,
and in connection with any amendments, waivers or consents in
connection therewith, and (ii) all stamp and other taxes and fees
payable or determined to be payable in connection with the
execution, delivery, filing or recording of this Agreement, the
Notes, or the other Loan Documents, and the consummation of the
transactions contemplated hereby, and any and all liabilities with
respect to or resulting from any delay in paying or omitting to pay
such taxes or fees, and (iii) all reasonable costs and expenses of
the Agent and the Banks (including reasonable fees and expenses of
counsel and
41
<PAGE> 46
whether incurred through negotiations, legal proceedings
or otherwise) in connection with any Default or Event of Default or
the enforcement of, or the exercise or preservation of any rights
under, this Agreement, the Notes, or the other Loan Documents, or
in connection with any refinancing or restructuring of the credit
arrangements provided under this Agreement.
(b) The Company hereby indemnifies and agrees to
hold harmless the Banks and the Agent, and their respective
officers, directors, employees, and agents, harmless from and
against any and all claims, damages, losses, liabilities, costs, or
expenses of any kind which the Banks or the Agent or any such person
may incur or which may be claimed against any of them by reason of
or in connection with any Letter of Credit, and neither any Bank nor
the Agent or any of their respective officers, directors, employees,
or agents shall be liable or responsible for: (i) the use which may
be made of any Letter of Credit or for any acts or omissions of any
beneficiary in connection therewith; (ii) the validity, sufficiency,
or genuineness of documents or of any endorsement thereon, even if
such documents prove to be invalid, insufficient, fraudulent, or
forged; (iii) payment by the Agent to the beneficiary under any
Letter of Credit against presentation of documents which do not
comply with the terms of any Letter of Credit, including failure of
any documents to bear any reference or adequate reference to such
Letter of Credit; (iv) any error, omission, interruption, or delay
in transmission, dispatch, or delivery of any message or advice,
however transmitted, in connection with any Letter of Credit; or (v)
any other event or circumstance whatsoever arising in connection
with any Letter of Credit; provided, that the Company shall not be
required to indemnify the Banks and the Agent and such other
persons, and the Banks shall be liable to the Company to the extent,
but only to the extent, of any direct, as opposed to consequential
or incidental, damages suffered by the Company which were caused by
the Agent's wrongful dishonor of any Letter of Credit after the
presentation to it by the beneficiary of a draft or other demand for
payment and other documentation strictly complying with the terms of
such Letter of Credit, or the Agent's payment to the beneficiary
under any Letter of Credit against presentation of documents which
do not comply with the terms of the Letter of Credit to the extent,
but only to the extent, that such payment constitutes gross
negligence or willful misconduct of the Agent.
(c) The Company hereby indemnifies and agrees to
hold harmless the Banks and the Agent, and their respective
officers, directors, employees and agents, from and against any and
all claims, damages, losses, liabilities, costs or expenses of any
kind or nature whatsoever (including reasonable attorneys fees and
disbursements incurred in connection with any investigative,
administrative or judicial proceeding whether or not such person
shall be designated as a party thereto) which the Banks or the Agent
or any such person may incur or which may be claimed against any of
them by reason of or in connection with entering into this Agreement
or the transactions contemplated hereby, including without
limitation those arising under Environmental Laws; provided,
however, that the Company shall not be required to indemnify any
such Bank and the Agent or such other person, to the extent, but
only to the extent, that such claim, damage, loss, liability, cost
or expense is attributable to the negligence or misconduct of such
Bank or the Agent, as the case may be.
42
<PAGE> 47
8.6. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns, provided, that the Company
may not, without the prior consent of the Banks, assign its rights
or obligations hereunder or under the Notes or the other Loan
Documents, and the Banks shall not be obligated to make any Advance
hereunder to any entity other than the Company. Any Bank may grant
to any financial institution or institutions, a participation
interest (undivided or divided) in Advances and its rights and
benefits under this Agreement, and to the extent of that
participation, such participant or participants shall have the same
rights and benefits against the Company under Section 6.2(c) as it
or they would have had if such participant or participants were the
Bank making the Advances to the Company hereunder, provided,
however, that (a) such Bank's obligations under this Agreement shall
remain unmodified and fully effective and enforceable against such
Bank, (b) such Bank shall remain solely responsible to the other
parties hereto for the performance of such obligations, (c) such
Bank shall remain the holder of its Note or Notes for all purposes
of this Agreement, (d) the Company, the Agent, and any other Banks
shall continue to deal solely and directly with such Bank in
connection with such Bank's rights and obligations under this
Agreement, and (e) such Bank shall not grant to its participant any
rights to consent or withhold consent to any action taken by such
Bank or the Agent under this Agreement other than action requiring
the consent of all of the Banks hereunder. No Bank may assign any
of its rights or obligations under this Agreement, the Notes, or the
other Loan Documents without the prior written consent of the
Company. The Agent from time to time in its sole discretion may
appoint agents for the purpose of servicing and administering this
Agreement and the transactions contemplated hereby and enforcing or
exercising any rights or remedies of the Agent provided under this
Agreement, the Notes or otherwise. In furtherance of such agency,
the Agent may from time to time direct that the Company provide
notices, reports and other documents contemplated by this Agreement
(or duplicates thereof) to such agent. The Company hereby consents
to the appointment of such agent and agrees to provide all such
notices, reports and other documents and to otherwise deal with such
agent acting on behalf of the Agent in the same manner as would be
required if dealing with the Agent itself.
8.7. Counterparts. This Agreement 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 hereto may
execute this Agreement by signing any such counterpart.
8.8. Governing Law. This Agreement is a contract made
under, and shall be governed by and construed in accordance with the
law of the State of Illinois applicable to contracts made and to be
performed entirely within such State and without giving effect to
choice of law principles of such State.
8.9. Headings. The headings of the various subdivisions
hereof are for the convenience of reference only and shall in no way
modify any of the terms or provisions hereof.
8.10. Construction of Certain Provisions. If any
provision of this Agreement refers to any action to be taken by any
person, or which such person is prohibited from taking,
43
<PAGE> 48
such provision shall be applicable whether such action is taken
directly or indirectly by such person, whether or not expressly
specified in such provision.
8.11. Integration and Severability. This Agreement
embodies the entire agreement and understanding among the Company,
the Agent, and the Banks, and supersedes all prior agreements and
understandings, relating to the subject matter hereof. In case any
one or more of the obligations of the Company under this Agreement,
the Notes, or any other Loan Document shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining obligations of the Company shall not
in any way be affected or impaired thereby, and such invalidity,
illegality or unenforceability in one jurisdiction shall not affect
the validity, legality or enforceability of the obligations of the
Company under this Agreement, the Notes, or the other Loan Documents
in any other jurisdiction.
8.12. Independence of Covenants. All covenants
hereunder shall be given independent effect so that if a particular
action or condition is not permitted by any such covenant, the fact
that it would be permitted by an exception to, or would be otherwise
within the limitations of, another covenant shall not avoid the
occurrence of a Default or an Event of Default or any event or
condition which with notice or lapse of time, or both, could become
such a Default or an Event of Default if such action is taken or
such condition exists.
8.13. Interest Rate Limitation. Notwithstanding any
provisions of this Agreement, the Notes, or the other Loan
Documents, in no event shall the amount of interest paid or agreed
to be paid by the Company exceed an amount computed at the highest
rate of interest permissible under applicable law. If, from any
circumstances whatsoever, fulfillment of any provision of this
Agreement, the Notes, or any other Loan Document at the time
performance of such provision shall be due shall involve exceeding
the interest rate limitation validly prescribed by law which a court
of competent jurisdiction may deem applicable hereto, then, ipso
facto, the obligations to be fulfilled shall be reduced to an amount
computed at the highest rate of interest permissible under
applicable law, and if for any reason whatsoever the Banks shall
ever receive as interest an amount which would be deemed unlawful
under such applicable law such interest shall be automatically
applied to the payment of principal of the Loans outstanding
hereunder (whether or not then due and payable) and not to the
payment of interest, or shall be refunded to the Company if such
principal and all other obligations of the Company to the Agent and
the Banks have been paid in full.
8.14. Effect of Amendment and Restatement. On and
after the Effective Date (i) all loans outstanding under the 1995
Agreement shall be deemed to be Loans made under this Agreement,
provided that loans made by NBD shall be deemed to be Loans made by
First Chicago and (ii) NBD shall have no Commitment under this
Agreement and shall not be a Bank under this Agreement. Prior to
the Effective Date, each Bank and NBD shall deliver to the Agent the
Notes (as defined in and delivered to it pursuant to the 1995
Agreement) and such Notes shall be delivered to the Company upon the
Agent's receipt of the Revolving Credit Notes required to be
delivered to the Agent under Section 2.5(b). NBD shall continue to
have the
44
<PAGE> 49
benefit of the provisions of Article VII with respect to any action
taken by NBD in its capacity as Agent under the 1995 Agreement.
8.15. Waiver of Jury Trial. The Agent, the Banks, and the
Company, after consulting or having had the opportunity to consult with counsel,
knowingly, voluntarily and intentionally waive any right any of them may have to
a trial by jury in any litigation based upon or arising out of this Agreement or
any related instrument or agreement or any of the transactions contemplated by
this Agreement or any course of conduct, dealing, statements (whether oral or
written) or actions of any of them. Neither the Agent or the Banks nor the
Company shall seek to consolidate, by counterclaim or otherwise, any such action
in which a jury trial has been waived with any other action in which a jury
trial cannot be or has not been waived. These provisions shall not be deemed
to have been modified in any respect or relinquished by any of them except by
a written instrument executed by all of them.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written,
which date shall constitute the Effective Date.
DONNELLY CORPORATION
By: _____________________________
William R. Jellison
Its: Chief Financial Officer
THE FIRST NATIONAL BANK OF
Address for Notices: CHICAGO, individually and as
Agent
One First National Plaza
Mail Suite 0088 By: _____________________________
Chicago, IL 60670-0088 Patricia H. Besser
Attn: Patricia H. Besser Its: Vice President/Senior
Facsimile No. (312) 732-5161 Corporate Banker
Commitment Amount $50,000,000
Address for Notices: SOCIETE GENERALE
181 W. Madison St.
Suite 3400
Chicago, IL 60602 By: _____________________________
Attn: Joseph A. Philbin Joseph A. Philbin
Facsimile No. (312) 578-5099 Its: Vice President
Commitment Amount $15,000,000
45
<PAGE> 50
Address for Notices: NATIONSBANK OF TENNESSEE, N.A.
Automotive Industries
One NationsBank Plaza, 2nd Floor
Nashville, TN 37239-1697 By: _____________________________
Attn: Yvette Floyd Yvette Floyd
Facsimile No. (615) 749-4951 Its: Banking Officer
Commitment Amount $15,000,000
CONSENTED TO BY:
NBD BANK
By:_____________________________
46
<PAGE> 51
EXHIBIT A-1
REVOLVING CREDIT NOTE
May 20, 1996
Chicago, Illinois
FOR VALUE RECEIVED, the undersigned, DONNELLY CORPORATION, a
Michigan corporation (the "Company"), hereby promises to pay to the
order of ______________________, (the "Bank"), the aggregate unpaid
principal amount of all Revolving Credit Loans made by the Bank to
the Company pursuant to the Credit Agreement referred to below
together with interest on the unpaid principal amount hereof at the
rates and on the dates set forth in such Credit Agreement. The
principal amount of each Transaction Loan shall be due and payable
on the last day of the Interest Period applicable to such
Transaction Loan. The principal amount of all other Revolving Loans
shall be due and payable on the Termination Date. All payments
shall be made at the places specified in the Agreement.
The Bank is authorized by the Company to record on its books
and records the date, amount and type of each Revolving Credit Loan,
the interest rate and duration of the related Interest Period (if
applicable), the amount of each payment or prepayment of principal
thereon, and any other appropriate information, which books and
records shall constitute prima facie evidence of the information so
noted, provided, however, that any failure by the Bank to record any
information shall not relieve the Company of its obligation to repay
the outstanding principal amount of this Revolving Credit Note, all
accrued interest hereon, and any amount payable with respect hereto
in accordance with the terms of this Revolving Credit Note and the
Credit Agreement.
The Company and each endorser or guarantor hereof waives
demand, presentment, protest, diligence, notice of dishonor and any
other formality in connection with this Revolving Credit Note.
Should the indebtedness evidenced by this Revolving Credit Note or
any part thereof be collected in any proceeding or be placed in the
hands of attorneys for collection, the Company agrees to pay, in
addition to the principal and interest due and payable hereon, all
costs of collecting this Revolving Credit Note, including attorneys'
fees and expenses.
This Revolving Credit Note evidences one or more Revolving
Credit Loans made under an Amended and Restated Revolving Credit
Loan Agreement of even date herewith (as amended or modified from
time to time, the "Credit Agreement"), among the Company, the Banks
named therein, and The First National Bank of Chicago, as Agent, to
which reference is made for a statement of the circumstances under
which this Revolving Credit Note is subject to prepayment and under
which its due date may be accelerated. Capitalized terms used but
not defined in this
47
<PAGE> 52
Revolving Credit Note shall have the respective meanings assigned to
them in the Credit Agreement.
The Revolving Credit Note is made under, and shall be governed
by and construed in accordance with, the laws of the State of
Illinois applicable to contracts made and to be performed entirely
within such State, without giving effect to the choice of law
principles of such State.
DONNELLY CORPORATION
By: ___________________________
Its: ______________________
48
<PAGE> 53
EXHIBIT A-2
TERM NOTE
$_________________ ______________, ____
Chicago, Illinois
FOR VALUE RECEIVED, DONNELLY CORPORATION, a Michigan
corporation (the "Company"), hereby promises to pay to the order of
_________________________ (the "Bank"), at the principal banking
office of the Agent in lawful money of the United States of America
and in immediately available funds, the sum of __________________
Dollars ($___________) or such lesser amount of the Term Loan as is
recorded in the Bank's records, in quarterly installments in the
amounts and on such dates provided in Section 3.1 of the Credit
Agreement referred to below and on the Maturity Date, at which time
the principal balance thereof, and all accrued interest thereon,
shall be due and payable; and to pay interest on the unpaid
principal balance hereof from time to time outstanding, in like
money and funds, for the period from the date hereof until the Term
Loan evidenced hereby shall be paid in full, at the rates per annum
and on the dates provided in the Credit Agreement.
The Bank is authorized by the Company to record on its records
the date and the amount of the Term Loan, the applicable interest
rate and type and the duration of the related Interest Period (if
applicable), the amount of each payment or prepayment of principal
thereon, and any other appropriate information, which records shall
constitute prime facie evidence of the information so recorded,
provided, however, that any failure by the Bank to record any such
notation shall not relieve the Company of its obligation to repay
the outstanding principal amount of this Term Loan, all accrued
interest hereon, and any amount payable with respect hereto in
accordance with the terms of this Term Note and the Credit
Agreement.
The Company and each endorser or guarantor hereof waives
presentment, protest, notice of dishonor and any other formality in
connection with this Term Note. Should the indebtedness evidenced
by this Term Note or any part thereof be collected in any proceeding
or be placed in the hands of attorneys for collection, the Company
agrees to pay, in addition to the principal, interest and other sums
due and payable hereon, all costs of collecting this Term Note,
including attorneys' fees and expenses.
This Term Note evidences a Term Loan made under an Amended and
Restated Revolving Credit Loan Agreement, dated as of May 20, 1996
(as amended or modified from time to time, the
49
<PAGE> 54
"Credit Agreement"), among the Company, the Banks (including the
Bank) named therein, and The First National Bank of Chicago, as
Agent for the Banks, to which reference is made for a statement of
the circumstances under which this Term Note is subject to
prepayment and under which its due date may be accelerated.
Capitalized terms used but not defined in this Term Note shall have
the respective meanings assigned to them in the Credit Agreement.
This Term Note is made under, and shall be governed by and
construed in accordance with, the laws of the State of Illinois
applicable to contracts made and to be performed entirely within
such State, without giving effect to the choice of law principles
of such State.
DONNELLY CORPORATION
By:____________________________
Its:_______________________
50
<PAGE> 55
EXHIBIT B
REQUEST FOR ADVANCE
__________, 19__
The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
Attention: _________________________
The undersigned (the "Company") hereby requests a [Revolving
Credit Loan/Term Loan/Letter of Credit Advance] pursuant to Section
2.4 of the Amended and Restated Revolving Credit Loan Agreement,
dated as of May 20, 1996 (as amended from time to time, the "Credit
Agreement"), among the Company, the Banks named therein, and you as
Agent, in the amount of [$______________/amount of other Permitted
Currency], to be made on ___________, 19__, and to be evidenced by
the Company's [Revolving Credit Notes/Term Notes]. Capitalized
terms used but not defined herein shall have the respective meanings
assigned to them in the Credit Agreement.
[Such [Revolving Credit Loan/Term Loan] shall be a [insert
either Floating Rate Loan, Eurocurrency Rate Loan or Federal Funds
Rate Loan] and the initial Interest Period, if the requested loan
is a Eurocurrency Rate Loan, shall be [insert permitted Interest
Period].] [The Company delivers herewith a duly executed Term Note
in favor of each Bank.]
[Such Letter of Credit Advance shall be made by the Agent
issuing its Letter of Credit for the Company's account in the
maximum amount of $__________ to and for the benefit of ___________,
with an expiry date of _____________, 19__, and containing the
further terms and conditions set forth in the attached letter of
credit application.]
In support of this request, the Company hereby certifies that:
1. The representations and warranties contained in Article
IV of the Credit Agreement are true and correct on and as of the
date hereof, and will be true and correct on the date such Advance
is made, as if such representations and warranties were made on and
as of such dates.
51
<PAGE> 56
2. No Event of Default, and no event or condition which might
become an Event of Default with notice or with lapse of time, or
both, has occurred and is continuing or will exist on the date such
Advance is made.
3. Acceptance of the Advance by the Company shall be deemed
to be a further representation that the representations made herein
are true and correct at the time such proceeds are disbursed.
DONNELLY CORPORATION
By:_________________________
Its:____________________
52
<PAGE> 57
EXHIBIT C
REQUEST FOR CONTINUATION OR CONVERSION OF LOAN
___________, 19__
The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
Attention: ________________________
The undersigned (the "Company") hereby requests that
[$__________________/amount of other Permitted Currency] of the
principal amount of the [Revolving Credit Loan/Term Loan] originally
made on ____________, 19__, which loan is currently a [insert type
of Revolving Credit Loan/Term Loan], be continued as or converted
to, as the case may be, a [insert type of Revolving Credit Loan/Term
Loan requested] on _______________, 19__. If the loan is requested
to be continued as or converted to a Eurocurrency Rate Loan, the
Company hereby elects an Interest Period of [insert permitted
Interest Period].
Capitalized terms used but not defined herein shall have the
respective meanings assigned to them in the Amended and Restated
Revolving Credit Loan Agreement, dated as of May 20, 1996, among the
Company, the Banks named therein, and you as Agent.
In support of this request, the Company hereby certifies that:
1. The representations and warranties contained in Article
IV of the Credit Agreement are true and correct on and as of the
date hereof, and will be true and correct on the date such Advance
is made, as if such representations and warranties were made on and
as of such dates.
2. No Event of Default, and no event or condition which might
become an Event of Default with notice or with lapse of time, or
both, has occurred and is continuing or will exist on the date such
Advance is made.
3. Acceptance of the Advance by the Company shall be deemed
to be a further representation that the representations made herein
are true and correct at the time such proceeds are disbursed.
DONNELLY CORPORATION
By: ___________________________
Its:_______________________
53
<PAGE> 58
EXHIBIT D
OPINION OF COUNSEL OF DONNELLY CORPORATION
May 20, 1996
The First National Bank of Chicago
One First National Plaza
Mail Suite 0088
Chicago, IL 60670-0088
Societe Generale NationsBank of Tennessee,N.A.
181 West Madison Street Automotive Industries
Suite 3400 One NationsBank Plaza, 2nd Floor
Chicago, IL 60602 Nashville, TN 37239-1697
Re: $80,000,000 Revolving Credit Loan by The First National
Bank of Chicago, Societe Generale and NationsBank of
Tennessee, N.A. (collectively, the "Banks") to Donnelly
Corporation
We have acted as counsel to Donnelly Corporation, a Michigan
corporation ("Donnelly"), in connection with a revolving credit
loan of even date herewith, in principal amount not to exceed
$80,000,000 (the "Loan") made by the Banks to Donnelly pursuant to
that certain Amended and Restated Revolving Credit Loan Agreement
of even date herewith (the "Loan Agreement") among Donnelly, the
Banks, and The First National Bank of Chicago as agent (the
"Agent"). Except as otherwise indicated in this Opinion Letter,
capitalized terms are defined as set forth in the Loan Agreement
or the Accord (see below).
This Opinion Letter is governed by, and shall be interpreted
in accordance with, the Legal Opinion Accord (the "Accord") of the
ABA Section of Business Law (1991). Accordingly, it is subject to
a number of qualifications, exceptions, definitions, limitations
on coverage, and other limitations, all as more particularly
described in the Accord. The law covered by the opinions
expressed in this Opinion Letter is limited to the federal law of
the United States and the law of the State of Michigan. To the
extent the Loan Agreement is governed by the law of the State of
Illinois, we have assumed, without investigation, that the law of
the State of Illinois is identical to the law of the State of
Michigan.
54
<PAGE> 59
For purposes of this Opinion Letter, we have examined copies
of the Loan Agreement and Revolving Credit Notes of even date
herewith, made by Donnelly in favor of the respective Banks in the
aggregate principal amount of $80,000,000 (the "Revolving Credit
Notes"). The Loan Agreement and the Revolving Credit Notes are
hereinafter together referred to as the "Transaction Documents".
We have not examined any Loan Documents, as defined in the Loan
Agreement, except for the Transaction Documents.
Based upon and subject to the foregoing, we are of the
opinion 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 conduct its business and own or lease and operate
its properties as contemplated by the Transaction Documents, and
to perform its obligations thereunder, and is duly qualified to
transact business in all other jurisdictions wherein the failure
to qualify would have a material adverse effect on the business,
properties, operations or condition, financial or otherwise, of
Donnelly.
2. The Transaction Documents are enforceable against
Donnelly. The execution and delivery of the Loan Documents has
been duly authorized by Donnelly.
3. The execution, delivery and performance by Donnelly of
the Transaction 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 to which Donnelly or any of its
Subsidiaries is a party, or by which Donnelly or any of its
Subsidiaries may be bound, or (iii) violate applicable provisions
of statutory law or regulation.
4. No consent, approval or authorization of, or any
registration or filing with, any governmental body, federal or
state of Michigan, is necessary for the execution, delivery and
performance by Donnelly of the Loan Documents or the enforcement
of the Loan Documents against Donnelly; provided, however, no
opinion is expressed with respect to the effect of your compliance
with any laws or regulations applicable to the transaction on
account of the nature of your business, or facts relating
specifically to you or as to the effect of any such noncompliance
on the opinions set forth above.
We hereby confirm to you that there are no actions or
proceedings against Donnelly or any of its Subsidiaries pending,
or overtly threatened in writing, before any court, governmental
agency or arbitrator for which we have represented Donnelly or any
of its Subsidiaries, which, if adversely determined, would exceed
an aggregate amount of $_________ in damages or civil penalties or
which could have a material adverse effect on the enforceability
of the Transaction Documents.
55
<PAGE> 60
Very truly yours,
56
<PAGE> 61
SCHEDULE 1.1
Member Countries of the Organization for
Economic Cooperation and Development
as of the Effective Date
Austria
Belgium
Canada
Denmark
France
Germany
Greece
Iceland
Italy
Ireland
Luxembourg
Netherlands
Norway
Portugal
Spain
Sweden
Switzerland
Turkey
United Kingdom
United States
Japan
Finland
Australia
New Zealand
57
EXHIBIT 22
SCHEDULE OF AFFILIATES
AS OF JUNE 29, 1996
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%
EUROPE, LTD. 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 TECHNOLOGY, INC. MICHIGAN 100%
DONNELLY INVESTMENTS, INC. MICHIGAN 100%
DONNELLY EUROTRIM, LTD. ORGANIZED UNDER THE 100%
LAWS OF THE REPUBLIC
OF IRELAND
DONNELLY HOHE GmbH & CO. KG ORGANIZED UNDER THE 66.7%
LAWS OF GERMANY
DONNELLY HOHE VERWALTUNGS GmbH ORGANIZED UNDER THE 48%
LAWS OF GERMANY
DONNELLY HAPPICH MICHIGAN 60%
TECHNOLOGIES, INC.
DONNELLY FU HUA WINDOW ORGANIZED UNDER THE 50%
SYSTEMS COMPANY, LTD. LAWS OF CHINA
APPLIED FILMS CORPORATION COLORADO 50%
VISION GROUP, PLC ORGANIZED UNDER THE 30.4%
LAWS OF SCOTLAND
DONNELLY HOHE ESPANA, S.A. ORGANIZED UNDER THE 25.6%
LAWS OF SPAIN
EXHIBIT 24
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference of our reports dated
August 2, 1996, relating to the combined consolidated financial statements and
schedule of Donnelly Corporation appearing in the corporation's annual report
on Form 10-K for the year ended June 29, 1996, 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 19, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
June 29, 1996 Donnelly Corporation financial statements and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-END> JUN-29-1996
<CASH> 1,303
<SECURITIES> 0
<RECEIVABLES> 73,658
<ALLOWANCES> 0
<INVENTORY> 24,228
<CURRENT-ASSETS> 126,695
<PP&E> 157,161
<DEPRECIATION> 57,397
<TOTAL-ASSETS> 271,492
<CURRENT-LIABILITIES> 63,213
<BONDS> 101,757
0
531
<COMMON> 787
<OTHER-SE> 87,534
<TOTAL-LIABILITY-AND-EQUITY> 271,492
<SALES> 439,571
<TOTAL-REVENUES> 439,571
<CGS> 357,830
<TOTAL-COSTS> 357,830
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,102
<INCOME-PRETAX> 12,349
<INCOME-TAX> 4,191
<INCOME-CONTINUING> 12,349
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,454
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.08
</TABLE>
